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Indonesia's animal feed industry.

Backgrounds

Indonesia's animal feed industry has contributed considerably to development of livestock farms in the country. Feeds account for 70% of the total production cost of livestock farming.

In general, animal feed industry has good prospects in the country. The country's animal feed production has increased 8.4% annually on the average in the past 5 years. In 2007, the country's production of animal feed shrank 7.7 million tons from 9.9 million tons in the previous year as a result of the dreaded bird flue. Cases of bird flue were reports in various areas including West Java, Jakarta, Banten, Central Java, Bali, North Sumatra, Jambi, South Kalimantan, West Kalimantan and South Sulawesi.

Many people restrained form consuming chicken meat because of the deadly disease. Sales of chicken meat and related products fell 50%-60% that year, inflicting heavy losses to the livestock industry as well as animal feed industry. Demand for animal feed dropped 30% in 2007.

According to the association of animal feed producers (GPMT), the country's animal feed industry could supply up to 5 million tons of 7 million tons requirement every year.

After the bird blue attacks receded, demand began to scale up for chicken meat and related products and at the same time demand for animal feed rose. In 2008, demand for animal feed is estimated to reach 8.13 million tons from 7.6 million tons in 2007.

The prospects of the industry are still encouraging with the growing consumption. he good prospects have prompted producers to expand heir production capacity. Malindo Feed Mill plans to build a new factory in a Tangerang with an annual capacity of 300,000 tons and Charoen Pokphand plans to expand the capacity of its existing factories.

Foreign investors still dominate animal feed industry in the country such as Charoen Pokphand, Japfa Comfeed, Sierad Produce, CJ Feed, Gold Coin, and Sentra Profeed. The producers still relay on import for basic materials especially corn grains, which are imported mainly from the United States and Brazil. The government hopes to increase the use of locally produced basic materials, which are cheaper in prices.

Characteristics of product

a. Types of animal feed

The types of animal feed include greenery, silage and concentrate:

Greenery are processed from weeds, leaves, cereals, peanuts, straws, etc.

Silage is produced from greenery (weeds or legumes) kept fresh from ensilage process. The process of ensilage is needed to cope with shortage in green fodders in dry season. Production of silage under a temperature of 27-35 degrees C will turn out doffer with good quality fresh, green, and not affected by fungus.

Concentrate is a tonic feed for animals. Among concentrates include rice bran, milled corn, copra residue, salt and minerals. Concentrates are widely produced in factories. The composition includes corn (51.4%), soybean meal (18%), fish meal /MBM (5%), corn gluten meal (7%), premix (0.6%), Crude Palm Oil/CPO (2%) and rice bran. Concentrate is in the form of flour, therefore, it is easily be digested. Each kilogram of tonic feed must has a content of at least 2,500 Kcal of energy and 17% protein, and 12% of raw fiber.

Feeds are sources of energy, protein, vitamins and minerals needed by livestock.

Sources of energy are all materials of animal feeds with raw protein content of less than 20% with concentrate of raw fiber of less than 18%. By types, animal feed basic materials are divided into four groups:

a. Cereals (corn, wheat and sorghum)

b. Cereal by products (mill waste)

c. Tuber (sweet potato, cassava and by products)

d. Greenery (pasture grass, wide leaved decorative grass)

Sources of protein include all feed basic materials containing protein at least 20% (from animal/plant). Sources of protein include:

a. Greenery as residues of farm products consisting of foliage as by products jackfruit leaves, banana leaves, sweet potato leaves seaweeds and residue of copra.

b. Greenery such lamtoro (fast growing trees), turi, caliandra and sentero.

c. Materials produced from animal (fish meal, meat bone meal).

Sources of vitamin and minerals include almost all animal feed basic materials from plants or animals containing vitamin and minerals with concentration varying depending on he level of harvesting, age, processing system, storage, types and parts (seeds, leaves and trunks).

Currently feed basic materials as sources of vitamins and minerals are available in open market.

b. Process of Production and Equipment

* Equipment needed to produce animal feed

In general, equipment needed to produce animal feed consists of various silos. Silos could be made in various forms depending on the location, capacity, materials to be used and areas available. Among the types of silos used are:

1. Pit Silo: silo, which is designed in the form of cylinder and built on the ground.

2. Trech Silo: silo which is built like a ditch in the form of V.

3. Fench Silo: silo which has the form of fence or partition made of bamboo or wood.

4. Tower Silo: silo which is designed with the form of tower projecting upward with the top part tightly closed.

5. Box Silo: silo which is designed with the form of box.

* Process of production

a. Process of producing hay

Hay is a greenery for animal feed including weeds/leguminosae kept in dry form with a water content of: 20%-30%. Production of hay is to forestall scarcity in feed greenery in dry season.

There are two methods of producing hay:

1. Spreading Method

It is a simple method by spreading greenery already cut in open field under the heat of the sun. Every days the leaves are turn upside down until they are dry. Hay produced this way normally has a water content of: 20%-30% (mark: brownish).

2. Pod Method

This method uses rack to keep greenery after being dried for 1-3 days (water content of [+ or -] 50%). Greenery to be processed must be harvested before they are in bloom (having high protein content, raw fiber and optimum water content) that the hay being produced will not be damaged by fungus.

b. Production of Silage

Silage is material for animal feed in the form of greenery (weeds or leguminosae) kept fresh through the process of ensilage. Production of silage is to cope with possible scarcity in the supply of fodder in dry season. The methods of producing silage is as follows:

1. Cutting methods, greenery is cut into pieces of 3cm-5 cm and are put into a silo with plastic base and the pile is pressed and closed with plastic and solid.

2. Mixing method: greenery is mixed with other materials before being pressed to accelerate fermentation to prevent fungus from growing. The mixture could be in the form of organic acid (formic acid, sulfuric acid, chloride acid, propionate acid), molasses, salt and rice bran, grain of rice etc. Greenery includes organic acid: 4-6kg, molasses 40kg, salt 30kg, rice bran 40kg, grain of rice 35kg, onggok: 30kg. The additives are given evenly over the greenery to be processed. The use of molasses if needed will be by phases with a ratio of 2 parts on the heap of the lower part of greenery, 3 part on the central layers and 5 parts on the upper layer to ensure homogenous mixture.

