Boston, MA -- (SBWIRE) -- 01/01/2013 -- BMI View: Overall, we hold an optimistic outlook towards the country's agriculture sector and see significant growth opportunities in sub-sectors such as livestock, palm oil and cocoa. However, while we believe that the government's goal of self-sufficiency in rice by 2015 is attainable, we are less confident about other commodities such as sugar and corn. We also highlight that the country's aim to become the second largest coffee producer in the world by 2015 is unrealistic. Much of our scepticism is owing to the lack of proper infrastructure and the existence of a large number of low-technology, small-scale farmers.

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We believe that the shift from raw commodity exports to refined exports (especially for palm oil and cocoa) will warrant more public and private investment in order for the raw inputs industry to keep pace with downstream industries.

Key Forecasts

- Sugar production growth to 2016/17: 61.2% to 3.0mn tonnes. This expansion will be mainly due to improved yields and higher sucrose content in cane. Despite the production improvement, we believe the country will likely remain, along with India and the EU, one of the world's largest sugar importers.
- Coffee consumption growth to 2017: 33.7% to 3.1mn tonnes. Expansion will come from rising incomes and greater urbanisation. Consumption of cheaper instant coffee is also likely to increase at the expense of tea, as trends set by the upper and middle classes filter down to all levels of society.
- Palm oil production growth to 2016/17: 24.2% to 31.6mn tonnes. The key drivers of this growth are physical expansion of plantation area and increased investment into downstream activities such as biodiesel and oleochemical production.
- BMI universe agribusiness market value: US$62.7bn in 2013; growth to average 5.3% annually between 2011/12 and 2016/17.
- 2013 real GDP growth: 5.6% (down from 6.0% in 2012; forecast to grow annually by 6.3% on average to 2017).
- 2013 consumer price index: 5.3% year-on-year (y-o-y) average (down from 4.8% in 2012; forecast to grow annually by 5.0% on average to 2017)
- 2013 central bank policy rate: 5.80% (same as in 2012)

Key Industry Developments

Indonesia could see its palm oil refining capacity nearly double in the coming years, as various companies reported their intention to invest more than US$2.5bn in the downstream sector. This is a response to the new palm oil tax regime in the country, which from October 2011 reduced export taxes on palm oil processed products from 25% to 13%, while only decreasing taxes on crude palm oil from 25% to 20%.

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