A GLOBAL / COUNTRY STUDY AND REPORT ON

STUDY ON INDONESIAN DAIRY INDUSTRY

Submitted to

L J Institute of Engineering & Technology

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION

In

Gujarat Technological University

UNDER THE GUIDANCE OF Prof. Bilva Singh Submitted By Mohammed Gheewala Ravin Mehta Kaushal Mehta Amee Khakhi Rajesh Metcal Vijay Meghani 107280592004 107280592007 107280592017 107280592019 107280592042 107280592046

BATCH : 2010-12 MBA SEMESTER IV

L J Institute of Engineering & Technology

Affiliated to Gujarat Technological University Ahmedabad May 2012

STUDENTS DECLARATION
We, Mohammed Gheewala, Ravin Mehta, Kaushal Mehta, Amee Khakhee, Rajesh Metcal and Vijay Meghani hereby declare that the report for Global/ Country Study Report entitled Study on Indonesian Dairy Industry is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged.

Mohammed Gheewala Ravin Mehta Kaushal Mehta Amee Khakhee Rajesh Metcal Vijay Meghani

Place : Date :

INSTITUTES CERTIFICATE
Certified that this Global /Country Study and Report Titled Study on Indonesian Dairy Industry is the bonafide work of Prof. Bilva Singh.

Place: Date: Signature

PREFACE
External trade growth collapsed in different countries in the tumultuous recession ridden years of 2008 and 2009. The fall in trade, which was steeper than the decline in real GDP, was arrested in 2010, with trade growth recovering faster than real GDP growth. The recovery in trade growth has been made possible, in part, by the fiscal stimulus imparted by the governments and the low base of the preceding years. However, the extent of recovery differs substantially across countries and world trade remains below its pre-crisis level. India, which weathered the global crisis well, seems poised to be among the few countries to surpass the earlier peak and even reach or surpass the pre crisis trends in trade.

The sudden and sharp decline in world trade from US $ 16 trillion in 2008 to US$ 12.4 trillion in 2009 was followed by an impressive recovery in 2010. World trade reached US$ 7.03 trillion in the first half of 2010, with a value growth of 24 per cent. World trade volumes which fell by an unprecedented 10.7 per cent in 2009 have quickly recovered with a growth of 12 per cent in 2010 as per the International Monetary Funds (IMF), World Economic Outlook (WEO), while this recovery is partially due to the base effect. The pickup in world output from the negative territory of (-) 0.6 per cent in 2009 to a positive 5.0 per cent in 2010 backed by the fiscal stimulus of different countries helped. As stated by the IMF, world trade remains below its precrisis trend and for some economies, particularly those hit by a banking crisis, it remains below pre-crisis levels.

Indias share in world merchandise exports has started rising since 2007 albeit by a very slow 0.1 percentage point so as to reach 1.3 per cent in 2009 and 1.4 per cent in 2010 (January-June). This was mainly due to the relatively slow rise or greater fall in world export growth than Indias. The increase in Chinas share of world exports between 2000 and 2009 at 5.8 percentage points is 50 per cent of the total increase in the share of emerging and developing countries over this period, while Indias rise in share of 0.7 percentage points forms only 6 per cent of the total increase.

However, Chinas export growth rate which was above 25 per cent in this decade till 2007, moderated to 17.3 % in 2008 and became a negative (-) 15.9 per cent in 2009 due to global recession. It improved to 35.1 per cent in the first half of 2010, following the general trend, as a result of recovery and low base effect. Indias export growth was also negative at (-) 15.2 per cent in 2009 but recovered to 35.3 per cent in 2010 (January-June). While Russias export growth in the first half of 2010 at 51.4 per cent is very high, standing at (-) 35.7 per cent in 2009, its fall had been equally great with Russias share in world exports falling from 3.0 to 2.5 per cent.

Though export growth decelerated from July to November 2010 after high spurts from February 2010 to June 2010, cumulative export growth in AprilDecember 2010-11 was good at 29.5 per cent with cumulative exports reaching US $ 164.7 billion during this period. Current indications are that India will not only achieve the target of US$ 200 billion but surpass it in 201011. Indonesia has a mixed economy in which both the private sector and government play significant roles. The country is the largest economy in Southeast Asia and a member of the G-20 major economies Indonesias estimated gross domestic product (nominal), as of 2010 was US$706.73 billion with estimated nominal per capita GDP was US$3,015, and per capita GDP PPP was US$4,394.

According to World Trade Organization data, Indonesia was the 27th biggest exporting country in the world in 2010, moving up three places from a year before Indonesias main export markets (2009) are Japan (17.28%), Singapore (11.29%), the United States (10.81%), and China (7.62%). The major suppliers of imports to Indonesia are Singapore (24.96%), China (12.52%), and Japan (8.92%). In 2005, Indonesia ran a trade surplus with export revenues of US$83.64 billion and import expenditure of US$62.02 billion. The country has extensive natural resources, including crude oil, natural gas, tin, copper, and gold. Indonesias major imports include machinery and equipment, chemicals, fuels, and foodstuffs. And the countrys major export commodities include oil and gas, electrical appliances, plywood, rubber, and textiles.

ACKNOWLEDGEMENT
We are thankful to the GTU for providing us this great opportunity of doing analysis of foreign country like Indonesia by introducing an innovative concept of Global Country Report.

We express our gratitude to our Institute L J Institute of Engineering & Technology for providing us its best support in carrying on this new thing. We are thankful to Prof. Bilva Singh (Faculty Guide) for guiding us during the project and giving us her best support and wide knowledge to us for undertaking this project.

We are also thankful to the Institutes library staff, computer lab staff and office staff for their support in making of this report.

Last but not least, we are thankful to all those people, who have directly or indirectly provided their support to us.

TABLE OF CONTENTS
Ch. No. Particular Page No. 1 Introduction of Food Processing Industry & Its Role in the Indonesian Economy 1.1 1.2 1.3 1.4 Overview Present Scenario Market Share Food Processing Industry with Indonesian Economy 1 8 10 13

Structure, Functions & Business Activities of Food Processing Industry 2.1 2.2 2.3 Structure of Food Processing Industry in Indonesia Indonesias Dairy Supply Chain and Stakeholders Consumption Trends 17 19 20

Comparative Position of Food Processing Industry With India 3.1 3.2 3.3 Indian Food Processing Industry Industry Sub-Segments SWOT Analysis 21 23 25

4 4.1 4.2

Present Position and Trend of Business with India Comparative Position of Dairy Industry Export and Import Scenario 26 29

Policies and Norms of Indonesia For Dairy Industry for Import 5.1 5.2 5.3 5.4 5.5 Government Regulations Impacting on Dairy Business Product Registration Labeling Specific Requirements for Dairy Products Investment Laws 33 36 37 39 40

Policies and Norms of India For Dairy Industry for Export 6.1 6.2 6.3 6.4 Government Policy towards Dairy Development in India Milk and Milk Products Order (MMPO) Dairy Venture Capital Fund Eleventh Plan Schemes- Ministry of Food Processing Industries 6.5 Export Quality Control and Inspection Act, 1996 49 41 44 45 47

7 7.1 7.2 7.3

Potential for Export from India Entry Strategy Advantages and Challenges for India Export Potential 50 51 52

Business Opportunity for Dairy Products

Conclusion Suggestion

54 56

LIST OF TABLES
Table No. 1 2 Particular Volume Growth of Sales of Package Food Popular Processed Food Products with Highest Sales in Retail Outlets During 2010 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Competitive Analysis for Supply of Dairy Products Fresh Milk Production 2005 2010 in tones Market Share of Milk Processors Indonesian Fresh Milk Buying Prices Food Processing Units in Organized Sector Worlds Major Milk Producers Indian Dairy Industry Statistics Monthly Consumption in India Indias Milk Product Mix 2009 Milk Yield Comparison Exports of Dairy Products from India Product wise Exports and Imports of Dairy Products of India Imports of Dairy Product by Indonesia Indonesian Dairy Import by Country 7 9 11 12 22 26 26 27 28 29 30 30 31 32 Page No. 5 6

LIST OF GRAPHS
Graph No. 1 2 3 4 Particular Package Processed Food Retail Sales in 2010 Contribution of all Industries in Indonesian GDP Share of Food Processing Industry & Its Segments Structure of the Indian Food Processing Industry Page No. 4 14 21 22

LIST OF DIAGRAMS
Dia. No. 1 2 Particular Food Processing Industry Structure Indonesia Dairy Supply Chain Page No. 17 19

EXECUTIVE SUMMARY
Indonesia was the 27th biggest exporting country in the world in 2010, moving up three places from a year before Indonesias main export markets (2009) are Japan (17.28%), Singapore (11.29%), the United States (10.81%), and China (7.62%). The major suppliers of imports to Indonesia are Singapore (24.96%), China (12.52%), and Japan (8.92%). The Indonesian food processing industry serving a population of 240 million offers significant market potential for suppliers of food and ingredients. Output of the sector grew by 176.3% over the period of 2000 to 2009 putting the industry as a whole at a value of $194 billion USD at the end of 2010. In 2010, Indonesia import $9.2 billion of agricultural, fish and forestry products with 16 percent coming from the United States over 40 percent of imported products by value were major inputs for food processing, such as wheat, sugar, dairy, soybeans, wheat flour, and beef. The food and beverage sector is where Indonesias local companies have made a mark in value added products both domestically and worldwide. The growth of the sector has been fuelled by rising incomes and increased spending on food by the middle class that now make up a 30 million person market.

