World Grain -- December 2015 - 52

FEATURE: INDONESIA'S MILLING GIANT MAY EXPAND

ket is now oversaturated with capacity. Franky disputes the
point. "I believe there is no excess capacity, but there is a lot
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that's the average," he explained. "But a spike in demand near
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if it wants to expand to service this spike. I don't believe there

Indonesia in numbers
In his keynote speech to delegates at the Sixth Annual
Southeast Asia District Conference and Expo, organized by
the International Association of Operative Millers, Franciscus
'Franky' Welirang explained just how competitive the Indonesian milling market has become over the last two decades.
Pre-deregulation in 1998, the archipelago of some 250
million people and 17,000 islands had just five mills operated by Bogasari, Eastern Pearl Flour Mills and Sriboga
Raturaya & Pangan Mas. By 2009, there were 12 mills,
mostly focused on Java, the most populous of Indonesia's
islands. From 2010-14, another 16 mills were opened and,
in 2015 and 2016, Welirang said another three mills would
open up, taking the total to 31. By next year he predicted
Indonesia's annual total wheat milling capacity would reach
11.2 million tonnes.
Meanwhile, wheat consumption increased from 6.2 million
tonnes in 2011 to 7.4 million tonnes in 2014. "This year is
the only year that we haven't seen growth," he said. "That is
down to changes in government policy and the slowdown of
the economy, and the slowdown of the global and Chinese
economies. At the mid-year point, growth was -0.9% but I
think over the full year growth will be flat.
"But 20 years down the line, the annual growth average
will be about 5% every year."
He said some 200 large companies currently account for
about 34% of total flour consumption in Indonesia, with more
than 55,000 SMEs representing 66% of consumption.
"The big companies keep growing, but some have built
their own mills and expanded horizontally," he added. "So of
the 31 flour mills, some now supply their own production."
Wheat imports to Indonesia mainly come from Australia,
which tends to supply around 60% of the market. Canada is
next with 21% followed by the U.S. with 6.6% and Ukraine
with 1.9%.
"We get some from Russian and India, but Black Sea wheat
is a filler wheat rather than a main wheat. With today's technology, anything can happen with pre-mixes and enzymes so
the mix is changing as people look for lower costs."
He said the rapid expansion of Indonesia's milling sector
had not come about without difficulties.
"There are a lack of milling schools in Southeast Asia which
means millers must study in Europe and America."
He said Bogasari runs its own training program but rivals
tended to invest less in training. "They often just pick up our
people!" he added.
52

is excess capacity, but there is competition and sometimes new
market entrants have been dumping. But that's competition."
EDUCATING THE MARKET
He said Bogasari and Indofood tried to differentiate their
products on quality and by understanding the milling and processing businesses better than rivals, as well as understanding
what products people in Indonesia want now and in the fuWXUHDVGLHWDU\GHPDQGHYROYHVDQGWKHPDUNHWIRUPRUHÀRXU
based consumer goods expands.
"We're trying to educate the market," he explained. "There
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different end product.
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are applied, how soft or crunchy it is or you want it to be.
When competing, getting this right is important, and some
new millers don't understand this. They'll just buy cheap
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new market entrants have found this out the hard way."
He also said there was ample room for further expansion in
Indonesia, both to serve domestic and international markets.
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sectors are not as competitive as in Indonesia," he said. "Over
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we are a very important industry for the economy and exports
will play a growing role in this in the future."
Looking forward, he said Bogasari would strive to maintain
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and price.
"We want market growth," he added. "We don't want to be
alone; competition is good. I think that's the challenge, how
to grow the market in general and keep our market share. We
want to see growing bakeries, growing noodle, biscuit and
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grow by serving big industry. That's the business philosophy.
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Michael King, a freelance journalist and editor, has been writing about
shipping, transport and commodities for more than a decade. Currently
based in Indonesia, he can be reached at: Michael@borderline.eu.com.
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World Grain -- December 2015

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