Report Highlights:

Broiler numbers in 2007 are forecast to grow 5 percent above the 2006 population level and are expected to produce 721,000 metric tons of broiler meat. Although consumer confidence has returned to normal, Avian Influenza (AI) is still hindering poultry sector growth.

Executive Summary

Indonesian broiler meat consumption is only around 3.1 kg per capita per year and still well below many of Indonesia’s neighbors. Despite the dependency on the imported raw material for feed industry such as corn, and soybean meal as well as breeding stock, the poultry industry has significant potential for further growth.

AI control is still uncertain. Lack of focus and coordination among government parties, inadequate funding, lack of trained avian disease specialists, poor laboratory support and question of vaccines availability and efficacy are major problems. In addition, lack of public awareness inhibits the progress of AI control. Beside the endemic AI problem, continued slow growth in consumer purchasing power, deficiencies in cold storage, distribution, and processing must still be overcome for the sector to achieve a path of continued steady growth.

Production

Overall broiler population in 2006 is estimated to be stagnant and will be the same as 2005 at around 840 million head, but broiler meat production will be higher due to a change of consumer preference to a bird with average live weight of 1.4 kg. For 2007, with expectations that the AI problem does not deteriorate further, feed input prices remain stable, and there is no additional government regulation that burdens real sector growth, the broiler population is forecast to increase 5 percent or 721,000 metric tons of broiler meat (broilers account for around 67 percent of total poultry population). An estimated 73 percent of the broiler population is in Java, 15 percent in Sumatra, 7 percent in Kalimantan and the rest is in other islands.

The Government campaign through media and other events to encourage safe preparation and consumption of chicken and egg products may have helped to avoid a further decline in poultry consumption since the first human death announcement related to AI in July 2005. Nevertheless, misleading coverage in the local press occasionally appears responsible for periodic declines in consumer confidence and temporary shocks to demand.

The upstream poultry industry, especially broilers and layers, has developed since end of 1970’s, but down stream industry has not developed yet. Around eighty percent of the poultry population, live or carcass, are sold in traditional wet markets as most Indonesian consumers still prefer freshly slaughtered chicken to frozen. Another twenty percent is produced by integrated slaughter houses (19 total in country) and supply products to the food manufacturers and food service industries (includes supermarkets). However, the hygiene, safety and the halalness of the poultry products produced by “traditional” slaughter in “unlicensed or inspected backyard” operations is difficult to monitor.

Day-Old-Chicks (DOC) for broiler production in 2006 are forecast at approximately 17 million head/week or about 880 million per year and is expected to reach around 925 million in 2007 (18 million/week), below capacity of about 26 million weekly. Four fully integrated, five semiintegrated and sixty-four non-integrated breeder farms account for the chick production in the country. The sector still relies on importation of breeding stock for boilers and layers from other countries (US, Holland, and Germany). Arbor Acres, Lohman IR, Cobb (majority in 2006), Hubbard, Avian, Ross, and Hybro are the main breeds used for broilers; Lohmann, Hyline, Isa Brown and Hisex predominate for layers.

Feed production for the poultry industry in 2006 is forecast at 6.1 million tons or around 55 percent of the 11 million ton feed mill capacity from 26 companies (19 of them are the main players). Feed accounts for sixty to sixty-five percent of poultry production costs, and a high percentage of feed ingredients are imp orted, including corn, soybean meal and other protein sources.

With relatively low per capita broiler consumption and an increasing population, potential for further growth exists. However, the endemic AI problem, continued purchasing power issues, deficiencies in cold storage, distribution, and processing are constraints to realizing increased growth in the intermediate term.

AI Situation

AI is now endemic in Indonesia. Since first hitting the country in late 2003, cases have been reported in twenty-nine of Indonesia’s thirty-three provinces. Cases are reported in virtually all components of the industry, from integrated firms to backyard native chickens, ducks, quail, layers. The AI problem is very complicated and it has been very difficult to handle properly amid the complex environment. The challenges hindering effective control of the disease include: lack of consistent reporting, lax implementation of animal movement controls and other bio security measures, unregulated live bird markets (included pet bird), inadequate resources to conduct mass culling and purchase vaccines, and the prevalence of backyard chickens among other avian species. These conditions are likely to continue unabated through 2007, limiting potential for faster growth in output.

