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Indonesia – the golden opportunity

28 January 20227 min reading

Andrew Whitelaw
Manager
Thomas Elder Markets
Melbourne


In recent months I have been having informal chats with industry participants about the future of the wheat industry in Australia. It got me thinking about our customers and how we have a treasure on our doorstep. Indonesia.

• Egypt is the world’s largest importer of wheat.

• Indonesia is closing the distance and could be in contention in the coming decades for the top spot.

• The population of  Indonesia is at 274m and expected to rise to 330m by 2050.

• During the last half of the 2000s, Indonesia imported 5.6mmt of wheat on average per year.

• During the past five years, this has jumped to 10.5mmt.

• Indonesia, during the drought, imported more wheat than Australia’s exportable surplus.

• Australia has a free trade agreement with Indonesia assisting in removing the barriers of trade.

In recent months I have been having informal chats with industry participants about the future of the wheat industry in Australia. It got me thinking about our customers and how we have a treasure on our doorstep. Indonesia.


The world’s largest importer of wheat for a long time has been Egypt. Egypt has been a big buyer in part due to a diet that is supported by heavily subsidised bread. The majority of the country is able to buy bread at subsidised rates.

The country also has an insufficient production capacity to meet the requirements of 100million people. The place of Egypt at the top of the wheat export tree might be in contention in the coming years, with our most populous neighbour, Indonesia, a potentially viable contender.


Indonesia, whilst geographically distant with Egypt shares some similarities. They have a large population, with wheat-based products being a large proportion of the diet. Suppose we are looking at large wholesale change in wheat supply and demand over the next decade. In that case, part of that move will come from Indonesia. 

In Australia, our media and analysts tend to be focused on China. China tends to be a nation that grabs our headlines. This has become increasingly so in recent times as political intrigue between China and various nations around the world increased, from the US-China trade war to the decision to effectively ban Australian barley exports.

It sells newspapers, however from Australia, Indonesia is the quiet performer and has an opportunity to be a formidable partner for a variety of agricultural products from wheat to livestock.


POPULATION

The population is forecast at approximately 274m people, more than ten times the population of Australia at 25.6m. It is expected that the population will grow to 330m by 2050. That is a huge number of mouths to feed, and it’s all right on the doorstep of Australia. 

The growing population and the lack of local production have resulted in ever-growing imports. During the last half of the 2000s, Indonesia imported on average 5.6mmt. During the past five years, this has jumped to 10.5mmt.

WEALTH

The reality, though is that population is not the sole determinate of the increase in the growth of imports of wheat into Indonesia. Increasing demand also comes from increasing wealth. As populations become more wealthy, they increase their capacity to purchase more food. This is especially seen in developing countries as they move into higher wealth bands. The general trend is for more bakery products, and then as wealth increases more meat proteins. 

The chart below shows the trend of wheat imports vs GDP per capita in Indonesia. There is a close relationship between increasing GDP and increased imports. It would be expected that imports of wheat will continue to increase throughout much of this decade. 

The development of global wealth, and increasing spending power by developing countries such as Indonesia is a benefit to all in the agricultural supply chain through increased demand for higher valued food. 

INCREASED FEED DEMAND

Increasing demand for animal protein in Indonesia is a further source of grains demand, albeit feed quality. The bulk of Indonesian live cattle imports from Australia are feeder cattle and it is estimated that the beef produced from these Indonesian feedlot cattle sourced from Australia represents approximately 25% of total Indonesian beef consumption.

Growth in live cattle volumes from Australia to Indonesia was noted through the early 2000s with the Indonesian trade accounting for around half of the total Australian live export volumes annually. 


During the 2011/12 season, there was a noticeable decline in live cattle export volumes due to animal welfare concerns causing a temporary halt to the trade. However, in recent years annual volumes have fluctuated between 500,000 to 700,00 head. The 2021 season has seen fewer volumes transported due to very tight Australian cattle supply and record-high cattle prices.

The Indonesian government has a commitment to increasing domestic food security through encouraging growth in the cattle feedlot sector and imposed a requirement of a minimum 3% of live cattle imports to be breeding cattle. However, this has been halted due to Covid-19 disruptions. During the last twelve months, 99% of the nearly 400,000 head of cattle imported from Australia were feeder cattle.

The majority of cattle imported into Indonesia, therefore, require feeding to get to slaughter weight. This demand will result in both large scale feed demand to compliment the already strong demand for noodles and bakery products. 

ECLIPSING EGYPT?

The rise has been dramatic and has seen Indonesian imports of wheat rise to an average of 85% of the volume which Egypt imports.  Whilst Egypt is important, and their tenders are closely watched to drive global directions, Indonesia is a quiet performer.


Our view is that Indonesia could eclipse Egypt as the world’s top wheat importer within the decade. 

The Egyptian market is largely serviced by the black sea origins; Australia is in pole position from a geographic advantage point of view to supply large quantities of wheat into Indonesia. 

The biggest risk to Australian exports to Indonesia is the variable climate and droughts, which deplete our potential exports. This is a risk that will always be present and maybe exacerbated with climate change. However, the reality is that barring short-term droughts, Australian origin wheat will be in a strong position. 

Our political relationship with China is poor at present; however, our relationship with Indonesia is strong. Industry bodies in Australia (Grain Growers Ltd) have worked with the government to ensure that we have free trade agreements with Indonesia, which assist in ensuring access to this large scale customer. 

Australia is lucky to be positioned so close to such a significant trading partner who will not have the capacity to grow its local production massively.

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