MSG INDUSTRY'S PROSPECTS FOR GROWTH ARE OVERSHADOWED BY LIMITED SUPPLY OF BASIC MATERIAL.
Over the past five years (1996-2000), the MSG industry continued to show rapid production growth, which averaged 13.6% per annum. Ironically, however, the MSG industry now has difficulties procuring the main basic material to maintain its output rates. The reason for this is that the sugar industry's performance has been on the decline because it has not been efficient enough to compete with imported sugar and because the supply of sugarcanes from farmers has been shrinking. Farmers have been growing less and less of sugarcanes because the income from this commodity is no longer attractive to them. To overcome the difficulties in procuring molasses from domestic sources, the MSG industry has started to use imported molasses and raw sugar as the basic material. As a result, the volume of Indonesia's sugar imports reached as high as 984.7 thousand tons in 1999, as opposed to only 340.4 thousand tons in 1995.
The MSG industry was once shocked by the Chinese Restaurant Syndrome issue that broke out in 1982. In January, 2001, the MUI (the Indonesian Ulema Council) declared Ajinomoto as being not halal (not religiously clean), and the MSG industry worried that this would affect domestic consumption. Following the MUI's declaration, Ajinomoto withdrew its products from the domestic market although some of them had been produced without the use of bactosoytone, a bio-catalyst that is made from an enzyme coming from porcine (or the pancreas of a pig). Instead, they had been produced using the mameno process, a hydrolysis of soybeans that does not involve a fermentation process.
Ajinomoto's decision to replace its brand name with "Mameno" has not been fruitful. In view of this, Ajinomoto has been actively promoting its products under the old brand name, "Ajinomoto." However, it is still difficult to monitor whether Ajinomoto has succeeded in removing its negative image from the mind of the people. Ajinomoto used to have a large share of the domestic market, and the bad case that it had may have given an opportunity for its competitors to enlarge their respective market shares. As may have been known, the competition on the domestic market for MSG has been very tight because MSG consumers in a certain marketing area usually have loyalty to a certain brand.
This report discusses the various aspects of the MSG industry, including domestic supply and demand, basic material requirements, and imports and exports, and is concluded with projections of domestic consumption for the next five years.
Producers and Their Production Capacities
According to data from the Department of Industry and Trade, there are currently over 13 MSG producers with a total production capacity of 297,500 tons per annum in Indonesia. In addition, there are a number of small-scale companies dealing in the recapping of MSG coming from MSG producers. In 1997, due to pressures from the monetary/economic crisis, two small-scale MSG producers ceased their production and continued their operations as MSG-recapping companies, and they were PT Foomaco and PT Indonesia Mild Industries.
In terms of production capacities, the largest MSG producer is PT Sasa Inti (50,000 tons per annum). Established by the Roda Mas Group in 1972, the company originally operated under the domestic investment (PMDN) scheme. In 1987, the company changed its status into one operating under the foreign investment (PMA) scheme following the entry of a foreign investor, i.e. AIF Investment Pte. Ltd. of Singapore, into its management. Besides PT Sasa Inti, the Roda Mas Group also has another MSG producer, i.e. PT Sasa Fermentasi (4,300 tons per annum).
Another large-scale MSG producer is PT Ajinomoto Indonesia, the pioneer of the MSG industry in Indonesia. The company has an annual production capacity of 36,000 tons. Operating under the PMA scheme, PT Ajinomoto Indonesia is jointly owned by Ajinomoto of Japan (53%) and its two Indonesian partners: PT Esti Pura Kencana (37%) and PT Industri Soda Indonesia (10%). With its plant located in the East Java town of Mojokerto, PT Ajinomoto Indonesia markets its MSG products under brand name "Ajinomoto."
In 1987, in a bid to expand its MSG business in Indonesia, Ajinomoto Co. Ltd. of Japan cooperated with PT Tumbakmas of Indonesia in setting up another MSG producer, PT Ajinex International. Owning 95% of PT Ajinex International, Ajinomoto Co. Ltd. controls the operations of the company, which has an installed MSG production capacity of 36,000 tons per annum. With its plant located next to PT Ajinomoto Indonesia's in the East Java town of Mojokerto, PT Ajinex commenced its commercial production in 1989. The company markets its MSG products under the same brand name, Ajinomoto.
