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Jakarta Post

Baking industry growth set to rise on more stable economy

Linda Yulisman
Jakarta   ●   Fri, October 24, 2014

Indonesia'€™s baking industry is expected to record higher growth next year as a forecast increase in economic growth will further increase people'€™s purchasing power.

The Indonesian Bakery Association (APEBI) estimates that total sales of baked products, from bread to cakes, may surge 15 percent to Rp 23 trillion (US$1.24 billion) on the back of the improvement in the country'€™s economy.

The association estimates total bakery sales will grow by 12 percent to Rp 20 trillion this year.

'€œWe expect a better sales outlook for 2015. Our economy will be more stable next year,'€ APEBI chairman Chris Hardijaya said after a press conference at a German trade fair for bakery, confectioneries and snacks on Thursday.

Higher sales growth would also be triggered by government policy to boost small and medium enterprises, which could benefit small and mid-sized bakers; this would be positive for the industry as more products would enter the market, Chris added.

The domestic baking industry has expanded rapidly in recent years as more people, particularly urbanites, change their consumption habits from traditional staple foods, such as rice, to wheat-based products, such as breads and noodles, driven by stronger purchasing power.

Despite this year'€™s slowdown, Southeast Asia'€™s largest economy has grown robustly in the past few years, resulting in more than half its 240 million population entering the expanding middle class with higher spending power.

This has allowed bread makers like Nippon Indosari Corpindo to enjoy double-digit sales growth each year. In the first half of this year, publicly listed Nippon Indosari, well-known for its Sari Roti brand, saw its net sales surge significantly by 29.39 percent to Rp 915 billion.

From January to September this year, bakery sales nationwide reached nearly Rp 17 trillion, up 9 percent from last year, leaving it still on track to meet its full-year target, especially as year-end festivities, such as Christmas and New Year, will boost consumption, according to APEBI.

  • Total bakery sales may surge by 15% to Rp 23 trillion in 2015
  • Total sales are estimated to grow by 12% to Rp 20 trillion this year.
  • Nippon Indosari has enjoyed double-digit sales growth for past few years

Bread makes up the larger portion of sales at around 60 percent, followed by traditional cakes (25 percent), cookies (10 percent) and cakes (5 percent).

Local bakers are facing a double blow resulting from higher costs for both electricity and liquefied petroleum gas (LPG), forcing small and medium producers to raise their prices by between 10 and 15 percent.

One of the key game-changing policies expected from the new administration under President Joko Widodo would be easier access to credit, which could primarily be used to replace old, less-efficient ovens with fuel-efficient ones, Chris said.

'€œSmall and medium enterprises that currently use obsolete machines must renew their modes of production by utilizing advancements in technology,'€ he said.

According to Chris, another necessary element to further develop the local baking industry would be to diversify raw materials by utilizing locally sourced ingredients, such as sweet potatoes (ubi) and squash (labu).

A small number of bakers already try to use these ingredients in their production. However, the scale of their use remains limited due to a number of reasons, including the lack of availability of these products at certain times during the year and high prices stemming from lower productivity of plants.

At present, domestic bakers rely heavily on wheat, which is entirely imported, making its price vulnerable to currency-exchange fluctuations.

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