Pitcher Partners Property Breakfast Speech – South East Asia: South Australia’s Largest Export Market

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The Asian Century is often discussed in terms of China and India, as is fair due to the large population size and market capacity. However, far too often our government and business leaders have failed to realise that there are in many cases strong, established and emerging business opportunities in South East Asia, in markets where we have traded successfully for more than a century. With the Asian Century upon us, it is time we returned South East Asia as a market of focus and started to realise the real and tangible opportunities that are rapidly emerging.

Former US Secretary of Defence – Donald Rumsfeld famously said about the search for weapon of mass destruction:

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

I will go so far as to suggest that many of you here this morning are in the latter category of knowledge about Asia, and indeed South East Asia – that is; there are things about South East Asia which you don’t know that you don’t know.

This is not surprising, for our local market has for many years been the primary focus of many businesses in Australia. However, with a modestly growing and tight economy in the non-mining sector, there are now plenty of reasons to broaden our knowledge of our closest Asian Neighbours – South East Asia.

South East Asia has a population of 600 million people, less than half the population of China or India, but more than 25 times larger than Australia. It comprises a dozen or so countries, and is united by ASEAN – The Association of South East Asian Nations. If ASEAN were a country it would be South Australia’s largest export market, with export trade for 2011/12 of $2.3Billion, surpassing export trade to China of $2.2Billion, and well in front of export trade to India of $759 million. This is an important distinction when our governments focus almost exclusively on China and India.

South East Asia is where four of Australia’s seven Free Trade Agreements have been ratified, including; Singapore, South Australia’s 4th largest trading partner; Malaysia, SA’s 3rd largest export destination; and Thailand, SA’s 10th largest export destination. In addition to these bilateral FTA’s, Australia has ratified an FTA with ASEAN, and is currently in formal negotiations with Indonesia to achieve a Comprehensive Economic Partnership Agreement. Should this agreement be achieved as hoped over the next 12 months, it will be Australia’s most outstanding agreement, effectively opening the floodgates to trade and investment between Indonesia and Australia. Indonesia, with a population of over 250 million, provides perhaps the most outstanding growth market for South Australia. It has been a member of the WTO since 1995, and has sustained positive GDP growth trending at greater than 5% over the past 10 years, with 6.3% GDP growth forecast for 2013. This growth figure compares favourably with forecasts for both China (8%) and India (6.2%), and is being sustained by strong domestic demand.

Indonesia is the forgotten market for Australia and South Australia. Export trade from South Australia is coming off a low base but has grown from $132 million export sales in 2009/10 to $603 million export sales in 2011/12. It is now SA’s 6th largest export market. That’s almost a five-fold increase in export sales. Indonesia is the powerhouse market of South East Asia, and with political and economic stability it is rapidly emerging as one of the most import economies in the world. Standard Chartered Bank has predicted the Indonesian economy will surpass the Australian economy in terms of size to become one of the top 10 global economies by 2020, and top 6 by 2030.

There is a rapidly emerging middle and upper class developing across South East Asia, from Indonesia to Vietnam. Jakarta is indicative of this emerging new wealth in South East Asia, characterised by an eclectic mix of street vendors and luxury malls, Maserati’s and Scooters, Mercedes Benz taxis, and motorised rickshaws. An diverse mix of rich and poor, with a rapidly emerging middle class. It’s home to ALL of the big luxury brands. There are 3 Luis Vuitton Stores in Jakarta alone, and they sit side by side with Prada, Mont Blanc, and Cartier. These high-end retail stores are filled with buyers, local Indonesian buyers, paying global prices for genuine luxury clothing and accessories. Indonesian shopping malls are filled with local Indonesian consumers paying global prices for genuine luxury goods. To walk through the shopping malls of Jakarta is to be fully aware of the emergence of the middle class consumer in Indonesia, if not South East Asia.

The Jakarta skyline is replete with high-rise office and residential apartments. The rapid and sustained economic growth in Indonesia has seen the population of Jakarta swell to upwards of 25 million people during the week, and the city sprawl out and absorb the surrounding manufacturing cities of Bogor and Cikarang.

