Required Report - public distribution

**Date:** 4/4/2005

**GAIN Report Number:** ID5007

ID5007

**Indonesia**

**Grain and Feed**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Fred Kessel

U.S. Embassy, Indonesia

**Prepared by:**

Chris Rittgers/Niniek S. Alam

**Report Highlights:**

Fueled by improving economic prospects, especially expected income
growth, wheat imports are forecast to grow moderately in 2005/06. While
still hampered by AI, demand from the poultry industry is expected to
lead to a moderate increase in corn imports to 1.1 million tons in
2005/06. Due relatively good prospects for the local rice crop, combined
with an official policy of limiting rice imports, rice imports are
forecast to remain at around 500,000 tons through 2005/06.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Jakarta \[ID1\]

\[ID\]

Table of Contents

[SECTION I. SITUATION AND OUTLOOK 3](#section-i.-situation-and-outlook)

[EXECUTIVE SUMMARY 3](#executive-summary)

[Wheat 3](#wheat)

[Corn 3](#corn)

[Rice 3](#rice)

[WHEAT 4](#wheat-1)

[Trade 4](#trade)

[Consumption 4](#consumption)

[Prices 4](#prices)

[Policy 4](#policy)

[CORN 5](#corn-1)

[Production 5](#production)

[Consumption 5](#consumption-1)

[Trade 5](#trade-1)

[Prices 5](#prices-1)

[RICE, MILLED 6](#rice-milled)

[Production 6](#production-1)

[Consumption 6](#consumption-2)

[Trade 6](#trade-2)

[Stocks 6](#stocks)

[Policy 6](#policy-1)

[Agricultural Inputs 7](#agricultural-inputs)

[Rice Production: Area & Production by Region
7](#rice-production-area-production-by-region)

[SECTION II. STATISTICAL TABLES 8](#section-ii.-statistical-tables)

[WHEAT 8](#wheat-2)

[CORN 9](#corn-2)

[RICE, MILLED 10](#rice-milled-1)

# SECTION I. SITUATION AND OUTLOOK

#  

## EXECUTIVE SUMMARY

### Wheat 

Improving consumer-buying power is boosting demand for wheat-based
products, such as instant noodles and bakery products. With the growing
demand, mill operations are anticipated to approach 65 percent of
capacity in 2005, continuing the moderate growth in the sector since
2000. With extraction rates (ranging according to the grain quality)
from 70 percent to 74 percent, flour production is expected to reach 3.1
million tons in 2005/06. Imports are forecast to grow, reaching 4.6
million tons in 2005/06, including 150,000 tons of U.S. wheat. Local
millers continue to complain about low quality and low priced flour
imports from the United Arab Emirates, Australia, the European Union and
other countries. The local millers allege that that such competition
obliges them to slash margins to maintain market share and creates the
incentive to buy lower quality wheat and produce lower quality flour.
U.S. wheat sales are dominated by soft white and western white wheat
types for special customized biscuit flour and hard red spring wheat
type for blending with other wheat types to produce high protein flour.
Australian wheat continues to dominate the market with nearly 50 percent
share due to its competitive price, which can be up to 20 percent lower
compared to U.S. wheat.

### Corn 

Corn production is forecast to grow slightly to 6.6 million tons in
2005/06 as newly reopened areas become more productive. Corn use is
forecast to rebound only slowly, hindered by the continued prevalence of
AI in the poultry sector. Anticipating slight growth in domestic output,
combined with sluggish growth in local demand, imports are forecast to
reach only 1.1 million tons in 2005/06. The local corn industry
continues to source local corn first and then turn to the international
market when domestic supplies dwindle. High freight rates and the
inability/unwillingness of local buyers to finance Panamax sized vessels
hinders U.S. competitiveness. Nonetheless, with the absence of Chinese
corn in the market, opportunities for U.S. corn exist.

