Highlights

Post's marketing year (MY) 2015/16 wheat import estimate to Indonesia is revised from 7.6 to 8.9 million metric tons (MMT). The increase in imports is due to higher demand from feed mills. Post also slightly revised MY 2015/16 corn production estimates down from 9.4 to 9.3 MMT. A rainy dry season is providing greater opportunities for farmers to grow paddy during Indonesia's second and third crop cycles. Post therefore revises the estimate of MY 2015/16 Indonesian paddy production 35.6 to 36.2 MMT of milled rice equivalent.

Situation and Outlook

In early June 2016, the Indonesian Meteorology, Climatology, and Geophysics Agency (Badan Meteorologi, Klimatologi, dan Geofisika, BMKG) reported that Indonesia will experience higher than normal rains during the last semester of 2016 (a wet dry season). As of May/June 2016, about 31.6 percent of Indonesia (including parts of Aceh, North Sumatera, East Kalimantan, East Java, and East Nusa Tenggara) has started to transition to the dry season, while the remaining 68.4 percent is experiencing an atypically extended rainy season. The expected higher rainfall intensity during the 2016 dry season (normally occurring between April and September) is due to:

  • The arrival of a La Nina phenomenon, as indicated by lower sea surface temperatures in the eastern Pacific Ocean, while Indonesian ocean sea surface temperatures are warming;
  • A Negative Dipole Mode Index, which reached -0.53 centigrade. The negative trend is expected to continue until September 2016. A Negative Dipole Mode will result in higher rainfall in Indonesia;
  • The arrival of a Madden – Julian Oscillation phenomenon, which is the extension and sealing of air from the Indian Ocean eastward. This will potentially lead to high rainfall in Sumatera, West Kalimantan, South Kalimantan, and Java.

Based on the above mentioned factors, major parts of Indonesia, including the production areas of Sumatera, Java, and Kalimantan, will experience a wet dry season from July to September 2016. Indonesia normally starts the onset of the rainy season in October. Therefore, Post expects that most of the major food crop producing areas will continue to receive sufficient rainfall through 2016.

Wheat

Post revises MY 2015/16 Indonesian wheat import estimates to 8.9 MMT from the previous estimate of 7.6 MMT. The increase is mainly driven by higher demand from feed mills. Post therefore expects that U.S. wheat exports to Indonesia will slightly increase to 700,000 MT in MY 2015/16.

Corn

Post revises its MY 2015/16 Indonesian corn production estimates, slightly decreasing production from 9.4 to 9.3 MMT. The decrease is due to favorable weather that prompted farmers to grow paddy in the place of corn on rain-fed areas. Assuming normal weather, production is expected to increase to 9.5 MMT in MY 2016/17. MY 2015/16 Indonesian corn imports are estimated to further decline to 2.1 MMT due to continued corn import restrictions imposed by the government.

Rice

Declines in MY 2015/16 corn production is in relation to more favorable weather for growing paddy. Post revises the estimate of MY 2015/16 Indonesian paddy harvested area to 12.0 million hectares from the previous estimate of 11.8 million hectares. Thus, it is estimated that MY 2015/16 Indonesian paddy production will increase to 36.2 MMT compared to the previous estimate of 35.6 MMT of milled rice equivalent. Considering higher production estimates, Post expects MY2015/16 Indonesian rice imports will decline to 1.8 MMT compared to the initial estimate of 2.0 MMT.

Wheat

Trade

Indonesian feed mills continue to face difficulties meeting feed corn demand due to 2015/16 weather-related production declines and GOI restriction on corn imports. In response to low local supplies and import barriers, feed mills are substituting corn with imported feed wheat. There are 22 feed mills importing feed wheat, resulting in a feed wheat import surge since September 2015. Wheat imports from July 2015 to May 2016 have reached a total of 8.2 MMT compared to 6.7 MMT between July 2014 and May 2015. Considering the aforementioned factors, Post estimates that Indonesia's MY 2015/16 wheat imports will increase to 8.9 MMT, compared to the previous estimate of 7.6 MMT.

