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Customized report service – Powdered milk in Indonesia

Summary

Powdered skim milk Imports from Canada represent 1.9% of total powdered skim milk imports to Indonesia. Between 2013 and 2017, powdered skim milk imports from Canada fell by 9.1% annually, however, Canada continues to be Indonesia's third largest supplier of agri-food. Australia is the largest powdered skim milk supplier to Indonesia with 25.8% of total imports, followed by the European Union (EU) (36.6%), the U.S. (20.7%), and New Zealand (13.8%). Indonesia relies on imported milk for the majority of its dairy requirements.

Between 2013 and 2017, there has been a 10.0% annual increase in the retail sales of powdered skim milk in Indonesia. Foreign brands Dancow (Nestle), Frisian Flad (Royal Friesland Campina), and Anlene (Fonterra Co-operative Group Ltd) are the leading powdered milk brands with a combined market share of 72.9%, which mainly targets the country's low-income population, accounting for approximately 219 million people, or 84.0% of the population. Indonesia's total gross income is concentrated among consumers in the 15-34 year old age range. Budget and middle class consumers in this demographic are expected to drive strong economic growth.

Most Indonesians shop at independent/traditional grocers, which make up the largest distribution channel for milk products, at 51.3% of grocery retailers. This channel is most popular because they offer products in small package sizes that are affordable and are within short distances. As wealth and living standards rise in Indonesia, supermarkets, hypermarkets, and convenience stores are becoming more prevalent. Combined, this channel represent 47.4% of grocery retail sales.

By October 17, 2019, it will be mandatory for all food and beverage products available in Indonesian retail markets to be labelled either halal or non-halal. This applies to processed food and beverage products, and all inputs/components of halal certified products.

The Indonesian government is currently modernizing the country's transport infrastructure to keep pace with strong economic growth. Road infrastructure serves approximately 85% of passenger transport and 90% of freight. Key projects include rehabilitating and widening existing roads, building new national and regional roads, building new urban and intercity expressways, and upgrading the country's largest ports to handle international, trans-oceanic vessels.

Consumer profile

With a population of 261.1 million, Indonesia is the largest consumer market in Southeast Asia. Over 219.2 million Indonesians (84% of the population) possess less than US$10,000 in wealth per capita. In addition, 93 million live on or below the World Bank's 'moderate' poverty line of US$3.10/day and over 20 million live below the 'extreme' poverty line of US$1.90/day. Indonesia is the world's sixth worst market for income inequality.

Government social spending, especially on education, is partly driving higher economic growth and higher wages. Those who finish post secondary education are finding higher paying jobs and increasingly joining Indonesia's burgeoning middle class, which consists of 28.7 million people. This number is expected to increase to 78.1 million by 2030. Over half of the country's population is under 30 years old and total gross income is concentrated among consumers in the 15-34 year old age range. Given the large size of this age cohort, budget and middle class consumers in this demographic are expected to drive strong economic growth.

The average annual disposable income per Indonesian urban household is US$10,914. In comparison, the average disposable income for urban Canadian households is US$67,382. Given the province's large population, Jawa Barat constitutes Indonesia's largest consumer market. Dki Jakarta – the capital region – has the highest spending power. Regions like Papau and Sulawesi are expected to have the fastest growth in total consumer spending, driven mainly by population growth.

Cash is the most common method of payment among Indonesians due to a large unbanked segment of the population. Credit card usage is increasing in parallel with middle class growth but bank transfers via ATMs and cash on delivery are more commonly used for online shopping.

Companies and brands

Foreign brands Dancow (Nestle), Frisian Flad (Royal Friesland Campina), and Anlene (Fonterra Co-operative Group Ltd) are the leading powdered milk brands with 26.7%, 26.2%, and 20.0% market shares for a combined market share of 72.9%. Standard and economy brands have the largest market share as targeted Indonesia consumers are mostly of lower income.

Leading national brands by market share (%)
Brand Name 2013 2014 2015 2016 2017
Dancow (Nestlé SA) 24.8 25.4 25.9 26.3 26.7
Frisian Flag (Royal Friesland Campina NV) 24.3 24.9 25.3 25.8 26.2
Anlene (Fonterra Co-operative Group Ltd) 17.8 18.4 18.9 19.4 20.0
Indomilk (Indofood Sukses Makmur Tbk PT) 8.2 7.7 7.3 7.0 6.7
Hilo (Nutrifood Indonesia PT) (in Indonesian only) 1.9 2.2 2.4 2.7 3.0
Source: Euromonitor International 2017

Retail sales and distribution

Powdered milk represents 30.0% of retail sales of drinking milk products in Indonesia. Retail sales of powdered milk grew at a compound annual growth rate of 10.0% between 2013 and 2017 and is expected to continue growing by 7.0% annually between 2018 and 2022. Indonesia's average consumption of drinking milk is lower than that in other Southeast Asian countries.