The current per capita consumption of dairy products is very low compared to European standards, but also low compared to consumption in neighboring countries like Malaysia, Vietnam etc. 70% of the dairy products are consumed in the urban areas of Java. Consumption of milk products shows a steady growth and is expected to grow with 8% per year in 2012 rising to a per capita milk consumption of 7.7 kg per person per year of which fluid milk consumption is estimated to only 1.4 kg per person per year. The major consumer products are milk powder, sweetened condensed and liquid milk. In 2010, Indonesias fresh marketed milk production was about 1.4 million liters per day (approx.) amounting to about 0.47 million ton per year. Milk production of Indonesia has increased steadily from 535,962 tons in 2005 to 927,838 tons in 2010. This represents an average annual increase in milk production of 14.6 percent in 2010.

This amount meets only 25-30% of the dairy needs Improvements of productivity and milk quality are hampered by factors like: scale of operation (small farms), low level of farmer education, poor farming practices, insufficient incentives for farmers, lack of hygiene and poor handling of the raw milk, lack of access to improved genetics and feeds, relatively high feed costs and unfavorable weather conditions. the consumer milk market in Indonesia was worth more than US$2.6 billion with milk powders (US$1.5 billion) having almost 60 percent share.

Dairy products have high tariff rates in Indonesia applied rates on most products are five percent. The exceptions include some processed products, such as yogurt, and some concentrated milk and cream, which are subject to a higher applied tariff of 10 percent

In 2010 Indonesia imported 302,158 tons of dairy products (worth US$925 million); this was an increase from 2009 of 12 percent in volume EU, NZ and USA were the main dairy exporters to Indonesia in 2010 with a volume market share of 32 percent, 23 percent and 21 percent respectively. Imports of prepackaged powdered milk for the retail market have been growing steadily over the last five years; imports have increased annually by five percent in volume and almost 20 percent in value. India has the potential to become one of the leading players in milk and milk product exports. India is located amidst major milk deficit countries in Asia and Africa.

CHAPTER 1

Introduction of Food Processing Industry & Its Role in the Indonesian Economy

1.1 OVERVIEW
The Indonesian food processing industry serving a population of 240 million offers significant market potential for suppliers of food and ingredients. Output of the sector grew by 176.3% over the period of 2000 to 2009 putting the industry as a whole at a value of $194 billion USD at the end of 2010 according to the Indonesia Food and Beverage Business Association, GAPMMI. Both domestic consumption and spending on food and beverage, particularly processed foods, has been steadily increasing at a rate of 14.1% a year from 2006-2010, driven by rising incomes as well as inflation of food prices. Total sales for 2010 reached $63.4 billion USD and are projected to grow by 13% to $76.59 billion in 2011 according to GAPMMI.

The industry consists of businesses of all sizes. About 6,100 large and medium-size producers account for over 80 percent of output and over 20 percent of the 3.36 million employees. The remaining 20 percent of processed food is produced in homes and sold on the street in roadside outdoor small restaurants, small roadside retailer kiosks called warungs, or on the street by vendors with small carts called kaki limas. Warungs, small restaurants along the road, and kaki limas are ubiquitous in Indonesia and provide a variety of meals and popular snacks for Indonesians. In Indonesia, giving food as a gift is a tradition and remains popular and snacking is very popular.

In 2010, Indonesia import $9.2 billion of agricultural, fish and forestry products with 16 percent coming from the United States. Australia is the second-largest supplier, accounting for 12 percent, followed by Thailand with 10 percent. Other suppliers do not account for more than 10 percent of imports individually. In 2010, over 40 percent of imported products by value were major inputs for food processing, such as wheat, sugar, dairy, soybeans, wheat flour, and beef.

Several factors contributing to the growth of the food processing industry are the introduction of new flavors and products, aggressive promotional activities, growth of modern retail outlets, and growing health awareness particularly among consumers who were educated in the west. In 2010, package food retail sales showed increases ranging from 2 to 18 percent in volume terms from the previous year and growth is expected to continue, ranging from 0.6 to 15 percent each year until 2012.

Healthy eating is becoming more popular among educated consumers particularly exposed to western-style products when living abroad and is featured by newspapers, magazines, and television. Food manufacturers are continually developing new products catering to health awareness trends and snacking. In addition, more women in urban areas are entering the workforce and prefer the convenience of processed food products.

More processors are finding adding value by fortifying their products. Currently wheat flour, dairy products, noodles, cookies, and frozen processed chicken fortified with minerals and vitamins are for sale in the market. Other products that are growing in popularity include functional packaged foods, breakfast cereals, fresh and pasteurized milk, yogurt, pasta, and frozen snacks, such as Chinese snacks shiumai, chicken and shrimp puffs, spring rolls, dumplings, and croquettes. Since the large majority of Indonesians are Muslim, most foods are produced using methods and products that meet halal requirements.

Foods sold in warungs and kaki limas tend to be traditional foods with familiar flavors. U.S. soybeans and beef offal are popular ingredients for traditional dishes such as tempe, bakso and meatballs. Soy milk in small single-serving plastic bags produced using a juicer or blender is becoming a popular option for a healthy beverage in both urban and rural areas. Fresh bakery products sold in shopping areas and malls are popular as gifts and snacks for the middle and upper classes. Indonesians will also visit high-end retail food stores to buy small packages of imported snacks.

Rice is a staple eaten at every meal. However, noodles from imported wheat are a popular substitute and use of wheat continues to grow. Dairy products continue to offer opportunities for milk powder to be mixed with fresh milk and as an ingredient. Indonesia currently only produces about 25 percent of milk production needs.

Though Indonesian ties to Europe remain strong and this influences taste choice and manufacturing methods, Australian, U.S., and Korean, and Japanese packaged foods are common as well. In Jakarta where about onethird of the upper and middle class live, foreigners from Asia are replacing western foreigners offering opportunities for Asian-style foods and flavors.

Smaller ready to eat packages are popular because of the lower price and the variety offered is increasing. Popular products include frozen poultry, frozen seafood, sausages, sugar confectionery, instant noodles, sweet and savory snacks, dairy drinks, and soft drinks. New brands and products with local flavors are also growing. All ages and income levels enjoy extruded snacks and other snacks of all kinds because snacking is a part of the Indonesian culture.

Indonesian household diets are changing like in many other South East Asian countries. The main general characteristic of this westernization of the diets is: the decrease in consumption of rice (Indonesia s main staple food), an increased consumption of wheat and wheat-based products, and a rise in high protein-diets derived from animal products. Fish is the main source of animal protein, but the proportion of poultry and dairy products in the diet is increasing relatively rapidly. Beef consumption shows a relatively smaller increase. The current per capita consumption of dairy products is very low compared to European standards, but also low compared to consumption in neighboring countries like Malaysia; Vietnam etc. 70% of the dairy products are consumed in the urban areas of Java. Consumption of milk products shows a steady growth and is expected to grow with 8% per year in 2012 rising to a per capita milk consumption of 7.7 kg per person per year of which fluid milk consumption is estimated to only 1.4 kg per person per year. The 3

major consumer products are milk powder, sweetened condensed and liquid milk. Reconstitution of milk powder or consumption of dairy products with a long shelf life (condensed milk, UHT milk) is common practice, as refrigeration facilities are limited. All major dairy plants in Indonesia are located on the island of Java. Access to fresh dairy products outside Java is limited.

Package Processed Food Retail Sales in 2010 (IDR billion) Graph No. 1

Bakery Products

2.4 7.1 2.2

6.9

4.2 16.7 2.5

Meal Replacement Products, Pasta, Ready Meals & Soups Dairy Products Chilled Processed Food Noodles Spreads Confectionery

11.5

16.5

Preserved Food Baby Food Ice Cream

1.7

Sweet & Savory Snacks

11.8 2.4

12.2

1.9

Frezon Processed Food Oils & Fats Sauces, Dressings & Condiments

Source: Union of Dairy Cooperatives

Volume Growth of Sales of Package Food Table No. 1

Package Food

Confectionery Bakery products Ice cream Sweet and savory snacks Meal replacements products Ready meals Soup Pasta Noodles Canned/preserved food Frozen processed food Dried processed food Chilled processed food Oils and fats Sauces, dressing and condiments Baby food Spreads Meal solutions
Sourc e: Eur om onitor

2008- 2010 Present Growth per year (%) 9.10 6.10 5.54 5.47 18.14 1.54 14.62 9.50 6.37 7.29 13.51 10.84 9.83 7.99 5.45 14.32 7.55 10.59

2010 - 2013 Forecast Growth per year (%) 8.72 5.67 5.90 4.60 14.74 0.58 9.19 11.00 5.00 5.89 10.71 8.75 8.95 6.54 4.10 11.88 6.51 8.56

Popular Processed Food Products with Highest Sales in Retail Outlets During 2010 Table No. 2 Product type Baby food Baked goods Biscuit Breakfast cereal Canned/preserved food Cheese Chilled processed food Chocolate confectionery Dried processed food Milk products Processed food Toddler milk formula Bread, filled pastry, and cake Sandwich biscuit, chocolate coated biscuit Children breakfast cereal and hot cereal Canned tuna and canned sardine, ready to eat preserved beef and chicken sausages Processed cheese Chilled processed meat (sausages and beef ball) Bagged chocolate and filled tablets Package rice and instant noodle Powder milk, fresh & pasteurized milk, flavored UHT milk drinks, condensed & evaporated milk Frozen processed poultry (chicken nugget, cuts of boneless chicken coated, chicken sausages, seasoned chicken wins), frozen processed beef (meat ball), frozen processed fish (fish balls), frozen Chinese snack Chocolate, strawberry, vanilla, rum, and raisin flavor Drinking yogurt Dried pasta (macaroni and spaghetti) Soy and chili sauces Chocolate, srikaya (egg and coconut milk based), fruit flavor. Chips, extruded snacks, microwave pop corn

Frozen processed food

Ice cream Yogurt Pasta Sauces, dressing, and condiments Spreads and preserve Sweet and Savory Snacks
Sourc e: Eurom onitor

Competitive Analysis for Supply of Dairy Products Table No. 3

Dairy Product

Major Supply Sources in 2010 (volume) New Zealand: Australia: United States: Philippines: Singapore: 26.1% 17.2% 15.8% 10.6% 9.1%

Strengths of Key Supply Countries

Advantages and Disadvantages of Local Suppliers

Skim milk powder and whole milk powder Net import: 181 thousand ton Cheese $617.4 million Net import: 14 thousand ton $46 million

Australia and New Domestic Zealand are the production can largest supply only 25% of suppliers due to industry needs Competitive pricing.

