JAKARTA, INDONESIA — A growing population, new flour-based food trends and food diversification is translating into bright prospects for the Indonesian wheat flour industry, which is expected to see four new mills come online in 2024-25. 

The industry currently includes 30 mills with an installed capacity of 14.4 million tonnes, with a 99.9% domestic market share. 

While the tropical climate of Indonesia is favorable for growing multiple crops in the same plot of land within the same year, the nation grows no wheat. It relies entirely on imports to supply its mills and serve as a feed ingredient. 

Demand from general elections and the high cost of corn (maize) for feed is expected to boost wheat imports by 22% to 11.5 million tonnes in 2023-24, according to a report from the Foreign Agricultural Service (FAS) of the US Department of Agriculture. Imports drop only slightly in 2024-25 to 11.4 million tonnes.

Comprised of more than 17,500 islands, Indonesia has vast and abundant fertile soil, allowing it to produce a variety of agricultural products. Key commodities include palm oil, rice, corn and soybeans. 

Despite that local production, Indonesia still imports a significant amount of agricultural products, totaling more than $28 billion in 2022. Along with wheat, imports include soybeans, rice, beef, fresh fruit and various feed ingredients. Key trade partners include Australia, the United States, Brazil, China and India, representing about 58% of total imports by value. 

Agriculture is a significant part of the economy, contributing 12.53% to gross domestic product and employing 29% of the workforce in 2023. Three out of five Indonesians live in rural areas and farming is their primary occupation. 

Indonesia has one of the largest economies in Southeast Asia and a rapidly growing middle class. The poverty rate was cut by more than half since 1999 to under 10% in 2019, prior to the COVID-19 pandemic. Poverty is concentrated in rural areas with 13.8% of those residents classified as poor compared to 8.2% in urban areas. 

Economic growth is underpinned by an increase in private consumption and positive terms-of-trade, according to the World Bank. GDP growth is expected to average 4.9% over the medium term from 2024-26. However, downside risks from the global economic environment would weigh on Indonesia’s growth, the World Bank said. 

Flour and feed milling

Of Indonesia’s current 30 flour mills, 23 mills are on Java, the geographic and economic center of Indonesia and home to more than half its people, five in Sumatera and two in Sulawesi, the FAS said. Food consumption of wheat is expected to increase 5.9% to 9 million tonnes in 2023-24, and slightly increase to 9.1 million tonnes in 2024-25. 

Domestic wheat flour has 99.9% market share, with small and medium enterprises consuming about two-thirds of the production. This includes small-scale wet noodle makers, street food vendors, low-end bread and bakery businesses and traditional Indonesian cake makers. 

These enterprises struggled to survive following weakened purchasing power brought on by massive layoffs in the manufacturing sector, the FAS said. 

However, large and modern establishments that use the other third of domestic flour production are growing as demand increases. This includes instant noodle manufacturers, high-end bakeries and cookie and biscuit manufacturers. 

High rice prices in the domestic market have increased the consumption of instant noodles, especially by lower income families, according to the Indonesian flour mills association, APTINDO. 

“The recent general elections with political party gatherings and campaigns serving boxed snacks, followed by consecutive religious festivities in 2024, are also expected to drive demand for wheat flour-based foods in 2023-24,” the FAS said. “More upper-end restaurants and bakeries offering new and globally trending flour-based food products are opening.”

 The Indonesia Food and Beverage Producers Association estimated that the food and beverage sector will grow by 7% in 2023-24.

Wheat also is used in Indonesia as an ingredient for feed, of which 90% is for poultry, 6% for aquaculture and 4% for cattle and swine. Feed production is expected to increase 4% to 23.3 million tonnes in 2024-25. Wheat consumption for feed in 2023-24 is estimated at 1.6 million tonnes of wheat equivalent, an increase of 45.5%. In 2024-25, that total is forecast to further increase to 1.8 million tonnes. 

“Shortages of corn production that led to increased corn prices have forced feed mills to reduce the proportion of corn in their feed formulation in favor of wheat to fill demand for energy source,” the FAS said, noting that corn usage in feed formulation in 2022-23 was down 38% to 40%. 

The feed mill sector includes 110 mills under 44 companies in 10 provinces. Total installed capacity of poultry feed reached 27.597 million tonnes, the FAS said, while aquaculture feed capacity is 2.527 million tonnes. Feed mills are running at 70% to 75% installed capacity, it said. 

Crop production

Cropping systems within Indonesia are diverse, including different ecosystems and sources of water, the FAS said. About 85% of rice production comes from irrigated paddy fields, with 50% to 55% of total national rice production coming from the first crop cycle, 30% to 35% from the second cycle and 15% to 20% from the last.

A stronger-than-anticipated El Niño reduced paddy harvested area and production in 2023-24, the FAS said, causing farmers to start the second crop cycle immediately after the first. This may lead to higher incidents of pests and disease in 2023-24.

The FAS reduced its harvested area to 10.7 million hectares for 2023-24 and 11 million hectares for 2024-25. Paddy production in 2023-24 is expected to drop 5.3% to 50.6 million tonnes and increase 2.8% in 2024-25 to 51.97 million tonnes. 

The rice harvested area continues to decline, shrinking by 1.7 million hectares from 2018-23 due to the conversion of rice fields into non-agricultural uses, the FAS said. Efforts by the agriculture ministry to open new fields every year cannot keep up with the loss. 

With higher prices for paddy and rice, consumption is expected to decrease 1.1% in 2023-24 to 35.1 million tonnes. However, it is expected to rebound in 2024-25 to 35.4 million tonnes. 

Imports are expected to decrease 14.3% to 3 million tonnes and drop further to 1 million tonnes in 2024-25 in line with expected increases in production. 

Corn, which is a secondary crop to rice, can have two or three planting periods per year. El Niño delayed planting and harvesting of the first crop cycle in 2023-24 but with production shortages in 2022-23 incentivizing farmers, harvested area is expected to increase to 3.7 million hectares.

Production in 2023-24 is estimated at 12.7 million tonnes and 13 million tonnes in 2024-25.

Corn milling capacity continues to grow, the FAS said, with installed capacity estimated at 4,500 tonnes per day as of 2022-23 compared to 4,000 tpd in 2021-22. The industry includes four major players and two ethanol plants, for a combined usage of 300,000 tonnes. 

The wet milling and ethanol industry requires corn with an aflatoxin content of less than 20 parts per billion, so it mostly uses imported corn. The FAS estimates 2023-24 corn imports will reach 1.2 million tonnes, further increasing to 1.3 million tonnes in 2024-25.

“Most farmers dry their corn under the sun, and often improperly store it at the farmer level, frequently causing their corn to reach aflatoxin levels far above 20 ppb,” the FAS said. 

The wet mills produce corn starch, high-fructose corn syrup and glucose syrup. Most corn starch is used as the main raw material for corn vermicelli. 

“Prospects for wet mill expansion remains bright as Indonesia still imports 55% of total demand for starch, providing ample opportunity for the local corn milling industry to grow,” the FAS said.