Table of Contents

1 Wheat Flour Industry in Indonesia: An Overview..................................................2 1.1 1.2 1.3 1.4 2 2.1 2.2 2.3 3 4 5 Wheat Flour Import........................................................................................2 Trade.............................................................................................................3 Consumption..................................................................................................3 Price...............................................................................................................4 In operation...................................................................................................4 To be Established...........................................................................................5 New Investments in Wheat Flour...................................................................5

Wheat Flour Factories..........................................................................................4

Wheat Flour Usage...............................................................................................5 Wheat Flour Technical Specifications...................................................................6 Wheat Flour Fortification......................................................................................7 5.1 5.2 5.3 5.4 5.5 Fortification Standard....................................................................................7 Regulation supporting Mandatory Flour Fortification.....................................7 Industrial Implementation..............................................................................8 Implementation Problem................................................................................9 Fortification Cost............................................................................................9

6 7 8

Wheat Flour Import 2007-2008 in MT...................................................................9 Wheat Grain Price Trend, 2007-2008.................................................................10 Important Facts..................................................................................................11

Important Facts

1 Wheat Flour Industry in Indonesia: An Overview

Wheat flour is widely consumed in Indonesia second after rice. Wheat flour is one of basic staple foods and its consumption has increased considerably in the last 15 years following the popularity of various foods made from wheat flours and food diversifications from rice to other type of staple foods. Per capita wheat flour consumption has increased from 9.9 kg/ capita in 1992 to around 17.1 kg per capita in 2007. The CY 2008 Indonesian wheat flour production is forecast to increase by 5 percent to 3.2 million tons compared to 3.1 million tons in CY 2007 due to continued demand for wheat-based food products. Shortages in Australian wheat production have boosted U.S. wheat export to Indonesia to a record level of 831,320 tons in MY 2006/07. The high price of wheat in international markets has forced some smaller wheat millers to temporarily stop operations and import wheat flour instead of wheat.

1.1 Wheat Flour Import

In Indonesia, most of the demand of wheat flour fulfill by importing wheat flour from outside. Some facts about wheat flour are: Net import (2007): 580.9 thousand ton (US$ 180.3 million). The amount is imported from the following countries: Turkey: Australia: Sri Lanka: China Belgium 29.7% 26.3% 19.8% 13.3% 7.9%

Locally-produced wheat flour in Indonesia is priced higher than imported wheat flour.

1.2 Trade

Approximately 85 percent of total Indonesian wheat flour consumption is met by imported wheat. The soaring price of wheat in world markets during MY 2007/08 will limit Indonesian wheat imports to 5.3 million tons, the same amount as in the previous MY. Given its geographical advantage, Australia will continue to be the major supplier of wheat to Indonesia with a 50-percent market share, followed by Canada (31 percent). However, long lasting drought in Australia during MY 2006/07 has given a favor to the U.S. wheat exports to Indonesia. U.S. wheat exports to Indonesia significantly increased by 287 percent to 831,000 tons and market share increased to 15.6 percent. The high price of wheat has reduced margins of larger-scale wheat millers and has forced some smaller wheat millers to temporarily stop operations. Reportedly, some are importing wheat flour instead of wheat. Depressed consumer purchasing power also made some larger-scale wheat millers to export their wheat flour. Nevertheless, the increase of Indonesian wheat flour export is insignificant. GOI has also taken measures to lower wheat flour prices in the domestic market to ease depressed consumer purchasing power following the sharp increase in almost all Indonesian basic food prices. In February 2008, GOI temporarily reduced the import duty on wheat flour to zero, and will temporarily afford the value added tax (VAT) of wheat and wheat flour. The import duty for wheat flour was 5 percent and the VAT for wheat and wheat flour was 10 percent. However, how long the measure will stay in place is unclear. In addition, on January 24, 2008 the Ministry of Industry issued a regulation temporarily lifting the Indonesian National Standard (SNI) on wheat flour. With this regulation, importers can import unfortified wheat flour. Formerly, wheat flour produced domestically or imported must have been fortified with iron, zinc, thiamin, riboflavin, and folic acid to assure the nutritional value contained in wheat flour. This Minister of Industry regulation is expected to be effective until April 2008. Despite the aforementioned efforts, Chinas policy to impose a 25 percent tax on exports of wheat and wheat flour will keep total Indonesian imports of wheat flour from increasing significantly. In MY 2007/08 Indonesian wheat flour imports are estimated to be on par with that in MY 2006/07 of 550,000 tons.

