checked by checkdesk<\/p>\n
Food sector weathers economic crisis<\/p>\n
Rikza Abdullah
\nContributor
\nJakarta<\/p>\n
Indonesia's food and beverages industries have proven
\nthemselves as business sectors that have not been severely
\naffected by the recent economic crisis. They, therefore, will
\ncontinue to be attractive for investors as economic recovery is
\nexpected to boost their future growth.<\/p>\n
Data at the Central Board of Statistics (BPS) shows that the
\ncapacity utilization of the food processing companies declined
\nslightly from an average of about 81 percent in 1996 to about 80
\npercent in 1997, the first year of the recent economic crisis.<\/p>\n
The capacity utilization fell further to about 76 percent in
\n1998, when the crisis reached its deepest level. But the capacity
\nutilization rose back to about 77 percent in the following two
\nyears.<\/p>\n
The capacity utilization of the beverages industry rose from
\n77.9 percent in 1996 to 79.6 percent in 1997 and fell to 71.4
\npercent in 1998 but it rose back to 77.8 percent in 1999 and to
\n80.8 percent in 2000.<\/p>\n
"The food and beverage sector will never experience extreme
\nups and downs because they supply the basic needs of the people,"
\nthe Ministry of Industry and Trade's agroindustry director, Yamin
\nRahman, commented in Jakarta Thursday.<\/p>\n
Thomas Darmawan, executive director of the Indonesian Food and
\nBeverages Association (GAPMMI), told The Jakarta Post that the
\nfood and beverage businesses were likely to grow by between 10
\npercent and 15 percent per annum in the future if the country's
\ngross domestic products (GDP) can grow by at least by 4 percent
\nannually, the inflation rate by 10 percent and population by more
\nthan 1.5 percent.<\/p>\n
The interests of investors in the food and beverage industry
\ncan also be seen from the value of their investments in this
\nsector. According to the Investment Coordinating Board, out of
\nlast year's domestic investment commitments worth Rp 58.67
\ntrillion (US$6.5 billion), the second largest portion, worth Rp
\n11.1 trillion (18.9 percent) was committed for the establishment
\nof food processing businesses.<\/p>\n
The largest portion, Rp 22.33 trillion or 38.1 percent was
\nallocated for the development of chemical and pharmaceutical
\nindustries. Out of foreign investment commitments worth $9
\nbillion in 2001, the food industry attracted $279 million or 3.1
\npercent.<\/p>\n
Darmawan said corporations that relied on imported raw or
\nauxiliary materials had thus far shown better performance, with
\ncapacity utilization ranging between 70 percent and 90 percent,
\nthan those relying on locally supplied materials, with a maximum
\ncapacity utilization of 50 percent.<\/p>\n
According to the Ministry of Industry and Trade's center for
\nindustrial data (Pusdatin), the capacity utilization of the
\nmonosodium glutamate (MSG) industry, for example, reaped 91.9
\npercent last year, the soft drink sector 86.4 percent, the milk
\nsector 76.8 percent, the margarine sector 75.3 percent, the
\ninstant noodle sector 74 percent and the candy sector 73.7
\npercent.<\/p>\n
For comparison, the capacity utilization of the edible palm
\noil sector reached only 43.1 percent last year, copra-based
\nedible oil 22.5 percent, fruit canning sector 24 percent and
\ncoffee powder sector 16.4 percent.<\/p>\n
"The industries that rely on imported raw or auxiliary
\nmaterials can perform well because they are generally supported
\nby constant supplies of materials, stability of materials' prices
\nand availability of technology," Darmawan commented.<\/p>\n
The businesses that rely on domestic raw materials performed
\nworse due to frequent disruptions in the supplies of materials,
\nfluctuations of materials' prices and high costs of local
\ntransportation, he said.<\/p>\n
Fluctuations of materials' prices were caused mainly by the
\nlack of government policies that encouraged producers to supply
\ntheir goods to domestic industries, while the high transportation
\ncosts resulted from illegal payoffs, he added.<\/p>\n
He said the fish processing industry was exceptional. It could
\nperform better -- with a capacity utilization averaging 81.7
\npercent -- than the other industries relying on domestic
\nmaterials because fish processing companies locate their
\nfactories close to resources.<\/p>\n
Darmawan said food processors and beverage producers generally
\nrely on the huge domestic market. The fact that Indonesia's
\nexports of food and beverages grew slowly indicated that their
\nrole was small in supporting the growth of the food and beverage
\nsector.<\/p>\n
According to Pusdatin, the country's food and beverage
\nexports, which fell from $748.9 million in 1997 to $657 million
\nin 1998, increased to $843.91 million in 1999, to $851.68 million
\nin 2000 and to $931.45 million in 2001. During the first four
\nmonths of this year, the country's food and beverages exports
\nrose 16 percent to $320.09 million from $275.93 million in the
\nsame period of last year.<\/p>\n
Darmawan said the food and beverage industries would become
\nmore attractive in the future if the government took certain
\nmeasures related to transportation, security, sales of raw
\nmaterials, investment, financing, promotion, as well as research
\nand development.<\/p>\n
On transportation, the government should eradicate illegal
\nfees, both by government officials and thugs, that have caused
\ndomestic raw materials to become more expensive than imports.<\/p>\n
On security, the government should guarantee the safety of
\npeople moving from one area to another so that investors,
\nparticularly foreigners, were no longer scared to operate
\nbusinesses in the country.<\/p>\n
To help guarantee the consistent supply of raw materials, the
\ngovernment should introduce policies that encourage producers of
\nraw materials, such as coffee beans and cacao, to prioritize
\ntheir sales to domestic processors. Domestic processors usually
\nhave difficulties in obtaining raw materials when their prices
\nare high on the international market.<\/p>\n
The government could also introduce investment incentives like
\ntax holidays and duty exemptions for foreign investors that would
\nproduce certain goods in remote areas, but it should encourage
\nthem to establish labor-intensive plants with a minimum
\ninvestment of $1 million and to use new technology.<\/p>\n
To help finance domestic manufacturers, the government should
\nencourage local banks to channel more credits to them and lower
\ntheir interest rates.<\/p>\n
"Encountered by financial difficulties, many domestic
\nmanufacturers have been forced to sell majority shares to
\nmultinational companies that have greater access to international
\nfinancing," Darmawan said.<\/p>\n
On promotion, the government should increase its supports on
\nthe overseas promotion of Indonesian products.<\/p>\n
"These measures are important for Indonesia to increase the
\ncompetitiveness of its food products and beverages when it has to
\nface free competition after the implementation of the ASEAN Free
\nTrade Agreement in 2003," Darmawan said.<\/p>",
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