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The monosodium glutamate (MSG) industry in Indonesia stands tall against the pervasive economic crisis. This is attributable to the fact that the MSG industry is a resource-based industry which uses a side-product from the sugar industry as its basic material, i.e. molasses. Although domestic consumption has been declining this year as a result of the prolonged economic woes, MSG has a high level of local contents and, hence, has good export prospects.

Ironically, however, the industry is currently having difficulties procuring molasses in adequate quantities to maintain its output rate. This is so because the sugar industry prefers exporting its molasses to supplying it to local MSG producers. In 1997, the shortage of molasses was exacerbated by a prolonged drought. In fact, seen from the viewpoint of value added, exporting MSG generates more value added than exporting molasses. Moreover, MSG producers are willing to purchase molasses at prices applicable on the export market.

Until the outbreak of the monetary crisis in mid-1997, Indonesia's MSG consumption grew rapidly as the range of its users widened. Originally, MSG was consumed only by certain communities, notably the Chinese community. Nowadays, the range of its users is increasingly wide, more so with the rapid growth of the instant-noodles industry, which uses MSG as one of its ingredients. Although the Chinese Restaurant Syndrome issue once rocked the MSG industry in 1982, the impact was short-lived. Then, a number of MSG producers even expanded their production capacities. In 1998, an MSG plant using glucose and tapioca as the basic materials has been established, and it belongs to PT Ve Wong Budi Jaya. The plant has an annual production capacity of 18,000 tons and its initial monthly output is 1,500 tons.

This report provides a picture of the latest situation of the MSG industry and the problems it is currently faced with. It focuses its discussions on the following aspects: the supply (the profile of producers, production capacities and production rates); the developments in MSG exports and imports; and the marketing system. It sets aside a special section for the discussions of the problems related to the procurement of basic materials because this issue is being much-talked-about by MSG producers. In its final part, the report provides projections of national and per capita consumption for 1998-2002.

MSG producers: their population and capacities

According to a source with the Department of Industry and Trade, there are currently 13 MSG producers operating in Indonesia with a combined production capacity of 250,500 tons/annum. In terms of production capacities, the largest of them is PT Sasa Inti (44,000 tons/annum). PT Sasa Inti was founded under the domestic investment (PMDN) scheme by the Roda Mas Group in 1972. In 1987, the company changed its status into one operating under the foreign investment (PMA) scheme following the entry of AIF Invedstment Pte. Ltd. of Singapore as one of its shareholders. In addition to PT Sasa Inti, the Roda Mas Group operates two other MSG companies, PT Ajinex (18,000 tons/annum) and PT Sasa Fermentasi (3,600 tons/annum). Overall, the Roda Mas Group - which markets its MSG under brandname 'Sasa' - has an annual MSG production capacity of 65,600 tons.

The second largest MSG producer is Ajinomoto Indonesia (36,000 tons/annum). Operating under the PMA scheme, Ajinomoto Indonesia is jointly owned by Ajinomoto of Japan (53%), PT Esti Pura Kencana (37%), and PT Industri Soda Indonesia (10%). The company's plant is located in East Java town Mojokerto, and the product is marketed under brandname 'Ajinomoto.'

PT Miwon Indonesia, whose plant is located in East Java town Gresik, has an annual production capacity of 32,000 tons. Operating under the PMA scheme, the company is jointly owned by Seoul Miwon Co. Ltd. of South Korea (29%), Miwon Co. Ltd. of South Korea (20%), PT Jico Agung of Indonesia (31%), and Indonesian businessman Kayo Salim (20%). In addition to MSG, PT Miwon Indonesia also turns out glutamic acid (GA), gypsum, food seasonings, flavoured salt, chicken-broth seasonings, soybean sauce (ketchup), and chilly sauce for seafood.

Miwon Co. Ltd. also owns PT Indo Miwon Citra Inti, an MSG producer whose plant is located in Lampung and has an annual production capacity of 24,000 tons. The other shareholder in the company is PT Sembada Widyacita. PT Indo Miwon Citra Inti commenced its operations in August 1991. It markets its MSG products under brandname 'Indo Rasa.' According to some information, the company supplies 65 % of its output to export markets such as Hongkong, Singapore, Myanmar, and Vietnam.

