Dairy Products Investment Proposition

31st August 2016

Badan Koordinasi Penanaman Modal
Why Canadian firms are investing in Indonesia

The food & beverage Indonesia has the 4th Indonesia is very cost
market in Indonesia will largest population in effective - the average
increase to $330 billion the world (261 million monthly wage is $161
by 2020 as of August 2016)

Indonesia is one of the Indonesia’s GDP will Access to the $2.5

fastest growing increase by over 150% trillion ASEAN market
economies in the to $2.2 trillion by 2025 with a population of
world in the world 620 million
(>5% p.a. 2012-16)

Indonesia Investment Coordinating Board

What Canadian investors say about Indonesia

invested by of Canadian investors of Canadian investors

Canadian firms in Indonesia are in Indonesia would
in Indonesia planning to recommend other
re-invest in Indonesia Canadian companies
(WAVTEQ, June 2016 survey) to invest in Indonesia
(WAVTEQ, June 2016 survey)

Indonesia Investment Coordinating Board

 Why invest in Indonesia’s agribusiness sector?
Growth Agricultural area Track record

10% 54 million ha $18.7 billion

average annual growth agricultural area growing by Agribusiness foreign
in food demand in nearly 12% (2001-2011) direct investment in
Indonesia (2016-2020) Indonesia 2011-15

Milk consumption Milk production

64% 36%
increase in Indonesia’s per capita increase in Indonesia’s milk
milk consumption (9.77 litres in 2008 production (1.02m tons in 2008
to 16 litres in 2016) to 1.46m tons in 2016)

Indonesia’s competitive strengths for manufacturing investment

 World’s fourth largest population of 260 million
 The chemicals & related sector has averaged 7.61% annual growth from 2011-14
 Labour costs nearly half of China and lower than India for skilled positions
 Better availability of scientists & engineers than China or India
 Effective corporate tax less than half China and India
Indonesia Investment Coordinating Board
 Indonesia the largest market in ASEAN
1. Indonesia has the largest market in ASEAN, with total market demand
forecast to grow from $230 billion in 2016 to $334 billion by 2020

Food & Beverage: forecast market demand in 2020 (USD billion)*

400

350 334

300

250

200
143
150 128
98
100 81

50 22
0
Indonesia Thailand Philippines Malaysia Vietnam Singapore

Source: Based on EIU. *Total market demand for meat, dairy, fish, fruit, vegetables, sugar, animal feed, animal and vegetable oils, processed food,
alcoholic beverages, soft drinks and flavourings and tobacco products in nominal US$
Indonesia Investment Coordinating Board
 Huge supply gaps in Indonesia
Total imports and exports of dairy products, Indonesia, thousand tons, 2006-2025

350 327
319
Imports 311
303
296
300 281 288
273
Exports 255
265
250 244
250 228 234 237

205 205
194
200 181 181

150

100
43
50 25 29
20 20 12 11 9 10 9 9 8 8 8 7 7 7 7 7 6
0

Source: Organization for Economic Co-operation and Development (OECD), Food and Agriculture Organization of the United Nations (FAO)
Agricultural Outlook 1970-2025, by commodity
Indonesia Investment Coordinating Board
 Growth of dairy consumption in Indonesia
• Dairy consumption in Indonesia, as well in other ASEAN countries,
continues to outpace supply, opening the market to opportunities for FDI.
• The combination of urbanization, rising incomes, and the emergence of an
educated, health savvy middle-class will continue to drive growth in dairy
consumption

Milk consumption, Indonesia, liters per capita (2007-2016)

18 16.00
15.20 15.60
16 14.40 14.82
13.88
14 12.90
11.12 11.31
12 9.77
10
8
6
4
2
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Economist Intelligence Unit Market Indicators and Forecasts

