Emerging Fast-Food Nation Indonesia Props Up Wheat Market

Indonesia will be crowned top Asian wheat importer this year, as higher incomes turn Southeast Asia’s largest economy into a fast-food nation and help to keep global prices on the boil.

As affluent Indonesians turn away from rice, their country is vying with Japan to be Asia’s leading wheat buyer, while the latter battles economic crisis in the wake of a devastating earthquake and an aging population boosts protein in its diet.

“We are coming up on a par with, or even more than, Japan,” said Franciscus Welirang, chairman of the Indonesian Wheat Flour Mills Association, known as Aptindo. “It could be this year that we overtake.”

With Indonesia’s imports of the staple set to rise more than 10 per cent this year and three per cent a year in the period to 2015, the trend could even carry Indonesia to second place among the ranks of the world’s largest importers this year.

Listed firms that could gain from any rise in Indonesian wheat consumption include Indofood Sukses Makmur, Singapore’s Wilmar International and Malaysia’s PPB Group.

Indonesia, which relies entirely on imports for its wheat, gets around 60 per cent of supplies from Australia, with Canada and the United States accounting for about 30 per cent.

Western Australian wheat suppliers will benefit from the trend and continue to dominate Indonesian demand, analysts say, as geographic proximity and consumers’ preference for premium and standard white wheat head off competition from mainly soft white and hard red wheat producers in the U.S. and Canada.

Premium wheat from Western Australia, used to make bread and noodles, is also a favourite of East Asian countries, such as Vietnam and Taiwan.

Global wheat output is set to show a small deficit this year, with stocks meeting any shortfall as output hits around 663 million to 673 million tonnes, analysts say.

“In such a finely balanced market, any change in supply or demand will have an outsized impact on prices,” said Deepak Gopinath, director at Trusted Sources Research. “The continued rapid growth of Southeast Asian wheat imports will be bullish for wheat prices over the medium term.”

Southeast Asia now accounts for about 12 per cent of global wheat imports, up from nine per cent in 2009. While wheat imports by neighbouring Vietnam, Thailand and Malaysia have held under three million tonnes over the past decade, Indonesian intake has almost doubled.

This is due in part to a wheat consumption push by the Indonesian government, an effort to avoid an overreliance on the staple diet rice of which it is not a major exporter like many of its neighbours.

“Asia is a new market and one of the big issues in terms of food security,” said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

“We’re looking for increased production but it is not meeting the new demand from emerging economies – that’s the problem because it’s moving outside traditional food sources.”

Behind Indonesia’s rapidly rising wheat imports stands a booming economy, set to rise about 6.5 per cent this year, boosted by domestic consumption and mineral exports.

Appetites are changing, with bread-based breakfast favoured by the upper middle classes and noodles preferred by the middle classes, a shift away from the previous breakfast staple, rice.

Such changes are easy to spot on a walk through the smog-filled streets of Indonesia’s capital, Jakarta, where new fast-food outlets and billboards for the likes of McDonald’s, Dunkin’ Donuts, Pizza Hut and KFC, have mushroomed.

McDonald’s Indonesian licensee says the hamburger chain now has 117 restaurants in the country versus 98 at the end of 2009.

“The increasing westernization of diets throughout Southeast Asia over the past couple of years, has certainly driven feed wheat demand,” said Michael Creed, an agribusiness economist for National Australia Bank.

About 60 per cent of Indonesian wheat imports are now used to make noodles, with 20 per cent consumed by bakeries.

Aptindo Indonesia recently forecast wheat imports would grow 10 per cent this year to 5.1 million tonnes.

According to forecasts by the United States Department of Agriculture (USDA), Indonesia is already ahead in Asia in the trade year July 2010 to June 2011, with wheat and flour imports at 6.1 million tonnes compared to 5.5 million tonnes in Japan.

USDA data showed 2009- 10 imports for Indonesia and Japan at 5.36 million tonnes and 5.5 million tonnes respectively. It adds that Indonesian wheat consumption is estimated to rise to 5.8 million tonnes in 2010-11, versus 5.25 million in 2009-10.

A combination of aging population, rising incomes leading to consumers favouring less starch and more high-protein foods, are all helping to push Japan’s wheat consumption lower, analysts say.

Analysts say Indonesian wheat imports are seen rising about three per cent annually in three to five years, with huge scope for further growth, given that its annual consumption of wheat per capita of 18 kg puts the country among the world’s lowest.

But as tastes widen beyond rice, any negative impact on the traditional staple grain is limited due to Indonesia’s ambitious aims to be self-sufficient in rice production.

“The Indonesian government’s goal is to maintain rice self-sufficiency at all costs,” said Gopinath. “That means encouraging Indonesians to substitute wheat for rice as much as possible to slow the growth in rice consumption.”

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