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Indonesia's changing position within
global food production networks: a
trade-based analysis
Forum Kajian Pembangunan (FKP) Seminar Series
August 25, 2015
Jeff Neilson and Bill Pritchard
University of Sydney
Share of total manufacturing employment (2011)-excluding SMEs
2
Data Source: UNIDO,
2011.Food, Beverages and Tobacco = 7% of total GDP
Employment Growth in Manufacturing
3
Data Source:
UNIDO,
2011.
931,293 individuals were employed in medium/large food processors in 2012
Small-scale food processors in Indonesia
› According to the Survei Industri Mikro dan Kecil 2014, there were 1.2 million Food
and Beverage SMEs in Indonesia:
- including around 100,000 tempe producers,
› Providing employment to an estimated 2.9 million individuals (or 35% of all those
employed in SMEs acrosss Indonsia).
› SMEs are mainly producing for domestic consumption.
4
Trade Balance – All Agricultural and food Products
5
Data Source: www.uncomtrade.com
% of Total Employment by Sector (Sakernas data)
7
Indonesia’s position within food GPNS (in comparison with Thailand)
8Data Source: www.uncomtrade.com
Value (USD)
Imports of primary food products (USD)-Indonesia
9
Key Processed Food Exports from Indonesia
2013 2014
1 Preserved crabs and shrimp 565 737
2 Cooking oil 533 695
3 Preserved Tuna 375 312
4 Sweet Biscuits / wafers 319 394
5 Coffee extracts 271 314
6 Miscellaneous Edible food preparations 240 303
7 Noodles 205 225
8 Sugar Confectionary (non-Cocoa) 136 132
9 Preserved pineapples 135 166
10 Mixed seasonings and sauces 89 103
10
Data source: www.uncomtrade.com
Value (in million USD)
The New International Trade Order
› Trade is no longer dominated by products, but in tasks and components.
› According to UNCTAD, 60% of global trade is in intermediate goods and
services.
11
› Share of
Foreign
Value-Added
in global
exports is
28% (22%
for food
products)
Why are Global Value Chains important?
› Industrial organisation (and economic opportunities for participation) is
increasingly shaped by the actor practices of globally coordinated lead
firms,
› “There is a positive correlation between participation in GVCs and growth
rates of GDP per capita. GVCs have a direct economic impact on value
added, jobs and income.”
› “They can also be an important avenue for developing countries to build
productive capacity, including through technology dissemination and skill
building, thus opening up opportunities for longer-term industrial
upgrading.”
(UNCTAD 2013 World Investment Report on Global Value Chains)
12
What is Indonesia’s involvement in GVCs?
13
Country Foreign value-added content
of exports
Korea 44
Malaysia 42
Mexico 32
Thailand 30
China 30
Indonesia 9
Indonesia is not currently well integrated into GVCs
Source: UNCTAD, 2013
14
Lead Firms (manufacturers) in the Global Chocolate Industry
15Sources: Cocoabarometer 2015 and Candy Industry (2015, cited by www.ICCO.org)
Company
Net
Confectionary
Sales* 2014 (US$
million)
2014 Cocoa
requirements
(thousand
tonnes)
Chocolate
confectionary
sales 2014
(US$ million)
1 Mars Inc (USA) 18,480 390 10,718
2 Mondelēz International (USA)
14,350 450 9,383
3
Ferrero Group (Luxembourg /
Italy)
10,911 120
4 Nestlé SA (Switzerland)10,466 430** 7,165
5 Hershey Foods Corp (USA)
7,485 200
6
Lindt & Sprüngli AG
(Switzerland)
4,022 100
** Includes chocolate-flavoured beverages
Key Actor Practices by Lead Chocolate Firms
1. Outsourcing of cocoa grinding activities to third-parties due to a high
cost-capability ratio – role for non-specialised suppliers (who are also
considered ‘lead-firms’ in their own right),
2. Some outsourcing of manufacturing (eg. coverture making) to trusted,
specialised partners – role for strategic industrial partners,
3. Involvement in supply chain management for critical ingredients (eg.
cocoa) to minimise risk exposure at the farm-level – potential for
technical upgrading for generic suppliers,
4. Intrafirm establishment of new chocolate manufacturing operations and
product development within emerging markets (China, Malaysia, Middle
East, Russia, Latin America) due to changing market imperatives
16
Indonesia as a major producer of cocoa beans
17
And now also a centre for cocoa grinding
18
Leading chocolate brands in Indonesia
19
Data Source: Euromonitor (2015)
No global lead firms are manufacturing in Indonesia
BrandLocation of Manufacture
Silver Queen (Petra) IndonesiaBeng-Beng (Mayora) IndonesiaKinder Joy (Ferrero) ItalyDelfi (Petra) IndonesiaCadbury Dairy Milk (Mondelez) MalaysiaGery (Garudafood) IndonesiaTop (Petra) IndonesiaCha Cha (Petra) IndonesiaVan Houten (Hershey) Indonesia (Ceres)Toblerone (Mondelez) SwitzerlandKit Kat (Nestle) MalaysiaFerrero Rocher (ferrero) Italy
20
And domestic chocolate manufacturers are not internationally competitive
21
Data Source: www.uncomtrade.com (HS 1806)
Strategic Coupling with Lead Firm Action Practices
› Key intersections and opportunities with the cocoa-chocolate GPN in
Indonesia:
1. As a major supplier of cocoa beans: farmers are being enrolled in
various supply chain sustainability programs (Nestle, Mondelez, Mars)
to ensure long term supply certainty for the industry,
2. As a major centre for cocoa grinding: As a supplier of generic
intermediate products (butter, powder, paste),
3. Indonesia is seen as an emerging consumer market, with opportunities
for manufacturing investment.
22
Key Ingredients for Chocolates sold in Indonesia (net weight)
Ingredient %
1 Sugars 50.7
2 Cocoa products (liquor, paste, powder) 21.2
3 Milk products 13.0
4 Nuts and other commodities 5.4
5 Vegetable Oil 3.6
6 Other ingredients 6.1
Total 100
23
Source: Calculated from Data provided by
Euromonitor, 2015
Conclusions
› Indonesia has an incredibly rich culinary heritage, favourable regional location, and a comparative advantage in food processing with a large and varied agricultural sector,
› The food processing sector is well-established and an important national employer, and could be an engine for revitalising a lagging manufacturing sector, driving poverty alleviation and rural development.
› However, this would require focused attention on developing greater international competitiveness, including:
1. The strategic coupling of global lead firm strategies with supportive domestic economic policies and development strategies,
2. Investment and trade policies that encourage, rather than restrict, Indonesia’s involvement in regional (and global) food production networks,
3. Supportive structures for supply chain linkages between lead firms and agricultural producers to encourage knowledge and technological dissemination,
4. Enhancing innovation systems in food processing through supportive structures for public-private partnerships in research and development.
24
Future Research Agenda
› Collaborative research project through the Australian Indonesia Centre
(AIC): Institut Pertanian Bogor, FEUI Universitas Indonesia, Institut
Teknologi Bandung, Universitas Gajah Mada, University of Sydney,
Australian National University, CSIRO, University of Melbourne
Overall Research Aim: To identify constraints and opportunities for the
development of an internationally competitive food processing sector in
Indonesia.
› Activity 1: Food Processing Production Networks (University of Sydney /
UGM / ITB)
› Activity 2: Trade and Investment Policy Analysis (ANU / UI)
› Activity 3: Agricultural Supply Chain Management (UniMelb / IPB)
› Activity 4: Food Innovations Systems (CSIRO, IPB)
25