3. Withering Method; Greenery is withered for 2 days (containing dry material 40%-50%).

c. Ammoniation

Ammoniation is a treatment of farm waste for fodder (straw) with caustic soda (NaOH), sodium hydroxide (KOH) or urea (CO(NH2) 2. Process of ammoniation could use urea as the chemical material to be heaper in price and to prevent pollution. The quantity of urea needed in the process of ammoniation is: 4 kg/100 kg of straw. Other materials used include water as a solvent (1 liter/1kg of straw).

Producers and production capacity

Based on data from GPMT Indonesia has 42 animal feed factories in operation until 2008. The number declined from 50 earlier as 8 companies have stopped operation.

The industry is still dominated by foreign investors such as Charoen Pokphand, Japfa Comfeed, Sierad Produce, CJ Feed, Gold Coin, and Sentra Profeed. Large feed factories are generally integrated with livestock farming and livestock product processing industries.

Production capacity

In the period of 2002-2006 the production capacity of the country's animal feed industry rose 3.1% annually on the average--up from 10 million tons in 2003 to 11 million tons in 2007.

Some large producers like Charoen Pokphand and CJ Feed expanded their capacity but some other producers stopped operation following the spread of bird flue in 2005 and 2007.

Locations of animal feed producers

Large animal factories in the country are located in 8 provinces. North Sumatra has 8 factories, Lampung has four, Banten has 10 and Jakarta has four, West Java has four and South Sulawesi has two factories and East Java has 15 factories.

East Java is the production center for animal feed and has the largest livestock farms in Indonesia. It has Artificial Insemination Center (BBIB = Balai Besar Inseminasi Buatan) in Singosari.

East Java has large chicken farms producing boilers with production centers in Jombang, Malang, Gresik and Mojokerto. Other potential producing areas for boilers are Sidoarjo, Pasuruan, Lamongan, Nganjuk and Kediri.

The production centers for free range chickens are Lamongan, Malang, Blitar, Probolinggo, Tulungagung and Trenggalek. Other potential producers of free range chicken are Jombang, Pasuruan, Nganjuk, Kediri, Pacitan and Bangkalan.

Egg layer production centers in that province are Malang, Blitar, Kediri, Pasuruan and Mojokerto). Other potential producing areas include Jombang, Nganjuk, Tulungagung and Jember.

East Java is ahead of other regions in chicken farm development as it has large corn fields producing corns as the main feedstock for poultry feed. Among the production centers of corn is Kediri, which had 22,354 hectares of corn harvest areas in 2005 with corn production of 3,300 million kg. Kediri has 54,650 hectares of potential land for corn fields.

Mini Feed Mill

The country imports 70% of its basic material requirement of animal feed. The heavy dependence on import makes the country's livestock farm industry vulnerable as feed accounts for 70%-80% of the total cost in poultry farm.

In 2007, the government built small scale animal feed factories in 14 locations including Ciamis, Cirebon, Sukabumi, Subang, and Bekasi (West Java), Magelang, and Banjarnegara (Central Java), and Blitar (East Java). Outside Java, factories were built in Bangli, Tabanan (Bali), Sawah Lunto (West Sumatra), Bengkulu Utara, Kapuas, and Hulu Sungai Utara.

In 2008, the government again plans to build small animal feed plants in 38 locations including in areas of corn and palm oil production centers.

The new factories will have an annual production capacity or 3-5 tons per day each with an investment of Rp 250 million per unit. The small factories help guarantee supply of poultry feed in the regions. The Management of the feed mills will be handed over to organizations of groups of farmers.

In addition, the government plans to build big factories in Subang and Bekasi.

Main players

Charoen Popkhand Indonesia Tbk

Charoen Popkhand Indonesia Tbk (CPI) was established in 1972 to operate in animal feed industry and chicken meat processing industry. The foreign investment (PMA) company is jointly owned by PT. Central Proteinaprima, Royal Bank of Canada (Asia) Ltd., UBS AG Singapore and the public.

Currently CPI has an annual production capacity 2.6 million tons of animal feed with factories in Mojokerto, Jakarta and Medan.

In 2006 CPI and its subsidiary CP Jaya Farm acquired the entire shares of PT. Centralavian Pertiwi at Rp 30 billion. Centralavian Pertiwi operates in parent stock breeding to produce day old chicken (DOC) Subang, Bogor and Lampung. The acquisition of the company strengthened the position of CP in agribusiness in the country.

Its chicken meat processing factory is under another subsidiary PT. Primafood International. The product of chicken meat is known with the brand of Fiesta.

In 2007 CPI Tbk acquired an animal feed factory of PT Central Proteina Prima in Semarang, Central Java through exchange of feed factories. A fish and shrimp feed plant of CPI in Medan priced at Rp 48 billion was given as part of the payment for the factory of CP Prima priced at Rp 108.7 billion.

The factory has an annual production capacity of 25,000 tons of shrimp feed and 110,000 tons of fish feed. CP, therefore had to pay Rp 60 billion in cash for price.

In addition, CPI plans to build an animal feed factory in Lampung and a small chicken farm in eastern Indonesia. CP also plans to build chicken meat processing factories in Salatiga, Bandung and Medan with a slaughtering capacity of 2,000 chickens per hour. CP has secured a loan pledge of Rp310 billion and US$ 45 million from Citibank to finance the expansion.

In 2007, the company posted Rp 8.3 trillion in income and Rp 210 billion in net profit or an increase of 31% from the previous year. In 2008, CP is set to chalk up a 25% increase in profit.

Japfa Comfeed

Japfa Comfeed (JC) was established in 1971 to operate in animal feed industry. It is 28.94% by Pacific Focus Enterprises, Ltd, 9.65% by JP Morgan Chase Bank 9.15% by Coutts Bank Von Ernst, Ltd, 8.57% by Rangi Management Ltd, 6.63% by BNP Paribas Private Bank Singapore and 37.06% by investing public.

JC is one of integrated agribusiness companies in the country. Now it has an annual production capacity of 1.73 million tons of animal feed. Its parent stock breeding farm is managed by its subsidiary PT Multibreeder Adirama Tbk, business sin aquaculture is managed by another subsidiary PT Suri Tani Pemuka. The animal feed factories and livestock farms are located in various areas in Lampung, Cirebon (West Java), Sidoarjo (East Java) and Tangerang.