Australia: New Zealand: United States:

52.1% 31.0% 8.6%

Australia and New Zealand have competitive prices

No domestic production

Source: Global Trade Statistics

1.2 PRESENT SCENARIO

In 2010, Indonesias fresh marketed milk production was about 1.4 million liters per day (approx.) amounting to about 0.47 million ton per year. This amount meets only 25-30% of the dairy needs, the remainder is imported. Imports are mainly obtained from Oceania (Australia, New Zealand), EU and USA.

As mentioned before, milk production is largely concentrated in three milkproducing pockets on the island of Java. East Javas dairy farmers produce the highest amounts (approximately 600,000 l/day) followed by West Java (about 400,000 l/day). The remainder (about 200,000 l/day) is produced in Central Java and other parts of Indonesia. Milk is produced mainly by small holders, most of them organized in dairy cooperatives (about 90 cooperatives with 118,000 dairy farmers). These 118,000 households have on average 3 cows and provide employment to 360,000 people. Average milk production per cow varies per region. Milk production per cow is estimated to be the highest in East Java (about 11 kg per cow per day) and 7 kg per cow per day in Central and West Java. There are only few large scale dairy operations at Java with more than 100 cows. Most of them integrate milk production with on-farm processing and own marketing of milk and milk products.

Improvements of productivity and milk quality are hampered by factors like: scale of operation (small farms), low level of farmer education, poor farming practices, insufficient incentives for farmers, lack of hygiene and poor handling of the raw milk, lack of access to improved genetics and feeds, relatively high feed costs and unfavorable weather conditions. Milk quality is low and hygienic quality measured by TPC (total plate count) ranges from 0.5 to 1 million cfu/ml. During the first phase of dairy development less attention was paid to raw milk quality. Because of the regulation to mix locally produced milk with imported milk powder, milk processors needed all the milk they could source. However, during the last decade, the large milk processors started to assist dairy cooperatives with improving raw milk quality and milk production. 8

 Fresh Milk Production

According to the Ministry of Agriculture, over the last five years milk production has increased steadily from 535,962 tonnes in 2005 to 927,838 tonnes in 2010. This represents an average annual increase in milk production of 14.6 percent. In 2010, the largest dairy production province of East Java, accounted for 57 percent of the total national milk production, followed by West Java with 29 percent contribution and Central Java with 11 percent.

Fresh Milk Production 2005 2010, by Province, in tones Table No. 4

No Provinces 2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 NAD North Sumatera West Sumatera Riau South Sumatera Bengkulu Lampung Jakarta West Java Central Java DI Yogyakarta East Java Bali West Kalimantan South Kalimantan South Sulawesi Papua Bangka Belitung Gorontalo Total 36 4,695 899 0 277 3,262 104 5,061 2006 43 8,783 930 0 401 90 197 6,365 Year 2007 43 1,507 930 41 269 3,381 185 7,016 70,419 6,994 2008 31 1,324 1,053 4 167 138 352 6,388 89,748 7,083 2009 34 1,657 1,264 125 15 1,055 178 5,723 2010 34 1,665 1,550 156 21 1,212 185 5,856

201,885 211,889 225,212 225,212 255,348 270,616 70,693 130,896 8,812 11,063 91,762 106,040 5,038 5,187

239,908 244,300 249,275 312,270 461,880 531,797 78,12 36 123 90 0 0 0 95 39 177 1,184 96 0 0 132 50 310 1,846 69 0 3 0 0 186 2,857 54 61 25 169 0 129 2,778 0 67 25 195 0 123 3,081 0 78 43

535,962 616,549 567,683 646,953 827,249 927,838

Source: www.ditjennak.go.id

1.3 MARKET SHARE

Market Share of Milk Products in Dairy Industry

In 2009 the consumer milk market in Indonesia was worth more than US$2.6 billion with milk powders (US$1.5 billion) having almost 60 percent share of the value followed by sweetened condensed milk (US$760 million) and liquid milk (US$400 million). In comparison, sweetened condensed milk (SCM) had the largest share of consumption in volume and liquid milk has the fastest annual growth in volume.

Milk Powder

There are 27 companies operating in the powdered milk industry in Indonesia with a total production of 164,700 tonnes in 2009. The three main manufacturers of milk powders in Indonesia (Frisian Flag, Nestle and Sari Husada all foreign investors) had 58.7 percent of production volume in 2009.

The market segments for milk powder in 2009 were: children (57.6 percent), baby milk (29.4 percent), adults (8.2 percent) and pregnant women (4.8 percent).

Consumption is forecast to increase from 179,370 tonnes in 2009 to 252,644 tonnes in 2013, an average annual growth of 7.17 percent.

Sweetened Condensed Milk

There are four companies (Frisian Flag, Nestle, Sari Husada and Ultra Jaya) operating in the SCM industry in Indonesia with a total production of 429,500 tonnes in 2009.

Consumption is forecast to increase from 425,060 tonnes in 2009 to 529,077 tonnes in year 2014, an average annual growth of 4.8 percent.

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Liquid Milk

There are 31 companies operating in the liquid milk industry in Indonesia with a total production of 282,100 tonnes in 2009. The four largest dairy processors (Ultra Jaya, Frisian Flag and Indolakto and Greenfields) had 85 percent of liquid milk production in 2009.

Consumption is forecast to increase from 283,810 tonnes in 2009 to 604,970 tonnes in 2014, an average annual growth of 16.3 percent.

Market Share of Milk Processors in Indonesia

Five dairies dominate the dairy market with Frisian Flag Industries/Foremost being the main producer of milk products and second regarding the processing of locally produced milk.

Below table showing Major milk processors in Indonesia and their market share of local produced milk in 2009 (data FFI)

Market Share of Milk Processors Table No. 5

Milk processors Nestl Indonesia Frisian Flag Industries/Foremost Indomilk/Indolacto Ultra Jaya Sartihusada Others Total
Source: Indonesia Dairy Coproration

Volume (million ltr/year) 162 123 68 30 12 58 453

Market Share 35.8 27.1 15.0 6.6 2.7 12.8 100

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 Price of Milk Products

Indonesian Fresh Milk Buying Prices Table No. 6

Product

Price (2011) (IDR) (USD) 3,850/kg 433/ton 3,750/kg 422/ton 3,650/kg 411/ton

Local fresh milk Grade 1 (farm gate 12% TS, 0 250,000/ml TPC) Local fresh milk Grade 2 (farm gate 12%TS, 250,000 500,000/ml TPC) Local fresh milk Grade 3 (farm gate 12% TS, 500,000 1 million/ml TPC)
Source: Union of Dairy Cooperatives

The Dairy Cooperatives Union reports that a major dairy manufacturer who buys local fresh milk from cooperatives pays a premium for better quality fresh milk and a bonus and feed if a farmer consistently provides fresh milk to the manufacturer.

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1.4 FOOD PROCESSING INDUSTRY WITH INDONESIAN ECONOMY

Indonesia, a vast polyglot nation, has weathered the global financial crisis relatively smoothly because of its heavy reliance on domestic consumption as the driver of economic growth. Increasing investment by both local and foreign investors is also supporting solid growth. Although the economy slowed to 4.6% growth in 2009 from the 6%-plus growth rate recorded in 2007 and 2008, by 2010 growth returned to a 6% rate and remained there in 2011. During the recession, Indonesia outperformed most of its regional neighbors. The country experienced high inflation in early 2010, mainly due to food shortages, but agencies across the government acted quickly to ensure sufficient food stocks.

The government made economic advances under the first administration of President YUDHOYONO, introducing significant reforms in the financial sector, including tax and customs reforms, the use of Treasury bills, and capital market development and supervision, and in December 2011, Fitch Ratings Agency upgraded the countrys credit rating to investment grade for the first time since 1997.

Indonesias debt-to-GDP ratio in recent years has declined steadily because of increasingly robust GDP growth and sound fiscal stewardship. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions. In 2011 the government faces the ongoing challenge of improving Indonesias insufficient infrastructure to remove impediments to economic growth, while addressing climate change mitigation and adaptation needs, particularly with regard to conserving Indonesias forests and peatlands.

13

Contribution of all Industries in Indonesian GDP Graph No. 2

Source: Indonesian Statistics (BPS)

Indonesia has a mixed economy in which both the private sector and government play significant roles. The country is the largest economy in Southeast Asia and a member of the G-20 major economies. Indonesias estimated gross domestic product (nominal), as of 2010 was US$706.73 billion with estimated nominal per capita GDP was US$3,015, and per capita GDP PPP was US$4,394 (international dollars). June 2011: At World Economic Forum on East Asia, Indonesian president said Indonesia will be in the top ten countries with the strongest economy within the next decade.