1.3 Consumption
Consistent with economic growth that is estimated to remain above 6 percent in 2008 and population growth, combined with the continuous demand for wheatbased food products as an alternative to Indonesian staple food of rice, Indonesian wheat flour consumption is expected to continue growing. However, the rising price of wheat slow down growth in MY 2007/08 to only 5.1 million tons wheat equivalent, compared to 5 million tons wheat equivalent in the previous MY. It is expected to continue growing to 5.3 million tons wheat equivalent in MY 2008/09. The Indonesian per capita wheat flour consumption in 2007 is estimated to increase to 18 kg per capita compared to 17 kg per capita in 2006.

The noodle industry contributes to 50 percent of overall Indonesia wheat flour consumption followed by the bakery industry (25 percent), biscuit (15 percent), fried meals (5 percent), and household use (5 percent). Approximately 90 percent of wheat flour consumed by the bakery industry is absorbed by lower-middle scale bakeries. Depressed consumer purchasing power made it difficult for bakers to increase products prices. Yet, GOI action to lower prices makes it difficult for bakeries to also increase their prices. Instead of increasing the price, they reduced the size of their bread or donut and sold it at the same price. They also used lower quality and cheaper wheat flour. However, this strategy cannot be implemented for the long term, they will be forced to raise their price eventually. Some of the upper end bakeries have already increased their prices by an average of 5-7 percent. To gain a stronger position in the Indonesian wheat flour industry, the bakeries united in an association called Indonesian Bakery Association which was established on December 11, 2007. The association currently has 400 members scattered all over Indonesia. It plans to hold the First Indonesian Bakery Exhibition in May 2008. It would also like to initiate an Indonesian National Standard regarding bakery products.

1.4 Price
To meet increases in the price on world markets, wheat millers are reportedly increasing the price of wheat flour gradually by an average of 5 percent per month. Within two months in early 2008, wheat flour prices increased by 15 percent. Currently, wheat flour prices are ranging from Rp. 158,100/25 kg bags (US$ 693/ton) to Rp. 166,700/25 kg bags (US$ 730/ton) at the mill level. The price of most common brand of all purposes flour at retail level now stands at Rp. 8,200/kg (US$ 898/ton).

2 Wheat Flour Factories

2.1 In operation
S. No. 1 Company INDOFOOD SUKSES MAKMUR TBK., BOGASARI FLOUR MILLS DIVISION, PT 2 SRIBOGA RATURAYA, PT Location NORTH JAKARTA & SURABAYA (EAST JAVA) SEMARANG, CENTRAL JAVA MAKASAR, SOUTH 740.000 APTINDO Capacity (Tons/Year) 4.397.500 Remarks APTINDO

EASTERN PEARL FLOUR MILLS, PT

720.000

APTINDO

SULAWESI 4

PANGANMAS INTI PERSADA, PT

FUGUI FLOUR & GRAIN INDONESIA, PT PURNOMO SEJATI, PT

CILACAP, CENTRAL JAVA

GRESIK, EAST JAVA` SIDOARJO, EAST JAVA SIDOARJO, EAST JAVA TANGERANG, BANTEN

300.000 APTINDO
270.000 120.000 NON APTINDO NON APTINDO

5 6

ASIA RAYA, PT

72.000

NON APTINDO

BERKAT INDAH GEMILANG, PT

NON APTINDO

Total

9.201.500

2.2 To be Established
S. No. 1 Company PUNDI KENCANA, PT/FEDERAL FLOUR MILLS, PT 2 KWALA INTAN NEW GRAIN, PT BUNGASARI FLOUR MILLS, PT ASAHAN, NORTH SUMATERA East Java 175.000 210.000 Location CILEGON, BANTEN Capacity (Tons/Year) 500.000 Remarks