This growth has pushed up the price of quality office and residential accommodation in Jakarta. Colliers International has forecast office vacancy rates in Jakarta of less than 2% for 2013. While Jones Lang Lassalle have forecast residential rental occupancy rates at between 85-90%. This demand for high quality accommodation in Jakarta has seen residential rental agreements requiring between 2-5 years rent upfront to secure an apartment.

This picture of Jakarta, is replicated across South East Asia, in Singapore, where admittedly there is a lack of the ramshackle housing; Kuala Lumpur where the Petronas Towers take centre stage, through to Bangkok, Hanoi and Manila. The middle class is arriving fast across the region and has started to demand products and services, the very products and services that South Australia can supply. I paint this emerging picture of Indonesia and South East Asia to demonstrate that our closest Asian neighbours have developed the capacity to pay, and more and more people are joining the middle class.

The key drivers in the South East Asian economies are based broadly around four core factors:

1. Food Security,
2. Mining, Oil and Gas,
3. Capacity Building and
4. Tourism and Infrastructure

Food Security – There is increasing demand for food, agricultural products, and beverages. This demand has resulted in SA food companies finding new markets in South East Asia. Indonesia for example was South Australia’s largest wheat export market in 2011/12, surpassing even China.

Mining, Oil and Gas – South East Asia is a centre for mining, oil and gas exploration and drilling, benefiting from the same mining boom we have witnessed in Australia. The core minerals being exploited in Indonesia, East Timor, Malaysia and Myanmar include Thermal Coal, Oil, LNG, Coal Seem Gas, Copper, Gold and Silver. The growth in the mining sector in markets such as Indonesia, East Timor, Myanmar and Malaysia, have provided opportunities for Australian engineering, design, and construction companies to help develop the infrastructure needs of these markets. East Timor has for example upwards of $4 Billion in infrastructure projects in the pipeline related to the growth in the oil and gas industry.

Capacity Building – Constraints in terms of skills have seen all governments across the region talk about the need to up-skill their workforce. There is a need for higher educated workforce throughout the region, in both vocational and higher education. Middle class families are looking to education providers in Australia to provide this skilled advantage to their children. As a result, more students from South East Asia, including Indonesia, will be seeking to come to Australia to undertake vocational and higher education studies in the coming years. These students often come from wealthy middle class families and seek accommodation close to the universities in Australia.

Tourism Infrastructure – Tourism is one of the traditional economic opportunities for the region, with resorts from Bali in Indonesia, through to Phuket in Thailand. However, the climactic conditions of the region mean that tourist infrastructure requires constant redevelopment, including hotels, villas, roads, marinas and airports. There are also new tourism sites being developed across South East Asia, from East Timor to Vietnam. South Australian property developers and urban planners are already looking at how they can enter this market.

The key message I would like to impress upon South Australian business is not to ignore the huge market opportunities in South East Asia. Our business leaders should be embracing the many emerging opportunities. Indonesia and South East Asia, provide the greatest opportunity for South Australian businesses to take advantage of the rapidly growing demand for Australian commodities, products, and services. South Australian business should be establishing strategies to leverage these very opportunities.

A Critical Review of the Hartley Review of SA Government International Investment Attraction Strategy

Austrade Logo and branding “Australia Unlimited” really captures the folly of South Australia adopting an AUSTRADE strategy for international promotion. The logo is about all of Australia not SA. South Australia runs the risk of being left behind if an Austrade strategy is activated in isolation.

The Hartley Review of the South Australian Government international office strategy has made recommendations that the State Government outsource the role of investment attraction in international markets to AUSTRADE. Recently however AUSTRADE has released a review of their own operations and come to some important conclusions on their future strategy. This new AUSTRADE strategy discusses the need to promote Investment in a Generic manner, How is this going to be in the best interests of SA? and if investors are identified, how will the SA government be placed to facilitate the next phase, if there are no representation on the ground in these home markets?  The AUSTRADE focus is on federal objectives, and most companies that are requiring the assistance form AUSTRADE are from the Eastern Seaboard, how will the competing interests from SA be managed if this proposal is activated? The objectives available in the 2011 AUSTRADE review suggest that the new leaner AUSTRADE model that is focused upon Asia and emerging economies.  The use of AUSTRADE to promote SA companies and industries in key markets can be compromised in certain industry sectors, due to perceived conflicts of interest. One core example would be in the defence industry, AUSTRADE are compromised in their support of defence contractors due to their perceived geopolitical conflict of interest. The State Government would be better placed to facilitate introductions and assist local companies as they are not the procurers of defence materials themselves. This is just one example where an AUSTRADE representative strategy would be seriously compromised.