In 2007 Japfa built 2 units animal feed factory with an investment of Rp 50 billion in Cikupa and Padang. JC plans to build animal feed factory with an annual capacity of 1,000 tons and an investment of Rp 50 billiion. The new factory will be built in Padang, West Sumatra and it is expected to come on line this year.

JC also plans to develop stock breeding industry to produce day-old chicks (DOC) to meet growing demand in West Sumatra and surrounding areas.

Recently JC injected US$ 55 million in fresh fund for its subsidiary PT Multibreeder Adirama Indonesia. Most or US$ 38.21 million of the fund will be used to repay a debt maturing in 2011 and US$ 16.78 million to buy assets and increase working capital.

In 2007, the company posted Rp 7.9 trillion in income and Rp 180.9 billion in net profit. Around 80% of the income was contributed by its animal feed industry.

Cheil Jedang Feed Indonesia

CJ Feed Indonesia is a subsidiary of Cheil Jedang from South Korea starting operation in the country in 1989. CJFI had 2 feed mill subsidiaries--PT. CJ Superfeed , which was established in 1996 and PT. CJ Feed Jombang established in 2004. The two factories are located in Serang, Banten and Jombang, East Java with a total production capacity of 750,000 tons per year.

Animal feed produced by CJ Feed includes feed for broiler, egg layer, breeders, pig, quails, and shrimp to meet growing demands in West Java, the Greater Jakarta, Sumatra and Kalimantan. Its animal feed products are known with the brand of Superfeed.

In 1997 CJ Feed Indonesia established PT. Super Unggas Jaya to operate in livestock farm industry producing DOC with a capacity of. 20 million per year. The farm is located in Tutur, East Java. Its product of DOC is known with the brand of Superchicks. SUJ expanded business by building 9 more units of chicken farms in various areas in West Java and East Kalimantan, etc. Now it has a total production 54 million heads of DOC per year.

CJ Feed Jombang built silos to store corn grains as he main basic material for animal feed. The storage facility will help guarantee supply of basic material in time of scarcity in between harvest times.

In 2008, CJ Feed hopes to grow to become the third largest animal feed producer in the country with a total production of one million tons annually from its three factories.

Sierad Produce Tbk

Sierad Produce was established in 1985 with the name of PT Betara Darma Ekspor Impor, as a nerger of four companies in 2001 including PT Anwar Sierad Tbk, PT Sierad Produce Tbk, PT Sierad Feedmill and PT Sierad Grains.

Sierad Produce (SP) was established in 1985 and operates in parent stock farming to produce final stock and broilers and chicken meat processing plant integrated with cold storage. SP also operates in animal feed industry, corn drying industry and animal medicine and vitamin industry. It livestock farms and processing plants are located in Tangerang, Bogor, Sukabumi, Lampung and Sidoarjo. Currently SP is one of the largest producers of animal feed in Southeast Asia.

The company started business as retailer of eggs in the Jatinegara market center in East Jakarta, before it expanded operation by opening chicken slaughter house in Jabaon, West Java with a capacity of 8,000 chickens per day or the largest in the country. The company use the brand of Delfarm for its chicken meat sold in large supermarkets in Indonesia.

Its animal feed factories are located in Sidoarjo (East Java). Tangerang (Banten) with a total production capacity of 540,000 tons per year. Its main animal feed product is poultry feed.

The company imports basic material in the form of corn up to 100,000 tons a year. Imports are made as local production of corn is not enough. For efficiency, in 2006, it sold its subsidiaries PT Biotek Indonesia (producing animal medicines and vitamins) and Wendy's Restaurant and Hartz Chicken Buffet Restaurant (restaurant). The company earned Rp 50 billion form the same of the three business units. It also sold chicken slaughter house and animal breeding farms in Lampung at a price of Rp 70.5 billion.

In 2007, SP received a loan of Rp 225 billion from BNI, and Rp 200 billion of the fund were used to increase its production capacity for animal feed and the rest were used to increase its working capital. The company used its assets in Sidoarjo and Tangerang as collateral for the loan.

In 2008, SP plans to build three new factories in Magelang, Central Java to be completed in 2009. The company also plans to expand its production of chicken by 420,000 head per week to 2 million heads per week.

Currently SP has a 7% share of DOC market and 7% share of animal feed market.

In 2007 SP reported Rp 1,2 trillion in income with net profit at Rp 27.5 billion. This year it hopes to chalk up a 60% increase in income and net profit.

Malindo Feedmill

The company was originally known with the name of PT. Gymtech Feedmill Indonesia, which was established in 1998 before it was renamed Malindo Feedmill. Malindo is owned by the Lau family from Malaysia. Malindo operates in the production of animal feed with a production capacity of 438,000 tons a year. It also has chicken breeding farm and sell pure bred DOC for broilers and egg layers. Through its subsidiary PT Bibit Indonesia the company has a 6% share of DOC market in Indonesia. Currently it has an annual production capacity of 100 million DOC.

In 2006 Malindo launched Initial Public Offering (IPO) selling 18% of its shares to the public. Around 70% Rp 53.7 billion of the IPO fund were used for business expansion by opening new poultry farms and 30% for working capital. Currently the company is 81.6% owned by Dragon Amity Ltd, 0.4% by Lai Hup Heng and 18% by investing public.

Malindo has breeding farms with an annual capacity of 18 million DOC in Pasuruan and Surabaya consisting of breeding area and hatching area coming on line in 2007. By the end of 2007, MF set aside US$ 26 million to build an animal feed plant with a capacity of 360,000 tons per year. The new factory is to be built in the middle of 2008 in the Cikande Modern Industrial Estate, Banten with an investment of Rp 100 billion.

The factory location will in Cikande, near the port of Bojonegara now under construction. Malindo plans to acquire an affiliated company PT Leong Ayamsatu Primedona (LAP), which operates in DOC breeding and broiler farming. Leong Ayamsatu has a production capacity 62 million DOCs and 6 million broilers annually. Its poultry farms are located in Medan and Jakarta. In 2007, MF reported Rp 982.8 billion in income.

Integrated from upstream to downstream

All large producers of animal feed in the country operate integrated facilities from upstream to downstream--from livestock farms to animal slaightering houses, animal medicine and vitamin industry and farm equipment industry.