Believing that a complete “stamping out” (i.e., culling) policy would not be economically viable, the Ministry of Agriculture has opted for culling only infected poultry, with mass vaccination and bio-security as the main front-line control measures. Reportedly this policy has been effective for larger companies with the capacity to purchase vaccines (especially for layer and breeding farms and 30 percent of the broiler farms) and the sophistication to implement strict bio-security measures, but these measures have not been fully implemented among smaller producers, and remain quite inconsistent and very difficult to implement at the village level among backyard poultry. Recently (June 7, 2006), GOI only approved LPAI virus (low pathogenic AI) as a vaccine strain. Although the first AI outbreak was in August 2003, new manuals containing standard procedures on surveillance, vaccination, culls and restocking for the poultry industry were only published in June 2006.

Backyard poultry is an income generating activity for people in urban and rural areas. Successful culling of infected poultry within a one-kilometer radius of identified infected poultry is very much dependent on the compensation offered by the government. To date, compensation, when offered, has been viewed as inadequate. Consequently, people hesitate to report poultry disease outbreaks promptly.

Indonesia is currently the country with the highest number of human deaths from AI. Although human fatalities related to AI have reached 47 as of 23 August 23 2006, the awareness and knowledge of the people remains very low. Much of the population considers dengue and typhoid fevers to be the more serious threats to human health.

Consumption

Following fluctuating demand associated with the report of human AI deaths since July 2005, broiler meat consumption is forecast to increase 5 percent in 2007. Consumer confidence in chicken has come back, but weakened buying power since the increase of fuel prices in October 2005 have hampered the growth of the poultry industry. Nevertheless, anecdotal evidence indicates that there has been an increase in the number of domestic restaurants and warungs (small informal restaurants) that serve fried or barbequed chicken in certain urban areas.

For 2006, broiler meat consumption is estimated at 688,000 tons, or 3.1 kg/capita/year (projected 222 million population at 2006), which is still well below many of Indonesia’s neighbors. Lately, consumers appear to prefer birds in two live weight classes: under 1.2 kg and more than 1.6 kg (average 1.4 kg).

Development in the broiler industry has been greatly influenced, not only by the growth of the population and production, but also by the role of the downstream industry, which makes broiler products more affordable for consumers (such as nuggets, sausages, etc). These kinds of product are produced not only by integrated companies but also medium-sized firms in bulk for retail sale in supermarkets.

Trade

The ban on imported chicken parts implemented in September 2000 continues. As a result, poultry meat imports from the U.S. have dropped sharply. During 2005, imported poultry products (HS 020711000/ fowls of the species Gallus domesticus- not cut in pieces, fresh or chilled and 020712000/ fowls of the species Gallus domesticus-not cut in pieces, frozen ) are reported to be valued at US $1.3 million with 79 percent of this originating from Singapore. Poultry products under HS code 020713000/ fowls of the species Gallus domesticus-cuts and offal, fresh or chilled and 020714000/ fowls of the species Gallus domesticus- cuts and offal, frozen, valued at US$ 2.2 million were imported in 2005, 98 percent originating from Singapore (BPS Indonesian Statistics Bureau). Turkey and ducks are the potential imported poultry from US as well as processed poultry-based products. Very small amounts of poultry product exports to Japan declined to zero because of a Japanese ban due to AI.

Policy

Despite efforts by the U.S. Embassy in Jakarta to seek a resolution to the GOI (Government of Indonesia) ban on U.S. chicken leg quarters, the ban on poultry part imports (implemented in September 2000) remains in effect. While concern over "Halal" certification as well as the “overall review” were used as justification for the barrier, the GOI has openly stated that the ban is a means to protect domestic producers. GOI policy to control AI includes the provision of compensation depopulation in the amount of Rp. 10,000 per bird and depopulation supposedly is to be implemented at one-kilometer radius plus vaccination of poultry within a radius of 3 kilometers from locations where infected poultry is found.

Investment

Although Indonesia is still faced with the AI problem, a few integrators/ poultry businesses have expanded their feed meal production and breeding farm investment in anticipation of future growth in poultry consumption. Local analysts estimate that the Indonesian feed milling capacity is in the range of 11-12 million ton, with capacity utilization at about 60 percent annually.

List of Articles in this series

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August 2006