PT Palur Raya, which was established under the PMDN scheme by H. Moenadi, Franciscus Soeharto, and Soetantyo in Surakarta (Central Java) in 1980, originally had the capacity to produce 1,800 tons of MSG and 4,200 tons of GA per annum. In 1993, the company expanded its MSG and GA production capacities to, respectively, 12,000 tons and 12,700 tons/annum with an investment of Rp 29.902 billion. According to some information, PT Palur Raya processes some 70 % of its GA output into MSG and markets its products under brand name 'Mobil.' It supplies the rest of its GA output to other MSG producers. In Central Java, 'Mobil' is a famous MSG brand in addition to 'Ajinomoto,' 'Miwon,' and 'Sasa.'

PT Foodstuffs Manufacturing Company Limited (Foomaco), which was established under the PMDN scheme by businessman Setiabudi Angka Wijaya in Semarang (Central Java), has a capacity to produce 5,400 tons of MSG per annum.

Not all the MSG companies produce MSG from molasses. Some of them, especially the small-scale ones, produce it from a half-finised product called GA (glutamic acid), which they purchase from other MSG companies. Some of them even only deal in the packaging of MSG, which they purchase in bulk from other MSG producers. Those which only deal in the packaging of MSG are mostly found in Central Java and they are known as repacking companies. They market their MSG products using local brandnames.

Ve Wong Budi Jaya commences operations

In 1997, PT Budi Acid Jaya (BAJ) - an affiliate of the Sungai Budi Group, which deals in the tapioca and citric acid industries - supported the group's vertical, integrated expansion program by establishing an MSG plant in Central Lampung. The plant, worth USS 20 million, has a capacity to produce 18,000 tons of MSG per annum and it markets its products under brandname 'A ONE.' The plant is managed by PT Ve Wong Budi Indonesia (VWBI), a company jointly owned by PT BAJ (51%) and Ve Wong Corporation of Taiwan (49%). It commenced its production in the second quarter of 1998 and initially turned out 1,500 tons per month.

VWBI produces MSG from a mixture of glucose and molasses. It uses glucose which it produces itself from tapioca. According to some information, VWBI receives a continued supply of tapioca for its glucose production from PT Budi Acid Jaya, which is one of Indonesia's leading tapioca producers. According to a source with VWBI, the company has received a guarantee from Ve Wong Corporation of Taiwan that the latter will import at least two-thirds of the former's MSG output for re-export proposes. VWBI will supply the rest of its output to the domestic market through the Sungai Budi Group's distribution network. In case it does not sell out on the domestic market, Ve Wong Corporation will purchase the remaining supply on an L/C payment basis. However, in view of the current economic situation, VWBI has decided that it will export 100% of its output.

East Java the largest MSG production centre

Indonesia's largest MSG production centre is East java, which is home to seven MSG producers. This is so because East Java has the most sugar producers. Central Java has four MSG producers, and Lampung one.

One large supplier of molasses to the MSG industry is PTPN, which is located in Java and produces 660,000 tons of molasses per annum. Another one is a private plantation estate in Lampung, which produces 250,000 tons of molassses per annum. Still another one is PT Rajawali Nusantara Indonesia (130,000 tons per annum). In addition to the domestic market, they also supply their molasses to the international market.

The first sugar companies to operate in Lampung are PT Gunung Madu Plantation and PT Gula Putih Mataram, both of which have a combined sugar cane plantation estate of 25,000 hectares. The two companies are partly owned by Bimantara Citra. The other sugar companies operating in Lampung are PT Pemuka Sakti Manis and PT Sweet Indo Lampung, The four sugar producers together have a combined capacity to produce 250,000 tons of molasses per annum.

Production up 9.5% annually

Apparently, MSG is increasingly popular among consumers both here and abroad. This is reflected by the fact the Indonesia's MSG production has continued to increase. It grew from 131,607 tons in 1993 to 199,381 tons in 1997. In 1998, it is expected to increase by 3.2%. Over the period of 1993-1997, Indonesia's MSG output grew the most rapidly in 1996, i.e. by 16.2% to 173,375 tons from 149,250 tons in 1995. Over the same period, it rose by an average 9.8% annually.

Difficulties in procuring molasses

As has been mentioned earlier, molasses is a basic material for MSG and it is produced as a side-product by the sugar industry. Molasses is first processed into glutamic acid (GA) through fermentation. To produce one ton of MSG, four tons of molasses is required. In 1998, with the production of MSG projected at 205,709 tons, the domestic demand for molasses can reach an estimated 822,836 tons. In addition to the MSG industry, molasses is also consumed by other industries such as ethanol, ketchup, pellet, yeast, and others.