14

The Gross domestic product (GDP) is about $1 trillion, and the debt ratio to the GDP is 26%. The industry sector is the economys largest and accounts for 46.4% of GDP (2010), this is followed by services (37.1%) and agriculture (16.5%). However, since 2010, service sector has employed more people than other sectors, accounting 48.9% of the total labor force, this has been followed by agriculture (38.3%) and industry (12.8%). Agriculture, however, had been the countrys largest employer for centuries.

According to World Trade Organization data, Indonesia was the 27th biggest exporting country in the world in 2010, moving up three places from a year before. Indonesias main export markets (2009) are Japan (17.28%), Singapore (11.29%), the United States (10.81%), and China (7.62%). The major suppliers of imports to Indonesia are Singapore (24.96%), China (12.52%), and Japan (8.92%). In 2005, Indonesia ran a trade surplus with export revenues of US$83.64 billion and import expenditure of US$62.02 billion. The country has extensive natural resources, including crude oil, natural gas, tin, copper, and gold. Indonesias major imports include machinery and equipment, chemicals, fuels, and foodstuffs. And the countrys major export commodities include oil and gas, electrical appliances, plywood, rubber, and textiles.

Food & Beverage Sector with Economy

The food and beverage sector is where Indonesias local companies have made a mark in value added products both domestically and worldwide. The growth of the sector has been fuelled by rising incomes and increased spending on food by the middle class that now make up a 30 million person market. Urban lifestyles are giving rise to a more varied diet which is supported by the development of retail infrastructure in the form of malls and hyper marts.

15

The Indonesian processed food market is dominated by several large local companies including Indofood Sukses Makmur, one of the worlds largest instant noodle makers, Wings Group, Mayora and Garuda Food. Such companies have embarked on strategies to not only entice customers by price, but innovating to produce tailored, value added products that appeal to the Indonesian consumers preference for traditional food in an instant form such as Mayoras instant congee. Foreign companies and brands are also well integrated into the market, including Nestle and Kraft Unilever, often in joint ventures with local companies to access distribution networks. Multinational firms have been successful in appealing to the growing health consciousness of Indonesian middle class consumers. The sector as a whole is estimated to have over 6,000 companies; approximately 90% are classified as large and medium sized companies which are all mainly appealing to the price sensitive lower income customers.

Output of the sector grew by 176.3% over the period of 2000 to 2009 putting the industry as a whole at a value of $194 billion USD at the end of 2010 according to the Indonesia Food and Beverage Business Association, GAPMMI. Both domestic consumption and spending on food and beverage, particularly processed foods, has been steadily increasing at a rate of 14.1% a year from 2006-2010, driven by rising incomes as well as inflation of food prices. Total sales for 2010 reached $63.4 billion USD and are projected to grow by 13% to $76.59 billion in 2011 according to GAPMMI. The processed food sector had previously been confined to the domestic market, but its contribution to exports has been increasing from $3.7 billion in 2009 to $5.7 billion in 2010. The Ministry of Industry has put targeted exports from the sector at around $6 billion for 2011 and sector growth as a whole at 8.4% annually to 2013.

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CHAPTER 2

Structure, Functions & Business Activities of Food Processing Industry

2.1 STRUCTURE OF FOOD PROCESSING INDUSTRY IN INDONESIA

Food ingredients can be imported by agents, distributors, or food manufacturers. The diagram below provides an overview of the common distribution channels.

Food Processing Industry Structure Diagram No. 1

Food processors commonly import primary inputs, such as frozen meat or beef offal, wheat flour, and skim milk powder. Food processors generally purchase essential complementary inputs like flavorings or preservatives from a local agent or distributor because they are used in smaller quantities and often have limited shelf life.

Food processors that depend on a consistent supply of a product may have an exclusive sales agreement with a local agent. Some processors may choose to act as an importer if they find a better-priced alternative, such as an exporter who uses Singapore as a distribution point. Many multinational food processors operating in Indonesia must follow global 17

product specifications. These companies have central purchasing offices, often in the United States or in Europe.

Larger, modern retail companies usually have an exclusive agreement with the processors to supply the food product that they need. Processors will reach an agreement with the retail company to supply specified quantities at agreed upon intervals and prices. In return, the retailer agrees to display products attractively and at agreed upon quantities. On the other hand, smaller independent retail stores and traditional markets get products mostly from distributors.

Although cold chain facilities are generally available in urban areas, many food items are sold without any temperature control in the more traditional distribution channels. Limited capital, low awareness of the benefits of refrigeration, and the practice of buying and consuming meals on the spot are still very common and limit the development of a cold chain network.

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2.2 INDONESIAS DAIRY SUPPLY CHAIN AND STAKEHOLDERS

The major participants in the dairy supply and market chain are presented in the diagram below and discussed in sections four (supply) and five (market) in the report.

Indonesia Dairy Supply Chain Diagram No. 2

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2.3 CONSUMPTION TRENDS

Health Awareness More consumers are making decisions based on health and wellness concerns and fortified foods are increasing in popularity. As a result, consumption of many products is expected to grow such as: sports drinks liquid ready-to-drink milk yogurt and other dairy products energy foods & fortified foods high-protein snacks Popular flavors strawberry, vanilla, and chocolate for ice cream, raisin and other berry fruit flavors also start to be preferred fruity flavors for yogurt exotic cookie flavors Alternative staple foods Rice is an important staple for most Indonesians and is present at most meals. However noodle, bread, pasta and milk are starting to become important substitutes. As more food service outlets feature pasta and spaghetti on their menu, spaghetti is becoming more popular. Packaging Smaller package sizes are preferred due to convenience and price considerations. Inconsistent and unsteady incomes force many

Indonesian to purchase food in small quantities, in some cases in daily portions. Toy insert and individual cartons with bright colors and attractive designs including popular cartoon characters are popular for children. Shelf-stable milk and fruit juice in 90 and 125-ml packaging and bite-sized snacks in smaller package sizes for school children were successfully introduced in the last few years. 20

CHAPTER 3

Comparative Position of Food Processing Industry With India

3.1 INDIAN FOOD PROCESSING INDUSTRY

The food processing sector is highly fragmented industry, it widely comprises of the following sub-segments: fruits and vegetables, milk and milk products, beer and alcoholic beverages, meat and poultry, marine products, grain processing, packaged or convenience food and packaged drinks. A huge number of entrepreneurs in this industry are small in terms of their production and operations, and are largely concentrated in the unorganized segment. This segment accounts for more than 70% of the output in terms of volume and 50% in terms of value. Though the organized sector seems comparatively small, it is growing at a much faster pace.

Share of Food Processing Industry & Its Segments Graph No. 3

Source: D&B Research

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Structure of the Indian Food Processing Industry Graph No. 4

33% 42%

Unorganised Organised Small Scale Industries

25%

Source: FAIDA/ Ministry of Food Processing Industries

Food Processing Units in Organized Sector Table No. 7

Particulars Flour Mills Fish Processing Units Fruits & Vegetable Processing Units Meat Processing Units Sweetened & Aerated Water Units Milk Product Units Sugar Mills Solvent Extract Units Rice Mills Modernized Rice Mills

Units 516 568 5293 171 656 295 429 725 139208 35088

Source: Ministry of Food Processing Industries, Annual Report 2009-10

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3.2 INDUSTRY SUB-SEGMENTS

Fruits & Vegetables The installed capacity of fruits and vegetables processing industry has doubled from 2.1 million tons in January 2006 to 3.5 million tons in 2010. Presently, the processing of fruits and vegetables is estimated to be around 4.2% of the total production in the country. The major processed items in this segment are fruit pulps and juices, fruit based ready-to-serve beverages, canned fruits and vegetables, jams, squashes, pickles, chutneys and dehydrated vegetables. The new arrivals in this segment are vegetable curries in reportable pouches, canned mushroom and mushroom products, dried fruits and vegetables and fruit juice concentrates. Milk and Milk Products India is with highest livestock populations in the world, it accounts 50% of the buffaloes and 20% of the worlds cattle population, most of which are milch cows and milch buffaloes. Indias dairy industry is considered as one of the most successful development industry in the post-Independence era.

In 2009-10 total milk productions in the country was over 120 million tons with a per capita availability of 281 grams per day. During 1997-2009, the dairy industry recorded an annual growth of 4%, which is almost 3 times the average growth rate of the dairy industry in the world. The total milk processing in India is around 35%, of which the organized dairy industry accounts for 13% while remaining is either consumed at farm level, or sold as fresh, non-pasteurized milk through unorganized channels.

In an organized dairy industry, dairy cooperatives account for the major share of processed liquid milk marketed in India. Milk is processed and marketed by 170 Milk Producers Cooperative Unions, which federate into 15 State Cooperative Milk Marketing Federations. Over the years, several brands have been created by cooperatives like Amul, Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini (Karnataka), Milma (Kerala) and Gokul (Kolhapur). 23

The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk products is very much concentrated in these states due to the availability of milk in huge quantity.