Sierad Produce operates an integrated poultry industry with business units in chicken breeding, animal feed industry, commercial chicken farms, contract farms and slaughterhouse.

Through PT Sierad Industries it produces poultry farm equipment and PT. Biotek Industri produces animal medicines and vitamins, and PT Dwipa Mina Nusantara produces fishmeal. Sierad Corporation operates as a distributor and trader of chicken farm equipment and animal feed basic materials.

Sierad Produced through its subsidiary PT. Wendy Citarasa has fast food restaurant as an exclusive franchisee of Wendy's & Hartz Chicken Buffet in Indonesia.

Charoen Popkhnad Group has two types of core business agribusiness and aquaculture. Its agribusiness focises more on animal feed industry and DOC breeding through Charoen Popkhand Indonesia Tbk and subsidiaries. Aquaculture business includes shrimp farms under Central Proteinaprima Tbk and subsidisries.

Investment Interest Strong

There is still strong interest in doing business in animal feed industry in the country as indicated by data at the investment board (BKPM). The data show that a number of investors both domestic (PMDN) and foreign investors (PMA) have sought license to operate in animal feed industry in the country. They include PT. Inhil Sarimas Kelapa, PT. Feedmill Indonesia, PT. Kwala Intan New Grain and PT. Multi Grain Millers.

In addition, some of the existing companies are seeking capacity expansion such as PT. Central Pangan Pertiwi, PT. Indojaya Agrinusa and PT. Cheil Jedang Indonesia.

Investment scale

Large factory with an annual production capacity of 100,000 tons--300,000 tons per year, the production cost averages Rp 3,200 Rp 3,300/kg. Mini feed mills with a production capacity of 3-5 tons per day will need an investment of Rp 250 million per unit.

The government soon plans to build 38 mini feed mills in a bid to cope with shortage in supply of animal feed and poulry feed in 14 provinces . Large factories to produce poultry feed are to be built in Subang and Bekasi, West Java.

Supply of basic materials

Most basic materials mainly corn, soybean meal, meat bone meal, poultry meat meal and premix are still imported as domestic production is not enough or not available. Feed component is made up of corn 51.4%, soybean meal 18%, fishmeal/MBM 5% corn gluten meal 7%, premix 0.6%, CPO/Crude Palm Oil 2% and the rest in rice bran.

Indonesia's imports of corn in 2003 totaled 1.7 million tons down to 725,000 tons in 2004 and to 400,000 tons in 2005. In 2006, imports surged again to 1.7 million tons. The price of corn in international market in 206 was recorded at US$ 130-US$ 140 per tons. The price surged to US$ 220/ton-US$306/ton by the end of 2007 not including freight cost that surged from US$ 60/ton to US$ 145/ton.

Large producers including Charoen Pokphand, Japfa Comfeed, Sierad, Cheil Jedang, Wonokoyo, Cargill, Gold Coin, Sinta Feedmill, and Sentra Profeed. dominate production of animal feed in the country. GPMT said animal feed industry in the country needs around 4.07 million tons of corn a year. Suppliers in the country is Lmapung, East Java, Central Java, West Java, Gorontalo and South Sulawesi.

In the past five years, corn consumption has increased 10%-15% annually . In 2010, the consumption is predicted to reach 7 million tons. In 2008, corn production from Lampung is expected to be used all by six animal feed factories in that province which need at least 1.6 million tons a year as against production of only 1.5 million tons. In 2007, the six animal feed factories in Lampung still needed additional corn supply. Lampung, therefore, imported more than 18,000 tons of corn in 2007.

The government plans to build 39 silos for corn with a capacity of 50 tons in 18 production centers to guarantee supply. This year the country's corn production is projected at 13.54 million tons. The central bureau of statistics (BPS), the country's corn production totaled 12.4 million tons in 2007 or 91.88% of the target set for that year. The shortfall in realization was caused by a shortfall in harvest area at 3.43 million hectares as against a target of 3.61 million hectares. Production fell short of target in East Java by 145,180 tons, Central Java by 141,220 tons, Lampung by 246,090 tons, West Java 21,730 tons and South Sulawesi by 96,730 tons.

Production

a. Production fluctuating

The country's production of animal feed continued to increase in the period of 2003-2007 with an annual growth of 8.4% from 6 million tons in 2003 to 9.9 million tons in 2006.

In 2007, the production dropped 22.5% to 7.7 million tons. The decline followed the spread of bird flue that discouraged people to consumer chicken meat resulting in a decline in chicken production and demand for feed.

Imports

a. Imports tend to decline

Indonesia still needs to import animal feed although domestic production has been sufficient to meet domestic requirement. Imports are mainly for the types not yet produce din the country. Imports in the past five years have tended to decline.

Imports of animal feed products declined from 424,800 tons in 2003 to 74,200 tons in 2007. See the following table.

b. Singapore the largest supplier

Singapore was the largest supplier of animal feed for Indonesia in the period of 2006-2007.

Imports form that country rose from 12,723 thousand tons valued of US$ 39,661 thousand in 2006 to 29,557 thousand tons valued of US$ 45,722 thousand in 2007.

The second largest supplier was United States which imports totaled 10,105 thousand tons valued of US$ 12,924 thousand in 2007 up from 7,956 thousand tons with value of US$ 9,639 thousand in 2006.

Exports

a. Exports relatively small

The country's exports of animal feed are relatively small. In the past four year, annual exports averaged only 0.45% of he country's annual production of 7.7 million tons.

Exports rose from 18,500 tons in 2003 to 33,000 tons in 2007, but remained small compared to production. See the following table.

b. Bangladesh largest market

Bangladesh is the largest market for animal feed from Indonesia. In 2007, exports to that country totaled 2,880 thousand tons/US$ 1,097 thousand or 8,7% of the country's total exports. Compared with 2006, export to the country reach of 4,179 thousand tons/US$ 1,453 thousand or 18.8% of the total export in that year.

Consumption

a. Consumption up 1.45% per year

A report by GMPT said in 2003-2007 the domestic consumption of animal feed rose only 1.45% per year. Consumption of animal feed has been stable around 7.1 million tons--7.6 million tons per year. In 2004, consumption fell to 6.8 million tons following the outbreak of bird flu in various areas.