In Indonesia, molasses is produced by state-owned sugar companies PT Perkebunan Nusantara (PTPN) IX, X, and XI (in Java) and PTPN II, VII, XIII, and XIV (outside of Java) as well as by PT Rajawali Nusantara Indonesia (RNI) and private sugar companies PT Gunung Madu Plantation, PT Gula Putih Mataram, and PT Sweet Indo Lampung. They all have a combined molasses production capacity of 1.3 million tons.

For 1998, Indonesia's molasses production is projected at 1,040,000 tons. According to a source with the Department of Industry and Trade, it can be broken down as follows: 510,000 tons from PTPNs in Java, 150,000 tons from PT RNI, and 250,000 tons from private sugar companies (PT Gunung Madu Plantation, PT Gula Putih Mataram, and PT Sweet Indo Lampung).

Although the domestic production of molasses has been high, the MSG industry nowadays has had difficulties procuring it over the recent years. In 1995, for example, it required 1,377,060 tons while the domestic supply was only 597,953 tons. In 1997, it required 1,375,832 tons and the domestic supply was only 526,066 tons.

According to a source with the MSG and GA Producers' Association (P2MI), the MSG industry requires 810,000 tons of molasses for 1998. As per June 1998, however, only 155,000 tons or 19.1% of the total demand had been fulfilled by domestic sources. Due to this shortage, a number of MSG producers have had to import raw sugar to substitute for molasses.

Normally, the MSG industry receives a molasses supply from the Joint Marketing Agency (KPB), which obtains it from state-owned sugar companies. The molasses supply which KPB receives from state-owned sugar companies varies from 600,000 tons to 700,000 tons/annum, depending on the climatic condition during the planting season. Meanwhile, private sugar companies supply the molasses they produce to their business groups for the latter's MSG production as well as export it.

Not all of the state-owned sugar companies' molasses output is allocated for the domestic market. Up to now, they have been supplying only 80 % to the MSG industry and exporting the other 20%. Generally, the molasses which they export has low quality because it has a high content of ash (12%). With the value of the dollar appreciating against the rupiah, sugar producers are increasingly tempted to export their molasses output. For 1998, KPB has planned to export around 14% or 70,000 tons of its molasses supply. However, seen from the fact that the MSG industry has received only 20% of its molasses demand from KPB, the agency is believed to have exported more than the planned levels.

In view of the problem above, P2MI has recently requested that the Minister of Industry and Trade give MSG-supply priorities to the MSG industry.

Up to now, the MSG industry has been purchasing molasses from local sources at prices applicable to the international market and has been willing to purchasing it using the terms and conditions applicable to overseas buyers. This means that local molasses producers should not have exported their output because the MSG industry would have been able to absorb all of it, given the latter's high demand for the material.

Sasa and Cheil Samsung the largest consumers of molasses

One major problem faced by MSG producers is the procurement of molasses because most of them are not affiliated to sugar producers. For MSG producers that are affilated to sugar producers, the procurement of molasses is not a problem at all. One of them is PT Indo Miwon Citra Inti, whose MSG plant is located in Lampung, is affiliated to two sugar producers, namely PT Gunung Madu Plantation and PT Gula Putih Mataram. These two sugar companies together have 25,000 hectares of sugar cane plantations, and they turn out up to 123,000 tons of molasses per year.

As a matter of fact, all the domestic production of molasses can be absorbed by the MSG industry and, hence, molasses exports are not necessary. Although the sugar industry's molasses production capacity (1.3 million tons/annum) is higher than the production capacity of the MSG industry, the actual output of molasses is much less than that due to the climatic condition during the sugar cane planting season. Every year, all state-owned sugar companies can produce only between 600,000 and 700,000 tons of molasses.

For 1998, the MSG industry's molasses demand is projected at 810,000 tons while KPB can supply only 155,000 tons. This means that some 655,000 tons has to be procured from other sources. Among MSG producers, the largest consumers of molasses are PT Sasa Inti and PT Cheil Samsung. These two companies together require 180,000 tons annually while only 30,000 tons is allocated for them. The lease consumers are PT Palur Raya and PT Ajinex International, which together require 140,000 tons annually and receive a KPB allocation of only 29,000 tons.