According to the Ministry of Food Processing Industries, exports of dairy products have been growing at the rate of 25% per annum in terms of quantity and 28% in terms of value since 2001. Significant investment opportunities exist for the manufacturing of value-added milk products like milk powder, packaged milk, butter, ghee, cheese and ready-to-drink milk products. Some of the Key Constraints Poor infrastructure in terms of cold storage, warehousing, etc Inadequate quality control and testing infrastructure Inefficient supply chain and involvement of middlemen High transportation and inventory carrying cost Affordability, cultural and regional preference of fresh food High taxation High packaging cost

Policy Support for Food Processing Formulation of the National Food Processing Policy Complete de-licensing, excluding for alcoholic beverages Declared as priority sector for lending in 1999 100% FDI on automatic route Excise duty waived on fruits and vegetables processing from 2000 01 Income tax holiday for fruits and vegetables processing from 2004 05 Customs duty reduced on freezervan from 20% to 10% from 2005 06 Implementation of Fruit Products Order Implementation of Meat Food Products Order Enactment of FSS Bill 2005 Food Safety and Standards Bill, 2005

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3.3 SWOT ANALYSIS

Strengths Abundant availability of raw material Priority sector status for agro-processing given by the central Government Vast network of manufacturing facilities all over the country Vast domestic market Weaknesses Low availability of adequate infrastructural facilities Lack of adequate quality control and testing methods as per international standards Inefficient supply chain due to a large number of intermediaries High requirement of working capital. Inadequately developed linkages between R&D labs and industry. Seasonality of raw material Opportunities Large crop and material base offering a vast potential for agro processing activities Setting of SEZ/AEZ and food parks for providing added incentive to develop Greenfield projects Rising income levels and changing consumption patterns Favourable demographic profile and changing lifestyles Opening of global markets Threats Affordability and cultural preferences of fresh food High inventory carrying cost High taxation High packaging cost

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CHAPTER 4

Present Position and Trend of Business with India

4.1 COMPARATIVE POSITION OF DAIRY INDUSTRY

Worlds Major Milk Producers Table No. 8 (Million Tons) Country India USA Russia Germany France Pakistan Brazil UK Ukraine Poland New Zealand Netherlands Italy Australia 2008-09 85 82 42 32 28 27 26 20 19 16 16 15 13 11 2009-10 ( Approx.) 90 85 43 29 29 28 27 19 20 17 17 15 13 10

Indian Dairy Industry Statistics Table No. 9 Year Production (Million Tons) 2006-07 2007-08 2008-09 2009-10 2010-11 102.6 107.9 112.2 116.4 121.8 Per Capita Availability (grams/day) 246 252 258 273 281

Source: Department of Animal Husbandry, Dairying & Fisheries, Ministry of Agriculture.

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Monthly Consumption in India Table No. 10 (in Rs.) NSS Round Milk and Milk Products Meat, Egg, Fish Total Food Total NonFood Total Exp. Average Size of Household

61st (July 2004-June2005) Rural Urban 47.31 83.30 18.60 28.47 307.60 447.41 251.19 604.95 558.78 1052.36 5.08 4.55

66th (July 2009-June2010) Rural Urban 80.55 137.01 49.89 71.98 600.36 880.83 453.29 1103.63 1053.64 1984.46 NA NA

NA: Not Available

Source : Level & Pattern of consumer expenditure, Various issues, National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, GoI

Although milk production has grown at a fast pace during the last three decades (courtesy: Operation Flood), milk yield per animal is very low. The main reasons for the low yield are: Lack of use of scientific practices in milking. Inadequate availability of fodder in all seasons. Unavailability of veterinary health services.

According to Indias National Dairy Development Board, total dairy production is estimated to be growing at 4 percent annually while consumption of milk is expected to increase by a higher rate than production in the near future. The major factors driving growth in milk consumption are increased demand due to population growth, growing household incomes, increased demand for value added milk products, and the preference for liquid milk as a principal 27

protein source, across all age groups in rural or urban India. In 2009, the per capita availability of milk was 265 grams per day, close to the worlds average. The preference for liquid milk, due both to its cultural significance, as well as Indias tradition of vegetarianism has left demand for liquid milk relatively inelastic, despite increasing consumer prices over the past few years. Given Indias strong demand for dairy products, consumption of liquid milk in India continues to keep pace with Indian production. This trend is forecast to continue in CY2011. Indian consumption of nonfat dry milk is forecast to surpass Indian production in 2011, reflecting the small but growing deficit in dairy production and the need for increased supplies. Butter consumption exceeded domestic production in 2010 and is forecast to do so again in 2011.

While it is estimated that 40 to 50 percent of Indian dairy farmers work with the organized sector, it is also estimated that approximately 65 percent of milk in India is consumed (in fluid or other forms) on farm or by the unorganized sector (local milk vendors, wholesalers, retailers, and producers themselves). Of the total milk distributed jointly by the organized and unorganized sector, approximately 46 percent of the milk is consumed in fluid form and the rest is processed into various milk products such as butter, yogurt, milk powder, etc. An account of Indias milk product mix based on industry estimates is given below: Indias Milk Product Mix 2009 Table No. 11

Fluid Milk Ghee (clarified butter) Butter Yogurt Khoa (partially dehydrated condensed milk) M ilk Powder Paneer (cottage cheese) Others, including Cream, Ice Cream
Source: Industry estimates

46.0% 27.5% 6.5% 7.0% 6.5% 3.5% 2.0% 1.0%

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Milk Yield Comparison Table No. 12

Country USA UK Canada New Zealand Pakistan India World (Average)

Milk Yield (Kg per year) 7002 5417 5348 2976 1052 795 2021

Source: Export prospects for agro-based industries, World Trade Centre, Mumbai.

4.2 EXPORT AND IMPORT SCENARIO

Despite having the largest milk production, India is a still a minor player in the world market. Historically, India was a net importer of dairy products with negligible exports. This continued till the early seventies, when India was primarily dependent on imports. Most of the demand-supply gaps of liquid milk requirements were met by importing anhydrous milk fat / butter and dry milk powders. In the 1990s, India started exporting surplus dairy commodities, such as SMP, WMP, butter and ghee. The Agricultural and Processed Food Products Export Development Authority (APEDA) regulated the export and import of dairy products till early 1990s. However with India coming under the WTO regime, in the new EXIM Policy announced in April 2000, the Central Government has allowed free import and export of most dairy products. The exports of dairy products from India during the last three years are as given below:

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Exports of Dairy Products from India Table No. 13

Year

2202-03

2003-04 8918.38 87.11

2004-05

2005-06

2006-07

2007-08 55761

Quantity, MT 21439.81 Value, Rs Cr 153.59

42160.06 59745.73 37391.11 358.69 552.28 395.15

Source: DGCIS/APEDA

Now, India is a net exporter where the dairy products are concerned. The exports of most products show an increasing trend till the year 2005-06 and then start declining from the year 2006-07 onwards. This is synonymous with the ban on exports that was imposed during that period. The exports figures from April 2008 to August 2008 are Rs. 55761 lacs.

Product wise Exports and Imports of Dairy Products of India Table No. 14 Exports (,000 tons) SMP WMP Other M ilk Products Butter/Butter Oil Condensed M ilk
Source DGCIS

2006-07 26.56 1.69 10.75 ---

2007-08 40.50 10.0 11.60 7.42 0.43

2008-09 26.05 1.34 5.51 3.71 0.29

2009-10 13.23 0.10 2.76 4.42 0.52

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Imports of Dairy Product by Indonesia Table No. 15

Product

Volume Tonnes 2007 Total 14,075 15,686 13,930 16,697 90,718 90,757 53,367 1,482 296,712

Volume Tonnes 2008 Total 6,328 9,655 10,557 16,187 83,514 81,207 42,239 968 250,656

Volume Tonnes 2009 Total 10,017 13,273 13,971 9,775 52,929 103,801 65,433 356 269,554

Volume Tonnes 2010 Total 12,823 14,642 15,683 4,151 49,856 132,227 72,619 156 302,158

Value US$000 2007 Total 43,618 42,974 46,363 19,598 300,852 316,477 99,772 1,500 871,153

Value US$000 2008 Total 24,597 41,663 54,609 24,532 330,572 309,893 78,057 1,385 865,308

Value US$000 2009 Total 17,498 36,547 49,299 16,084 157,198 238,330 74,206 668 589,829

Value US$000 2010 Total 31,148 70,900 69,338 11,845 221,985 405,153 114,138 339 924,886

Buttermilk / BMP Butterfat Cheese Milk WMP SMP Whey products Yoghurt Total

Source: BPS

In 2010 Indonesia imported 302,158 tonnes of dairy products (worth US$925 million); this was an increase from 2009 of 12 percent in volume. The main products imported in 2010 were SMP, WMP and whey.

EU, NZ and USA were the main dairy exporters to Indonesia in 2010 with a volume market share of 32 percent, 23 percent and 21 percent respectively. Australias share of dairy imports in 2010 was 13 percent of the volume down from an average market share of 30 percent in 2002. Table 16 shows a breakdown of imports by major country and product type in 2010.

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Indonesian Dairy Import by Country Table No. 16 (in tons) Product Buttermilk / BMP Butterfat Cheese Milk WMP SMP Whey products Yoghurt Total
Source: BPS

Aust 690 2,306 3,906 1,657 10,108 17,487 4,492 4 40,651

NZ 2,839 8,779 7,393 1,241 15,436 33,502 858 0 70,048

USA 0 659 2,975 156 315 40,624 17,974 77 62,780

EU 6,865 2,699 520 999 5,440 37,413 42,526 38 96,500

Other 2,429 199 889 98 18,557 3,201 6,769 37 32,179

Total 12,823 14,642 15,683 4,151 49,856 132,227 72,619 156 302,158

Imports of prepackaged powdered milk for the retail market have been growing steadily over the last five years; imports have increased annually by five percent in volume and almost 20 percent in value. In 2008, Indonesia imported almost 40,000 tonnes of prepackaged powdered milk products worth about US$180 million mainly from the Philippines (39 percent), New Zealand (25 percent) and Singapore (11 percent).

