Indonesian marketplace rebounds from financial crisis

AgExporter, Sept, 2002 by Dennis Voboril, Fahwani Y. Rangkuti

Since economic crisis began gripping Asian countries in 1997, U.S. agricultural exporters have had firsthand experience with Indonesia's economic roller coaster, exacerbated by severe drought in 1997/98 and ongoing political uncertainties.

In 1996, U.S. agricultural exports to the country soared to a record $900 million, but by 1998, they had dipped to $489 million. Since this low point, U.S. agricultural exports to Indonesia have rebounded, to a new high of $953 million in 2001.

The re-creation of this export market in Indonesia owes much of its success to USDA'S implementation of export programs designed to help

emerging markets evolve and, sometimes, cultivate future markets for U.S. products--most notably:

* The Export Credit Guarantee Programs (GSM-102 and GSM-103) underwrite commercial loans of U.S. agricultural exports.

* The P.L.-480 food assistance program (Food for Peace) provides for government-to-government sales (also to private entities) of agricultural commodities to developing countries on credit terms or for local currencies.

* Surplus commodities (mostly soybean meal), provided in 2000 under Section 416(b) economic development assistance, helped lead to significant commercial sales in 2001.

* The Emerging Markets Program (EMP), which aims to develop or expand markets for U.S. agricultural exports, helped create a market for U.S. high-protein wheat in Indonesia's flour milling and baking industries.

* Annual marketing plan funds used in conjunction with the EMP helped expand annual sales of U.S. high-value food products to nearly $80 million.

* USDA cooperators provided technical assistance for many activities undertaken by the FAS Agricultural Trade Office (ATO) in Jakarta.

In fiscal 2001, the United States guaranteed credit for $725 million worth of agricultural sales and provided almost $20 million worth of food aid to Indonesia.

The overall economic outlook for Indonesia is for slow but continued growth, with annual U.S. agricultural exports expected to show steady, moderate increases.

The Indonesian marketplace does present challenges that seem intimidating, among them a crippled banking sector, large public- and private-sector debts, exchange rate volatility and political uncertainties. But on the positive side, fundamental political changes have made Indonesia the world's third largest democracy, and there has been dramatic market growth over the past few years.

Market Opportunities Abound

Indonesia's 200-million population is relatively young: More than half the population is under 25. Nearly 60 percent of the residents live on Java and buy 60-65 percent of consumer goods.

Most upper and middle-income people live in urban areas. While this consumer group numbers about 40 million now, in pre-crisis times it was nearer 78 million. Economic stability and growth promise an increase in the number of affluent consumers.

The population is becoming more literate and Westernized due to overseas study and travel, access to international television, expansion of modern malls and major hotel and restaurant chains, the presence of Western expatriates and dramatic growth in tourism.

Consumer spending rises during holiday seasons, which include the Muslim month of Ramadan and celebrations of Lebaran or Idul Fitri, Chinese New Year and Christmas. During these times, consumption goes up for flour, sugar, eggs, poultry and other meats, cheeses, cakes, cookies, pastries and fresh and dried fruits.

The Indonesian consumer remains very price-conscious and susceptible to economic swings. There are signs that brand loyalty, once pronounced, is diminishing, while "brand image," a perception based on marketing portrayals, has become more important.

More urban women are entering the workforce and staying there after they marry and have children. With less free time, their focus is increasingly on convenience.

The average Indonesian kitchen does not have many appliances. In Jakarta, the capital city just 43 percent of households have refrigerators; only 27 percent have stoves. Microwave ovens are found in only 10 percent of Jakarta homes. Consequently, retail products need to be shelf--stable. Besides relying on stored foods, consumers may shop daily at street stalls or eat out.

Face-to-Face Works Best

While quality and price are important to importers, in Indonesia they are secondary to the personal interaction of business partners.

Agents can help conduct market research. They also can register your product with the Ministry of Health. Singapore distributors, agents and importers can be considered. They transship large quantities of products in the region.

Once selected, supporting your agent with a quality product and providing education on the best ways to promote, handle and prepare the product will enhance your chances of success.

Keep in Mind

Indonesian consumers retain some brand loyalty and prefer good quality, well-packaged, well-distributed and promoted products that are competitively priced.

Indonesia's bound tariff rates on major food and agricultural items generally range from 5 to 30 percent. However, tariffs on all food items were cut to a maximum of 5 percent in February 1998 under an International Monetary Fund agreement that remains in effect. The major exception is the 170-percent duty applied to imported alcoholic beverages.