### Rice 

Despite delayed plantings and reports of flooding in some areas, rice
production in 2005 is forecast to be off just slightly from the previous
year. Except for some isolated non-producing areas, prices levels fell
in March 2005, indicating relatively good supplies from the ongoing main
crop harvest. The import ban will remain in effect through June 30,
2005. Prior to this date, the GOI will review supply and price
conditions, and determine whether to extend the ban. Based on
preliminary reports of the current harvest, and price declines, it is
quite likely the ban will be extended, at least until the end of the
second harvest (August/September), when approximately 80 percent of the
crop will have been harvested. Currently, relatively high prices from
suppliers and stricter enforcement at borders are hindering the
incentive to import rice. With prospects for continued relatively good
local production, stable local prices, and the apparent firm policy of
not allowing the import ban to be circumvented, rice imports are
forecast to reach only 500,000 tons annually through 2006.

# 

## WHEAT

# 

Economic growth (5.13% in 2004 and 5.5% estimated for 2005) is fueling
demand for wheat-based products and leading to slight growth in flour
demand. Milling operations are currently reported to be running at 65
percent of the industry's total installed capacity. Plans to build a new
mill in N. Sumatra have been shelved, but two of the mills have invested
in new blending facilities to enhance output of higher quality flour.
Reportedly, owners of the two largest flour mills recently acquired at
least part-ownership in the third largest mill. The implications of this
deal are still unclear, but in the least it will mean that one firm has
only further concentrated its domination of flour distribution in
eastern Indonesia. Furthermore, the merging of all these mills means
that roughly 80 percent of Indonesia's import needs will be handled by
one central desk.

### Trade

Total imports (wheat and flour) are forecast to grow only slightly
2004/05 and 2005/06, remaining just slightly above 4.5 million tons.
Major suppliers continue to be Australia and Canada. The competitiveness
of U.S. wheat remains weak in 2004/05 (sales of approximately 150,000
tons) due to relatively high landed costs of U.S. wheat. Total exports
(mainly pasta and couscous) have been increasing and estimated at nearly
100,000 tons annually. Main destinations are Malaysia (23%), Japan
(13%), and Singapore (12%).

The local milling industry continues to allege that several countries
are dumping flour into Indonesia. They continue to have a standing
petition with the Dumping Committee (KADI-Komite Anti Dumping Indonesia)
to take measures such as counter-veiling duties against the targeted
countries.

### Consumption

Bakery products continue to diversify, with new brands of instant
noodles and modern bakeries increasingly present, and wider distribution
of economical noodle/bakery outlets. Total wheat domestic consumption is
estimated to increase from 4.4 million tons in 2004/05 and is forecast
to 4.55 million tons in 2005/06. The noodle industry (wet, dry and
instant) represents the largest single user for flour (nearly 60
percent); bakeries and the snack food industry consume another 30
percent and household use is estimated at about 10 percent. Based on the
demand, the mills flour output consists of 75% high-protein flour
(protein content \>12%), with the balance being medium (10%-12%) and low
protein flour (8%-9%).

### Prices

Increasing wheat prices and soaring freight rates forced the mills to
increase prices in early 2005. Distributor prices for Lencana Merah
brand increased 2 percent from Rp. 76,650 or US\$ 8.24/25 kg bag
(January 2005) to Rp. 78,190 or US\$ 8.41/25 kg bag (March 2005). Payung
brand increased from Rp. 76,100 or US\$ 8.18/25 kg bag to Rp. 77,640 or
US\$ 8.35/25 kg bag.

Average exchange rate in 2005 is Rp. 9,300/US\$ 1.

### Policy

The GOI requires that all wheat flour (import and local) meet a national
standard for vitamin and mineral content. The government also protects
the local industry by imposing 5 percent duty on imported flour.

## 

## CORN

### Production

As a result of a slight expansion in area, corn production is estimated
up slightly to 6.5 million tons in 2004/05. As newly reopened areas
become more productive, output is forecast to growth further in 2005/06
to 6.6 million tons.

Yields remain low as certified/hybrid corn seed use accounts only around
20 percent of total corn planting areas. The high price of hybrid seeds
(ranging from Rp. 20,000 or US\$ 2.15/kilogram up to Rp. 30,000 or US\$
3.23/kilogram, compared to Rp. 1,750 or US\$ 0.2/kilogram for local
seeds) and lack of intensive farming capacity required for hybrid corn
hamper increases in hybrid seed plantings. Quarantine procedures have
reportedly caused difficulties in importing (parent) seeds and
contribute to the lack of hybrid seed availability, which make the price
of hybrid seeds high. Total planting areas using hybrid seeds declining
from approximately 675,000 hectares (2004) to 550,000 hectares in 2005.
Improper post harvest treatment and lack of storage/drying facilities
are also constraints to improving corn quality and marketing.