Imports of prepackaged powdered milk products represent about 22 percent of the volume and 29 percent of the value of total powdered milk consumption. There are at least 40 brands of prepackaged imported powdered milk sold through various retai outlets in Indonesia.

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CHAPTER 5

Policies and Norms of Indonesia For Dairy Industry for Import

5.1 GOVERNMENT REGULATIONS IMPACTING ON DAIRY BUSINESS

Import Tariffs

Despite the very high bound tariff rates on dairy products, applied rates on most products are five percent. The exceptions include some processed products, such as yogurt, and some concentrated milk and cream, which are subject to a higher applied tariff of 10 percent. Dairy imports face a number of regulations in Indonesia. Finished milk products can only be imported by companies appointed by Indonesias government.

In the Import Duty Tariff Book published by the Finance Ministry, import duties on milk products is five percent and value added tax (VAT) is 10 percent. Import Permits and Certificates

Export Certificates Required by Government for Dairy Products a. Sanitary Certificate from Ministry of Agriculture b. Health Certificate & Certificate of Free Sale from National Agency of Drug & Food Control (BPOM). c. Attestation required on Certificate: o Fit/safe for human consumption o Freely sold in the exporting country d. Halal Certificate from Indonesia Council of Ulama (MUI). Attestation required on certificate: product produced according to halal standards. Specific Requirements on Export Certificates for Dairy Products a. The country or part of a country or zone of origin is free from FMD and rinderpest for at least three 12 month periods. b. The dairy products originate from herds or flocks that were not subjected to any restrictions due to brucellosis or tuberculosis at the time of milk collection.

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c. The milk or cream comes from a processing industry establishment approved by the National Government and implementing a HACCP plan. d. For the inactivation of pathogens present in milk or cream one of the following procedures has been used: o Ultra-High temperature (UHT = minimum temperature of 132 C for at least one second) o If the milk has a pH less than 7.0, simple high temperature short time (HTST) pasteurization o If the milk has a pH of 7.0 or over, double HTST e. Inactivation of microbiology by radiation is prohibited. f. The milk or cream is derived from an accredited processing plant and processed in accordance with Islamic procedures and stated with a halal certificate. g. The milk or cream does not contain preservatives, additives, and/or other substances at levels which may cause a hazard to human health. h. The milk or cream has been processed in accordance with sanitary and hygiene requirements so that the milk or cream is safe and fit for human consumption. i. The milk or cream has been government inspected on the day of shipment and is wholesome, safe, and fit for human consumption.

Other Certification/Accreditation Requirements Any entry of animals, materials of animal origin, or products made of materials of animal origin are subject to the following conditions: a. Importers must obtain an import permit from the Director General of Livestock and Animal Health Services (DGLAHS), Ministry of Agriculture prior to importing. b. Must be accompanied by a Certificate of Origin stating that the animals, materials of animal origin, products of made materials of animal origin came from an area known to be free from quarantine disease in Category I and acknowledged by a Government of Indonesia (GOI) authorized official if originating from abroad. c. Importation must be made through designated points of entry.

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Other certificates needed for certain products a. Composition analysis certificate from producers (must be original, valid for 6 months). b. Original document listing production date and expiration date. c. Products with short shelf life, such as: milk and milk products, and other high risk foods, should have at least 2/3 of shelf life remaining at time of export. d. Certificate of Origin Country can be issued by Chambers of Commerce or notary public. e. Materials of animal origin or products made of materials of animal origin, which include dairy products, intended from human consumption must also be accompanied by a Halal certificate from an accredited Islamic Council.

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5.2 PRODUCT REGISTRATION

Imports of dairy products, like all food imports, are tested by the Agency for Drug and Food Control called Badan Pengawas Obat dan Makanan (BPOM), a process that is reported to be complex, time consuming and costly (USTR 2007). Tests require foreign suppliers to provide detailed information on ingredients and processing. The testing fees are expensive, ranging from US$120 to US$1,200 per product, and may be borne by foreign food suppliers.

Government Regulation No. 69 (1999) stipulates that the government institution which is responsible for regulating and supervising the safety of foods and drugs in Indonesia is the Food and Drug Control Body (BPOM).

There are three types of registration numbers: 1. Training Certificate (Sertifikat Penyuluhan) for a small company with limited investment where monitoring is done by Regional Health Service by providing guidance or training. 2. MD Number for local food and beverage manufacturer with high investment which is capable to comply with government regulation. 3. ML Number for imported processed food and beverage products.

All processed food and beverage products have to be registered before they can be distributed to the market. The registration process is articulated by the Head of BKPM in decree No. HK.00/05.1.2569, in the document Criteria and Mechanism of Food Product Evaluation, Chapter III Article 9.

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5.3 LABELING
Processed food product labelling requirements are governed by Government Regulation No. 69 in 1999. Label requirements are designed to ensure that the consumer can be accurately informed about the ingredients in processed food and its status as halal or non-halal.

Key points of the current labelling requirements include, All packaged food products distributed in Indonesia must be labelled exclusively in Bahasa Indonesia language, Arabic numbers and Latin letters. The use of any other language, number and letters is permitted only where there are no substitute Indonesian words or if there is a difficulty in finding Indonesian words with a similar meaning. The use of stickers was authorised temporarily. Specific wording regarding content is required for labels of certain food items including milk products, baby food, alcoholic beverages, and halal food. If the product is halal, it must be certified by an approved authority. The expiration date of perishable food items must be shown (and imported products must be landed in Indonesia with at least 2/3 of their stated shelf life remaining). Food additives must be identified. The name and address details of the manufacturer or importer must be stated. There are specific requirements for labeling of products with GMO content greater than five percent and also for irradiated products. SNI marks must be shown when relevant compulsory standards exist (these apply to sugar, salt and wheat flour). Net weight or net volume has to be stated

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Information on Nutrition Content 1. Food Nutrition labelling shall be stated on the Label for any food which has: a. Nutrient declaration for any food containing vitamins, minerals, and or other added nutrient; or b. Required by virtue of the provisions in applicable rules and regulation in the field of the food quality and food nutrition, shall be enriched with vitamin, mineral and or other nutrient. 2. Information on food nutrition content shall be declared with the following order: a. Total energy value, in detail by virtue of energy value stemming from fat, protein and carbohydrate; b. Total amount of fat, saturated fat, cholesterol, total carbohydrate, fiber, sugar, protein, vitamin and mineral. 3. Where nutrition labelling is applied, the declaration of the following is mandatory: a. b. c. d. e. f. Serving size; Serving amount per package; Energy value per serving; Protein content per serving size (in grams); Fat content per serving size (in grams); Percentage of the reference RDA (Recommended Dietary

Allowance of Nutrients).

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5.4 SPECIFIC REQUIREMENTS FOR DAIRY PRODUCTS

Milk industry is also required to follow additional regulations as follows:

1. Metal Pollution - Maximum limits for metal content in powder milk as follows: Arsenic (As) 0.1 mg/kg, lead (Pb) 0.3 mg/kg, copper (Cu) 20 mg/kg, zinc (Zn) 40 mg/kg, tin (Zn) 40 and mercury (Mg) 0.03 mg/kg

2. Microbe Pollution - Maximum limits for microbe content for powdered milk are MPN Coliform 10 per gram/ml. Salmonela Negative, and Staphylococcus aerius 10and Flat Figure 5.10~ pergram /m l.

3. Vitamin K not Allowed in Milk Products

4. Addition of Nutrients (Regulation of the Drug and Food Watchdog No. HK 00.05.1.52.3572)

5. Reference for Nutrition Label (The Decision of head of the BPOM No. HK. 00.05.52.6291)

6. ASI (Mothers Milk) Substitutes (Regulation of the Health Minister No. 240/Men. Kes/Per/V/

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5.5 INVESTMENT LAWS

In June 2010 the Indonesian Government published the new Negative Investment List based on Presidential Regulation No. 36 Year 2010 about businesses that are open or closed for investment. The latest Negative Investment List is based on the investment law which was enacted in 2007. The 2007 law sets out a more comprehensive description of which business sectors are opened and closed to investors. The new list, required under the recently enacted Investment Law, governs a total of 338 business sectors, of which 69 sectors would now be more open than before, with 11 becoming more restrictive. The list increases the number of closed sectors to 25 from 11 previously to protect the national interest in such areas as public health, the environment, culture and natural biodiversity. It also prioritizes 43 sectors for small and medium enterprises. Other sectors will, however, be more open to foreign investors than before. Under the new rules, non-national investors will be allowed to take controlling stakes in agriculture and plantation firms (up to 95 percent). Import duties on milk products is five percent and value added tax is 10 percent. There are a range of documents that are required when exporting food / dairy products to Indonesia including: Sanitary Certificate from Ministry of Agriculture; Health Certificate & Certificate of Free Sale from National Agency of Drug & Food Control (BPOM); Halal Certificate from Indonesia Council of Ulama (MUI). All imports of food / dairy products must be tested by BPOM and be registered with an import number (ML).