Historic sales of drinking milk products (US$ millions)
Product 2013 2014 2015 2016 2017 CAGR* % 2013-2017
Flavoured milk drinks 384.3 475.8 588.9 687.1 785.9 19.6
Powder milk 348.2 388.3 431.9 476.1 517.6 10.4
Shelf stable milk 167.8 198.2 244.9 292.4 320.4 17.6
Fresh milk 49.4 54.7 56.4 59.9 64.4 6.9
Milk alternatives 19.2 25.9 29.8 33.6 36.1 17.1
Total 969.0 1,142.9 1,352.0 1,549.2 1,724.4 15.5

Source: Euromonitor International 2017

*CAGR: Compound annual growth rate

Forecast sales of drinking milk products (US$ millions)
Product 2018 2019 2020 2021 2022 CAGR* % 2018-2022
Flavoured milk drinks 895.5 1,017.1 1,150.5 1,297.7 1,460.2 13.0
Powder milk 560.5 604.3 648.6 692.6 737.5 7.1
Shelf stable milk 352.2 386.8 423.9 464.0 506.9 9.5
Fresh milk 69.9 76.0 82.6 90.0 98.0 8.8
Milk alternatives 39.6 43.2 46.7 50.3 53.8 8.0
Total 1,917.8 2,127.4 2,352.4 2,594.6 2,856.4 10.5

Source: Euromonitor International 2017

*CAGR: Compound annual growth rate

Most Indonesians shop at independent/traditional grocers called warungs. These stores make up the largest distribution channel for milk products, at 51.3% of grocery retailers. This channel is most popular because they offer products in small package sizes that are affordable and are within short distances. Consumers generally do not own cars and prefer local stores and markets where they can bargain with sellers to negotiate a good price.

Powdered milk is widely distributed across both modern (super/hyper markets, convenience stores) and traditional grocery retailers in urban and rural areas. Due to long shipping time and unreliable electricity availability, traditional grocery stores mostly carry powdered and shelf stable milk.

As wealth and living standards rise in Indonesia, supermarkets, hypermarkets, and convenience stores are becoming more prevalent. Following the introduction of 7-eleven stores in 2009 in Indonesia, modern grocery retailers have grown in popularity, especially amongst young consumers, for their selection of food that require controlled temperature, such as fresh milk. Combined, they represent 47.4% of grocery retail sales.

Online shopping is undeveloped in Indonesia and represents 1.7% of overall retail sales, due to the low percentage of internet users (25.4%) and the low usage of smart phones in the country. Despite this, overall internet retail sales grew 250% between 2011 and 2016 and are expected to grow considerably among young urban consumers, in line with increased adoption of the internet and smartphones.

Distribution channels of drinking milk products by market share (%)
Distribution channel 2013 2014 2015 2016 2017
Traditional grocery retailers 55.5 54.5 53.5 52.5 51.3
Convenience stores 18.7 19.4 20.0 20.4 21.0
Supermarkets 14.8 15.0 15.2 15.5 15.8
Hypermarkets 11.0 11.0 11.2 11.5 11.8
Internet retailing 0.0 0.0 0.0 0.0 0.0
Total 100.0 100.0 100.0 100.0 100.0
Source: Euromonitor International 2018

Powdered milk imports

Indonesia relies on imported milk for the majority of its dairy requirements, partly because the selling price of domestic fresh milk is too low for domestic producers to invest in milk production. While a group of well-managed modern dairy farms account for about 23.0% of production, the rest of the sector is composed of small scale, inefficient producers.

Australia is the largest powdered skim milk supplier to Indonesia with 25.8% of total imports, followed by the EU (36.6%), the U.S. (20.7%), and New Zealand (13.8%). Dairy products are currently charged a 5% import tariff. Imports from New Zealand and Australia have duty free access for dairy products through Association of Southeast Asian Nations (ASEAN) agreements. Imports from Canada represent 1.9% of total imports. Between 2013 and 2017, imports from Canada fell by 9.1% annually.

