Indonesian demand for wheat to increase

Indonesian demand for wheat to increase


Grains
 AEGIC chief executive officer Richard Simonaitis addressed last week's GRDC Grains Research Updates, speaking on the upside that existed in the Indonesian grain market.

AEGIC chief executive officer Richard Simonaitis addressed last week's GRDC Grains Research Updates, speaking on the upside that existed in the Indonesian grain market.

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The importance of Indonesia as a trading partner with Australia has been highlighted by the Australian Export Grains Innovation Centre.

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The importance of Indonesia as a trading partner with Australia was further reinforced this week with the formal signing of the Indonesia-Australia Comprehensive Economic Partnership Agreement.

This is just another step in strengthening trade ties between the two countries, and was an exciting development given the significant growth the Indonesian market would experience in the coming decade.

Already Australia’s biggest wheat market, taking more than four million tonnes a year, the Indonesian population is predicted to grow by 30 million people in the next decade, bringing even further demand into the equation.

Not only was the population growing, but it was also getting wealthier and more and more Indonesians were moving into the middle-class.

And as Australian Export Grains Innovation Centre chief executive officer Richard Simonaitis told last week’s GRDC Grains Research Updates, with more disposable income people change the way they consume and the products they eat on a day-to-day basis.

“As wealth increases, people change the way they eat,” Mr Simonaitis said.

“As they move into cities, it also drives how they change their consumption patterns.

“Living in a rural climate, they are close to where rice is produced and so it is easy and cheap for them to get rice so that is what they eat.

“When they move into cities there is a lot more choice in front of them and we know that consumers all over the world are inspired by choice and seek it out.

“So we see a change where they eat less rice and move onto noodles and then a bakery-style product such as bread and then maybe onto a confectionary-style product such as cake or cookies.

“You will also see an increase in protein in their diet as they begin to eat more meat.”

Mr Simonaitis said the milling capacity in Indonesia was huge, currently sitting at about 11.5mt.

“This is not being fully utilised at the moment, and is running at 70 per cent capacity,” he said.

“Because of this margins are slim and so this impacts the price equation and is why we are seeing the Black Sea countries moving into this market.

“To take advantage of potential market growth, Australia needs to keep up with these competing origins.

“In the past we have been competing against the United States and Canada, which were running off similar production costs to us, but now we are competing with origins with much lower costs of production.

“So it is critical for Australia’s industry to drive yield upwards and to focus on the right quality to sell into the market.”

Mr Simonaitis said currently flour for food usage in Indonesia was made up of 70pc for noodles, 20pc for bakery and 10pc for confectionary.

It is predicted that in the next decade the bakery and confectionary segments will account for more flour usage.

Mr Simonaitis said while the Indonesia pie was getting bigger – and Australia’s percentage of the market may get smaller due to the Black Sea – the quantum of the growth was significantly larger.

“The part AEGIC plays in this is to demonstrate the value proposition of Australian grain and to take somebody else’s piece of the pie and to try and understand how we can participate in market segments we are currently locked out of,” he said.

“It is important to understand the overall growth of the market through income, affluence and population and work out how we position ourselves to take advantage of that over time.”

Looking at the Indonesian market, Mr Simonaitis said there were clear market signals.

“Australia needs to maintain its strength in the noodle segment and make sure our wheat is fit for purpose for producing noodles,” he said.

“There is also an opportunity to move into the bread segment if we produce the right sort of wheat.

“The high value confectionary segment also has good growth potential in front of it as people get richer.”

Mr Simonaitis said for three years, AEGIC had been promoting barley as a feed grain in China, Indonesia, Thailand, Vietnam and Malaysia.

“We are trying to help those markets understand that barley is a globally well accepted feed grain and it is a matter of getting the technical understanding to incorporate it into their feed rations when opportunities arise,” he said.

“The Indonesian feed market has gone from almost nothing in 2008 up to 4mt last year and we are anticipating that growth to continue in the future.”

“Indonesia eats seven to eight kilograms of chicken a year and Australia eats 45kg.

“It takes double the amount of grain to provide a kilogram of chicken and beef is six times that, so if Indonesia only gets to half of what we eat, in terms of protein, the feed market will be huge.”

Mr Simonaitis concluded by urging industry to work together to ensure that Australia continued to be an active player in the Indonesian market.

“We are one industry and it takes all of us playing our part to make it work,” he said.

“End users and satisfied customers are the source of all wealth and it flows back through the chain.

“AEGIC plays a part by being the key market facing agency in Australia and is the most active in the market seeking this understanding and bringing market signals back to industry.

“Breeders need to continue to be innovative and keep on driving yield and quality forwards.

“The classification system needs to be agile and aligned with what the market needs.

“On the grower side, they are highly innovative and efficient and we want them to be profitably growing good strong varieties that work in the market and work for them. 

“We also need efficient supply chains that are low cost and segregate the value of what we generate through production and breeding and keep that market opportunity alive. 

“We need our traders to be informed and educated to trap the value in that final transaction between seller and buyer and redistribute that through the supply chain.”

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