PT Miwon Indonesia, whose plant is located in the East Java town of Gresik, has an annual production capacity of 42,000 tons. Operating under the PMA scheme, the company is jointly owned by two South Korean investors, Seoul Miwon Co. Ltd. (29%) and Miwon Co. Ltd. (20%), and two Indonesian partners, PT Jico Agung (31%) and businessman Kayo Salim (20%). In addition to MSG, PT Miwon Indonesia also produces glutamic acid (GA), gypsum, super taste enhancer, tasty salt, chicken broth seasoning, soy sauce (or ketchup), and chilly sauce for seafood. After a series of capacity expansion projects, PT Miwon listed its shares on the Jakarta Stock Exchange (JSX) in 1995 and became the only publicly listed MSG producer in Indonesia.
Miwon Co. Ltd. of South Korea also cooperated with another Indonesian investor, PT Sembada Widyacita, in setting up an MSG producer with an annual production capacity of 24,000 tons in Lampung in 1991. Named PT Indo Miwon Citra Inti, the company commenced its commercial production in August, 1991. Following an expansion project, PT Indo Miwon Citra Inti managed to increase its annual production capacity to 30,000 tons. The company markets its MSG products under brand name "Indo Rasa," and it supplies some 65% of its output to export markets, notably Hong Kong, Singapore, Myanmar, and Vietnam.
Another MSG producer in Indonesia is PT Palur Raya, which was established by H. Moenadi, Franciscus Soeharto, and Soetantyo in the Central Java town of Surakarta in 1980. Operating under the PMDN scheme, the company initially had a capacity to produce 1,800 tons of MSG and 4,200 tons of GA (glutamic acid) per annum. In 1993, PT Palur Raya increased its MSG production capacity to 12,000 tons per annum and its GA production capacity to 12,700 tons per annum with an investment of Rp 29.902 billion. According to some information, the company processes some 70% of its GA output into MSG and supplies the rest to other MSG producers. PT Palur Raya markets its MSG products under brand name "Mobil." Mobil is one of the more famous MSG brands in Central Java, the others being Ajinomoto, Miwon, and Sasa.
Not all MSG producers in Indonesia produce MSG from molasses; some of them, especially the small-scale ones, produce MSG from GA which they purchase from external suppliers. Some of them even do not produce MSG; instead, they purchase MSG in bulk and package it in packs. Such companies are widely found in Central Java, and they are known as MSG-recapping companies. They market their MSG products under local brand names.
In 1997, PT Budi Acid Jaya (BAJ), a Sungai Budi Group affiliate which dealt in the production of tapioca powder and citrate acid, conducted a vertical expansion of its business by establishing an MSG plant in Central Lampung in cooperation with Ve Wong Cooperation of Taiwan. Built with an investment of US$ 20 million, the plant has a capacity to turn out 18,000 tons of MSG per annum. The joint-venture company that manages the plant is called PT Ve Wong Budi Indonesia (VWBI), which operates under the PMA scheme, and it is 51% owned by BAJ and 49% by VWBI. The company commenced its commercial production in the second quarter of 1998 with an initial output rate of 1,500 tons per month.
The basic materials for MSG are glucose and molasses, which are mixed with each other. Glucose is made from tapioca powder. According to some information, VWBI's glucose requirements will be fulfilled by BAJ, a major producer of tapioca powder. According to a source with VWBI, the company initially obtained a guarantee that at least two-thirds of its MSG output would be distributed to the international market by Ve Wong Corporation of Taiwan while the rest would be supplied to the domestic market by the Sungai Budi Group's distribution network and that any parts of the portion for the domestic market that were not absorbed by the domestic market would be purchased by Ve Wong Corporation under the L/C system. Under the current economic situation, however, it has been decided that 100% of VWBI's MSG output will be exported.