The uptick in feed wheat imports poses a threat to their corn self-sufficiency policies. In response, MOA stopped issuing import recommendations for feed wheat starting in June 2016. MOA's shutdown of feed wheat imports, combined with weak exchange rates is expected to slow Indonesian wheat import growth from an average annual rate of 6-7 percent to approximately 5 percent. At these levels, Indonesian wheat imports are expected to contract to 8.5 MMT in MY 2016/17. Wheat exports to Indonesia during the July 2015 to May 2016 period were led by Australia (43 percent), Canada (18 percent), Ukraine (15 percent), Argentina (8 percent), and the United States (8 percent).

Australia's majority market share is due to the noodle industry's preference for Australian standard white wheat, price, and Australia's close proximity. Considering these factors, U.S. wheat exports to Indonesia in MY 2015/16 are expected to reach 700,000 MT.

Post reported in GAIN ID1610 that Indonesia was expected to implement an anti-dumping duty for imports of Indian and Turkish wheat flour (HS Code 1101.00.10.10 and 1101.00.10.90) in the first half of 2016. As of July 2016, however, the GOI has not taken action on this matter. The anti-dumping duty was originally conceived in response to APTINDO's March 2014 request to the Indonesian Anti-Dumping Commission to create a new safeguard following the termination of Indonesia's wheat flour quota. An anti-dumping duty was proposed that would range between 5.6 and 28.9 percent, with a limited duration of four years from the implementation date. (The current import duty for imports of wheat flour is 5 percent).

Wheat flour imports did not increase significantly in 2015 due to the depreciating Rupiah. High freight rates also discouraged wheat flour imports from Sri Lanka, India, and Turkey. Domestic flour dominated the market throughout CY 2015, with a 98 percent market share. According to Global Trade Atlas data, during the period of July 2015 to April 2016, Turkey held the largest market share of wheat flour exports to Indonesia (58 percent), followed closely by Ukraine (18 percent), and Sri Lanka (11 percent). In MY 2014/15, Indonesia imported a total of 130,935 MT of wheat flour (179,119 MT of wheat equivalent). This represents a decline from MY 2013/14 wheat flour imports of 225,392 MT (308,336 MT of wheat equivalent).

Consumption

In line with increasing feed wheat imports, Post revises the MY 2015/16 feed and residual wheat consumption estimate to approximately 1.3 MMT, compared to the previous estimate of 450,000 MT. MY 2016/17 feed wheat consumption is expected to decline to 550,000 MT based on the discontinuation of feed wheat import recommendations. MY 2015/16 food wheat consumption is estimated to increase by 4.2 percent to 7.5 MMT, compared to the previous estimate of 7.2 MMT. This increase reflects population growth, several new-to-market instant noodle brands, and the growth of the high-end retail bakery segment. MY 2016/17 food wheat consumption is forecast to grow to 7.7 MMT.

CORN

Production

The late onset of the 2016 rainy season delayed the first crop planting of corn.Most of the corn in upland areas was planted towards the end of November 2015 (two to three weeks late), and was harvested in late February or early March 2016. Indonesia's first corn season normally takes place from November to February (49 percent). The second season takes place from March to June (37 percent), while the third runs from July to September (14 percent). No significant pest and disease incidents were reported during the first corn crop cycle of MY 2015/16.

With the arrival of La Nina weather during the second crop cycle (as explained above), farmers on lowland rain-fed areas have increased paddy plantings (their crop of preference) over corn due to sufficient rainfall. On the other hand, Post observations in Central and West Java confirm that rain-fed upland farms are planting mung beans in the place of soybean and corn. Upland farmers in Central and West Java report that higher-than-normal rainfall caused corn and soybean germination problems. More rainfall also led to higher rates of downy mildew and stem rot on corn. Despite increasing rates of hybrid corn seed use resulting from Indonesia's corn seed subsidy program, corn seed producers reported lower sales volume in the second crop cycle due to farmers' switching from corn to paddy.