Poultry farms account for 83% of animal feed consumption in the country. Other consumers include pig farms accounting for 6%, ruminant for 3%, fish ponds for 7% and other for 1%.

b. Projection of consumption 2008--2012

The success in eradicating or reducing cases of bird flu is expected to result in the revival of animal feed industry. The domestic consumption of animal feed is predicted to grow 7%-10% per year, to reach 8.13 million tons in 2008. The animal husbandry sector is forecast to grow 8% with production of chicken starters estimated at 1.25 million per year.

The expansion of animal husbandry industry especially poultry farms would boost consumption and production of animal feed. In 2012, animal feed consumption is predicted to reach 10.9 million tons per year.

Price

The prices of animal feed basic materials including corn, rice bran, meat bone and meal/MBM have increased to follow the rises in the price of crude oil in the world market. Currently the country imports 70% of its animal feed basic material requirement. The prices of animal feed, therefore, follow the market trend of the basic materials. In 2008, the price of animal feed in concentrate for layer growers was Rp 4,500 per kg, up from Rp 4,150 in 2007.

In a bid to curb the rising prices of animal feed, the government is urged to abolish the 5% import duty on corn. A senior official of the agriculture ministry Djajadi Gunawan said the country imports 51% of its corn requirement and 100% of soybean meal requirement.

The price of corn in international market is expected to continue to scale up to follow the rising oil prices. Demand for corn in the world market is also growing as it is also used as feedstock for bio fuel. Corn is used as feedstock to produce ethanol used as a alternative source of energy.

Government Policy

--Law No. 6 of 1967 on animal husbandry and animal health.

This law concerns only animal feed from plant not from other materials. The Law does not regulate animal feed industry and distribution of animal feed, security aspect and animal health, therefore, it is no longer relevant to be used as legal basis.

Currently the government is seeking to revise the law especially regarding the definition of feed, production, procurement, distribution and security of feed, license of animal feed producers and regulations.

Decision of the agriculture minister No. 242/kpts/OT.210/4/2003 on registration and labeling of feed.

This decision concerns everything about registration and labeling of feed from mechanism of registration and labeling to registration and labeling requirements and law sanctions against violation of the procedure of registration and labeling.

Label on feed is to enable tracing back anything undesirable related to the quality of animal feed such as possible diseases suffered by livestock after consuming the feed or to enable addressing complaint in case of the animal feed is not up standards.

Security aspect is important as animal diseases have been found to have caused by feed. BSE (Bovine Spongioform Encephalopaty) disease for example, is a disease caused by feeds from a mixture of MBM, fishmeal and blood meal.

The import duty of 5% on corn has become a big burden for animal feed producers with the increase in the prices of corn especially as corn accounts for more than 50% of the basic material that make up animal feed. Animal feed producers, therefore, have urged the government to abolish the import duty. GMPT also urges the government to eliminate monopoly in the supply and distribution of meat and bone meal/MBM) from the United States to create a fair price.

The government regulation No 77 of 2007 rules that breeding and farming of free range chickens and cross breeding are reserved for small farmers.

Standardization

The products of animal feed in the country are required to meet the quality standard set by the government called Indonesian National Standard (SNI) See the following table.

Competition

The competition is tight in the country at present as the country has many producers. Each producer has a number of brands with varying prices. The competition in 2005 and 2007 was especially tight because of the bird flu cases. Large producers like Charoen Pokphand, Sierad Produce and Japfa Comfeed remain to dominate the market while many small producers have been forced to stop operation.

Role of main layers

With an annual production capacity of 2.3 million tons, Charoen Pokphand is the largest producer accounting for 20.4% of the country's total production capacity of 11.3 million tons.

The second largest is Japfa Comfeed with a capacity of 1.5 million tons. See the following table.

Distribution and Trade

Almost all animal feed factories in the country are located in Java mainly East Java. Japfa Comfeed, which is based in East Java dominates the market in East Java and some areas in Kalimantan.

Producers in Java supply animal feed to Kalimantan, Maluku and Papua and other areas.

Producers in North Sumatra and Lampung like Charoen Polphand and Siered supply feed to other areas in Sumatra. However, producers in West Java and Banten also supply feed to Sumatra.

In South Sulawesi, here is Cargill Indonesia. Charoen Pokphand also plans to supply feed to Sulawesi and other eastern parts of he country.

Business strategy

Each producer has marketing strategy in facing the tight competition. The general strategy are.

--Integration of business

All large producers have integrated business by producing animal feed, operating livestock farms and meat processing factories.

--Partnership

Producers of animal feed establish cooperation with local smallholder livestock farms. The producers even offer capital for livestock farmers. Japfa Comfeed has partnership with broiler farmers in South Kalimantan.

Animal feed producers also seek cooperation with corn farmers to guarantee supply of the basic material.

Charoen Pokphand through its subsidiary PT Tanindo Subur Prima and Japfa Comfeed through PT. Japfa Mitra Sejahtera cooperate with local corn growers. Some animal feed producers cooperate with sate-owned plantation company such as Japfa Mitra Sejahtera and PT Perkebunan Nusantara VII (PTPN VII). Under the cooperation Japfa Mitra Sejahtera provides seeds, fertilizer and incentives for farmers and PTPN VII provide land to grow corn. Japfa also cooperates with corn growers in Pelaihari, in the regency of Tanah Laut, South Kalimantan.

Corn growers in that area could produce corn with water content of 14%-15% to meet the standard set by Japfa Comfeed.

Meanwhile, PT CJ Feed Indonesia, PT Cargill Indonesia, PT Sierad Produce, and PT Wonokoyo Jayakusuma also cooperates with corn growers in Banten.

--Conversion of source of energy

The soaring prices of oil fuels necessitates conversion of source of energy from oil fuels to coal.

Sierad Produce plans to soon change its fuel from oil to coal, hoping to save fuel cost up to 40%.

Conclusion and prospects

* In general the country's animal feed industry has been stable after a setback in 2005 and 2007 as a result of the dreaded cases of bird flu in various areas resulting in the culling of thousands of chickens. People were forced to restrain from consuming chicken meat or eggs resulting in a sharp fall in demand for chicken meat and in turn shrinking demand for poultry feed.