In relation to the Investment focus of AUSTRADE the 2011 review recommends:

Investment activity will be focused in markets where there are sources of investible funds, predominantly established markets, but increasingly, growth and emerging economies. However, a sharper focus for investment activity is also required.

Generic promotion of Australia’s attractiveness as a destination for foreign direct investment in target markets will remain a core element of the investment program.

  • Proactive investment attraction priorities will be determined through structured consultation across Government.
  • The facilitation of investors who have made a decision to consider Australia, requires close cooperation across levels of government and Austrade’s role will be concentrated in the delivery of targeted information and navigation through the Australian policy and regulatory landscape. A key goal for Austrade will be the delivery of strong investment leads to states, territories and other providers for facilitation activity, at the earliest opportunity.

Qingdao is a city of immense potential to South Australia and we are currently not leveraging our strong connections in this city to achieve the best outcomes for South Australian companies.

The recommendations to close the current offices in each of the emerging markets is poorly conceived, the arguments put forward in the review that SA needs to withdraw from these markets will affect our image in these markets in a negative manner. SA already invests less than the other states in Australia on their international strategy, and this could well be the reason that we have not achieved the outcome that the State Government would seek. I find it strange that a proposal to close everything other than the Jinan Office should be made, based on the available evidence. If anything the office in Jinan should be moved to Qingdao in Shandong, China’s third largest port city, and which has a longstanding trade relationship with SA through agricultural exports.

The proposal to move away from trade and inwards towards investment is a short-sighted and backward move, that is more in keeping with the strategies of emerging and developing economies, not mature economies such as South Australia. Pursuing this strategy in a global market, where the investors have choice, not only amongst Australia, but more broadly across Asia, Africa, the Americas and Europe, suggests that SA will be lost to the world. What benchmarking has the SA government done for our Investment potential against similar key investor markets? The Hartley Review ignores the South Australian geographic isolation from the western world, and with the macro economic factors currently leaving Australia as a poor investment location for industry and manufacturing, it is unlikely that substantial inward investment would come into the state for anything other than mining. In recent weeks the folly of the expected Mining investment boom is becoming evident, and there may not be the appetite to invest in SA, given the current macroeconomic issues and policy positions in Australia, and South Australia.

Indonesia provides a large opportunity for South Australia in trade and investment, yet the South Australian government has failed to grasp the opportunities presented.

The Investment strategy proposed will consign large components of the South Australian economy to waste, including our leading export sectors of agriculture, and education. Given the current state of the manufacturing industry in SA, how will this review address the needs of the manufacturing sector transition to advanced manufacturing? The Hartley Review does not provide any tangible way of addressing this issue, and how better use may have been made of the international offices to help our manufacturers rationalise their operations more effectively. An example SA can aspire to is Germany, which has moved its bulk manufacturing industry to an advanced manufacturing sector, through taking advantage of their international networks in Eastern Europe, and Asia. There is nowhere in this report which raises this as a value adding proposition to our current overseas offices.  An Investment Strategy which seeks to pitch SA directly against our emerging economy neighbours such as Indonesia, PNG and Burma in regards to mining investment is short-sighted, and compromised in my opinion, particularly if there is no complimentary engagement to assist our neighbours achieve economic goals, through economic partnerships and bi-lateral investment. The economic principle of comparative advantage has been ignored in this recommendation.

The recommendation that the service sector be employed in those circumstances where the “representative” title was not critical for obtaining access to investment targets ignores the cultural factors that are common to most other countries in Asia, that being the respect for status and hierarchy. In Asia particularly the title is critical, this review is culturally ignorant of these factors, and could position South Australia at the back of the queue for a generation, should a short term and reactive cost cutting measure be enacted.  Overall, the Hartley review is a dangerous document, which would fundamentally damage the South Australian Brand overseas in our key emerging markets. At a time when there is a debate about the recognition and identification of Brand SA, it is amazing that there is a parallel discussion about the removal of our international trade offices. Once a company/or government withdraws from a market, there is tangible loss of brand equity, political and social capital, and network connectedness. Such a change in direction would seriously damage South Australia’s long term trade and investment engagement in global markets, and consign us to a small corner at the bottom of Australia.