### Consumption

The animal feed industry consumes around 50 percent of all Indonesian
corn. This percentage has declined due to the AI outbreak in early 2005.
Feed industry demand is expected to increase somewhat in 2005/06 to 3.7
million tons. Imported corn is used primarily to produce poultry feed.
Assuming that the AI outbreaks are only sporadic and remain contained,
total compound feed production (including self mixing poultry feed) is
forecast to rebound to around 7.4 million tons in 2005/06.

### Trade

Given expectations for a slight increase in domestic production, but
only sluggish demand growth, imports are forecast to remain stable at
around 1.1 million tons in 2005/06.

U.S. prices in 2004/05 have so far not been competitive against local or
supplies from other exporters. As a result, sales have been minimal.

### Prices

In March 2005, farm gate prices of local corn in major producing areas
(Lampung) ranged from Rp 1,300/kg (US\$ 139.8/mt) to Rp. 1,400/kg (US\$
150.5/mt) in East Java. Prices range from Rp. 1,450/kg (US\$ 155.9/mt)
to Rp. 1,500/kg (US\$ 161.3) delivered to feed mills in Jakarta.

Despite increasing feed ingredients (corn and protein meal) prices,
average feed prices fell from reported levels the previous year. Local
sources indicate price of Rp. 2,750/kg (broiler feed) in 2005 vs. Rp.
2,925/kg in 2004 and Rp. 1,750/kg (layer feed) in 2005 compared to Rp.
2,223/kg in 2004.

## RICE, MILLED

### Production 

Despite reports of later plantings and some isolated flooding and other
crop damage, the 2005 crop is still expected to reach 54 million tons
(rough equiv.). With little potential for area expansion, and no yield
growth expected, production is to remain about the same in 2006, barring
any unusual rainfall patterns.

### Consumption

Despite increasing population, rice consumption in Indonesia is
relatively stable at 36 million tons per year. Diets continue to
diversify and alternative staple foods (such as noodle/bakery, corn,
cassava, and sago) continue to be important in many regions of
Indonesia. In 2005, Bulog plans to provide subsidized rice to 8.6
million families; each eligible recipient can buy 20 kilograms of rice
per month at Rp. 1,000/kilogram (US\$ 11 cents/kilogram). The total
budget allocated for this program is Rp. 5,445 trillion (US\$ 585
million), which will be used to purchase and distribute around 2.0
million tons of rice. Distribution of rice rations to civil servants and
military/police is being reconsidered.

### Trade

Fairly high international prices, a higher duty, and strict enforcement
of the rice import ban continues to discourage imports. Given these
factors, plus prospects for a crop as good as last year's, Indonesian
imports are forecast at 500,000 tons annually through 2006.

## 

### Stocks

Carry-over stocks are forecast to decline to 3.5 million tons by the end
of 2005 and 3.4 million tons at the end of 2006. At the end of March,
Bulog stock was 1.1 million tons milled rice equivalent. To fulfill its
function, during 2005, Bulog plans to purchase approximately 3.14
million tons of dry paddy and 210,000 tons milled rice, or a total of
2.25 million tons milled rice from local farmers. Bulog will have to
manage higher stock should the government and parliament agree that
Bulog resume distribution of rice to civil servants and military/police.

To dampen prices in some localities, Bulog has sold 200,000 tons medium
rice at Rp. 2,900/kilogram to Rp. 3,000/kilogram (US\$ 31 cents to US\$
32 cents/kilogram). These "market operations" occurred primarily in
Islands outside of Java (Riau, Jambi provinces), where rice prices had
increased over 30%. Bulog also sold rice into the market in Batam (not a
rice producing area) where the rice price reached Rp. 3,500/kg to Rp.
4,000/kg (US\$ 38 cents to US\$ 43 cents/kilogram).