Molasses exports

Indonesia has continued to export molasses to keep up its share of the international market and to maintain good relationship with overseas buyers. Besides, exporting molasses is a way of knowing the current development in the price of the commodity on the international market, which is used to set the domestic price. However, since the value of the US dollar is currently very high, Indonesian molasses producers are increasingly interested in exporting their output in order to obtain higher profit.

According to data from the Central Bureau of Statistics (BPS), Indonesia exported 778,965 tons of molasses worth USS 33.2 million in 1993. In the following years, with domestic demand growing, the volume of such exports declined. In 1996, it dropped by 57.6% to only 185,179 tons (worth USS 17.7 million). In 1997, however, due to the national economic crisis, Indonesia's molasses exports rose to 331,263 tons (worth US$S 19.9 million).

MSG business still profitable

Despite the problem with the procurement of the basic material, the MSG business is highly profitable. This can be seen from how the prices of molasses, MSG, and ethanol compare with one another on the international market. As an illustration, the price of molasses on the export market is currently around USS 59/ton and that of MSG US$ 1,110/ton. To produce one ton of MSG, four tons of molasses is required. If four tons of molasses is exported, this will only generate USS 236. Thus, the value added that can be obtained from processing four tons of molasses into MSG is USS 864.

Meanwhile, to produce 250 liters of ethanol/alcohol, one ton of molasses is required. The price of alcohol on the international market is currently USS 0.40/liter. Exporting 250 liters of ethanol/alcohol generates US$ 100 in foreign exchange. Thus, the difference between the export price of 250 liters of alcohol and that of one ton of molasses is US$ 41. Seen from the calculations above, it is more profitable to process molasses into MSG and alcohol than to export it.

Given the difference between the price of MSG and that of molasses, it is not a problem at all for MSG producers to purchase molasses from local sources at prices applicable to the export market. In reality, however, molasses producers have more confidence in the export market.

Distribution and marketing system

In Indonesia, MSG is distributed and marketed using two different systems, indirect and direct. In the former, MSG producers leave the marketing of their products to sole distributors and concentrate only on production. In the latter, MSG producers also handle the marketing of their products.

Miwon Indonesia, for example, has the marketing of its products handled by its sole distributor, PT Jico Agung, which is also a shareholder in the company. According to some information, PT Jico Agung uses subdistributors to handle the distribution of Miwon Indonesia's products to retailers/dealers. The main marketing areas for 'Miwon' are West Java and Jakarta.

Meanwhile, PT Ajinomoto and PT Indo Miwon Citra Inti now handles the marketing of their products. In the past, PT Ajinomoto used a sole distributor called PT Janur Gading, and PT Indo Miwon Citra distributed its products through PT Indomarco of the Indofood Group.

Sasa, Ajinomoto, Miwon, and Indo Rasa concentrates the marketing of their products on the household sector. On the other hand, PT Cheil Samsung - which markets its products under brandname 'Mi Pung' - gives priorities to the industrial sector, including repacking companies. In addition, PT Cheil Samsung also exports its products using brandname 'MI Poong.'

The packaging of MSG supplied to the domestic market varies in size according to the market segment. For the industrial sector, including repacking companies, MSG is usually available in packs of 25 kilograms. For restaurants and 'mie bakso' (noodles with meatballs) sellers, it is available in packs of 0.25 kilogram. The smallest packs are made available for households, especially those in rural areas.

Competition on the international market tough

According to a number of sources, the competition among MSG producers on the international market is quite tough because Japan, Taiwan, and South Korea are well-known for their high-quality MSG products. Fortunately, Indonesian MSG producers adopt the technology used by their principals. So, they do not come across significant obstacles in marketing their products on the international market. Some of them have even managed to become major MSG exporters.

However, due to the economic crisis which persists in several countries, the volume of Indonesian MSG exports has seen some decline. In 1993, it reached as high as 71,562 tons (worth US$ 82.5 million). In 1997, it dropped by 6.1% to 55,688 tons (worth USS 73.6 million) from 59,329 tons in 1996.

The worsening economic condition in Indonesia seems to have forced several producers to increase theft exports, more so because the overseas buyers pay them in the US dollar currency. According to a source with P2MI, the association has planned to export 106,750 tons of MSG for 1998.

Myanmar and Japan the largest importers

Indonesia exports MSG to a number of countries, of which Myanmar and Japan have been the largest importers. In 1997, for example, these two countries together imported 22,950 tons (worth US$ 33.2 million) from Indonesia, which accounted for 41.2% of the latter's total MSG exports for the same year.

