Indonesia’s Economic Recovery: A Boon for U.S. Fruit

The word "crisis" in Chinese consists of two characters placed together. The first character means "danger," while the second character means "opportunity."

This dual definition of "crisis" applies to Indonesia’s last two years. The country experienced severe hardship, both economically and politically, but now appears to be in a period of recovery. Thus, there are many new opportunities, especially for U.S. fruit exporters.

Coming Back From a Fall

In 1996, total U.S. exports to Indonesia increased to over $3.4 billion, including nearly $1.0 billion in agricultural and forestry products.

In 1998, when Asia’s economic problems shrank Indonesia’s Gross Domestic Product by over 13 percent, U.S. agricultural and forestry exports slumped to $489 million.

Indonesia’s hardship was made worse by El Niño droughts and ongoing political uncertainties.

In the face of this strife, Indonesian officials continued to work closely with international financial institutions. Their efforts led to dramatic improvement; the country’s currency, the rupiah, has since rebounded sharply. A relatively peaceful democratic election further boosted financial recovery.

Last year, total U.S. agricultural exports to Indonesia reached $550 million. There was a dramatic turnaround in consumer-oriented food products, which reached $60 million, or more than a 100- percent year-on-year increase.

By 2002, experts predict, U.S. agricultural exports will again approach $1 billion with exports of consumer-oriented products nearing $120 million, assuming a corresponding growth in trade throughout a 3-to-5 year period.

The Benefits for U.S. Fruits

Back before the crisis, in 1997, Indonesia was the seventh largest export market in the world for U.S. fresh fruit. Now, U.S. fresh fruit exports stand to gain the most from the recovery, since they accounted for between 40 and 50 percent of U.S. exports of high-value agricultural products before the crisis.

Indications are that sales will rebound now that the Indonesia’s economy is on the mend. Thus, U.S. fresh fruit exports should once again exceed $50 million in 2002.

With an aggressive marketing campaign–including product branding–plus technical or financial support aimed at modernizing Indonesia’s cold chain infrastructure, it is feasible that Indonesia could develop into a $100 million market for U.S. fresh fruit during the next decade.

Indonesian Consumers: A Profile

Let’s meet a typical Indonesian consumer. Dewi Saraswati strolls the supermarket isles with her daughter in tow. Like 60 percent of the nation’s population, she lives on the island of Java, and like more than half of Indonesia’s citizens, she is under 25. Her family of four is about the national average.

How will she make her fruit purchases? Her two-year-old daughter wields a powerful influence. Hip to kiddy power, U.S. fruit exporters might try for packaging their product in plastic containers that can have an afterlife as toys. Other agricultural commodities have made sales with this kind of marketing ploy.

But Saraswati will also be looking for bargains and she will not waste money or food. Many people still have reduced purchasing power during this time of recovery, and the island of Java, a center of industry, was hardest hit.

That means Saraswati will look for small- or medium-sized fruit that is reasonably priced. A good rule of thumb for retailers: 1 kilo of fruit should consist of six to seven pieces.

As a supermarket patron, Saraswati is an exception to the Indonesian shopping norm. Her sister in Bali shops at an open market called a warung, the most common retail outlet outside of major cities.

Estimates show that 20 percent of retail food sales in Indonesia’s capital, Jakarta, are at supermarkets or other modern retail outlets. But nationwide, those stores ring up only 5 percent of such sales. Of the 2 million food retail outlets in Indonesia, almost three-fourths of them are warungs.

Still, this doesn’t mean that Saraswati’s sister is not a potential U.S. customer. Fresh fruit is sold throughout the retail sector, and imported fruit, especially apples, is sold right alongside domestic tropical fruits.

Who Are Indonesia’s Importers?

In all of Indonesia, there are less than 35 registered fruit importers. Many of these also act as wholesalers and distributors in cities and provinces outside of Jakarta.

Imported fruit, especially apples, can be found throughout the far-flung island chain, and even in remote areas.

The dramatic increase in the volume of imported fruit this past decade has created a new marketing venue: street markets that specialize in fresh fruit.

In Jakarta alone, there are at least seven major markets that sell only fruit–both domestic and imported, as well as fruit boutiques that have been established in major cities over the past five years. In Jakarta at least 36 stores of this type serve as high-end outlets for imported fruits, juices and premium snacks like dried fruit, ice cream and cake.