Table - 1 MSG Producers and Their Production Capacities, 2000 (tons per annum) Name of producer Location of plant Production capacity PT Sasa Inti Probolinggo, East Java 50,000 PT Ajinomoto Indonesia Mojokerto, East Java 36,000 PT Ajinex International Mojokerto, East Java 36,000 PT Miwon Indonesia Gresik, East Java 42,000 PT Indomiwon Citra Inti Jabung, Central Lampung 30,000 PT Cheil Samsung Indonesia Pasuruan, East Java 40,000 PT Vew Wong Budi Indonesia Lampung 18,000 PT Palur Raya Karanganyar, Central Java 12,000 PT Foomaco Semarang, Central Java 5,400 PT Sasa Fermentasi Sidoarjo, East Java 4,300 PT Indovietsin Surakarta, Central Java 1,200 Other 22,600 Total 297,500 Source: Department of Industry and Trade/Data Consult
East Java the largest center for MSG production in Indonesia
The largest center for MSG production in Indonesia is East Java. The fact that East Java is home to many sugar factories has encouraged the emergence of MSG producers, which intend to make use of the molasses produced as a side-product by the sugar factories. East Java currently has the most MSG producers in Indonesia (i.e. seven), followed by Central Java (four) and Lampung (two). Although Lampung only has two MSG producers, it is the second largest MSG-production center in Indonesia because the two MSG producers have a combined installed production capacity of 48,000 tons per annum. This is so because a number of sugar factories and sugar-cane plantations have been relocated to Lampung, making the province an easy source of molasses for the MSG producers there.
The largest source of molasses for MSG producers is the PTPN (state-owned sugar-cane plantation company) in Java, which has a capacity to produce 660,000 tons of molasses per annum. The second largest is the private sugar-cane plantation companies in Lampung, which together have a capacity to produce 250,000 tons of molasses per annum. The third largest is PT Rajawali Nusantara Indonesia (130,000 tons per annum). These sources of molasses supply their output not only to Indonesia's MSG industry but also to the international market.
The first sugar producers to operate in Lampung are PT Gunung Madu Plantation and PT Gula Putih Mataram, which together have 25,000 hectares of sugar-cane plantations. Both of them are partly owned by Bimantara Citra. The other sugar producers in Lampung are PT Pemuka Sakti Manis and PT Sweet Indo Lampung. The four sugar factories in Lampung have a combined capacity to produce 250,000 tons of molasses per annum.
Table - 2 Population of MSG Producers by Province, 1998 (tons per annum) Total Province Number of production Share in total producer capacity (%) East Java 7 220.900 74,3 Central Java 4 28.600 9,6 Lampung 2 48.000 16,1 Total 13 297.500 100,0 Source: Department of Industry and Trade/Data Consult
Sugar industry not attractive to investors
Ever since the youngest MSG producer in Indonesia, PT Ve Wong Budi Indonesia, obtained its permanent approval from the Investment Coordinating Board (BKPM) in 1996, no new investors have submitted MSG-production project plans to the agency for approval. One reason for this may have been the economic crisis and the social, political, and security turbulence. Since 1996, there have been only expansion projects in the MSG industry. In 2000, PT Palur Raya, which operates under the PMDN scheme, submitted its capacity expansion plan to the BKPM for approval. The company intended to increase the annual production capacity of its MSG plant in the Central Java town of Karang Anyar to 12,000 tons.
Another reason for the lack of interest among foreign and domestic investors in the MSG industry is the limited supply, of molasses from domestic sources. As may have been known, the MSG industry has had trouble procuring MSG from local sources over the last few years because the sugar industry prefers to export its molasses output.
Table - 3 Profile of PT Palur Raya's Expansion Project Detail Description Name of company PT PALUR RAYA Status Domestic Investment Office address Jl. Imam Bonjol No. 11 Semarang Plant location Kabupaten Karang Anyar, Central Java No. of license from BKPM 22/II/PMDN/2000 Date of license 14 Maret 2000 Production capacity - Glutamic Acid 3,600 tons per annum (Expansion) - MSG 12,000 tons per annum Investment commitment Rp 78.835 million Source: Investment Coordinating Board (BKPM)/Data Consult
Production up rapidly
The MSG industry has survived the economic crisis and has even managed to keep up its performance. This is so because the MSG industry is a resource-based industry which uses molasses, a side-product of the sugar industry, as its main basic material.
