Boston, MA -- (SBWIRE) -- 05/19/2012 -- BMI View: Overall, we hold an optimistic outlook towards the country's agriculture sector. However, we highlight 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. In a bid to achieve the government's agriculture production targets, the ministry plans to allocate INR17.81trn (US$1.96bn) to support its self-sustainability and expansion programmes, slightly more than the amount spent in 2011, about INR17.6trn.

Key Views

- Cocoa production growth to 2015/16: 64.8% to 698,000 tonnes. BMI believes that private investment in the grinding sector will be the major growth driver of the industry, even in the midst of choppy production. However, in order to fully capitalise on the country's expanding grinding capacity, the government will also have to simultaneously grow and develop production facilities so as to avoid an undesirable situation of grinding sector undercapacity.
- Sugar production growth to 2015/16: 75.0% to 3.7mn 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 - as sugar consumption, led by growing demand for sugar beverages and foods, outstrips what the country can meet through supply.
- Poultry production growth to 2015/16: 46.6% to 1.4mn tonnes. Demand levels should increase due to population growth, since per capita consumption is expected to fall.
- 2012f Real GDP Growth: 5.8% (down from 5.9% in 2011; predicted to average 6.2% from now until 2016).
- 2012f Consumer Price Index ave: 6.0% y-o-y in 2012 (up from 5.4% in 2011e) 2012f Central Bank Policy Rate: 6.75% in 2012 (same as 2011)

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Key Industry Developments

We believe that Indonesia remains on track for rice self-sufficiency by 2013/14. Indeed, we forecast that rice production will exceed consumption for the first time by then, enabling the South East Asian country to reduce reliance on imports of the grain. Indonesia is typically a top importer of rice, accounting for an average of about 5% of global imports in the past five years.

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