2.3 New Investments in Wheat Flour

S. No. Company Location Planned Capacity (Tons/Year) 270,000 120,000 Planned Investment In IDR billion 350 24

1 2

Fugui Flour & Grain Indonesia, PT Purnomo Sejati, PT

Gresik Sidoarjo

3 4

Asia Raya, PT Berkat Indah Gemilang, PT, PT Federal Pundi

Sidoarjo Tangerang

72,000 43,000

10

Kencana , PT (Federal
5 6 7

682 Banten Banten North Sumatra 123,000 600,000 250,000 23million .. ..

Cerestar Flour Mills, PT Daya , PT Tri Pilar Pangan Utama, PT Prima Anugrah Mulya, PT

Banten

270,000

..

3 Wheat Flour Usage

4 Wheat Flour Technical Specifications

Wheat flour is the main material for noodle, bread, biscuit and various cakes. It is produced from wheat grains through milling process. Specifications for Bread Protein: 11-12 % Wet Gluten: 27-28 % Ash: 0.60-0.65 % Moisture: 13.5-14 %. Specifications High Grade Bread Flour: Ash: 0.6% (max.) Protein: 15% (min.) Moisture: 14.5% (max.) Gluten: 33% (min.) Application Economical Premium multipurpose bread products: cakes, cookies, dry noodle Moisture: 13.00-14.0% Protein (Nx5.7): 8.0-8.5

Ash: 0.50-0.55% FARINOGRAM Water Absorption 53-58%, 62-65% Development Time: 2-10, 5-10 minutes Stability: 3-10, 15-25% Tolerance Index BU 10-30 AMYLOGRAM Amylogram Peak BU 700-1800, 1200-1800 Temp of gelatinization 59-62 degree C GLUTEN Wet Gluten % 21-25, 33-36 Dry Gluten % 7-8, 11-12 Gluten Index % 90-99 Application wet noodle and all baking purposes Moisture 13-14 Protein (Nx5.7) 9-10% Ash 0.5-0.60, 0.50-0.55 FARINOGRAM Water Absorption 58-60 % Development Time 3-5 Mins Stability 8-10, 10-15 Tolerance Index 20-40, 15-30 AMYLOGRAM Amylogram Peak 1000-1800 Temp of gelatinization 59-62 GLUTEN Wet Gluten 25-30 Dry Gluten 8-10 Gluten Index 90-99

5 Wheat Flour Fortification

5.1 Fortification Standard
Fe Zn Thiamine Riboflavin Folic acid min min min min min 60 ppm 30 ppm 2.5 ppm 4 ppm 2 ppm

*PPM: Parts Per Million

5.2 Regulation supporting Mandatory Flour Fortification

1 2 3 4 5 6 7 8 9 10 11 1980 1996 1998 2000 2001 Jan 2002 Feb 2002 Mar 2002 2003 24 Jan 2008 14 July 2008 Food fortification was stated in National Five Year Development Plan (1980-1984) Food Law was enacted with a paragraph on food fortification MoH decree : Flour fortification produced MoIT issued Standard National Indonesia (SNI) for wheat flour MoIT issued mandated wheat flour fortification with Iron, Folic Acid, Vit B1 & B2 Authorize laboratory checking for wheat f SOP on Mandatory SNI on wheat flour Flour importation procedures Fortification dosage to be in line with SNI MoI uplifted the existing SNI regulation. There was no mandated wheat flour fortification MoI re-installing SNI wheat flour with mandated fortification.