That the MSG industry has held out through the crisis can be seen from the fact that its output has continued to grow. In 1998, Indonesia's MSG output rose by 3.2% to 205,709 tons from 199,381 tons in 1997. In 2000, it even reached as high as 251,819 tons. Over the past five years (1996-2000), domestic MSG production grew at an average annual rate of 13.6%. The continued rapid growth in Indonesia's MSG production is attributable to the producers' export-expansion efforts. Thanks to such efforts, the drop in domestic consumption during the initial years of the crisis did not have much impact on the performance of the MSG industry. Of late, the revival of the food industry in Indonesia has also given a boost to domestic MSG demand.
Table - 4 Developments in Indonesia's MSG Production, 1996 - 2000 Year Production Growth (tons) (%) 1996 173,375 -- 1997 199,381 14.9 1998 205,709 3.2 1999 219,319 6.6 2000(*) 251,819 14.8 Average growth 13.6 (*) estimate; Source: Department of Industry and Trade/Data Consult
Ajinomoto withdrawn from market
No less than 10,000 tons of MSG under brand name Ajinomoto had to be withdrawn from the market within at most three weeks following the issuance by the Directorate General of Food and Drugs Supervision on 3 January, 2001 of a decree to that effect. The said directorate general issued the decree after the Indonesian Ulema Council (or MUI by its Indonesian initials) had declared Ajinomoto as not halal (religiously clean) because the process of its production used lard as a catalyst.
According to the Directorate General of Food and Drugs Supervision, however, Ajinomoto has been using bacteria for the fermentation of molasses. These bacteria are first kept in a medium which contains bactosoytone, a nutritional material for bacterium growth that is rich with amino acid. Bactosoytone is the feed for the bacteria, and it is produced through the enzymatic hydrolysis of soybeans. The enzyme used comes from porcine or the pancreas of a pig. In the hydrolysis process, this enzyme serves as a bio-catalyst. The use of bactosoytone as a medium for bacterium growth is more economical than the use of polypetone, which is to be extracted from beef.
Upon recommendation from the MUI, the Department of Health officially revoked the halal certificate for MSG products under brand name Ajinomoto. This directly sent the brand name sinking on the domestic market, and the company feared that the revocation of the halal certificate would tarnish the image of Ajinomoto on the global market as well, especially in predominantly Muslim countries. Unsurprisingly, therefore, Ajinomoto Corp. of Japan sent its team of lawyers to Indonesia to straighten out the trouble faced by its Indonesia company.
Ajinomoto expressed its willingness to withdraw all its MSG products from the domestic market throughout Indonesia and to replace the backtosoytone production process with mameno, a hydrolysis of soybeans that does not involve a fermentation process. Apart from this, the company also decided to change its brand name into "Mameno." However, this has not restored the negative image of Ajinomoto on the domestic market especially because it takes a long time and costs a lot of money to establish people's awareness of the new brand name.
The withdrawal of Ajinomoto products from the domestic market early in 2001 had significant impact on the domestic supply of MSG because Ajinomoto was produced by two companies, PT Ajinomoto Indonesia and PT Ajinex International, each having an annual production capacity of 36,000 tons. The two companies have a combined production capacity of 72,000 tons per annum or 24.2% of Indonesia's total MSG production capacity, which is 297,500 tons per annum.
Basic material difficult to procure
The main basic material for the production of MSG is molasses, a side-product of the sugar industry. In the MSG industry, molasses is first processed into glutamic acid (GA) through fermentation. For every ton of MSG, four tons of molasses is required. At the 1998 MSG output rate of 251,819 tons, the MSG industries requires over one million tons of molasses per annum. Molasses is used as a basic material not only by the MSG industry but also by other industries such as ethanol, soy sauce, pellet, yeast, and others.
In Indonesia, molasses is produced by state-owned plantation companies such as PTPN (short for PT Perkebunan Nusantara) IX, X, and XI (in Java) and PTPN II, VII, XII, and XIV (outside of Java), by PT Rajawali Nusantara Indonesia (RNI), and by private sugar companies such as PT Gunung Madu Plantation, PT Gula Putih Mataram, and PT Sweet Indo Lampung All these companies have a total molasses production capacity of 1.3 million tons per annum. Indonesia's actual molasses production for 2000 is estimated at 1.2 million tons.
