Development of Agribusiness Enterprises - Asian Productivity ...

local market are being forced by price-sensitive consumers to reduce costs by sourcing
ingredients locally wherever possible.
Consumer spending power in Indonesia may be down, but it will pick up again with
the inevitable upturn in the economy. Deregulation of the industry now offers opportunities
that should be considered by companies interested in a return on investment over the medium
to long term.
Income is distributed unequally between the different regions. The differences in
distribution between the rural and urban areas are also significant. According to statistics,
Indonesian per capita expenditure for food reached 62.66 percent in 1999 (16.44 percent for
basic food, 30.11 percent for other food, and 16.11 percent for processed and finished food).
Per capita expenditure for non-food commodities was 37.34 percent.
Since the higher income groups often spend most on processed food, the urban market
is by far the most attractive for processed food sales. In addition, Java, Bali and Sumatra are
all relatively attractive as sales markets because of their high population densities.
The industrial sector processed only 21.27 percent of the total food production in 1999
into manufactured food, while the remainder was consumed in fresh condition, such as
vegetables, fruit, fish, rice, tubers, cereals and spices.
DEVELOPMENT OF THE FOOD PROCESSING INDUSTRY
The food and beverage industries are of great significance to the national economy,
especially in the absorption of the workforce, and they have a multiplier effect on both the
upstream sector (agriculture) and downstream sector (transport, distribution, packaging,
trading, retail, vendors, food catering and the restaurant business).
Based on Central Bureau of Statistics (CBS) data for 1997, the Indonesian foodprocessing
sector totaled 1,060,848 companies including 5,713 medium- and large-scale
industries, 91,922 small-scale industries and 963,213 cottage industries. They employed
around 3.36 million workers, while the total number of workers in the industrial sector
reached 10.69 million.
The industrial sector recorded a total production value of Rp.65.36 trillion, of which
some Rp.42.44 trillion was the value of input/raw materials, especially those coming from
agricultural products. The remaining Rp.22.9 trillion was the added value resulting from
processing and packaging.
The food industry had been growing rapidly over the five years prior to the economic
crisis due to the government’s deregulatory policies. The food-processing sector is forecast
to grow 10 percent per annum; however, it is constrained due to a lack of quality agricultural
products.
By origin, in terms of raw materials, the food industries form three groups. The first
group uses imported raw materials such wheat flour, milk, soybeans, sugar, orange
concentrate, tomato paste, etc. The second group uses its own plantations/integrated
industries such as tea, pineapples, palm oil and sugar, while the third group uses raw
materials originating from farmers.
Before the economic crisis, the first group was operating normally because BULOG
(the government logistics agency) controlled the trade and distribution of certain raw
materials and food products. That control ensured a continuous supply, stable prices and
quality, and equal distribution throughout Indonesia.
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