Indonesia Investment Coordinating Board

 Milk production in Indonesia
• Milk production is one of the largest dairy products, and has seen strong
growth.
• Between 2008 and 2016, the total growth of milk production was 43%.
• The breakdown of the market is: Powdered milk (39%); Sweetened
condensed milk (35%); and Fluid UHT milk (26% of market).
Total milk production in Indonesia, thousand tonnes (2006-2016)
1600 1400 1442 1466
1379 1365 1388
1400 1278 1313
1200 1023
944 924
1000
800
600
400
200
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: OECO, Food and Agriculture Organization of the United Nations (FAO) Agricultural Outlook, 2016

Indonesia Investment Coordinating Board

 Forecast milk production in Indonesia
• Domestic milk production is dominated by smallholders who usually own no more than five cows
and are members of dairy cooperatives, who collect and sell the milk to processing companies.
• These small-scale processers of milk production can often have a low degree of efficiency and
product quality. Production, at around 10 litres per day, is less than half of international norms (20-
25 litres per day).
• Indonesian sweetened condensed milk manufacturers rely on imported whole milk powder to
supplement protein content. There are major opportunities for foreign investors to invest in
Indonesia to increase the efficiency and quality of dairy production and growing market demand.

Forecast milk production in Indonesia, thousand tons (2016-2025)

1800 1728
1698
1700 1667
1637
1607
1579
1600 1526 1549
1496
1500 1466

1400
1300
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: OECO, Food and Agriculture Organization of the United Nations (FAO) Agricultural Outlook, 2016

Indonesia Investment Coordinating Board

 Yogurt production in Indonesia

• In terms of other dairy products, yogurt was the fastest growing market at
18% growth in 2013.
• The chart below shows that yogurt production in Indonesia grew by 67%
from 2004-2013.

Total yogurt production in Indonesia, tonnes (2004-2013)

8000
6787 6544 6670
7000 6220 6292
6000
50004003 4547 4244 4565
3907
4000
3000
2000
1000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Food and Agricultural Organization of the United Nations

Indonesia Investment Coordinating Board

 Track record in attracting FDI
1. Indonesia had attracted $18.7 billion of FDI in the agribusiness sector since 2011
with over $9 billion of FDI in the last 2 year.

FDI flows into Indonesia in the agribusiness sector (2010-15), US$ million
6000
5412

5000

4000 3744 3721

3434

3000
2358
2000

1000

0
2011 2012 2013 2014 2015
Source: Based on BKPM data
Indonesia Investment Coordinating Board
FDI Track Record – case studies
Frisian Flag Indonesia (FFI) is a manufacturer of dairy-based nutritional
products for children in Indonesia under Frisian Flag brand. It’s is a
subsidiary of the international Dutch group Friesland Campina,
specialist of dairy products.

The company operate two state-of-the-arts production facilities in

Pasar Rebo and Ciracas, both in East Jakarta, with a broad portfolio of
products such as liquid milk, milk powder and sweetened condensed
milk According to the annual report 2015 of Friesland Campina, Frisian
Flag was in second position in the top 10 consumer brands in revenue

Nestle began operations in Indonesia in 1971. Nestle Indonesia now

employs more than 3,300 employees, operating four factories in
Indonesia. One of them is located in East Java, which process dairy
products.

The factory located in Kejayan (East Java) expanded in 2010 and

became one of Nestle’s 10 largest plant in the world.

Currently, the factory located in East Java absorbs 700,000 litters daily
of fresh milk from 33,000 dairy farmers in East Java
Indonesia Investment Coordinating Board
 Competitive strengths for agribusiness – Size of market

GDP 2011-2025, US$ billion (EIU forecasts)

2500
Indonesia’s GDP 2025 forecast:
• Increase >150% to $2.2 trillion Indonesia
2000 • Larger than India’s in 2015
• Nearly same size as Canada’s ($2.6 tn)
Philippines
• GDP/capita: $3370 (2015) to $7840
1500
Thailand

Malaysia
1000

Vietnam

500
Singapore

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Indonesia Investment Coordinating Board

 Competitive strengths for for agribusiness– Size of
population
Population by country, 2015-2030