Generally, MSG producers are not affiliated to sugar producers. As a result, they often have difficulties procuring molasses. The only MSG producer affiliated to sugar companies is PT Indo Miwon Citra Inti, and it is affiliated to PT Gunung Madu Plantation and PT Gula Putih Mataram. These two sugar companies together turn out 130,000 tons of molasses per annum.
Over the last few years, the domestic supply of molasses has been shrinking. To overcome this problem, some MSG producers have been importing raw sugar, which they process into MSG.
According to some leading MSG producers, raw sugar has some advantage over molasses as the basic material for MSG. Apart from being easy to procure from import sources, raw sugar also has a higher content of glucose than molasses and, as such, it produces more MSG. Unsurprisingly, therefore, the volume of Indonesia's raw sugar imports has been growing rapidly over the last few years, especially since the domestic production of sugar-canes started to decline.
Table - 5 Developments in Indonesia's Raw Sugar Imports, 1996 - 1999 Year Volume Value ('000 tons) (US$ '000) 1995 340.4 155,562 1996 685.3 288,387 1997 578.0 231,702 1998 121.3 36,513 1999 984.7 220,318 Source: CBS/Data Consult
Sugar producers in Indonesia have been exporting molasses to keep up their shares of the international market as well as to maintain good relations with the foreign buyers. Besides, by exporting molasses, they can keep themselves abreast with the current developments in the price of this commodity on the international market, on the basis of which they set the price of molasses on the domestic market.
According to data from the Central Bureau of Statistics (CBS), Indonesia exported 778,965 tons of molasses (worth US$ 33.2 million) in 1993. Due to growing domestic demand, the volume of such exports kept declining in the following years. In 1996, it reached only 185,179 tons (worth US$ 17.7 million). In 1997, due to the sharp depreciation of the rupiah against the U.S. dollar, many sugar producers allocated more of their molasses output for the export market. As a result, the volume of Indonesia's molasses exports jumped to 331,263 tons (worth US$ 19.9. million) in the same year. In the following years, the volume of such exports tended to decline. In 2000, it reached only 131,368 tons (worth US$ 5.3 million).
Molasses will give higher added value if it is exported not in its original form but in an already processed form, e.g. in the form of MSG or ethanol. As an illustration, the average export price of Indonesian molasses for 2000 was US$ 40.7 per ton. To produce one ton of MSG, four tons of molasses is required. The export price of MSG was US$ 844.7 per ton. Exporting four tons of molasses generated only US$ 162,8. Given the difference between the export price of one ton of MSG and that of four tons of molasses, it would not be a problem for MSG producers to purchase molasses at the export price. In reality, however, sugar/molasses producers have been exporting their molasses output to this day.
Table - 6 Developments in Indonesia's Molasses Exports 1995 - 2000 Year Volume Value (tons) (US$ '000) 1995 436,741 33,428 1996 185,179 17,749 1997 331,263 19,988 1998 167,931 9,070 1999 178,075 6,622 2000 131,368 5,343 Source: CBS/Data Consult
The limited supply of molasses from domestic sources has been a growing problem for MSG producers, more so because the sugar industry still prefers exporting its molasses output to supplying it to them. As has been mentioned earlier, MSG producers are generally not affiliated to the sugar industry and, therefore, they have difficulties procuring molasses from the latter. As a result, the volume of Indonesia's molasses imports has shown the tendency to increase. It rose from only 34,219 tons in 1995 to 186,775 tons in 1996. In 1999, it reached 185,008 tons.
Table - 7 Developments in Indonesia's Molasses Imports 1996 - 1999 Year Volume Value (tons) (US$ '000) 1996 186,775 23,430 1997 95,794 10,762 1998 99,112 7,844 1999 185,008 12,367 Source: CBS/Data Consult
Distribution and marketing system
There are two major types of MSG distribution and marketing system: direct and indirect. Under the direct system, the MSG producer fully entrusts the distribution and marketing of its output to the distributor, usually a sole distributor. In this case, the MSG producer focuses only on production. Under the second system, the MSG producer handles the distribution and marketing of its output on its own.