Farmers on Java will plant paddy in the place of corn during the second crop cycle, Post revises MY 2015/16 corn harvested area down from 3.18 to 3.15 million hectares. Increased disease incidents will also reduce the MY 2015/16 corn yield from 2.956 MT to 2.952 MT per hectare. Based on reductions in harvested area and yield, Post expects that MY 2015/16 Indonesian corn production will decline to 9.3 MMT, compared to the initial estimate of 9.4 MMT.

Harvested corn area is expected to decrease to 3.14 million hectares in MY2016/17, as rainy weather is forecast to continue. Additionally, if rainy weather continues, farmers on upland rain-fed areas may also switch from corn and soybean to paddy. Post thus expects MY 2016/17 corn production to fall to 9.5 MMT. Post notes that corn production declines may be slightly offset by the increased use of higher yielding hybrid corn.

Farm-gate corn prices ranged from Rp. 5,000/kg ($381/MT) in West Java to Rp. 2,700/kg ($206/MT) in Central Java in June 2016. The price of hybrid corn seed has been relatively stable, ranging from Rp.60,000/kg ($4.6/kg) to Rp. 85,000/kg ($6.5/kg). (This compares with Rp. 60,000/kg ($4.6/kg) to Rp. 80,000/kg ($6.1/kg) in 2015).

Consumption

The Indonesian Feed Producers Association reports that the current economic slowdown, categorized by the weak rupiah-U.S. dollar exchange rate and depressed consumer purchasing power, is expected to continue to slow commercial poultry feed consumption growth. The Indonesian feed consumption will increase by 8 percent to 17.3 MMT in CY 2016.

The poultry industry consumes approximately 83 percent of Indonesia's animal feed. Aquaculture consumes 11 percent and the remaining six percent is consumed by cattle and swine. The CY 2016 poultry population is expected to reach 3.224 billion broilers, 150 million layers, and 24.8 million breeders. Demand for aquaculture feed in CY 2016 is estimated to increase by 13 percent due to an increase in demand for shrimp in the international market. 84 feed mills are currently operational in Indonesia, with expansion continuing. Due to the continued expansion of existing mills, there is an additional 1.5 MMT installed capacity, raising total installed capacity of Indonesian feed mills to 21 MMT per annum. Millers report that Indonesian mills are running at 70 – 80 percent capacity.

Despite higher demand for corn from feed mills and an expected lower supply from the domestic market, MOA continues its corn import restrictions. Import restrictions are driving down MY 2015/16 feed corn consumption estimates, which are now set at 7.2 MMT. The balance is met from imported feed wheat, as described above. MOA is planning to fully stop corn imports in MY 2016/17. Despite observations that the feasibility of this plan is questionable, MY 2016/17 feed corn consumption is revised to 7.6 from 9.0 MMT. Additionally,the food corn consumption is decreasing by 6.33 percent per annum. Therefore, Post estimates that Indonesian food corn consumption will decline to from 4.2 MMT in MY 2014/15 to 4.1 MMT in MY 2015/16. Corn consumption is expected to continue declining to 4.0 MMT in MY 2016/17 as consumers substitute rice and wheat-based food products.

Indonesian feed millers are heavily reliant on imported feed ingredients. Factors inhibiting feed millers from sourcing ingredients locally include low protein content, high raw fiber content, rancidity, limited and inconsistent corn supplies for commercial scale feed millers, and storage challenges. Given these challenges and Indonesia's expanding livestock sector, feed millers report inelastic demand for imported corn.

Trade

Indonesia's corn demand is larger than its domestic supply, with corn constituting about 80 percent of Indonesian feed energy sources. Domestic production, while increasing, faces challenges due to inconsistent seasonal supplies and poor post-harvest management (resulting in high moisture content and high aflatoxin levels). Despite strong domestic demand, MY 2014/15 saw corn exports reach 230,000 MT, compared to MY2013/14 exports of 12,000 MT. Post notes that Indonesian exports were the result of regional trade between Sulawesi and the Philippines, where transportation costs are more advantageous than shipping to Java or Sumatera. The GOI has nonetheless used this scenario as justification of the success of its self-sufficiency objectives, resulting in restrictions and unclear corn import policies.