What’s in a Name?

As a rule, Indonesian consumers show loyalty to brands. "Sunkist" brand oranges became so popular the trademark name is now a generic shorthand for all imported oranges.

Competitor products with a strong brand loyalty include Zestpri for New Zealand Kiwifruit. New Zealand and France have devised umbrella brands for their apples, New Zealand Apples and France Apples, respectively. Other brands such as Outspan from South Africa have also enjoyed significant growth in recent years.

Australia and Canada have less recognized identities in the Indonesian market. Consumers have difficulty recognizing Tasmanian Apples as originating from Australia. The same goes for Canadian apples, which are mostly branded as BC Apples.

The lack of recognizable branding on some U.S. fruit is thought to be a major constraint for sales and market share.

Some labels may be culturally insensitive towards Asian consumers in general, while others confuse because of an unclear address.

Given Indonesian consumers’ overall impression of U.S. products as being of high quality and value, clearly mentioning the phrase "grown in USA" or "produced in USA" helps boost sales of U.S. fresh fruit.

Problems With Infrastructure

Exporters will find that Indonesia retailers vary in capacity and handling capability. Some stores are very advanced in their ways of keeping fruit fresh, while others still need help with cold chain storage.

Most importers have maintained their own refrigerated warehousing facility, but that doesn’t mean they adhere to industry practices considered best in the United States.

Problems include failure to maintain proper temperatures, lack of humidity control, absence of ethylene oxidizers to prevent premature ripening and a lack of understanding of storage guidelines.

Fruit handling still relies heavily on manual labor. Forklifts are rarely used and only a small number of importers use pallets. Trucking is the preferred means of transportation to most cities on the major islands, but refrigerated trucks are in short supply.

Cold Storage for Remote Regions

Inter-island transport to eastern Indonesia is by ship, and on-board cold storage facilities are rare as is cold storage at destination ports.

Apples, pears and citrus are the main fruit transported outside of Jakarta and Surabaya, thanks to their shipping durability. An unreliable cold chain infrastructure is a major constraint to expanded trade in fruits. It almost totally prohibits trade outside of Jakarta and Surabaya in more fragile fruit such as grapes, stone fruits, cherries and strawberries.

Competition in Indonesia

While Indonesian consumers like U.S. fruit, especially Washington apples, this is no market for complacency.

Competitors closely monitor the market. Some have started an aggressive marketing campaign, including television advertisements and merchandising programs.

Others can ask cheaper prices. China, formerly notable in the Indonesian market for low-quality fruit, has greatly improved the quality of its fruit. It has also enhanced its packaging over the past three years.

Brazil and Argentina have gained by establishing a strong network with importers in Hong Kong and Singapore. Chile has renewed its focus on the Indonesian market, while regional competitors such as Thailand and Australia have expanded exports of tropical fruit such as longan, durian, and mango.

Opportunities for U.S. Exporters

Of the 35 kilograms of fruit consumed per capita, Indonesia produces only 27.6 kilograms annually.

U.S. fruit has a seasonal advantage over competing nations in the southern hemisphere. Fruit popular with Indonesian consumers such as apples, grapes and oranges reach their market peak from October to March, which coincides with major Indonesian holidays.

These holidays spur consumer spending. Indonesia is steeped in rich Islamic and Asian traditions with many celebrations. During Ramadan, an Islamic month-long season of fasting, food is consumed after sundown. Food consumption goes up during Ramadan as families enjoy special meals in the late evening. Lebaran or Idul Fitri, a Muslim celebration of the end of the fast, is also an opportunity.

Chinese New Year and Christmas should not be forgotten, either.

Other Indonesian advantages? How do lower tariffs sound? As part of Indonesia’s economic aid agreements with the International Monetary Fund, no tariff can exceed 5 percent.

Also, Indonesia’s fruit importers are loyal to U.S. exporters. Throughout the 19998, the year of the crisis, almost every major fruit exporter and trade association in the United States maintained its strong promotions and marketing programs. By sticking with Indonesia when times were hard and prices low, these exporters have earned themselves a lasting customer base.

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This story is from a report by FAS’ Agricultural Trade Office in Jakarta, Indonesia. Tel.: (011-62-21) 526-2850 ext. 4001; Fax.: (011-62-21) 571-1251 E-mail: vorbil@fas.usda.gov

Last modified: Thursday, October 14, 2004 PM