PT Miwon Indonesia, for example, entrusts the distribution and marketing of its output to PT Jico Agung, which is a shareholder in the former. According to some information, PT Jico Agung distributes Miwon products to dealers/retailers through subdistributors. The main marketing areas for Miwon are West Java and Jakarta. On the other hand, PT Ajinomoto and PT Indo Miwon Citra Inti have recently stopped using distributors; now, they handle the distribution and marketing of their MSG products on their own.
Some MSG producers cater not only to the household market segment but also to the industrial segment. The household market segment is supplied by Ajinomoto, Sasa, Miwon, and Indo Rasa. On the other hand, PT Cheil Samsung, which markets its MSG products under brand name "Mi Pung," supplies it to industries, including MSG-recapping companies. PT Cheil Samsung also exports its MSG products under brand name "Mi Poong."
On the domestic market, MSG comes in different-size packages for different segments. To the industrial market segment, including recapping companies, MSG is generally distributed in 25-kilogram packages. To restaurant and meatball sellers, it is distributed in 0.25-kilogram packages. The smallest packages are generally distributed to households, especially those in rural areas.
Since MSG is widely consumed by the people, how it is distributed plays a very important role in determining how successful the marketing of the product is. When an MSG brand has succeeded in dominating the local market in a certain area and building up a good brand image, the brand usually has loyal consumers. By keeping up quality, ensuring a continued supply which reaches out to where the consumers live, and conducting on-going promotional campaigns, an MSG producer can dominate a certain marketing area with its brand name, making it difficult for competitor brands to replace it. Building up a brand image is a very important factor in determining the success in the marketing of MSG. It is the active efforts at building up a brand image among MSG producers that have made their competition look tough.
The withdrawal of Ajinomoto from the domestic market as a result of the allegations that lard has been used in its production processes has mined Ajinomoto's brand image in Indonesia and has rendered all its previous efforts at building up the brand image useless. This is so because Indonesian consumers, who are mostly Moslems, find it difficult to accept Ajinomoto again, thinking that the brand has deceived them, and because other brands will take no time before trying to fill the marketing areas left behind by Ajinomoto. Although Ajinomoto has changed its name into Mameno, it is still difficult for the new brand name gain as wide popularity as Ajinomoto did because it takes a long time and costs a lot of money to establish people's awareness of the new brand name.
MSG exports up
The competition on the international market for MSG has been tight because it is dominated by Japan, Taiwan, and South Korea, which have long been known as producers of taste enhancers of international quality. In Indonesia, MSG producers have started to use the same production technology as their principals and, as a result, they do not have difficulties marketing their MSG products. Even Japan, Taiwan, and South Korea are now recorded as among the most important buyers of Indonesian MSG.
The sharp depreciation of the rupiah against the U.S. dollar over the last few years has made Indonesian MSG more competitive on the international market. This has encouraged MSG producers in Indonesia to increase their efforts at penetrating the export market, more so because the domestic demand for MSG dropped during the initial years of the crisis (due to the food industry cutting down on their activity).
In 1998, the volume of Indonesia's MSG exports soared by 127.6% to 126,688 tons. In 1999, it dropped by 28.1% to 91,128 tons due to the appreciation of the rupiah against the U.S. dollar and to an increase in the industrial demand for MSG. However, despite the drop in the volume of such exports, the value was as high as it had been the previous year: US$ 82.9 million. In 2000, the volume of Indonesia's MSG exports rose to 111,807 tons, and the value to US$ 94.4 million.
Table - 8 Developments in Indonesia's MSG Exports 1996 - 2000 Year Volume Value (tons) (US$ '000) 1996 59,329 76,919 1997 55,688 73,583 1998 126,736 82,618 1999 91,128 82,913 2000 111,807 94,441 Source: CBS/Data Consult
Concentrated in East Asia
The traditional importers of Indonesian MSG have been such countries as Japan, Hong Kong, Taiwan, China, and Singapore. However, Indonesian MSG producers have been actively seeking new export destinations for their products. In 2000, the largest buyer of MSG from Indonesia was Japan, which imported 22,648 tons or 20.3% of the total volume of Indonesia's MSG exports for the same year, which was 111,807 tons.