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CHAPTER 6

Policies and Norms of India For Dairy Industry for Export

6.1 GOVERNMENT POLICY TOWARDS DAIRY DEVELOPMENT IN INDIA

Operation Flood

The transition of the Indian milk industry from a situation of net import to that of surplus has been led by the efforts of National Dairy Development Boards Operation Flood. programme under the aegis of the former Chairman of the board Dr. Kurien.

Launched in 1970, Operation Flood has led to the modernization of Indias dairy sector and created a strong network for procurement processing and distribution of milk by the co-operative sector. Per capita availability of milk has increased from 132 gm per day in 1950 to over 220 gm per day in 1998. The main thrust of Operation Flood was to organize dairy cooperatives in the milkshed areas of the village, and to link them to the four Metro cities, which are the main markets for milk.

The efforts undertaken by NDDB have not only led to enhanced production, improvement in methods of processing and development of a strong marketing network, but have also led to the emergence of dairying as an important source of employment and income generation in the rural areas. It has also led to an improvement in yields, longer lactation periods, shorter calving intervals, etc through the use of modern breeding techniques. Establishment of milk collection centers and chilling centers has enhanced life of raw milk and enabled minimization of wastage due to spoilage of milk. Operation Flood has been one of the worlds largest dairy development programmes and looking at the success achieved in India by adopting the cooperative route, a few other countries have also replicated the model of Indias White Revolution.

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 Dairy Production Policy

Dairy production in India is characterized by a low input-low output system, whereby smallholder producers typically own no more than five cattle or buffalo and use locally available feedstuffs. While yields are below international averages, production costs are amongst the lowest in the world. Although animals are generally stall-fed, low production costs and low yields means that animal feeding typically relies on agricultural residues rather than grain based feeds or special fodder. As dairy product prices continue to rise and stable incomes from milk procurement become more available, there is a small but slowly growing trend amongst farmers to increase herd sizes and specialize in dairying. Additionally, private sector investors are building larger dairies, often in partnership with a major dairy processor.

Indian dairy policy is currently focused on increasing milk output through a number of incentive schemes. While breeding stock development continues to take place through the Ministry of Agricultures research programs, the government of India has also taken steps to allow the importation of high quality genetics. Currently, India allows imports of bovine semen and embryos (subject to strict quality norms). Additionally, the GOI launched the National Project for Cattle and Buffalo Breeding (NPCBB) in October 2000. This program has targeted improving Indian indigenous breeds on a priority basis over a ten year period with an allocation of USD 255 million (Economic Survey 2009-10). The private sector is also playing a role by providing extension activities oriented at ensuring a stable supply of high-quality milk for procurement. Through the private sector, Indian dairy farmers are receiving artificial insemination services, veterinary care and other livestock

management training. As genetic improvements become more available, it is expected that Indian producers will continue to use higher yielding foreign cattle breed/local breed hybrid crosses, often provided through their milk procurement companys own extension services.

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In 2010, the government, along with the National Dairy Development Board, has drawn up a National Dairy Plan (NDP) with a proposed outlay of around USD 378 million to nearly double the countrys milk production by 2020. This plan will focus on increasing milk productivity of the Indian dairy herd through several means, including the use of imported genetics as well as selective breeding of local cattle. Additionally, the ND P proposes to improve access to quality feeds and improve farmer access to the organized market, by increasing cooperative membership and growing the network of milk collection facilities throughout India. (National Dairy Development Board).

Agriculture, including animal husbandry is a state subject under the Indian Constitution, and the responsibility for development of the sector lies with the State Governments, with the exception of specific tasks assigned to the Central Government. Despite this, following the success of the dairy farming policy, reflected in Operation Flood and to have a focused approach, the Government has set up a dairy processing policy to meet the following objectives of the dairy sector: To assure a remunerative price to the milk producers; To ensure the availability and supply of clean processed milk as per the consumers need; To provide necessary milk products with the requisite quality to the consumer at a competitive price.

This was reflected in the setting up of the National Dairy Development Board. In addition, the Government uses a variety of import restrictions to protect the domestic dairy market.

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 The National Dairy Development Board

The National Dairy Development Board (NDDB) was set up by the Government of India, by an Act of the Parliament, as a statutory body and an institution of national importance in the year 1987. NDDB promotes plans and organizes programmes for the development of dairy and other agriculture based and allied industries along cooperative lines. It also provides assistance for the implementation of such programmes.

6.2 MILK AND MILK PRODUCTS ORDER (MMPO)

The paradigm shift in the outlook of the Government of India towards its economic policy in the early 1990s led the dairy industry to be de-licensed in 1991 t o permit the private dairies t o enter this sector. Keeping in mind the interest of the general public and to maintain and increase the supply of liquid milk of desired quality, it was felt necessary to have a framework which would encompass processing and distribution of milk and milk products to facilitate the healthy growth of the dairy sector. The Milk and Milk Products Order was notified in the year 1992.

It essentially defines the responsibilities of the intermediaries between milk producers and consumers, seeks periodic information to enable the government to consider appropriate action in exceptional situations, maintains and regularly updates a national database of the organized sector of the Indian dairy industry and provides for regulation and regulator of dairies by designated registering authorities and a controller. As per this order any person/dairy plant handling more than 10,000 litres of milk per day or 500 MT of milk solids per annum needs to be registered with the registering authority appointed by Central Government this has undergone various amendments from time to time, the last being on March 26, 2002. Each amendment has made it more liberal and more growth oriented.

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The Export Inspection Council and the National Productivity Council have been notified by the Government of India as Quality Auditors to conduct periodic inspections (once a year) of the units registered under MMPO to ascertain that the specified sanitary, hygienic conditions and food safety measures are complied with.

As on March 2007, 818 dairy processing plants were registered under the MMPO. Their combined installed capacity was about 952 lakh litres of milk per day, about 40% of which existed in the North of the country, about 30% in the West and with South India accounting for about 20% of this processing capacity. Now the MMPO-1 992 has been brought under the Milk and Milk Product Rules of the Food Safety and Standards Act 2006, the implementing authority of which is the National Food Safety & Standards Authority under the Ministry of Health and Family Welfare. Further an expert group has been constituted to review the current status of the milk processing sector wrt the safety and quality of milk and milk products and to draft an action plan for ensuring the same.

6.3 DAIRY VENTURE CAPITAL FUND

The second intervention by the Government of India was at the financial level. With the opening of the world markets and with a rapidly rising demand for milk products, there has been an increase in the number of large players coming into the field of milk processing and allied activities. Still there exist a very large number of small scale milk producers in the non organized sector especially in the rural areas with little or no access to funds because capital formation in this sector is distressingly poor due to low levels of income. Recognizing their need for financial assistance for the up-gradation of traditional technology to handle operations on a commercial scale using modern equipment and for the up-gradation of the quality of milk, the dairy capital Venture Fund was the initiated in the 10 Plan. 45

This scheme is being implemented through NABARD. Financial assistance is provided to small scale milk producers for the establishment of small dairy farms; Purchase of milking machines / milk-o-tester / bulk coolers etc; Purchase of dairy processing equipment for manufacturing indigenous milk products; Establishment of the cold chain facilities for milk and milk products; Establishment of private veterinary clinics etc.

50 % of the total outlay of a project is provided as an interest free loan, 40% as a loan at interest rates meant for agricultural activities and the balance 10% is to be paid up by the farmers / entrepreneurs themselves.

The financial assistance given under this scheme is as follows: Rs 3 lakhs per unit for the establishment of small dairy farms (10 cross bred cows / buffaloes per unit) to be set up in any non operation flood area Rs 15 lakhs per unit for the purchase of milking machines / milk o tester / Bulk milk cooling units (up to 2,000 litre capacity) Rs 10 lakhs per unit for the purchase of dairy processing equipment for the manufacturing indigenous milk products Rs 20 lakhs per unit for the establishment of dairy product transportation facilities including the cold chain Rs 25 lakhs per unit for the cold storage facilities for milk and milk products Rs 2 lakhs per unit for the establishment of private mobile clinics and Rs 1.5 lakhs for stationary veterinary clinics to operate in 8-10 villages having 5,000 to 6,000 cattle units.

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6.4 ELEVENTH PLAN SCHEMES- MINISTRY OF FOOD PROCESSING INDUSTRIES

Some of the schemes of Ministry of Food Processing Industries under the 11 Plan related to the dairy products are as below:

Technical up gradation, Establishment and modernization of food processing industries financial assistance for the cost of plant & machinery and technical civil works. 25% aid in general areas with a maximum of Rs 50 lakhs and 33.33% in difficult areas with a maximum of Rs. 75 lakhs. Setting up of Quality control laboratories Central / State Government and its Organizations/ Universities/ Deemed Universities for entire cost of the laboratory equipment plus 25% of the cost of technical civil works to house the equipment for general areas and 33.33% for difficult areas. All other implementing agencies / private sector organizations up to 50% of cost of laboratory equipments and 25% of the cost of technical civil works to house the equipments in general areas and 70% of cost of lab equipment and 33% of technical civil works in difficult areas.

Implementing HACCP / ISO 22000, ISO 14000 / GHP / GMP Quality/ Safety Management System - Reimbursement of 50% of the cost of consultant / certification agency, plant & machinery, technical civil works, and other expenditure towards implementation of total quality management system in general areas up to Rs 15 lakhs and 75% in difficult areas up to Rs 20 lakhs to Central/ State Govt. Organizations, IITs, Universities and Private Sector.

Certification Scheme for Dairy Product Exports

The Indian dairy sector is poised for rapid expansion as a result of the application of modern process technologies. This coupled with the rising demand for packaged fresh dairy products is widening the base of the modern dairy sector. Yet Indias contribution to world food trade is relatively 47

insignificant despite the country being the third largest producer of food products in the world. A major factor for such low exports has been the quality and safety considerations of the consumers who have been increasingly showing their preferences for high quality products.

