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The food and beverage market accounts for the biggest share (estimated at 70%) of the Indonesian packaging market. With the ever increasing demand and growth in food consumption, the packaging industry is expected to grow in tandem. There are lifestyle changes taking place in this society that are altering food habits. Indonesian consumers are increasingly purchasing convenience food. Working urban women have limited time to shop and cook the traditional way and this leads to demand for ready to eat food and convenience packaging. The rising pace of modern life in urban centres is driving demand for ready-to-cook / ready-to-eat food, and Indonesians returning from study or work abroad are also importing the tendency to eat on-the-run.
The economy in Indonesia has experienced one of the best GDP growths in 2011 compared to the neighbouring countries of Southeast Asia. This can be attributed to the fact that the country is relatively protected from global trade dynamics and has its own inherent strength emanating from a massive domestic consumption base. The country has a large proportion of its population that is young - an estimated 55% of the population is less than 25 years old. Rapid urbanization is another major factor that has contributed to growth. The country has a population of 237.6 million of which nearly 42% lives in urban areas. The vast population makes the food and beverage sector attractive to investors. As packaging is an integral part of the food as well as beverage industry, the demand for packaging is expected to grow in step with the growth in the food and beverage industry.
Annual growth in food consumption in Indonesia in 2011 over the previous year was estimated at 7.4%. One of the major contributors to this growth was the growth in the soft drinks sector, with an estimated growth rate of 11.5% during 2011. This growth opportunity in this sector has been identified by multinational companies who have plans to tap into this market.
Examples that can be cited are of a Japanese food and beverage company that is entering into a joint venture with Garudafood, an Indonesian packaged food and beverage company. With a faltering domestic demand it is a strategic move for the Japanese company to secure an early foothold in the growing food and beverage industry in Indonesia. Nestle has plans to invest US$ 100 million on expanding its operations in a new milk processing factory in Karawang. In late 2007 the local subsidiary of Unilever acquired the Buavita branded enhanced fruit juice range from the local aseptic and long life beverage manufacturer Ultrajaya Milk Industry Tbk. These new entrants will bring in their expertise in the food packaging industry and will help grow the food packaging industry.
Key materials used for food packaging in Indonesia are:
• Pulp & Paper
• Corrugated Carton boxes
• Metal cans
• Glass and ceramics
• Plastics (films, flexible and rigid)
Plastic is used widely in Indonesia for food packaging. It is lightweight and its ability to be adapted for a wide range of decoration and design possibilities makes it the preferred choice for packaging, including for food.
Plastic consumption in Indonesia has remained high. About 35% of packaging used in food industry is flexible food packaging, a more economic form of food packaging. Consumption of flexible food packaging in Indonesia is estimated to have a value of US$280 million in 2011. Indonesia produces the majority of the basic raw materials for plastic packaging like polyethylene, polypropylene, Polypropylene copolymer, oriented polypropylene and PET (polyethylene terephthalate). Lamination grade LDPE is imported. The basic raw material for these is derived from naphtha. PT Chandra Asri, PT Titan, Pertamina, PT Tripolyta and PT Polytama Propindo are the key suppliers for these polymers in Indonesia. However domestic raw material is limited in supply and import prices increase with the increase in international prices for crude oil. The price of Oil went as high as USD 144 per barrel in mid 2008 and though it subsequently dropped off these highs during 2009, the price has once again been generally on steady upturn over the last two years. This has in turn affected the price of plastics-based packaging.
Along with increasing price of raw materials the other challenge is disposal of continuously increasing quantities of used plastic packaging, as these are not easily degradable. In Indonesia only about 40% of the plastic packaging material is recycled. So a lot of plastic material remains in the environment, which poses a disposal and environmental problem.
This disposal issue, in conjunction with government initiatives to push and encourage companies to go “green” will have an effect on the growth of plastic packaging materials. Government initiatives like tax incentives, cheaper bank loans, award systems will pave the way for new generation plastic materials, which are green, bio-degradable and of plant origin. Currently these new plastics are not the preferred choice of packaging material manufacturers as these are more expensive than traditional plastic materials of petrochemical origin. However proper regulations, government incentives and increasing environmental awareness will lead to increased usage of new generation “green” plastic material in Indonesia. The success of “green” plastic as a food packaging material will be highly dependent on both regulations and on the cost of the material. It can be only successful if the highly price sensitive consumer in Indonesia perceives it as the most cost effective choice available for them or if due to statutory regulations the manufacturers are forced to use this option.
By Sushmita Mahajan,
Research Analyst, Chemicals,
Material & Food Practice,
Frost & Sullivan Asia Pacific
(FOODREVIEW INDONESIA Edisi Maret 2012)