Indonesia 308
255

Philippines 128
101

Vietnam 103
92
Indonesia’s population is
70
Thailand 69 the 4th largest in the world
and will increase to over
36
Malaysia 31 300 million people

Singapore 7
6

0 50 100 150 200 250 300 350

Population projection (mid-2030, Millions) Population (2015, Millions)

Source: fDi Benchmark (IMF and Population Reference Bureau World Population Data Sheet)

Indonesia Investment Coordinating Board

 Competitive strengths for for agribusiness - Skilled
workforce
Availability of Scientists and Engineers – out of 7 (2015)

Indonesia 4.6

China 4.5

Thailand 4.3

India 4.2

Philippines 4.0

Vietnam 3.9

3.4 3.6 3.8 4 4.2 4.4 4.6

Source: fDi Benchmark (Global Competitiveness Report, World Economic Forum, Switzerland, 2015-16 )

Indonesia Investment Coordinating Board

 Competitive strengths for for agribusiness – Available
workforce
Unemployment rate, 2015-2020
Indonesia 6.3%
5.9%

Thailand 0.8%
0.8%

Singapore 1.9%
2.0%
Indonesia has the least tight
labour market in ASEAN
Vietnam 2.9%
2.4%

Malaysia 2.9%
3.2%

China 4.0%
4.1%

Philippines 6.0%
6.0%

India 8.4%
3.6%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
Forecast Unemployment Rate in 2020 (%) Unemployment Rate in 2015 (%)
Source: fDi Benchmark (Economist Intelligence Unit March 2016 & International Monetary Fund 2016)

Indonesia Investment Coordinating Board

 Competitive strengths for for agribusiness – Low taxes

Total Tax Rate (% profit) in 2015

Indonesia 30%
Indonesia has low effective
Thailand 28% tax rates

Vietnam 39%

Malaysia 40%

Philippines 43%

China 68%

India 61%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Source: fDi Benchmark (World Bank Doing Business 2016)

Indonesia Investment Coordinating Board

 Competitive strengths for for agribusiness– Lowest
wages in ASEAN

Average monthly wages, USD, 2011-2020

800.00
700.00
600.00
Indonesia
500.00
Malaysia
400.00
Philippines
300.00 Thailand
200.00 Vietnam
100.00
0.00
2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: EIU

Indonesia Investment Coordinating Board

 Competitive strengths for for services
– Low labour costs for engineering positions
Labour costs by country for an engineer, USD, 2015

Vietnam 11029
Indonesia has highly
Philippines 12000 competitive labour
Indonesia
costs
13801

Thailand 15552

Malaysia 15840

India 15893

China 24030

Singapore 57537

0 10000 20000 30000 40000 50000 60000 70000

Source: fDi Benchmark
Indonesia Investment Coordinating Board
 Competitive strengths for for services
– Innovation
Total of Patent applications, non-residents (foreign investors) (2014)

Indonesia 7321

Singapore 9009

Thailand 6924

Malaysia 6267

Vietnam 3960

Philippines 3255

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000
Source: fDi Benchmark (World Bank World Development Indicators)

Indonesia Investment Coordinating Board

 Competitive strengths for for services
– Low cost of living
Cost of Living Index, 2015*
Indonesia 1.79

India 1.4

Vietnam 1.82

Philippines 1.86

Thailand 2.14

Malaysia 2.22

China 3.28

Singapore 5.7

0 1 2 3 4 5 6

Source: fDi Benchmark *Rating 0-10 (0=lowest cost of living; 10=highest cost of living) (2014)

Indonesia Investment Coordinating Board

 Thank You
Terima Kasih

Badan Koordinasi
Penanaman Modal
(BKPM)
Indonesia Investment
Coordinating Board
Jln. Jend. Gatot Subroto No. 44
Jakarta 12190 - Indonesia
t . +62 21 525 2008
f . +62 21 525 4945
e . info@bkpm.go.id

Contact Centre :
0807 – 100 – 2576 (BKPM)
www.bkpm.go.id

The Investment Coordinating Board of the Republic of Indonesia

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