In the WTO regime, Indias trading partners are also installing regulatory import controls. It is becoming increasingly necessary to take into account critical factors, related to quality and safety of products throughout the food chain right from the stage of production to the final consumption stage. The Export Inspection Council of India (EIC) is the official certification body set up by the Government in 1964. It enjoys a statutory status.

Dairy products are governed by the Compulsory Quality Control, Inspection and Monitoring Notification which sets the standards for dairy exports including sanitary and hygiene. Recognition is also given to the Codex Alimentations Commission (CAS) standards, the national standards of the importing countries or the contractual specifications if any, provided these are not below the national standards as specified in the notification. The export of milk products (Quality control, Inspection and Monitoring) Rules, 2000, applicable to milk products prior to exports.

The processing plants are primarily responsible for meeting the health requirements of the importing country. To fulfill this responsibility the plants are required to plan and implement process control, develop their own systems of checks, and keep necessary records. The certification system adopted by the EIC involves approval of milk processing units on compliance, followed by periodic surveillance by the five Export Inspection Agencies (EIAs) at Delhi, Kolkata, Kochi, Chennai and Mumbai, supported with a network of 42 sub-offices and laboratories.

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6.5 EXPORT QUALITY CONTROL AND INSPECTION ACT, 1996

An important aspect about the goods to be exported is the compulsory quality control and pre-shipment inspection. Quality control and pre-shipment inspections are prerequisite for exporting goods. The Export Quality Control and Inspection Act lists down the specific requirements that have to be necessarily complied with, by plants exporting food products.

Customs authorities allow shipment of such goods without inspection certificate, provided they are otherwise satisfied that the goods carry the ISI Certification Mark or the Agmark. For other goods, the inspection of the consignment is generally carried out either at the premises of the exporter, provided adequate facilities exist therein for inspection, or at the port of shipment. It is mandatory for all such plants to register themselves with the Export Inspection Council of India. Around 50 dairy plants have been accorded registration under this act by the EIC. Yet cases of Indian exports being rejected by foreign importers have occurred, therefore there is a need to strengthen the monitoring system and the implementation of rules.

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CHAPTER 7

Potential for Export from India

7.1 ENTRY STRATEGY

The best way to overcome the hurdles associated with exporting to Indonesia is to select an agent. An agent should be chosen based on his ability to assure the widest distribution of products and the ability to undertake the marketing efforts necessary to create awareness for products among consumers. Price, quality, and continuous supply are important to Indonesian agents but personal interaction with potential business partners is also important. A face-to-face meeting will likely be needed, though younger importers maybe more comfortable with establishing relationships via electronic communication.

Market research for product testing, price comparison and adjusting the product for local tastes is important. Agents and distributors can help with market research and their assistance has proved to be an effective strategy in expanding sales since they understand the regulatory system and can bridge cultural differences.

According to local importers, while U.S. prices may be competitive, ingredients from European countries are the most popular. European suppliers are reportedly the most responsive to inquiries and more willing to tailor ingredients to meet specific tastes and needs. Participating in local food shows to introduce your products to a large audience and to meet with potential importers is strongly suggested.

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7.2 ADVANTAGES AND CHALLENGES FOR INDIA

Advantages

Challenges

Market

size

Indonesia

has

a Import regulations are often complex

population of around 240 million and non-transparent and permits can people be difficult to obtain, thus requiring a close business relationship with a local agent The industry is constantly creating Quantities of ingredients for new new products based on consumer product and market trials are usually preference trends. These new not enough to fulfill the minimums

products often require ingredients required by Indian suppliers unavailable domestically Indian products are considered to be Competitive products are often less of high quality expensive, and are used equivalently to Indian products Singapore is close, making it easier Food ingredients from the region for importers to lots to consolidate enter Indonesia at lower prices due to the the ASEAN Free Trade Area, while the food ingredients from the Indian have higher shipping cost. purchasing power of the

shipments smaller

accommodate required by

Indonesian market.

Applied duties on most food and Weak agricultural products are currently 5

majority of the population. Muslims

percent, with a 10 percent applied accounting for 88% of the population duty on certain processed foods require halal-certified products

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7.3 EXPORT POTENTIAL

India has the potential to become one of the leading players in milk and milk product exports. Locational advantage: India is located amidst major milk deficit countries in Asia and Africa. Major importers of milk and milk products are Bangladesh, China, Hong Kong, Singapore, Thailand, Malaysia, Philippines, Japan, UAE, Oman and other gulf countries, all located close to India. Low Cost of Production Milk production is scale insensitive and labour intensive. Due to low labour cost, cost of production of milk is significantly lower in India. Quality Significant investment has to be made in milk procurement, equipments, chilling and refrigeration facilities. Also, training has to be imparted to improve the quality to bring it up to international standards. Productivity To have an exportable surplus in the long-term and also to maintain cost competitiveness, it is imperative to improve productivity of Indian cattle. There is a vast market for the export of traditional milk products such as ghee, paneer, shrikhand, rasgolas and other ethnic sweets to the large number of Indians scattered all over the world.

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CHAPTER 8

Business Opportunity for Dairy Products

COMMENTARY

OPPORTUNITY

Cheese-Based Products A good market with sound growth prospects and many Indonesian companies are seeking engagement with Australia.

Liquid Yoghurt Drinks

Demand is sound at the high end of market. Challenge is to produce for the medium/low market sector. Improving for the commercial investments and an integrated model appears most partners. Limited market, undertaken by some potential may exist for existing dairy companies. Currently limited to the upper income range of the market with limited growth potential until there is broader based income growth.

Establishing integrated Dairy Operations

Flavoured Milk

Ice cream & Dairy Ice Confectionery

MARKET SETTINGS & TRENDS A limited number of Australian suppliers can readily find good local associates. There are companies interested in JV operations to produce cheese from Australian curd and also import cheese in bulk and pack for the local market. Opportunities may lie in developing a strong brand, in association with an existing Indonesian dairy producer. Several are already are working with Australian principals to produce block cheese. The business climate is PT Greenfield has demonstrated that investment in this sector is viable, with strong local licensing brands. Potential to develop the niche products in A1 income group market. Possibilities also to test low cost ice-cream and ices for a wider consumer base, as these have proved popular elsewhere in Asia, in urban centers.

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Conclusion & Suggestion

CONCLUSION
The diets of Indonesian households are changing like in many Southeast Asian countries. A major change is the increased consumption of animal proteins in the form of poultry and milk products. The growing demand for animal protein, the problems with avian influenza, and the high world market prices for dairy products in 2007 results in more attention of the Indonesian government and the dairy industry for the development of the local dairy sector.

The objective of the study was to identify export potentials for the Indonesian dairy sector and opportunities for India to contribute to this. The report presented an overview of the macro situation of the dairy sector, major government policies in relation to the sector, an analysis of the dairy supply chain, its limitations and possible solutions and options for cooperation with India.

The local milk production in Indonesia is mainly concentrated in the higher altitude areas of the island of Java. There is an interest of the government and the private sector (dairy industry) to stimulate local milk production. Competing claims for land and climatic conditions in the lower altitude areas limit expansion of milk production at Java. The trend to establish large scale dairy farms will contribute to the increase of milk production, but also in future the bulk of the milk will be produced by smallholders. Increase of milk production per cow by improved farm management practices, increased efficiency of the dairy supply chain ( which should result in higher farm gate milk prices), and improved provision of services and inputs to farmers are key factors in increasing milk production on small scale farms. Local milk production could also be increased by expansion of dairy farming on West Sumatra and Sulawesi and/or in other parts of Indonesia. Processing and marketing would need to be developed at the same time for this to be successful. Decentralization of government will probably lead to more local initiatives to stimulate dairy development. 54

Government policy is directed to increase self-sufficiency in milk products from the current 30% to 50% by 2015. Small-scale dairy farming that leads to improved incomes and employment opportunities in the rural areas also meet important objectives of government policy. Government policy directed at the primary producers aims at improvement of production levels per cow (milk production per cow per day to increase from the present 8-10 kg to 15 kg per cow per day), improvement of raw milk quality and a minimum farm gate milk price to be at least 80% of the world market price. To achieve this, the government stimulates among others farmer group formation and group activities by means of subsidies. The government aims also at an expansion of milk production in areas outside Java.

The matter of fact being the vast difference between the demand and supply which could not be fulfilled in a short duration of time requiring organizational level changes in Indonesia. India can tap this opportunity by filling the gap between the existing demand and supply position of Indonesia. The current shortage being 65-70% being filled by costly Australian or Netherlands milk could be filled by cheap and high quality dairy product. With Indonesia and India being located close to each other on the globe the cost of transportation could be not much of concern. With healthy Exim policy the boost to trade can lead India to becoming major dairy product exporter to Indonesia.

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SUGGESTIONS
In Indonesia the demand of dairy products is increasing rapidly to due to the education and health awareness drives, so that India has an opportunity for exporting dairy products to Indonesia.

The domestic supply and production of dairy products in Indonesia is stagnant to 25% of total demand, so India can explore the opportunities, and export dairy products to Indonesia. The current suppliers of Indonesia are Australia and Netherlands which are far more distant then India on the global so the transportation cost can be an added advantage.

The Government policy of India is in favor of exporting the dairy products so the Indian dairy product manufacturer has a great platform for expanding their business and taking their products global.

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