* Currently Indonesia has around 50 large animal feed factories with an annual production capacity of 11.03 million tons altogether. Java has by far the largest number of factories. Java has 38 factories or 38% of the total number of feed factories in the country. Java is dominant in number because of the availability of basic material. East Java and Central Java are the production centers for corn. Outside Java, Sumatra and South Sulawesi are potential areas for animal feed industry as they have large corn fields.

* In the past five years (2003-2007), the country's production of animal feed grew by 8.4% per year from 6 million tons in 2003 to 7.7 million tons in 2007. Indonesia has exported animal feed to various countries such as Thailand, Singapore and Malaysia. Exports have increased from 18,500 tons in 2003 to 33,500 tons in 2007. Imports, meanwhile declined from 424,8000 tons in 2003 to 74,200 in 2007. Imports have come from the United States, Australia and New Zealand.

* Poultry farms account for 83% of animal feed consumption in the country, aquaculture for 7%, pig farms for 6%, ruminants for 3% and other animals for the rest.

* Corn is the main basic material for animal feed accounting for 51.4%, followed by soybean meal 18%, corn gluten meal 7% and fishmeal/Meat Bone Meal (MBM) 5%. Other basic materials are Crude Palm Oil 2%, premix 0.6% and rice bran.

* Most of the basic materials are imported. Corn requirement is 90% supplied through imports.

* The government has encouraged animal feed producers to use local basic materials, recommending the use of palm kernel meal as a substitute for imported soybean meal. Soybean meal is used as a source of protein accounting for 18% of poultry feed basic material.

* The country's animal feed industry has been dominated by a few big players--Charoen Pokphand, Japfa Comfeed, Sierad Produce, Cheil Jedang, and Wonokoyo. They dominated 56.7% of the market. The big players operate integrated business with operations also in livestock farming, animal medicine production, and processing of animal husbandry products.

* The industry is still heavily dependent on import for basic materials. The prices of animal feed in the country, therefore, are determined by the basic material price developments in international market. Increase in the price of basic materials has forced many small producers to stop operations.

* Animal feed accounts for 70%-80% of the production cost of poultry farming.

* Per capita consumption of animal protein in Indonesia is still low--around 8.9 kg in 2007, as against 14 kg in Thailand 14 kg in Thailand 14kg, 28 kg in Singapore and 38.5 kg Malaysia and 8.5 kg in the Philippines. Therefore, the prospects of the industry is still encouraging in the country. Expansion of livestock farms will boost demand for animal feed.

* The population of boilers in the country is estimated to rise to 1.5 billion in 2008 from 1.2 billion in 2007. Consumption of animal feed is predicted to rise to 8.1 million tons in 2008 from 7.7 million tons in 2007. The consumption if predicted to scale up to in the following years to reach 10.9 million tons in 2012.

* The industry has not operated at full capacity with capacity utilization of only 69.8% in 2007. The production, therefore, could still be increased without building new facility.

* However, the recent hikes of 28.7% in the prices of subsidized oil fuels are feared to weaken the purchasing power of the people. Most industries including animal feed industry will likely suffer under the impact.
Table--1
Types of animal feed

 Types Basic materials

Greenery Weeds, foliage, leguminosae, peanuts, straw.

Silage Greenery (weeds or leguminosae) kept fresh
 with ensilage process. Production of silage is
 to cope with shortage of fodder in dry season.

Concentrate Rice bran, milled corn, copra residue, salt and
 minerals.

Source: Office of the Research and Technology Minister

Table--2
Producers of animal feed and capacity, 2006

 Name of Location Types of
 companies product

Charoen Popkhand Mojokerto.(East Java), Shrimp feed and
 Jakarta, poultry feed
 Medan, North Sumatra

Japfa Comfeed Lampung, Poultry and other I
 Cirebon (West Java), ivestock feed
 Sidoarjo (East Java) Shrimp and chicken
 Tangerang farms

Cheil Jedang Serang, Banten Chicken feed
Superfeed Jombang, East Java

Sierad Produce Sidoarjo (East Java). Cattle, poultry and
 Tangerang (West Java) other livestock feed

Central Proteina Medan, North Sumatra Shrimp and animal
Prima Semarang, Central Java feed
 Surabaya, East Java

Cargill Indonesia Bogor, West Java Chicken feed
 Malang, East Java
 Makassar, Sulawesi
 Selatan

Gold Coin Indonesia Medan (North Sumatra), Cattle feed
 Bekasi (West Java)
 Surabaya, East Java

Tegarindo * Semarang, Central Java Poultry, fish and
 other animal feed

Wonokoyo Jaya Surabaya, East Java Animal feed
Corporindo Chicken farms

Feedmill Indonesia Medan, North Sumatera Poultry, fish and
 other animal feed

Wonokoyo Jaya Kusuma Serang, Banten Chicken feed

Sinta Prima Feedmill Cileungsi, West Java Cttel, poultry and
 other animal feed

CJ Feed Jombang Jombang, East Java Poultry feed

Malindo Feedmill Jakarta Chicken feed

Sentra Profeed Lampung Cattle feed
Intermitra

Bintang Terang Serang, Banten Poultry, fish and
Gemilang Sidoarjo, East Java other animal feed

Hogindo Feedmill Jakarta Pig feed

Universal Agri Bekasi, West Java Poultry, fish and
Bisnisindo other animal feed

Mabar Feed Medan, North Sumatra Poultry, fish and
 other animal feed

Multiphala Agrinusa Sragen, Central Java Poultry feed

Sarifeed Indojaya Surabaya, East Java Poultry, fish and
 other animal feed
Berlian Unggas Sakti Medan, North Sumatra Poultry, fish and
 other animal feed

Rehobat * Semarang, Central Java Poultry, fish and
 other animal feed

Indojaya Agrinusa Medan, North Sumatra Cattle feed

Metro Inti Sejahtera Bekasi, West Java Chicken feed

Kerta Mulyo Sari Serang, Banten Poultry, fish and
Pakan other animal feed

Citra Ina Feedmill Jakarta Cattle, poultry and
 other animal feed
 Veterinary
 preparation

Wirifa Sakti Surabaya, East Java Poultry, fish and
 other animal feed

Farmindo Utama Bogor, West Java Poultry, fish and
 other animal feed

Vista Grain Lampung Cattle feed

Panca Patriot Prima Sidoarjo, East Java Poultry, fish and
 other animal feed

Allegrindo Medan , North Sumatera Poultry feed
Nusantara *

Buana Vista Central Java Poultry feed

Andini Central Java Poultry, fish and
 other animal feed

Welgro Feedmill Citeureup, West Java Poultry, fish and
Indonesia other animal feed

