Market Report, "Indonesia Agribusiness Report Q2 2016", published

We hold an optimistic outlook towards Indonesia's agriculture sector and see significant growth opportunities in sub-sectors such as livestock, sugar and palm oil. The country's goal to become self sufficient in a large number of commodities is overly ambitious in light of the robust outlook for food and drink consumption. Agricultural production will struggle to expand in the coming years amidst scarce agricultural land, the lack of proper infrastructure and the existence of a large number of low-technology, small-scale farmers. While we believe that Indonesia will be able to reduce its dependence on rice imports in the coming y ears, sugar, corn and beef self- sufficiency are far-fetched. More worryingly, we expect coffee and cocoa production to record very weak production growth in the coming years.

BMI Key Forecasts

Cocoa production growth between 2014/15 and 2019/20: 5.3% to 368,000 tonnes. Production growth will slightly accelerate beyond 2018, as private grinders are slowly developing programmes to improve plantation management and foster best practices. Until then output will see weak growth.

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Palm oil consumption growth between 2015 and 2020: 30.1% to 12.6mn tonnes. Relatively recent refining and biodiesel policies (B15 mandate) will continue to inflate domestic consumption of palm oil in the coming years.

Sugar production growth between 2014/15 and 2019/20: 36.4% to 3.0mn tonnes. The strong growth rate is mainly due to base effects as production declines in 2014/15. Moderate expansion in plantations will help output grow in the coming years, but production growth will be held back by poor cane recovery rates, harvest management and infrastructure issues.

BMI universe agribusiness market value: USD149.93bn in 2016 (up from USD140.54bn in 2015; forecast to grow annually by 7.2% on average between 2016 and 2020).

2016 real GDP growth: 5.2%, up from 4.8% in 2015 and compared with the 2011-2015 year average growth of 5.7%; forecast to grow annually by 6.0% on average between 2016 and 2020.

2016 consumer price index: 4.8%, down from 6.5% expected in 2015 and compared with the 2011-2015 year average growth of 5.8%; forecast to grow annually by 5.0% on average between 2016 and 2020.

Latest Updates & Structural Trends

El Nino, which re-emerged in 2015 and will linger into H116 will take its toll on Indonesia's agricultural production in 2015/16 and 2016/17. Rainfall in the country has been significantly below average over the August-October period. Grain and palm oil production growth will slow down in 2015/16, while coffee output will decline strongly in the upcoming 2016/17 crop.

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