Until November 6, 2015, feed mills importing corn were bound by the policies referred to by a 2002 Director General for Livestock and Animal Health Service's (DGLAHS) circular letter. On November 25, 2015, MOA issued Regulation No. 57/2015 on Imports and Exports of Plant Based Feed Ingredients. The regulation stated that the Minister of Trade will issue import permits for any plant-based feed ingredients imports. In order for this regulation to be implemented, the Ministry of Trade must also issue a corresponding regulation to MOA 57/2015 for the administration of import licensing. To date, the Ministry of Trade has not issued any regulation related to this matter, creating uncertainty for corn importers and livestock producers.

Feed millers continue to import corn despite the lack of clear regulations. Approximately 445,000 MT of corn was imported during November and December 2015, but MOA declared the imports illegal. In late January 2016, the GOI designated the Indonesian National Logistics Agency (BULOG) as the sole authorized importer for corn. BULOG assumed ownership of the detained corn shipments and then transferred the title to feed millers with an agreement that 20 percent of the imported corn would be distributed, at a set price, to smaller poultry farms self-mixing feed rations. Additionally, the GOI decided that Indonesia will import 2.4 MMT of corn in CY 2016 at a rate of 600,000 MT per quarter.

To reinforce this, on May 25, 2016, GOI issued presidential decree No. 48/2016 on the Assignment to BULOG in the Context of National Food Security. The decree generally orders BULOG to ensure the supply of staple foods and stabilize their prices. Staple foods include rice, corn, soybean, sugar, cooking oil, wheat flour, shallot, chilies, beef, broiler meat, and eggs. Especially for corn, rice, and soybean,BULOG must:

  • Ensure stable prices at the consumer and producer level.
  • Manage government reserves.
  • Ensure the supply and distribution of staple foods.
  • Import staple foods.
  • Develop food based industries, and
  • Develop food storage.

Furthermore on rice, BULOGmust:

  • Ensure stable prices of rice at the consumer and producer level.
  • Manage government rice reserves.
  • Ensure supply and distribution of rice for certain population groups.
  • Import rice.
  • Develop rice based industries including paddy and rice production and processing.
  • Develop rice storage.

In ensuring sufficient supply of the staple foods, BULOG must prioritize domestic procurement over imports. On rice for the poor distribution, BULOG will refer to the direction of the Ministry for Social Affairs, while for the distribution of corn and soybean BULOG must refer to the direction of the Ministry of Industry. For the distribution of other staple foods, BULOG will follow guidelines from the Indonesian Ministry of Trade.

Despite growing feed mill capacity, the above mentioned restrictions are expected to impede import growth. Therefore, Post revises its MY 2015/16 corn import estimate down from 3.0 to 2.1 MMT. MY 2016/17 corn imports are forecast to increase marginally to 2.2 MMT, reflecting Indonesia's slight forecasted production increase and growing feed mill demand. According to Global Trade Atlas, Indonesian corn imports originated from Brazil (64 percent), Argentina (27 percent), and the United States (6 percent) during the October 2015 to April 2016 period.

RICE, MILLED

Production

The first paddy crop plantings of MY 2015/16 were delayed in major production areas due to the late arrival of the rainy season (December arrival and January/February 2016 peak). Typically, irrigated farms are planted to paddy during the first crop cycle (October – February), followed by paddy on the second crop cycle (March to June), and ended by growing paddy or secondary crops such as corn, mung bean, soybean, peanut, or sweet potato during the third crop cycle (July – October). In the 2015/16 season, the first paddy crop planting was delayed to the end of December or January in most areas in Central Java, East Java, Lampung, and NTT. Post now expects harvest delays for MY 2015/16 third crops, especially on irrigated lowland areas. However, with the arrival of La Nina-type weather and rains in June, farmers working rain-fed lowland areas in Sumatera, Java, and Kalimantan may have sufficient rainfall to continue growing paddy during the second and third crops cycles instead of corn or soybean.

Rainy dry seasons tend to provoke a higher incident of pest and diseases. Post observation in Central and West Java confirm farmers and GOI reports of increased incidents of neck blast, brown hoppers, stem borer, and rice ear bugs.