Comment on the Hartley Review of South Australia’s Overseas Representation

The proposal to close the South Australian Government Trade offices is flawed, and fails to understand the complicated needs of local SME’s in finding trade and investment opportunities in new Asian markets.

The Hartley Review of South Australian International offices unfortunately fails to adequately address the needs of South Australia in promotion of trade and investment throughout a global network. There seem to have been some fundamental errors in recommendations which have the potential to greatly impact on the ability for SA to effectively develop trade and investment for the South Australian economy into the future. I therefore would advocate a reconsideration of the approach recommended in the Hartley Review as if it is implemented it will have a serious detrimental effect upon the SA economy to engage in global markets, compete for effective investment in a global environment, and will disadvantage SA industry when they are desperately needing government assistance to transition to succeed in the “new economy”. The report does not identify which markets should be a priority based on trade, investment or the KPI’s of the existing international offices. This is a concern as it does not present an cognisant argument as to why particular markets should be retained or discarded.

Santos is a great South Australian success story, and has successfully entered the Indonesian market. This is not the only SA company to have succeeded in this emerging market, and it wont be the last.

There is also no mention of other markets around the world that SA currently does not have a market presence, which suggests the intent of the report was always to downsize, rather that objectively review the international office strategy. There is absolutely no mention of Indonesia anywhere in the Hartley Review, despite Indonesia being Australia’s closest neighbour, our favourite tourist destination. Indonesia is the world’s 4th Largest country by population, is rapidly expanding, and has a consistent positive growth rate commensurate with China and India in excess of 6%. Indonesian is also actively being approached by major SA companies as a target market from companies such as SANTOS, and HillGrove. Yet there is zero mention of this market in the review. This is also despite our state neighbours in WA expanding their representation in Indonesia to Two representatives, and Victoria recentlyt engaging an Indonesian Representative in the past 6 months. These examples seem to be at odds with the findings and recommendations of the Hartley Review.

The recommendation to partner with AUSTRADE is a strange proposal due to the 2011 AUSTRADE review mentioned in the Hartley Review, does not mention the promotion and embedding of State representatives in their operations, but does instead discuss the need to focus solely upon “Internationally Ready Firms” and states:

Succeeding in Asian markets is no easy objective, and for a state government it takes perseverance and patience to succeed. It is not about getting by on a wing and a prayer, but more to do with lighting many candles so that the investors can see the way to the South Australian economy.

Because Austrade’s greatest value lies in international markets, Austrade services will be more clearly directed to those companies ready to tackle international business opportunities. Where companies are not ready for export, Austrade will make referrals to alternative enterprise development programs (government or private sector).”

This may pose some challenges for many SA companies in developing their market preparedness for international markets, and more so there is an expressed expectation from AUSTRADE that these services will be provided by state governments. The Hartley review fails to review the current international strategy objectively, and ignores the market potential of South Australia’s large Asian neighbours. If South Australia is to succeed in these global markets and adequately compete against companies from around Australia and the globe there is a need to expand our involvement in international markets, and not withdraw from these markets. The future of the South Australian economy depends upon the export and trade success of our companies, and we must ensure that we provide the necessary tools to help our SA based companies to succeed in the global market. In the next article I will outline how the Hartley review has failed to adequately address the opportunity to attract investment on a global stage.