Setia Kencana East Java Poultry feed

Inkud Satwa Surabaya, East Java Poultry, fish and
Nusantara other animal feed

Rasta Rapma Anugrah * Sidoarjo, East Java Poultry feed

Growth Pakanindo Medan, North Sumatera Poultry, fish and
Special other animal feed

Cibadak Indah Serang, Banten Poultry feed
Sari Farm

Restu Jaya * North Sumatera Poultry feed

Satwa Boga Sampurna Surabaya, East Java Poultry, fish and
 other animal feed

Others
Total

 Name of Production
 companies capacity
 (tons /year)

Charoen Popkhand 2,374,208

Japfa Comfeed 1,572,000

Cheil Jedang 760,000
Superfeed

Sierad Produce 480,000

Central Proteina 480,000
Prima

Cargill Indonesia 442,800

Gold Coin Indonesia 404,000

Tegarindo * 296,623

Wonokoyo Jaya 264,000
Corporindo

Feedmill Indonesia 250,000

Wonokoyo Jaya Kusuma 249,600

Sinta Prima Feedmill 240,000

CJ Feed Jombang 240,000

Malindo Feedmill 240,000

Sentra Profeed 236.35
Intermitra

Bintang Terang 200,000
Gemilang

Hogindo Feedmill 180,000

Universal Agri 180,000
Bisnisindo

Mabar Feed 168,000

Multiphala Agrinusa 150,000

Sarifeed Indojaya 150,000

Berlian Unggas Sakti 144,000

Rehobat * 120,000

Indojaya Agrinusa 100,000

Metro Inti Sejahtera 96,000

Kerta Mulyo Sari 96,000
Pakan

Citra Ina Feedmill 72,000

Wirifa Sakti 72,000

Farmindo Utama 60,000

Vista Grain 48,000

Panca Patriot Prima 43,000

Allegrindo 36,500
Nusantara *

Buana Vista 36,000

Andini 32,860

Welgro Feedmill 22,080
Indonesia

Setia Kencana 21,400

Inkud Satwa 20,000
Nusantara

Rasta Rapma Anugrah * 19,200

Growth Pakanindo 18,000
Special

Cibadak Indah 17,000
Sari Farm

Restu Jaya * 15,000

Satwa Boga Sampurna 12,000

Others 718,205

Total 11,304,000

Source: GPMT

Table--3
Production capacity of animal feed,
2003-2007

 Year Capacity Growth
 (million tons) (%)

2003 10,026,331 --

2004 10,737,831 7.1

2005 11,278,231 5.0

2006 11,304,831 0.2

2007 11,304,831 0

Average growth 3.1

Source: Animal husbandry directorate general

Table--4
Locations of large animal feed factories, 2008

 Province Number of factories

North Sumatra 8

Lampung 4

West Java 4

Banten 10

DKI Jakarta 4

Central Java 3

East Java 15

South Sulawesi 2

Total 50

Source: ICN

Table--5
Locations of small feed mills

 Islands Areas/districts

Java Bekasi, Ciamis, Cirebon, Sukabumi, Subang,
 Magelang, Banjarnegara, Blitar

Bali Bangli, Tabanan

Sumatra Sawah Lunto, Bengkulu

Kalimantan Kapuas, Hulu Sungai Utara

Source: Agriculture ministry

Table--6
Animal feed producers and integrated business

Name of Group Name of company Line of bussiness

Sierad Group - Sierad Produce - animal feed industry
 - Dwipa Mina Nusantara - fishmeal industry
 - Biotek Industries - animal medicine and
 vitamin industry
 - Sierad Corporation - trading in animal
 feed basic materials

Charoen Popkhand a. agribusiness :
 - Charoen Pokphand - animal feed industry
 Indonesia
 - Charoen Pokphand - DOC production
 Jaya - animal feed industry
 - Central Pertiwi - animal feed industry
 - Vista Grain - chicken meat
 - Primafood International processing
 - chicken farms
 - Istana Satwa Borneo - chicken farms
 - Surya Hidup Satwa - chicken farms
 - Satwa Utama Raya - chicken farms
 - Vista Agung Kencana - Oil palm plantation
 - Central Plasma - CPO industry
 Plantation - CPO industry
 - Charindo Palma Utama - CPO industry
 - Satria Multi Sukses
 - Erlangga Sawit Jaya - Shrimp feed industry
 b. akuakultur - Shrimp ponds
 - Central Proteinaprima
 - Aruna Wijaya Sakti

JC Indonesia - JC Superfeed - animal feed industry
 - JC feed Jombang - animal feed industry
 - Super Unggas Jaya - DOC breeding DOC

Source: ICN

Table--7
Licenses for new companies and expansion in animal feed
industry issued by BKPM, 2005-2007

 Name of Status Production Location
 company capacity
 (per year)

Indojaya PMDN Fish and shrimp Deli Serdang,
Agrinusa feed--32,000 North
 tons Sumatra

Multi Grain PMA Corn meal-- Serang,
Millers 237,600 tons Banten
 Soybean meal--
 237,600 tons

Cheil PMA Liquid feed Pasuruan--
Jedang additive--30,000 East Java
Indonesia tons
 Ammonium
 sulfate fertilizer--
 80,000 tons

Feedmill PMA Animal feed-- Deli Serdang,
Indonesia 250,000 tons North
 Sumatra

Kwala Intan PMA Grain flour-- Asahan,
New Grain 210,000 tons North
 Feed/meal-- Sumatra
 90,000 tons

Inhil PMDN Meal--32,775 Riau
Sarimas tons
Kelapa Dessicated
 coconut--12,000
 tons
 Coconut oil

 56,250 tons

Central PMDN Fish feed-- Deli Serdang,
Pangan 76,000 tons North
Pertiwi Shrimp feed-- Sumatra
 24,000 tons

 Name of Investment Operation
 company schedule

Indojaya Rp 50 billion April 2007
Agrinusa

Multi Grain US$ March 2007
Millers 9,000,000

Cheil US$ September
Jedang 1,478,000 2007
Indonesia

Feedmill US$ April 2008
Indonesia 2,250,000

Kwala Intan US$ May 2008
New Grain 13,800,000

Inhil Rp 300 billion June 2008
Sarimas
Kelapa

Central Rp 116. 7 April 2009
Pangan billion
Pertiwi

Source: Investment Coordinating Board (BKPM)