The other large importers of Indonesian MSG are Hong Kong and Singapore. In the same year, Hong Kong and Singapore imported respectively 8,873 tons and 7,429 tons (worth a total of USS 19.5 million) from Indonesia. The shares of the other importers in the total volume of Indonesia's MSG exports in 1997 were relatively small, i.e. below 5 tons each.

MSG import small but on the rise

The volume of Indonesian MSG imports has been very small compared to that of exports. However, it has continued to increase. In 1993, it reached only 24 tons. In 1997, it rose to 712 tons. Similarly, the value of such imports increased from US$ 29 thousand to US$ 816 thousand over the same period.

Domestic consumption up 25.2% annually

Originally, MSG was consumed by the Chinese community in Indonesia. Early in the 1970's, however, MSG started to be consumed by a growing range of users. In 1982, MSG consumers were alerted by the news that MSG was not safe for human health. The news shook the MSG industry and drove its output down.

The pros and cons concerning the use of MSG in many parts of the world, including Indonesia, recently abated following the issuance of statements by international institutions, including the WHO, that MSG was safe for human health. According to an international institution staffed by toxicologists and chemists from JECFA, human-beings can consume MSG in unlimited quantities. The Foundation of Indonesian Consumers Institutes (YLKI) spoke out against the consumption of MSG by human-beings until 1989. Over the last few years, however, the foundation's warning against the use of MSG has not been heard anymore. The use of MSG as a food seasoning has even been increasingly popular in Indonesia.

In Data Consult's calculations, Indonesia's MSG consumption rose from 60,069 tons in 1993 to 144,405 tons in 1997 or by an average 25.2% annually over the same period.

The high growth in the domestic consumption of MSG is largely attributable to the growth of the instant-noodles industry, which uses it as a supplementary ingredient.

Per capita consumption still up in 1997

The per capita MSG consumption in Indonesia has continued to increase. In 1993, with population totaling 189.1 million, the per capita consumption of MSG was 0.31 kg. In 1997, rose to 0.72 kg. Over the last five years (1993-1997), the per capita consumption of MSG Indonesia grew by an average 24.1% annually.

Projections of consumption

Amidst the economic crisis, the domestic demand for MSG is expected to decline in the years to come due to the people's weakened purchasing power and to the shrinking output of processed-food industries which consume MSG.

Over the past five years (1993-1997), the growth in domestic MSG consumption averaged 25.2% annually. For the next five years (1998-2003), however, it is expected to slow down. Furthermore, with the difficulties in the procurement of molasses and with the high export interest among MSG producers due to good prices on the international market, the domestic supply of MSG is likely to decline. On the other hand, the price of MSG on the domestic market is now much higher than it was in the past, and this reduces its affordability to the people.

For 1998, domestic MSG consumption is likely to drop by 10% to 129,964 tons. In the following years, as national economy improves, it is expected to increase on a gradual basis and reach 181,256 tons in 2002.


As a product of a resource-based industry or a downstream product fo the sugar industry, MSG has a good opportunity to become a leading export commodity, more so because the US dollar currency has continued to appreciate against the rupiah. However, this opportunity is not easy to take advantage of becasue of problems related to the procurement of the basic material, i.e. molasses. Sugar companies, which produce molasses as a side-product, prefer exporting it to supplying it to domestic MSG producers because they also want to receive income in the US dollar currency.

It is difficult for the MSG industry to continue growing if it relies heavily on the domestic market because, due to the economic crisis, domestic demand has been declining with the people's purchasing power.

In fact, seen from the viewpoint of value added, exporting MSG is much more profitable than exporting molasses. Unfortunately, the opportunity to export MSG is obstructed by the unwillingness on the part of molasses producers to supply its output to MSG producers. One possible reason for molasses products to refrain from selling their output to domestic MSG producers is related to payments: the former have more confidence in overseas buyers than in local ones. What is clear is that the Government has not been able to help remove this obstacle.

As a result, some sort of anomaly has emerged. On one hand, the volume of Indonesian molasses exports has been increasing. On the other hand, Indonesian MSG producers have had to continue importing raw sugar for use as a substitute for molasses. This condition is not good for anybody. Amidst the disheartening economic woes which currently affect Indonesia, the economic potentials which the MSG industry has should be made the best use of by securing an adequate supply of molasses. However, this does not mean that molasses producers should be sacrified. Rather, both parties need to develop mutually beneficial cooperation.
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Jul 27, 1998

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