### Policy

The import ban will remain in effect through June 30, 2005. Prior to
this date, the GOI will review supply and price conditions, and
determine whether to extend the ban. Based on preliminary reports of the
current harvest, and price declines, it is quite likely the ban will be
extended, at least until the end of the second harvest
(August/September), when approximately 80 percent of the crop will have
been harvested.

Effective March 1, 2005 the GOI implemented new price policies for rice.
The new policy increases the wet paddy price or GKP, eliminates the rice
floor price structure, and sets a government purchase price. Domestic
support in rice price is no longer in place, which means that there are
no obligation for the government to buy rice from farmers should the
farm gate prices fall below the set government purchase price. The new
policy increases the government purchasing price of wet paddy from Rp.
1,230/kilogram to Rp. 1,330/kilogram. Prices of dry paddy are Rp.
1,765/kilogram at warehouse and Rp. 1,740/kilogram at milling facility.
The government purchase price for milled rice remains at Rp.
2,790/kilogram.

### Agricultural Inputs

Government continues to give a subsidy to farmers in the form of a price
subsidy for fertilizer. This will in the long run be removed and
allocated to other facilities. The total value of the subsidy was
reduced from Rp. 1.7 trillion (US\$ 183 million) in 2004 to Rp. 1.3
trillion (US\$ 134 million) in 2005.

### Rice Production: Area & Production by Region

**First Estimate Figures by the Government of Indonesia for 2005\*)**

  ----------------------------------- ---------------- ---------------- ----------------
                                                                        

                                                                        

  **Province**                        **Harvested**    **Production**   **Yield**

  ** **                               **Area (Ha)**    **(MT)**         **(100Kg/Ha)**

                                                                        

  North Sumatra                       823,497          3,409,400        41.40

  South Sumatra                       559,204          2,047,571        36.62

  **Sub Total: Sumatra**              **2,992,715**    **12,020,232**   **40.16**

  West Java                           1,792,590        9,265,865        51.69

  Central Java                        1,579,986        8,268,231        52.33

  East Java                           1,691,292        9,004,942        53.24

  **Sub Total: Java**                 **5,560,463**    **28,959,695**   **52.08**

  West Nusa Tenggara                  322,079          1,453,954        45.14

  **Sub Total: Bali & Nusa Tenggara** **641,683**      **2,783,080**    **43.37**

  West Kalimantan                     373,938          1,103,665        29.51

  South Kalimantan                    444,240          1,528,392        34.40

  **Sub Total Kalimantan**            **1,185,464**    **3,705,600**    **31.26**

  Central Sulawesi                    182,962          719,035          39.30

  South Sulawesi                      831,052          3,899,421        46.92

  **Sub Total Sulawesi**              **1,223,901**    **5,485,344**    **44.82**

  Other Provinces/Islands             49,563           162,735          32.83

                                                                         

  **TOTAL INDONESIA**                 **11,653,789**   **53,116,686**   **45.58**

  Source: BPS - Statistics Indonesia                                    

  Note: \*) GOI First Estimate 2005                                     
  ----------------------------------- ---------------- ---------------- ----------------

# SECTION II. STATISTICAL TABLES

## WHEAT

  ------------------ ----------- ---------- ---------- ---------- ---------- ----------
                                                                             

  Country            Indonesia                                               

  Commodity          Wheat                                        (1000      
                                                                  HA)(1000   
                                                                  MT)        

                     2003        Revised    2004       Estimate   2005       Forecast

                     USDA        Post       USDA       Post       USDA       Post
                     Official    Estimate   Official   Estimate   Official   Estimate

  Market Year Begin              07/2003               07/2004               07/2005

  Area Harvested     0           0          0          0          0          0

  Beginning Stocks   620         620        864        864        889        914

  Production         0           0          0          0          0          0

  TOTAL Mkt. Yr.     4535        4535       4400       4550       0          4550
  Imports                                                                    

  Jul-Jun Imports    4535        4535       4400       4550       0          4550

  Jul-Jun Import     117         117        0          150        0          150
  U.S.                                                                       

