Table of Contents

1 Wheat Flour Industry in Indonesia: An Overview................................................................................2

1.1 Wheat Flour Import.....................................................................................................................2

1.2 Trade............................................................................................................................................3

1.3 Consumption...............................................................................................................................3

1.4 Price.............................................................................................................................................4

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

2.1 In operation.................................................................................................................................4

2.2 To be Established.........................................................................................................................5

2.3 New Investments in Wheat Flour................................................................................................5

3 Wheat Flour Usage..............................................................................................................................5

4 Wheat Flour Technical Specifications..................................................................................................6

5 Wheat Flour Fortification.....................................................................................................................7

5.1 Fortification Standard..................................................................................................................7

5.2 Regulation supporting Mandatory Flour Fortification.................................................................7

5.3 Industrial Implementation...........................................................................................................8

5.4 Implementation Problem.............................................................................................................9

5.5 Fortification Cost.........................................................................................................................9

6 Wheat Flour Import 2007-2008 in MT.................................................................................................9

7 Wheat Grain Price Trend, 2007-2008................................................................................................10

8 Important Facts.................................................................................................................................11

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 ImportIn 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: 29.7% Australia: 26.3%Sri Lanka: 19.8%China 13.3%Belgium 7.9%

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

1.2 TradeApproximately 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, China’s 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 ConsumptionConsistent with economic growth that is estimated to remain above 6 percent in 2008 and population growth, combined with the continuous demand for wheat-based 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. Company Location Capacity (Tons/Year)

Remarks

1 INDOFOOD SUKSES MAKMUR TBK., BOGASARIFLOUR MILLS DIVISION, PT

NORTH JAKARTA & SURABAYA(EAST JAVA)

4.397.500 APTINDO

2 SRIBOGA RATURAYA, PT SEMARANG, CENTRAL JAVA

740.000 APTINDO

3 EASTERN PEARL FLOUR MILLS, PT

MAKASAR, SOUTH SULAWESI

720.000 APTINDO

4 PANGANMAS INTI PERSADA, PT

CILACAP, CENTRAL JAVA

300.000 APTINDO

5 FUGUI FLOUR & GRAIN INDONESIA, PT

GRESIK, EAST JAVA` 270.000 NON APTINDO

6 PURNOMO SEJATI, PT SIDOARJO, EAST JAVA

120.000 NON APTINDO

7 ASIA RAYA, PT SIDOARJO, EAST JAVA€

72.000 NON APTINDO

8 BERKAT INDAH GEMILANG, PT TANGERANG, BANTEN

NON APTINDO

Total 9.201.500

2.2 To be Established

S. No. Company Location Capacity (Tons/Year)

Remarks

1 PUNDI KENCANA, PT/FEDERAL FLOURMILLS, PT

CILEGON, BANTEN 500.000

2 KWALA INTAN NEW GRAIN, PT ASAHAN, NORTHSUMATERA

210.000

3 BUNGASARI FLOUR MILLS, PT East Java 175.000

2.3 New Investments in Wheat FlourS. No. Company Location Planned Capacity

(Tons/Year)Planned Investment

In IDR billion1 Fugui Flour & Grain Indonesia,

PTGresik 270,000 350

2 Purnomo Sejati, PT Sidoarjo 120,000 24

3 Asia Raya, PT Sidoarjo 72,000 104 Berkat Indah Gemilang, PT, PT

Federal Pundi Kencana , PT (Federal

Tangerang 43,000682

5 Cerestar Flour Mills, PT Banten 123,000 23million6 Daya , PT Banten 600,000 ..7 Tri Pilar Pangan Utama, PT North Sumatra 250,000 ..8 Prima Anugrah Mulya, PT Banten 270,000 ..

3 Wheat Flour Usage

Instant Noodle25%

Dry Noodle5%

Wet Noodle25%

Household3%

Cottage indsutries7%

Biscuit10%

Bakery & Cake25%

4 Wheat Flour Technical SpecificationsWheat 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): 8.0-8.5Ash: 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 MinsStability 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 min 60 ppm– Zn min 30 ppm– Thiamine min 2.5 ppm– Riboflavin min 4 ppm– Folic acid min 2 ppm

*PPM: Parts Per Million

5.2 Regulation supporting Mandatory Flour Fortification

1 1980 Food fortification was stated in National Five Year Development Plan (1980-1984)

2 1996 Food Law was enacted with a paragraph on food fortification3 1998 MoH decree : Flour fortification produced4 2000 MoIT issued Standard National Indonesia (SNI) for wheat flour5 2001 MoIT issued mandated wheat flour fortification with Iron, Folic Acid, Vit B1 &

B26 Jan 2002 Authorize laboratory checking for wheat f7 Feb 2002 SOP on Mandatory SNI on wheat flour8 Mar 2002 Flour importation procedures9 2003 Fortification dosage to be in line with SNI10 24 Jan

2008MoI uplifted the existing SNI regulation.There was no mandated wheat flour fortification

11 14 July 2008

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

5.3 Industrial ImplementationIn 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.

5.4 Implementation Problem TechnicalEffects of fortificants on the end products– Riboflavin excess turns noodle yellow– Color problem in exported productsHomogeneity problem in the mills– Expect 30% range from targeted dosage, hence overageQC 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 implementationPoliticalPolitical will among shareholders– Initial effort to fortify flour failed due to lack of political willFortificants oppositions/skeptics– Critics from the user that fortification was to a trade barrier to protect certain local flour mills and its effects were doubtful

5.5 Fortification CostThe 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.

6 Wheat Flour Import 2007-2008 in MTMonth 2007 2008 2007 vs 2008

Jan 55.454 46.723 -15,7%Feb 48.898 29.436 -39.8%Mar 64.870 39.326 -39.4%Apr 62.569 54.610 -12,7%May 57.534 46.176 -19,7%Jun 45.815 38.918 -15,1%Jul 43.829 44.703 2,0%

Aug 54.767 43.034 -21,4%Sept 54.383 46.634 -14,2%Oct 29.441 51.172 73,8%

Nov 33.259 40.000 20,3%Dec 30.072 35.000 16,4

Total 580.891 515.732 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)

7 Wheat Grain Price Trend, 2007-2008

8 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.