Dairy farming business to gear up for 2005<\/p>\n
JAKARTA (JP): Indonesia's dairy farming business, which has
\nbeen developing at a slow 4.6 percent annual growth rate in the
\nlast five years, has less than 10 years to strengthen itself
\nbefore imports start flooding the domestic market in 2005.<\/p>\n
Salim Al Bakry, the secretary-general of the Union of Dairy
\nCooperatives in Indonesia, said that under the General Agreement
\non Tariffs and Trade (GATT) framework, Indonesia will be expected
\nto have lifted its milk-ratio policy by 2005.<\/p>\n
The policy -- a non-tariff barrier -- has so far been able to
\nprotect small-scale dairy farmers from being battered in fierce
\ncompetition against imports.<\/p>\n
\"When there is no milk-ratio policy, milk-processing companies
\nwill be allowed to import all the milk powder they need, without
\nhaving to absorb fresh milk from domestic farmers. Local dairy
\nfarms have no choice but to prepare themselves for this,\" Salim
\nsaid at a recent seminar on the dairy industry.<\/p>\n
Currently, the policy sets a ratio of 1:2.4, meaning that
\nmilk-processing firms are allowed to import milk powder
\nequivalent to 2.4 liters of fresh milk for every liter of fresh
\nmilk they buy from domestic farmers. The ratio is reviewed every
\nsix months.<\/p>\n
Threat<\/p>\n
Lowering the ratio will no doubt become a threat if the
\nconditions of dairy farms remain the same as they are today.<\/p>\n
According to the dairy union's figures, a small-holder's dairy
\nfarm owns three to four milch cows, each of which produces only
\nabout 10 liters of milk per day.<\/p>\n
Such farms -- which make up 90 percent of the country's dairy
\nfarming business -- generally have a calving interval of over 16
\nmonths, thereby resulting in low productivity. They are usually
\nmanaged unprofessionally, as they lack breeding knowledge and
\ntechnology.<\/p>\n
In comparison, as recorded by Business Consultancy Indonesia,
\nthe productivity of overseas dairy farms can reach 15 liters to
\n18 liters of milk per cow per day.<\/p>\n
Small-scale farms currently gain extensive support from the
\ncooperatives' union, which was established in 1979 to assist
\nfarmers at preproduction, production and postproduction stages.<\/p>\n
The farmers are also protected by the government, which
\nencourages large milk-processing companies to assist small-scale
\ndairy farmers through small-holders nucleus estate programs.<\/p>\n
To back this up, the government issued a presidential decree
\nin 1993 which stipulated that milk powder and condensed milk
\nindustries will be closed to investment unless they are
\nintegrated with dairy cattle-raising farms under a nucleus estate
\nprogram.<\/p>\n
This program requires a company to act as a core, which
\nprovides a complete aid package to dairy farms -- from management
\ntechniques and training to capital loans.<\/p>\n
The government also controls the imports of milk and milk
\nproducts.<\/p>\n
Through two decrees issued in 1995 and 1996, the government
\nappointed 10 major milk-processing companies grouped in the
\nAssociation of Indonesian Milk Processing Producers as importers
\nof milk for milk-processing companies.<\/p>\n
For non-milk industries, the imports must be conducted through
\nstate-owned trading firms PT Pantja Niaga and PT Kerta Niaga.<\/p>\n
The dairy goods -- classified as \"luxury goods\" by the
\ngovernment -- are charged a 10 percent luxury tax, a 10 percent
\nvalue-added tax and import duties of between 15 percent and 35
\npercent.<\/p>\n
In spite of all the backup and support, domestic milk
\nproduction is still unable to meet the demand from milk-
\nprocessing industries.<\/p>\n
Business Consultancy Indonesia stated in its report that local
\nproduction of fresh milk meets only 30 percent of that required
\nby the seven largest milk-processing firms in Indonesia.<\/p>\n
\"Domestic production...cannot keep up with the requirements of
\nthe industry,\" the report read.<\/p>\n
Meanwhile, the seven companies -- PT Nestle Indonesia, PT
\nIndomilk, PT Friesche Vlag Indonesia, PT Foremost Indonesia, PT
\nUltra Jaya, PT Dafa and PT Sari Husada -- are the main consumers
\nof domestic fresh milk, absorbing up to 70 percent of its total
\nproduction.<\/p>\n
According to the report, the companies offset their shortage
\n-- up to 70 percent of their demand -- by importing mostly semi-
\nfinished milk products in the form of skim milk powder,
\nbuttermilk powder, full-cream milk powder and a hydrous milk fat.<\/p>\n
Imports are reportedly cheaper by Rp 100 (4 U.S. cents) to Rp
\n150 per kilogram than local products.<\/p>\n
As of 1994, the main countries supplying raw materials for
\nIndonesia's milk-processing companies are New Zealand (24
\npercent), Australia (20 percent), Germany (7 percent) and the
\nNetherlands (6 percent).<\/p>\n
A.C.N. Zwanenbergh, the Netherlands-based Rabobank's food and
\nagribusiness research sector manager, said the GATT framework
\nwill require dairy companies to reconsider their strategies.<\/p>\n
\"The future of the dairy industry will be affected by
\ngeographical regions, scale, structure, governmental policy and
\nproximity to consumer markets,\" Zwanenbergh said.<\/p>\n
\"Many companies are now desperately seeking new markets for
\ntheir dairy products as their home markets become saturated,\" he
\nstated in a paper presented at the seminar.<\/p>\n
Zwanenbergh pointed out that Indonesia's commitment to the
\nGATT will require the removal of non-tariff barriers on
\nagricultural products and this, in turn, will affect both farmers
\nand processors as they are forced to compete with cheaper import
\nmilk products.<\/p>\n
According to Business Consultancy Indonesia, Indonesia's milk
\nconsumption per capita per year is presently 3.7 liters the
\nequivalent of fresh milk, which is extremely low compared to
\nneighboring countries Thailand (15 liters) and Singapore (30
\nliters).<\/p>\n
Business Consultancy Indonesia estimates that the country's
\nmilk consumption will increase at an average rate of 4 percent a
\nyear, from 3.8 kilograms per capita in 1996 to 4.4 kg per capita
\nin 2000.<\/p>\n
Meanwhile, production levels -- which are estimated at 3.9 kg
\nper capita -- are expected to grow by 4.6 percent a year.<\/p>\n
\"Indonesia's dairy sector will face the prospect of many
\nchanges in consumption, production and processing. The next 10
\nyears to 12 years will be a dynamic and challenging period for
\nboth Indonesian and foreign companies with good opportunities
\nopen to both,\" Zwanenbergh said. (pwn)<\/p>",
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"sponsor": "Okusi Associates",
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