*MoH: Ministry of Health **MoIT: Ministry of Industry & Trade Indonesian Wheat Flour Association (APTINDO) committed to fortify wheat flour. There are some Flour Mills (non APTINDO) produced non SNI wheat flour

1.1 Industrial Implementation

In 1998, Indonesian government secured a grant of US$ 850,000 from USAID through UNICEF to Purchase 340 MT of iron premix. Besides, in August 2001, Indonesia government secured a donation again of 232.44 MT premix from CIDA through UNICEF for all flour mills in Indonesia. The donation could be used only for two years. To continue in the following years, and to be competitive in the AFTA (Asian Free Trade Area), the fortificants for the flour mills-industries need to be subsidized for about three years by government. Another reason is the law enforcement for bending the imported-non fortified wheat flour is still not adequate, that makes the imported non-fortified wheat flour available and cheaper than domestic one in several areas in Indonesia, and the rest of seven years program, the fortificants must be procured by industries sector them. The activities of this program include: fortificant subsidy and fortificant procurement. The quality assurance (QA) is a must for each industry include mandatory fortification of wheat flour. The QA will protect consumers and producers from unsafe and low quality product; and to ensure that the manufacture follow the technical specification.

Implementation of wheat flour fortification is regulated by three government regulations, i.e. 632/MENKES/SK/VI/1998 about Wheat flour fortification, June 16th, 1998, 153/MPP/Kep/5/2001 jo 323/MPP/Kep/11/2001 about mandatory Flour Standard (SNI) on all wheat flour traded in Indonesia, 03/DIRJEN-IKAH/SK/II/2002 about standard operating procedure of mandatory SNI. The existed regulations are still weak and need to be strengthened to control implementation of wheat flour fortification and avoid violation of non-fortified wheat flour production. To be well understood and widely adopted, the approved legislation and regulation should be advocated and socialized among relevant institutions, industries sectors, consumer organization, academia and consumer in general.

1.2 Implementation Problem

Technical Effects of fortificants on the end products Riboflavin excess turns noodle yellow Color problem in exported products Homogeneity problem in the mills Expect 30% range from targeted dosage, hence overage QC problems All mills have process control and quality control in place. Premix was controlled through CoA and physical observation. Dosers were continuously checked End product quality was controlled by process control and chemical test is done twice a year in third party lab. Only one mill did iron spot test This mill also increased fortificant dosing rate 180% above the standard as lab test often showed folic acid content below the targeted level. Effectiveness problem Effectiveness of the program must be reviewed after a few years of implementation Political Political will among shareholders Initial effort to fortify flour failed due to lack of political will Fortificants oppositions/skeptics Critics from the user that fortification was to a trade barrier to protect certain local flour mills and its effects were doubtful

1.3 Fortification Cost

The fortification cost according to Indonesian standard is about US$ 0.15/kg flour. The other costs are capital expenses (dosers), inventory and QC. Most modern mills are already equipped with dosers.

2 Wheat Flour Import 2007-2008 in MT

Month Jan Feb 2007 55.454 48.898 2008 46.723 29.436 2007 vs 2008 -15,7% -39.8%

Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total

64.870 62.569 57.534 45.815 43.829 54.767 54.383 29.441 33.259 30.072 580.891

39.326 54.610 46.176 38.918 44.703 43.034 46.634

-39.4% -12,7% -19,7% -15,1% 2,0% -21,4% -14,2%

51.172
40.000 35.000 515.732

73,8%
20,3% 16,4 15,2%

Indonesian National Wheat consumption has also the same pattern with the Wheat flour import (National consumption in 2008 is about 3.5 millions MT)

3 Wheat Grain Price Trend, 2007-2008

4 Important Facts
2008: Wheat flour import decreased about 11.2% compared to 2007 There is no relationship between fortification and unavailability of wheat flour Volume of wheat flour import depends of world wheat grain price, freights cost & exchange rate SNI mandatory abolishment is affected by certain group interest who wants to liberalize wheat flour regulation.