Livestock Self-Sufficiency To Remain Precarious
BMI View: Indonesia's goal to maintain its quasi self-sufficiency in poultry and to reach it in beef will prove to be quite delicate in the coming years, as livestock production will struggle to keep up with consumption growth. The country should be able to maintain a slightly positive yet precarious poultry production balance. However, Indonesia will have little other choice but to ease its restrictions on beef imports, as it records widening production deficits.
The meat industry in Indonesia will continue to be mainly driven by poultry in the medium term, as we see poultry meat production growth outperforming beef and pork output out to 2017. Meanwhile, poultry will remain the largest consumed meat in the country, accounting for around 60% of total meat demand. The poultry industry is self-sufficient and imports minimal volumes of meat, as demand has been more or less equal to production in the past years. Although dependent on imported feed, the production and consumption of poultry has grown 3.7% and 5.7% annually respectively over the past decade. The government's protectionist policies maintain a de facto ban on imports, with administratively burdensome and trade-restrictive licensing requirements. Indonesia has imposed a very small annual import quota that currently permits only whole turkey and whole ducks. For all other poultry the quota is essentially zero. Regarding beef, Indonesia imports small but steady volumes of meat every year (around 15,000 tonnes a year), as production does not match consumption.
|Poultry Retaining The Lion's Share|
|Indonesia - Meat Consumption By Type ('000 tonnes)|
Overall, domestic meat production will grow at a slower pace than consumption, as output expansion faces major challenges such as lack of land, shortages of feed ingredients and serious infrastructure deficiencies. Per capita agricultural land is only one third of the world's average, lagging behind that of China. Transport issues are severe, due to high costs, constraints in intra-island transportation and low quality and density of roads. Moreover, production growth is also vulnerable to disease outbreaks, especially avian influenza. Inconsistent policies as a result of regional autonomy and instable trade rules also hinder production expansion.
For poultry, most of the growth in production will come from investment from large producers in the sector. Recently, Sierad Produce, one of the largest poultry integrators in the country, announced plans to expand its business operations in 2013, by adding two breeding farms in West Java. Cheil Jedang Indonesia also plans to set up a breeding farm in Sumatra. PT Japfa Comfeed Indonesia announced it will maintain high levels of capital expenditures in 2013 and will pour the majority of it into its poultry business.
|India Gaining Market Share|
|Select Countries - Beef & Veal Exports (as % of global)|
On the demand side, Indonesia's per-capita consumption of beef and poultry is well below neighbouring countries. Malaysia, another developing country with predominantly Muslim population, consumes around 33kg/capita of poultry meat annually, compared with 6kg/capita in Indonesia. This suggests that there is a lot of room for demand growth in Indonesia in the coming years. Meat consumption growth will be supported by population and income growth. Indeed, we expect Indonesia's GDP growth to outperform the region's over our forecast period, averaging 6.3% annually between 2012 and 2017, compared with the 10-year average of 5.5%. The increase in preference of chicken over alternative sources of protein (tempeh, made out of soybeans, and nuts, tofu and eggs) especially for Indonesia's large Muslim population will also support growth.
In the poultry industry, we believe Indonesia will broadly maintain this precarious balance in livestock supply in the coming years. Consumption, forecast to grow by a healthy 17.6% between 2012 and 2017, to 1.83mn tonnes, will outpace production, expanding by 16.2% over the same period to 1.79mn tonnes. Indonesia will remain reluctant to open the country to poultry imports. We forecast a slight production deficit over the coming years, which should allow very limited imports.
|Much Potential For Demand Growth|
|Select Countries - Poultry Meat Consumption Per Capita (kg/year)|
Towards More Beef Imports
For the beef industry, we believe Indonesia will have little choice but to ease its import regulations, as domestic demand will slowly outdistance production. The beef processing industry is currently facing difficulties due to low supply, as the government has restricted imports in a bid to boost domestic production and in an effort to become self sufficient by 2014. Beef imports quotas will be reduced for the fourth consecutive year in 2013, by 13%, to 80,000 tonnes.
We expect Indonesia's beef and veal production deficit to widen in the coming years. Indeed, foreign investment in the domestic sector will be less buoyant than in the poultry sector, restraining production growth. Meanwhile, beef will remain the animal protein of choice for higher income groups and should record strong demand growth.
Indonesia is already on the road to relax its import rules, as supply is tightening. The government is considering changing the regulations for the imports of frozen beef and live cattle to allow imports from nations that have Food and Mouth Disease (FMD)-free zones. The key point of the bill is to change the nature of imports from a country-based classification to a zone-based system, meaning that Indonesia could accept beef imports from FMD-free zones, states or regions, within big exporting countries such as India or Brazil.
|Notes: e BMI estimates. f BMI forecasts. Sources: 1 USDA.|
|Poultry Production, '000 tonnes 1||1,540.0||1,570.0||1,620.0||1,670.0||1,735.0||1,790.0|
|Poultry Consumption, '000 tonnes 1||1,560.4||1,585.4||1,644.1||1,704.9||1,766.3||1,835.2|
|Notes: e BMI estimates. f BMI forecasts. Sources: 1 FAPRI.|
|Pork Production, '000 tonnes 1||620.8||636.3||638.0||648.0||660.0||672.0|
|Pork Consumption, '000 tonnes 1||605.1||613.4||625.6||638.1||650.9||663.9|
|Notes: e BMI estimates. f BMI forecasts. Sources: 1 FAPRI.|
|Beef & Veal Production, '000 tonnes 1||476.5||484.0||493.0||502.0||511.0||520.0|
|Beef & Veal Consumption, '000 tonnes 1||495.7||500.7||510.2||522.5||533.9||546.8|