Post revises its MY 2015/16 rice harvested area estimate from 11.8 to 12.1 million hectares. Assuming the continuation of favorable paddy growing weather and carry-over from the MY 2015/16 third crop, Post's MY 2016/17 harvested paddy area estimate remains unchanged at 12.16 million hectares. Overall MY 2015/16 yields are estimated to decline slightly from 4.7511 to 4.711 MT per hectare due to harvest coinciding with rainy weather and increased pest and disease incidents.

Considering the above mentioned situation, Post revises its MY 2015/16 paddy production estimate up to 57.0 MMT from 56.063 MMT. The increase is based on larger harvested areas during the second and third crop cycles that resulted from higher rainfall on lowland rain-fed areas. Post also expects MY 2016/17 paddy production to increase to 57.638 MMT based on additional carry over from MY 2015/16 third crops.

Trade

BULOG has set its procurement target at 3.2 MMT of milled rice equivalent for MY 2015/16. As of December 2015, BULOG realized approximately 2.0 MMT of the MY 2014/15 procurement target, with ending stocks at 1.439 MMT. BULOG normally meets 60 percent of its procurement target during the first main harvest period. Despite the delay in the MY 2015/16 first harvest, BULOG procurements totaled 1.8 MMT as of the end of June, 2016. This is higher than 1.5 MMT procured during the same period last year, although still less than the 60 percent benchmark. June is usually the most important month for BULOG domestic procurement objectives.

The GOI has instructed BULOG to maintain a minimum secure stock level of 2 MMT by the end of the year. With the current government purchase price for rice (HPP), BULOG may find it difficult to meet its procurement target, as the delayed harvest, combined with inflation, will push paddy prices up. Assuming that BULOG will be able to reach its procurement target from domestic sources, the GOI will still need to consider imports to maintain BULOG's stock at prescribed levels.

In October 2015, the GOI instructed BULOG to import a total of 1.5 MMT of medium quality rice from Vietnam and Thailand to maintain BULOG's CY 2015 ending stock at 1.5 MMT. Based on Global Trade Atlas data, a total of 600,000 MT of imported rice arrived in country as of November 2015. BULOG reported that a total of 700,000 MT of the authorized imports were carried over to MY 2015/16.

Indonesian regulations restrict rice imports one month prior, during, and two months after the main harvest period. Indonesian regulations only permit BULOG to import medium quality rice; while private companies can import specialty rice (jasmine rice, basmati rice, sushi rice, rice for diabetics and rice seed, for example). However, since the end of 2014, MOA has refused to issue any import recommendation for japonica rice, claiming that japonica rice can be substituted with similar Indonesian varieties. On December 8, 2015, MOT stipulated in Regulation 103/2015 on Rice Imports and Exports that japonica rice (HS. 1006.30.99.00) is permitted for import into Indonesia. In order for japonica rice imports to resume, the Ministry of Agriculture must agree to issue import recommendations.

Indonesian rice prices are considered the highest in the international market, providing incentives for illegal rice imports.

With estimated higher rice production combined with carry over imports from last year and higher demand for specialty rice, Post expects that MY 2015/16 imports will decrease to 1.8 MMT from the previous estimate of 2.0 MMT. Post forecasts that MY 2016/17 Indonesian imports of rice will further decline to 1.25 MMT, in line with the forecast production increase and higher MY 2015/16 ending stocks.

Consumption

In MY 2015/16, BULOG will allocate 2.795 MMT of rice for the Raskin program to 15,530,897 poor families. Each family will receive 15 kg of rice/month for 12 months at the price of Rp. 1,600/kg. As of June 2016, BULOG distributed approximately 1.8 MMT of rice under the Raskin program.