Powdered milk imports have been falling due to general sluggishness in consumer demand and uncertainty created by a now rescinded import requirement under regulation (26/2017), which would have required local procurement of milk as a condition for import approvals. Regulation (26/2017) was revised in July 2018 to remove this import requirement, which is expected to make it easier for companies that import dairy products (for example, cheeses, yogurt) to sell to the retail and/or food service sectors.

Top five exporters of powdered skim milk to the Philippines (Harmonized system code 040210), Can$
Country 2013 2014 2015 2016 2017 CAGR* % 2013-2017
Australia 93,017,783 171,754,568 152,176,872 110,658,247 115,261,270 5.5
EU-28 142,212,965 183,822,739 132,276,522 104,261,549 163,734,365 3.6
United States 221,287,092 216,492,375 117,760,384 121,697,331 92,543,679 −19.6
New Zealand 153,662,369 127,173,786 78,157,471 85,400,263 61,865,869 −20.3
Canada 12,370,938 15,769,408 8,858,310 9,634,591 8,458,219 −9.1
Rest of World 3,130,114 1,520,675 2,377,146 1,049,104 4,680,810 10.6
Total 625,681,261 716,533,551 491,606,705 432,701,085 446,544,212 −8.1

Source: Global Trade Tracker, 2018

*CAGR: Compound annual growth rate

Halal certification

By October 17, 2019, under Indonesia's law No. 33 on Halal Product Assurance (Halal law), it will be mandatory for all food and beverage products available in Indonesian retail markets to be labelled either halal or non halal. For processed food and beverage products, all inputs/components must be halal certified if the final product is considered halal.

Restaurants and other food service establishments will be required to demonstrate that dishes are prepared from halal certified products, otherwise these dishes must be labelled as non halal. Imported products entering Indonesia without halal certification will be permitted, however, these products must be labelled as non halal.

Halal is a combination of Islamic law and hygienic, sanitation and safety requirements. Halal certification ensures that halal products are of high quality and nutritional value to be permissible for Muslim consumption. The Halal law is administered by the Ministry of Religious Affairs, Halal Product Assurance Organizing Agency (BPJPH).

The Toronto based Islamic Food and Nutrition Council of Canada (IFANCC) is currently not recognized by Indonesia as an accredited private halal certification body (LPH) due to the fact its accreditation lapsed in 2015 and is currently in the process of renewing its accreditation as a certification body. Indonesia has indicated that IFANCC's application will not be assessed until the implementation of the Halal law in 2019.

Canadian exporters seeking halal certification will be allowed to select an LPH of their choosing to certify its products as halal, for example:

Imported products that are already halal certified by a foreign LPH registered at BPJPH will not need to be re-certified, but will need to be registered with BPJPH upon entering the Indonesian market.

Transport, shipping channels

Road infrastructure serves approximately 85% of passenger transport and 90% of freight. The 481,100 kilometres (km) of the national road network bears the transport burden to support the country's rapid economic growth, as the country's aging railway is mainly a single-track network and transports around 0.6% of goods. The network includes national roads (39,900 km) and provincial roads (48,122 km), comprising 8% and 10% respectively of the network, while county/city/village roads (393,078 km) comprise the remaining 82% of the network. Many of the key road links are overloaded, jammed at peak hours, and in dire need of maintenance and repairs, causing poor road safety and a slow average running speed of less than 40 km/hour. The government has earmarked approximately US$87.4 billion for improving all roads to keep pace with population and economic growth. Key projects include rehabilitating and widening existing roads and building new national and regional roads, and building new urban and intercity expressways.

Indonesia has more than 100 commercial seaports, which cater mostly to small vessels on domestic routes. In preparation for the ASEAN single market, Jakarta is striving to upgrade fourteen of the country's largest ports to handle international, trans-oceanic vessels. Jakarta's Tanjung Priok port handles two-thirds of Indonesia's imports and exports, but is unable to accommodate very large container ships. Its current throughput capacity of 5 million twenty-foot equivalent units (TEU) a year is small compared to neighboring Singapore's annual throughput of more than 31 million TEU. Its long-term expansion plan includes handling container vessels of up to 18,000 TEU in capacity

Resources

Customized report service – Powdered milk in Indonesia
Global Analysis Report

Prepared by Kris Clipsham, International Market Analyst, Global Analysis

© Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2018).

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