Australia: we need to reassess our manufacturing needs

Australia needs to accept the challenges of the Advanced manufacturing future

Australia and the traditional manufacturing states of South Australia, Victoria and New South Wales have struggled in recent years to help their traditional economic drivers transition to a new comparative and competitive advantage. In Australia we are still under the “illusion” that we can compete broadly as a manufacturing centre with the rest of the world. This illusion is unachievable due a variety of factors, and there are some key community expectations which mean maintaining our manufacturing heritage as it was in the 1970’s, 80’s or 1990’s is just not possible. The goal of maintaining this bulk manufacturing base is not compatible with our Australian standards of living and expectations. In Australia we have mortgages, rent payments, spending and consuming expectations which mean that any reduction in our labour costs will come at a substantial societal cost to the broader Australian community. Australia can compete on a global scale if we increase productivity. This would require increased output compared to cost of labour. We can achieve this in a couple of ways in Australia. The first is if we lower the minimum wage to levels like the US – $5 per hour for example, this would allow our productivity to increase to a comparable level to our competitor manufacturers in North and South America, although still putting us at a disadvantage compared with our regional neighbors in Asia. The alternative would be to reduce our workforce numbers through increased investment in automative manufacturing. These two options would neccessarily result in reduction in the manufacturing workforce, and more than likely see adverse reactions from Unions, not to mention the political difficulties associated with these moves. There is also a significant cost expenditure associated with the up-tooling of the manufacturing facilities for bulk manufacturing. Australian manufacturers do however need to address the reduction in productivity on the global platform, and corporate boards, management teams, and state and federal governments should be seeking to help their home grown manufacturers rationalize their investments, operations and manufacturing into areas where we in Australia can maintain our competitive advantage.

Low cost manufacturing from Asia has meant that it is no longer cost effective to manufacture in Australia in bulk products. We must transition to a high technology, advanced manufacturing future.

An alternative option for Australian manufacturers to address the issues of reduced manufacturing productivity and cost effectiveness should be to strategically manufacture in Advanced High technology sectors. Australian state and federal governments should bite the bullet and help our manufacturers rationalize their bulk manufacturing to our Asian neighbors in a manner that allows us to focus on the advanced value adding and R&D components of Manufacturing. Outsourcing and relocating bulk manufacturing will lower our cost burden in Australia, and allow Australian manufacturers to remain competitive on a global scale. It has the added benefit of helping these same manufacturers to rationalize their operations so that they have control over the intellectual property and R&D components of there businesses. This is the realistic path to maintaining a sustainable manufacturing industry in Australia. Our friends in Asia should be seen as our partners not our foes when it comes to our manufacturing future.

The main issue we have across Australia at the moment is that our political leaders at both a state and federal level are risk adverse and in the main lack the leadership and strength of conviction required to help our economies transition to a new advanced manufacturing and sustainable level. The sooner we realise this the sooner our Australian economy, and manufacturing industry will become a strength once more.

Indonesia: disappointing the optimists and disappointing the pessimists….

Australian Ambassador to Indonesia – Greg Moriarty Addressed the Australian Indonesian Business Council in Sydney to describe the opportunities on offer to Australian Business….a message that was not yet clearly understood.

On Tuesday I had the good fortune to be in Sydney for the Australia Indonesia Business Council (www.aibc.com.au) business luncheon with Australian Ambassador to Indonesia His Excellency Greg Moriarty.  The event was another great example of the ability of the AIBC to bring high profile business and government leaders to the Australian business community to detail the latest information, opportunities and challenges that confront Australian business when they look to Indonesia. I have been a member of the AIBC for the past four years, and a National Director and Chairman in South Australia for the past two years, and over this period of time I have seen the business, investment and trade situation in Indonesia transform. This was exactly the message that Ambassador Moriarty was here to tell the Australian Business Community in Sydney. The Event was attended close to 100 of Sydney’s elite business community attended this luncheon to hear the good news story Ambassador Moriarty had to tell about Indonesia. The question and answer session after the speech was an indication of the increasing interest in Indonesia as a trade and investment destination for Australian business, however it was a joke that Ambassador Moriarty relayed about Indonesia in the early stages of the speech which tells the real story about the opportunities in Indonesia.

Coca Cola Amatil have succeeded in Indonesia where many corporates have failed to tread.