Data from the 2013 Indonesia National Economic Survey (Susenas) shows an average decline in per capita rice consumption of 1.62 percent per annum. The decline in rice consumption is due to some switching to wheat flour-based foods such as instant noodle and bread. The price of a pack of instant noodle is approximately Rp. 2,000/pack ($0.15/pack) and can be eaten without any side dishes, compared to the rice price of Rp. 9,400 – 11,750/kg ($703 - $879/MT). Post maintains the MY 2015/16 consumption estimate at 38.3 MMT. Post expects Indonesian rice consumption to remain unchanged at 38.3 MMT in MY 2016/17.

Stocks

Post estimates MY 2015/16 rice ending stocks to rise to 3.611 MMT, tracking with rice production increases. MY 2016/17 ending stocks are expected to decline to 3.161 MMT based on lower imports and stagnant consumption.

Prices

The price of wet paddy and rice remain above the HPP, despite the ongoing harvest. Current farm gate prices of wet paddy in Java range from Rp. 3,300/kg ($251/MT) to 4,800/kg ($366/MT). The average price of medium quality rice at Cipinang wholesale market also decreased to Rp. 9,900/kg ($754/MT) from Rp. 10,198/kg ($777/MT) in March 2016.

PSD: WHEAT

Wheat

Market Begin Year

Indonesia

2014/2015

2015/2016

2016/2017

Jul 2014

Jul 2015

Jul 2016

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

0

0

0

0

0

0

Beginning Stocks

1485

1485

1316

1299

1466

1099

Production

0

0

0

0

0

0

MY Imports

7478

7478

8600

8900

8700

8500

TY Imports

7478

7478

8600

8900

8700

8500

TY Imp. from U.S.

562

562

0

700

0

600

Total Supply

8963

8963

9916

10199

10166

9599

MY Exports

282

300

300

300

300

300

TY Exports

282

300

300

300

300

300

Feed and Residual

165

165

650

1300

700

550

FSI Consumption

7200

7200

7500

7500

7700

7700

Total Consumption

7365

7365

8150

8800

8400

8250

Ending Stocks

1316

1299

1466

1099

1466

1049

Total Distribution

8963

8964

9916

10199

10166

9599

Yield

0

0

0

0

0

0

TS=TD

PSD: CORN

Corn

Market Begin Year

Indonesia

2014/2015

2015/2016

2016/2017

Oct 2014

Oct 2015

Oct 2016

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

3100

3100

3180

3150

3140

3140

Beginning Stocks

1741

1741

1666

1655

1316

1715

Production

9000

9000

9400

9300

9600

9500

MY Imports

3381

3381

3100

2100

3000

2200

TY Imports

3381

3381

3100

2100

3000

2200

TY Imp. from U.S.

35

35

0

0

0

0

Total Supply

14122

14122

14166

13055

13916

13415

MY Exports

256

255

50

20

20

20

TY Exports

256

255

50

20

20

20

Feed and Residual

8000

8000

8600

7200

9000

7600

FSI Consumption

4200

4200

4200

4100

4000

4000

Total Consumption

12200

12200

12800

11320

13000

11720

Ending Stocks

1666

1655

1316

1715

896

1675

Total Distribution

14122

14110

14166

13055

13916

13415

Yield

2.9032

2.9032

2.956

2.9524

3.0573

3.0255

TS=TD

0

-12

0

0

0

0

PSD: RICE, MILLED

Rice, Milled

2014/2015

2015/2016

2016/2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2016

Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

11830

11830

11660

12100

12160

12160

Beginning Stocks

5501

5501

3959

3911

3159

3611

Milled Production

35560

35560

35300

36200

36600

36600

Rough Production

56000

56000

55591

57008

57638

57638

Milling Rate (.9999)

6350

6350

6350

6350

6350

6350

MY Imports

1198

1350

2000

1800

1250

1250

TY Imports

1198

1350

2000

1800

1250

1250

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

42259

42411

41259

41911

41009

41461

MY Exports

0

0

0

0

0

0

TY Exports

0

0

0

0

0

0

Consumption and Residual

38300

38500

38100

38300

38100

38300

Ending Stocks

3959

3911

3159

3611

2909

3161

Total Distribution

42259

42411

41259

41911

41009

41461

Yield (Rough)

4.7337

4.7337

4.7677

4.7114

4.74

4.74