Table--8
Investment needed for animal feed factories

 Type Production capacity Estimate of production
 (tons per year) cost per kg

Large animal feed plant 100,000 - 300,000 Rp 3,200 - Rp 3,300

Mini animal feed plant 1,000 - 1,100 N.a

Source: ICN

Table--9
Indonesia's production of animal feed,
2003 - 2006

 Year Production Growth
 (tons) (%)

2003 6,073,269 --

2004 7,530,854 24.0

2005 9,940,727 31.9

2006 9,940,727 0

2007 7,700,000 -22.5

Average growth 8.4

Source: Industry Ministry

Table--10
Imports of animal feed, 2003 - 2007

 Commodity 2003 2004 2005

 KG KG KG
Animal feed US$ US$ US$

 230910100 0 0 0
 0 0 0

 230990912 7,747,431 10,910,697 16,142,047
 2,673,208 4,149,602 5,362,819

 230990919 3,946,460 21,519,889 13,708,792
 3,949,319 11,519,414 9,134,779

 230990914 661,059 4,872 0
 257,592 2,200 0

 230990916 444,202 272 0
 1,854,853 4,221 0

 230990922 319,850 187,499 0
 1,695,113 847,270 0

 230990923 10,854,147 783,502 52
 4,765,653 304,138 160

 230990929 15,029,606 1,442,595 9,000
 32,345,052 2,537,660 18,070

 230990991 361,467,713 407,856,177 417,939,890
 97,371,656 179,537,846 173,087,148

 230990999 24,356,514 1,594,668 37,000
 10,718,900 702,937 16,110

TOTAL 424,826,982 444,300,171 447,836,781
 155,631,346 199,605,288 187,619,086

 Commodity 2006 2007

 KG KG
Animal feed US$ US$

 230910100 0 3,780,603
 0 2,498,716

 230990912 12,709,666 460,967
 4,467,261 128,560

 230990919 6,705,412 0
 6,376,861 0

 230990914 0 0
 0 0

 230990916 2,026,027 1,912,891
 2,098,822 1,309,159

 230990922 0 0
 0 0

 230990923 0 0
 0 0

 230990929 0 0
 0 0

 230990991 344,061,055 68,016,580
 162,340,959 31,948,091

 230990999 51 0
 49 0

TOTAL 365,502,211 74,171,041
 175,283,952 35,884,526

Source: Animal husbandry directorate general

Table--11
Indonesia's animal feed exports, 2003 - 2007

 2003 2004 2005

Commodity Kg Kg Kg
 US$ US$ US$

230910100 0 0 0
 0 0 0

230990912 380,081 111,977 12,500
 98,680 39,500 8,706

230990919 4,646,197 5,518,416 5,527,085
 1,149,740 3,001,892 3,329,020

230990914 3,000 0 0
 53,385 0 0

230990916 0 0 0
 0 0 0

230990922 7,114,808 4,000 0
 927,187 71,000 0

230990923 5,791,899 1,019,960 0
 3,935,990 691,843 0

230990929 387,491 113,137 0
 747,640 67,600 0

230990991 68,321 11,338,581 17,854,557
 37,118 4,362,358 6,028,097

230990999 184,991 16,818 0
 338,647 35,727 0

TOTAL 18,576,788 18,122,889 23,394,142
 7,288,387 8,269,920 9,365,823

 2006 2007

Commodity Kg Kg
 US$ US$

230910100 0 0
 0 0

230990912 0 0
 0 0

230990919 6,359,035 1,021,334
 3,960,951 533,018

230990914 0 2,922,323
 0 2,225,682

230990916 0 2,468,505
 0 1,546,786

230990922 0 11,463,322
 0 3,871,821

230990923 0 0
 0 0

230990929 0 0
 0 0

230990991 15,903,831 3,717,027
 5,555,812 1,298,895

230990999 0 11,463,322
 0 3,871,821

TOTAL 22,262,866 33,055,833
 9,516,763 13,348,023

Source: Animal husbandry directorate general

Table--12

Indonesia's consumption of animal feed, 2003--2007

Year Consumption Growth
 (million tons) (%)

2003 7.2 --
2004 6.8 -5.6
2005 7.1 4.4
2006 7.2 1.4
2007 7.6 5.6

Average growth 1.45

Source: GMPT

Table--13

Estimate of domestic consumption of animal feed, 2008--2012

Year Consumption
 (million tons)

2008 8.1
2009 8.7
2010 9.6
2011 10.3
2012 10.9

Source: ICN

Table--14
Average prices of animal feed products on domestic
market, May 2008
 Price
Type (Rp/kg)

Rice bran 1,400
Corn grains 3,800
Feed for broiler starter 6,000
Feed for broiler finisher 5,300
Feed for egg layer 5,500
Feed for egg layer grower 5,500
Feed for egg layer starter 5,900
Concentrate feed for egg layer grower 4,500
Concentrate feed for egg layer 5,200

Source: Animal husbandry Directorate General

Table--15
SNI for animal feed

SNI No. Description

01-3931-2006 Feed for broiler finisher
01-3930-2006 Feed for broiler starter
01-3929-2006 Feed for layer
01-3928-2006 Feed for layer grower
01-3927-2006 Feed for layer starter

Source: Animal husbandry directorate general

Table--16
Animal feed producers and production capacity

 Prod.
 capacity
 (million Share
Name of company tons) (%)

Charoen Pokphand 2.30 20.4
Japfa Cornfeed 1.50 16.9
Cheil Jedang 1.00 8.8
Wonokoyo 0.513 4.5
Sierad Produce 0.480 4.2
Central Proteina Prima 0.480 4.2
Cargill Indonesia 0.442 3.9
Gold Coin Indonesia 0.404 3.6
Feedmill Indonesia 0.250 2.2
Malindo Feedmill 0.240 2.1
Sub total 7.609 67.3
Other 3.691 32.7
(around 32 companies)
Total 11.3 100.0

Source: ICN
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Title Annotation:INDUSTRY PROFILE
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:May 1, 2008
Words:8563
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