  TOTAL SUPPLY       5155        5155       5264       5414       889        5464

  TOTAL Mkt. Yr.     91          91         75         100        0          100
  Exports                                                                    

  Jul-Jun Exports    91          91         75         100        0          100

  Feed Dom.          50          50         50         50         0          50
  Consumption                                                                

  TOTAL Dom.         4200        4200       4300       4400       0          4550
  Consumption                                                                

  Ending Stocks      864         864        889        914        0          814

  TOTAL DISTRIBUTION 5155        5155       5264       5414       0          5464
  ------------------ ----------- ---------- ---------- ---------- ---------- ----------

*Note: Table includes data for unprocessed wheat, wheat flour and
pasta - converted into grain equivalent.*

## CORN

  ------------------- ----------- ---------- ---------- ---------- ---------- ----------
  PSD Table                                                                   

  Country             Indonesia                                               

  Commodity           Corn                                         (1000      
                                                                   HA)(1000   
                                                                   MT)        

                      2003        Revised    2004       Estimate   2005       Forecast

                      USDA        Post       USDA       Post       USDA       Post
                      Official    Estimate   Official   Estimate   Official   Estimate

  Market Year Begin               10/2003               10/2004               10/2005

  Area Harvested      3200        3200       3300       3300       0          3300

  Beginning Stocks    584         584        834        834        834        834

  Production          6350        6350       6500       6500       0          6600

  TOTAL Mkt. Yr.      1350        1350       1100       1060       0          1100
  Imports                                                                     

  Oct-Sep Imports     1350        1350       1100       1060       0          1100

  Oct-Sep Import U.S. 198         198        0          200        0          200

  TOTAL SUPPLY        8284        8284       8434       8394       834        8534

  TOTAL Mkt. Yr.      100         100        100        100        0          100
  Exports                                                                     

  Oct-Sep Exports     100         100        100        100        0          100

  Feed Dom.           3750        3750       3800       3500       0          3700
  Consumption                                                                 

  TOTAL Dom.          7350        7350       7500       7500       0          7600
  Consumption                                                                 

  Ending Stocks       834         834        834        834        0          834

  TOTAL DISTRIBUTION  8284        8284       8434       8394       0          8534
  ------------------- ----------- ---------- ---------- ---------- ---------- ----------

*Note: Feed domestic consumption includes requirements from the
small-scale poultry industry producing self-mixing poultry feed (at an
average of approximately 500,000 tons/year).*

##  RICE, MILLED

  ----------------- ----------- ---------- ---------- ---------- ---------- -- ----------
  PSD Table                                                                    

  Country           Indonesia                                                  

  Commodity         Rice,                                        (1000         
                    Milled                                       HA)(1000      
                                                                 MT)           

                    2003        Revised    2004       Estimate   2005          Forecast

                    USDA        Post       USDA       Post       USDA          Post
                    Official    Estimate   Official   Estimate   Official      Estimate

  Market Year Begin             01/2004               01/2005                  01/2006

  Area Harvested    11700       11700      11750      11650      0             11700

  Beginning Stocks  4344        4344       4068       4068       4209          3548

  Milled Production 35024       35024      34991      34830      0             34959

  Rough Production  54301       54301      54250      54000      0             54200

  MILLING RATE      6450        6450       6450       6450       0             6450
  (.9999)                                                                      

  TOTAL Imports     700         700        1000       500        0             500

  Jan-Dec Imports   700         700        1000       500        0             500

  Jan-Dec Import    0           0          0          0          0             0
  U.S.                                                                         

  TOTAL SUPPLY      40068       40068      40059      39398      4209          39007

  TOTAL Exports     0           0          0          0          0             0

  Jan-Dec Exports   0           0          0          0          0             0

  TOTAL Dom.        36000       36000      35850      35850      0             35600
  Consumption                                                                  

  Ending Stocks     4068        4068       4209       3548       0             3407

  TOTAL             40068       40068      40059      39398      0             39007
  DISTRIBUTION                                                                 
  ----------------- ----------- ---------- ---------- ---------- ---------- -- ----------

*/media/pszemraj/PeterTrove/project-files/DATA/ms-word-files/big-DOC/421894.doc*