JP/19/DAIRY
Milking profits in East Java
Duncan Graham, Contributor, Surabaya
The Westernisation of Indonesian lifestyles is helping lift incomes for thousands of East Java dairy farmers.
Working with the provincial government and the agriculture department of Western Australia, they have boosted milk production. Now they are manufacturing their own brands to meet the demand as Indonesians turn to dairy foods.
"At last we've become price makers instead of being price takers," said Fuad Ardiansyah, 30, manager of the new Sekar Tanjung milk processing plant at Purwosari.
"Being at the mercy of buyers has always been a problem for Indonesian farmers, particularly those producing perishable foodstuffs.
"When yields are good, prices fall. When yields are poor prices go up. Farmers had to take what was offered. They were seldom able to save money or upgrade facilities. That situation has now changed for members of our co-ops."
Six dairy co-ops in the Malang and Pasuruan regions, each with about 7,000 members, have pooled their dividends to build their own Ultra High Temperature (UHT) milk-processing plant.
The factory, about 90 minutes drive south of Surabaya, has created new jobs for 100 local workers. It runs three shifts 24 hours a day.
The Rp 45 billion plant was set up with loans from the East Java and Indonesian governments using funds allocated to help cooperatives. No money was borrowed from banks.
Although it has been operating for less than four months, the venture has been so successful that plans to install more packaging machines in 2010 have been brought forward to this year. This is despite having no advertising budget.
"Indonesian tastes are changing. There's a shift from powdered milk to UHT milk," Faud said. "Consumers are more concerned over their health. They recognize UHT milk is cheaper and easier to use. Like Westerners, people have less time and prefer fast foods.
"The shift is marginal, maybe two to three percent a year. But with 250 million people that's a lot of new customers."
Faud's father, Mohammed Koesnan, was one of the first farmers to seize opportunities presented by the East Java-Western Australia Sister-State agreement. This provides exchange visits for progressive professionals and businesspeople.
Visiting Australia, he was surprised that dairy cows produced 25 liters of milk a day. Around Malang the yield was seven liters.
He imported Friesian cows from Australia when dairy farms in that country were being rationalized to make the industry more efficient. Small enterprises were closing and quality cattle were on the market.
Most East Java dairy farmers have three to five milking cows. Australian herds are numbered in the hundreds.
Milk production jumped once the new cows had settled in, but the only buyer was the Nestle factory in Pasuruan, which makes dried milk powder.
Faud, who studied marketing at the University of Auckland in New Zealand, puzzled how to sell the extra milk and improve returns. Every year production was increasing by around 15 tonnes.
Five years ago he recommended the cooperatives build their own plant. They agreed and set aside dividends for capital. All had a role in the planning.
The new factory has been designed for study tours by schools, community groups and government departments to promote milk consumption. To maintain hygiene, visitors are not allowed in the milk processing rooms but can watch operations through big windows. The laboratories, which constantly monitor quality, can also be viewed.
Packaging machines imported from Sweden seal milk in sterile, multi-layered paper and foil packs. These contain 150 or 180 milliliters of plain or flavored UHT milk.
The packs, under the brand names Idola (with a logo like the Indonesian Idol TV program), Sekar (Flower) and Juara (Champion) are designed for the youth market. They are distributed through the Indonesian co-op network and schools.
Sekar Tanjung also packages for other manufacturers who cannot get enough milk.
"There's a great need to build health awareness in the villages and kampungs, and slowly this is happening," said Faud.
"There are some free milk programs for poor schools supported by overseas aid agencies, and we are starting to retail UHT milk via kaki lima (mobile food carts that traverse the streets of most Indonesian cities)."
During the past 14 years the Western Australian agriculture department has been sending veterinary surgeons and dairy farm experts to help the cooperatives raise standards. This service has been free.
"I'm very optimistic about the future," said Faud. "Everyone supports Indonesian co-ops because they know profits go back to the members. The healthy food message is getting through and we're in a great position to benefit."