In the same year, Taiwan and Singapore imported respectively 15,130 tons of MSG (worth US$ 12.9 million) and 12,257 tons (worth US$ 9.9 million) from Indonesia. The other countries in Asia which also import MSG in significant quantities from Indonesia include Cambodia and Vietnam. In 2000, they imported respectively 9,230 tons (worth US$ 7.3 million) and 7,160 tons (worth US$ 5.8 million). On the hand, Hong Kong imported only 6,646 tons (worth US$ 5.3 million), which was less than the volume imported by Vietnam.
Indonesia exports MSG not only to Asian countries but also to African countries. Nigeria, for example, imported as high as 4,461 tons of MSG (worth US$ 4.7 million) from Indonesia in 2000. In Europe, Belgium is the most important buyer of Indonesian MSG. In 2000, Belgium imported 2,563 tons worth US$ 1.9 million from Indonesia. The United States imported only 2,323 tons (worth US$ 1.8 million). However, despite the relatively small volume of their MSG imports from Indonesia, Belgium and the United are among the more important buyers of Indonesian MSG.
Table - 9 Indonesia's 2000 MSG Exports, by Country of Destination Country of Volume Value destination (tons) (US$ '000) Japan 22,648 20,716 Taiwan 15,130 12,858 Singapore 12,257 9,895 Cambodia 9,230 7,326 Vietnam 7,160 5,775 Hong Kong 6,646 5,279 Thailand 7,361 6,021 Nigeria 4,461 4,699 Malaysia 3,192 2,698 South Korea 2,916 2,373 U S A 2,323 1,797 Belgium 2,563 1,879 Other countries 15,920 13,125 Total 111,807 94,441 Source: CBS/Data Consult
Import grows but the volume remains very small
Compared to the volume of its exports, that of MSG imports is very small. MSG is imported into Indonesia especially for supplying to restaurants and hotels which serve Asian dishes. In 1996, Indonesia imported 355 tons of MSG worth US$ 461 thousand. In 1997, the volume of such imports rose to 712 tons and the value to US$ 841 thousand. In the following years, due to the crisis that caused the rupiah to depreciate, the volume of Indonesia's MSG imports declined.
Table - 10 Developments in Indonesia's MSG Imports, 1996 - 2000 Year Volume Value (tons) (US$'000) 1996 355 461 1997 732 841 1998 266 298 1999 113 97 2000 186 156 Source: CBS/Data Consult
Despite the pros and cons as to whether MSG is safe for human health, domestic MSG has continued to increase from year to year. Although it dropped shortly after the monetary/economic crisis broke out, it did not take long before it started to rise again. This is so because the image of MSG as a taste enhancer has been very popular, even among consumers in rural areas. MSG is readily available at retailers, even in rural areas, especially because certain famous brands also distribute their products in very small packages, i.e. packages for one serving.
With a simple formula that domestic consumption equals production + imports - exports and with the assumption that the domestic supply of MSG for a certain year is consumed up during the same year, the figures on domestic MSG consumption can be obtained. In 1998, it dropped by 45.1% to only 79,240 tons. As may have been known, the rupiah depreciated very sharply and reached as low as Rp 16,000 to the U.S. dollar in 1998. This severely weakened the people's purchasing power and sent many food producers reeling, resulting in a sharp drop in MSG consumption.
In 1999, as economic recovery efforts proceeded, the rupiah stabilized at around Rp 7,000 to the U.S. dollar. This helped reinvigorate the food industry. As a result, the domestic consumption of MSG rose by 61.9% to 128,300 tons in the same year. In 2000, as the people were getting used to the rise in the prices of food, the domestic consumption of MSG increased by 9.3% to 140,200 tons.
Early in 2001, the case in which Ajinomoto was declared as not halal inspired a number of mass-media to remind the people, once again, of the danger in consuming MSG to human health. However, as was the case in the previous years, such a warning did not have long-lasting effects on domestic MSG consumption. The people will continue using MSG when cooking because the image of MSG as part of the way of making delicious dishes is already strongly imprinted in their mind.