Ambassador Moriarty started his keynote address with a joke about Indonesia being both a disappointment to optimists and a disappointment to pessimists. He put this down to the solid improvement and advancements that have been made in the Indonesia, that have exceeded many expectations and failed to meet the best case scenario. Anyone who has done business in Indonesia, will attest to this challenge. Indonesia is indeed a great opportunity, but it has its challenges. The message however from Ambassador Moriarty was that Indonesia was a great opportunity for Australian business, and that there were indeed many businesses that were succeeding in a large way. The point was made that Australian businesses should be broadcasting their involvement in Indonesia, and specifically the Corporate Social Responsibility programs that many companies are engaged in as part of their Indonesian Investment. This particularly point was picked up later in the presentation by a representative of Coca-Cola Amatil (CCA), who described how their investment in Indonesia over the past couple of decades had been effectively ignored by Australian investors until very recently. Coca-Cola Amatil have of course in recent years made large investments in excess of $100 million into Indonesia and have attributed these investments as a key driver of corporate profitability. The representative at this event lamented the ignorance of the stock market, and hoped that the message to the Australian investor community was indeed to open their eyes to the Indonesian potential.

Indonesia is Australia’s closest neighbour, and the business opportunities are immense. The time is right to take the opportunity at hand and be ready for the Indonesian Century.

Indonesia is indeed widely misunderstood by Australian business, and indeed by many western business and the Ambassador described the strength of the economy, and the rapidly emerging middle class, which was actively engaged in social media, consumerism and business. The often mentioned Indonesian social media numbers were once again raised as an illustration of the advanced state of the Indonesian market, third largest facebook population amongst others. The overall message was that Indonesia is here, and Australia has a direct interest in the future of Indonesia. Australian business needs to increase its awareness of the Indonesian market, and change its outdated perspective of Indonesia as a backward and third world economy. As many of the people in the room would have known, the challenges of establishing, and running a business in Indonesia can be substantial. However, the emergence of Indonesia as a market of opportunity for Australian business means that if corporate Australia does not realise the opportunities presented, they will miss one of the best opportunities to emerge from the Asian Century. Failure to change our perception of Indonesia, will be a failure of our politics, our business and our perceptions. As Ambassador Moriarty reinforced during the AIBC event in Sydney, the time is right for corporate Australia to make the most of the Indonesian opportunity and grasp it with both hands. It is up to Australian business to re-asses Indonesia as an investment, trade and business destination to ensure that in the future the disappointments are not that we let the greatest opportunity of our generation slip through our fingers. The Indonesian Century is indeed upon us.

The Indonesian Wine Market: Exploring Wine Export Opportunities Beyond China

There is an emerging export opportunity in Indonesia for Australian Premium Wine.

The Australian wine industry was for many years concerned about export markets eroding in the traditional wine markets in Europe and North America, particularly as a combination of rising Australian Dollar, Increased competition from other “New World” wines from South Africa, South America and North America started to compete at the lower price point with which Australian wines had been successfully marketed in the UK and Europe.  This challenge for shelf space, market share and profits was further impacted by the growth in grape output, and consolidation of wine companies in Australia through companies such as Treasury Wines (Formerly Southcorp, and Fosters) and Constellation Wines which standardised the Australian wine industry, and helping to entrench Australian wine industry perception of international export markets as low-end consumers. This industry perception and attitude was a short-sighted and a recipe for disaster. Something had to change, to snap the thinking of the Australian Wine industry.

The Indonesian Wine Market is open for business. Ignore this market to your detriment. The time is ripe for a new investigation of the wine export opportunities in Indonesia

In recent years there has been an explosion of wine sales/exports/ and investments in China. There is undoubtedly a great opportunity in China as the 1.3 billion people start to develop a taste for wine. This is not to say however that wine is saleable to all of the 1.3 billion people, as the favoured alcoholic drinks are still beer and spirits ( rice and barley wine drinks such as MaoTai, Beiju etc). Wine consumption is rising, and taping into the 5% of the population that currently drink wine is a boon for the Australian wine industry, and many successful Australian wineries are now exporting good and profitable volumes into China. There is of course a growing Chinese Wine industry, which is increasing in quality and exposure throughout China. This will likely become a competitive force in the future, for which Australian Wine Companies will need to strategically prepare. So what alternatives are out there in Asia?

There are obvious opportunities throughout South East Asia, in markets such as Vietnam, Thailand, and Singapore. These markets are in the main receptive to wine, and Australian Wine companies should be looking to export into these markets. However there is another market that Australian and other Western Wine companies overlook – Indonesia. There is  broad perception that Indonesia as a predominantly Muslim country holds no opportunities for Australian wine. This is a short-sighted view in my opinion and Wine Companies need to broaden their perspective.