To this day, domestic MSG production has been high enough to fulfill domestic demand. Although Indonesia also imports MSG, the volume of such imports has been very small or insignificant, compared to domestic production. With Ajinomoto having discontinued its production activity for some time, the volume of MSG imports may have increased. In addition, the market shares of MSG producers in Indonesia may also have changed.
Table - 11 Estimates of Indonesia's MSG Consumption, 1996 - 2000 (Tons) Year Output Imports Exports National Growth Consumption (%) 1996 173,375 355 59,329 114,400 -- 1997 199,381 712 55,688 144,410 26.2 1998 205,709 266 126,736 79,240 -45.1 1999 219,319 113 91,128 128,300 61.9 2000 251,819 186 111,807 140,200 9.3 Average growth (%) 13.1
Per capita consumption up
The per capita consumption of MSG in Indonesia dropped by 45.9% to 0.40 kilogram in 1998 from 0.74 kilogram in 1997. As has been mentioned earlier, this was caused by a decline in the people's purchasing power and the collapse of many food companies due to the crisis. In 1999, the per capita consumption of MSG in Indonesia rose to 0.64 kilogram. Overall, over the past five years (1995-1999), the per capita consumption of MSG in Indonesia grew at an average annual rate of 11.8%.
Table - 12 Estimates of per capita MSG Consumption in Indonesia, 1995 - 2000 Year National Population Per Capita Growth Consumption Consumption (tons) ('000 persons) (kg/person) (%) 1996 114,400 193,000 0.59 -- 1997 144,410 195,000 0.74 25.4 1998 79,240 198,000 0.40 -45.9 1999 128,300 200,700 0.64 60.0 2000 140,200 203,400 0.69 7.8 Average growth 11.8 Source: Data Consult
Prospects and Conclusions
MSG is a product of a resource-based industry; it is a downstream product of the sugar industry. As such, it has an opportunity to become a good export commodity now that the rupiah has depreciated against the U.S. dollar. Unfortunately, such an opportunity has not been properly made use of due to the shortage of the main basic material, i.e. molasses, on the domestic market. The domestic output of molasses has been shrinking with the decline in the performance of the sugar industry. The sugar industry has been producing less and less molasses due to the shrinking acreage of sugarcane plantation. As a result, Indonesia has been importing molasses in growing quantities and exporting it in decreasing quantities.
Despite the fact that Indonesian economy has not really recovered from the crisis, the domestic consumption of MSG has shown the tendency to grow. One reason for this is the fact that the food industry has started to revive. Another reason is that the people have become used to the current prices of food, which are generally three times as high as they were prior to the crisis.
For the past five years, the average annual growth in domestic MSG consumption is recorded at 13.1%, and that in per capita consumption at 11.8%. This indicates that the MSG industry has good prospects for growth, given that the people are used to using MSG as an enhancer of the taste of their daily dishes. For the next five years (2001-2005), the domestic consumption of MSG is projected to grow by 10%-15% annually. In 2004, it is expected to reach 249,090 tons.
The MSG industry, with its current production capacity (297,500 tons), will be able to fulfill the projected levels of domestic demand for the next five years. However, given than the volume of MSG exports has also shown the tendency to increase, the MSG industry's production capacity may have to be expanded in the near future. One obstacle to this is the fact that it is difficult to increase the domestic output of molasses, the main basic material for MSG, because the performance of the sugar industry and the acreage of sugarcane plantation have been shrinking. If the current solution to this problem, i.e. using raw sugar instead of molasses, continues to be adopted, the MSG industry will be highly dependent on the imported basic material for its survival and growth.
Table - 13 Projections of Domestic MSG Consumption, 2001 - 2005 Year Domestic consumption 2001 154,220 2002 169,640 2003 190,000 2004 216,600 2005 249,090 Source: Data Consult
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|Comment:||MSG INDUSTRY'S PROSPECTS FOR GROWTH ARE OVERSHADOWED BY LIMITED SUPPLY OF BASIC MATERIAL.|
|Publication:||Indonesian Commercial Newsletter|
|Article Type:||Brief Article|
|Date:||Sep 11, 2001|
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