A Wine Store in Jakarta is not uncommon, and increasingly provide premium wine to a rapidly developing domestic wine market.

Indonesia is a challenging place to sell wine, not least because of the Muslim cultural influence. There is however, a large opportunity emerging in Indonesia for wine sales in the right market segment. Opportunities in bulk wine and low-cost wine sales to Indonesia are non-existent. These price points do not work politically for Indonesia. This is not the same for premium wine  sales, for the US$15-50 price point on an Australian wine shelf . In Indonesia these wines would be sold at an added premium of between $40-150. People pay for these wines, and they are consumed by the emergent middle class in cities like Jakarta, and are sought after in restaurants and Hotels across Indonesia. It must be remembered that Indonesia is a moderate Muslim country, and there is no ban on alcohol sales. There is however some restrictions on the number of importers allowed to bring in wine. My main message here is that, Indonesia is a market of opportunity for the Australian wine industry, and it should not be ignored out of hand.

If your company is looking to tap into the increasing demand for wine in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

Tapping into Western Food Success Stories in Indonesia – An Emerging Success

Last week I wrote a blog about the emerging and real examples of successful western beverage brands moving into the Indonesian market. I presented only a couple of examples, however it is a clear demonstration of the success that is present in the market. This success, is equally and in many cases more so evident in the food and agricultural sectors. I have written a lot of the disaster that has confronted the northern Australian agricultural industry and associated complimentary industries due to the arbitrary banning of Live Cattle exports to Indonesia in mid 2011. Despite the damaging effect this federal government decision has had on the Australian Agricultural sector, there are still plenty of positive news stories.  As I forecast in earlier articles, the Indonesian government initially lowered the quantity of import permits for Live cattle. This can be seen through the lens of a reactive response to the Australian government action, however it is not sustainable, and as such in recent weeks there has been a doubling of the import permits granted. Despite these increases, there is still negative press  about the Indonesian Government’s reticence to increase permits to similar levels of pre-ban imports. The Indonesian Government, perhaps with justification, is insisting and encouraging Australian investment in the Indonesian farming and agricultural sector. And it is companies who have made this investment that are in the best position to maintain solid market share moving into the future. The Australian Agricultural Company, recently announced their yearly profit had increased despite the cattle ban, and despite the ban costing them between $5-8million in profits. It is interesting to note that they have however not abandoned the Indonesian cattle market….it is just too large to ignore.

Another  example include Elders, which have been able to manage the supply chain throughout the Live cattle chain, with large farming investments in northern Australia, which can raise the cattle from young to the import permit weight threshold of 350kg’s, then move them into Elders feedlots in Indonesia for six-nine months where individual cattle will increase in weight towards 500-700kg’s. Elders are then in a position to manage the slaughtering process (it always feels a bit strange using this technical term “slaughter” however that is what occurs in an abattoir). The Elders abattoirs use world best practice, and are regarded as one of the best facilities in the region. Consequently Elders have been able to  make large investments in the Indonesian food market and make a success of the venture. They are in the same position as AACo in not pulling out of the Indonesian market…it is too lucrative. The key to remember here is that their investments in the supply chain are vertical and as such they have made investments in Indonesia, and are not solely exporting.

San Remo Pasta provides a great example of an Australian (South Australian) company that has made a great success of the food industry in Indonesia. Indonesian Hyper, Super, and mini markets in Indonesia stock San Remo pasta. It is clearly one of the market leading pasta brands in Indonesia. They have great penetration, which in large respects is related to their choosing the right Indonesian partner, and investing appropriately in their marketing promotion strategy. San Remo provide an example of the packaged food products that can succeed in the Indonesian market with a little persistence and taking a calculated risk. The past two blogs I have produced have clearly demonstrated only a few of the good news stories that are evident in the large Indonesian food market. This is a large market that is growing on a daily basis. Indonesia is a country of enormous potential and it is important for Australian food, agricultural and beverage producers to acknowledge, understand, and realise this great opportunity.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, to learn more about the opportunities for food exporters in Indonesia.

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