Indonesia Soybean Industry A Guide for Foreign Investors

Indonesia Soybean Industry: A Guide for Foreign Investors

  • InCorp Editorial Team
  • 16 May 2023
  • 4 minute reading time

Soybean Consumption in Indonesia

In 2020, Indonesia’s Ministry of Agriculture prepared around 12 kilograms of soybean consumption per capita. This was a 19% increase from the previous year at about 10.5 kilograms.

The increase in soybean consumption can be attributed to the pandemic and its effect on the lower class earners turning to processed soybean-based products for daily food consumption like tofu and tempeh compared to more expensive meat products for food. Another factor is the vegan lifestyle that the upper class has adopted as a part of the healthy living journey due to the unanticipated pandemic and its repercussions.

Seeing this increasing demand for the production and consumption of soybeans, the Ministry of Agriculture has mentioned that soybean availability has decreased and will continue to do so in the upcoming years. This decreasing domestic soybean availability is mainly due to the fact that farmers are running out of fresh land to keep up with increasing demands.

Indonesia’s Reliance on Imported Soybeans

Due to the government’s inefficiency in controlling the price of soybeans, Indonesia has been extremely reliant on the international market for the demand of 3 million tons a year, around 80% of the total needs. With no proper implementation to increase soybean production, the country is vulnerable to price fluctuations.

With constant plans to enhance Indonesia’s soybean production by adding the number of plantations, optimizing new technology, using better productivity seeds, and requesting the use of unused land for production, Indonesia still has not managed to keep up with the high demand for this affordable commodity.

Significant problem farmers face in this soybean debacle is the small profit margin they receive due to the yield of local crops being only half of the other major producing countries. This should be enough reason for the government to design policies to improve domestic soybean production.

Prices can also be controlled more effectively with periodic reviews to ensure better compensation for the farmers. Another way could be the government offering training and subsidies to farmers that could help improve their yields. In the long run, businesses would come in with mechanized processes, which will help in the development of this much-needed commodity.

Improving Soybean Self-Sufficiency in Indonesia

Arguably the country’s favorite food staple, tempeh and tofu, saw a price spike in 2021. The reason for this was none other than the hike in imported soy from Rp 7.000 to Rp 9.000, which is almost a 30% increase. This caused producers to carry out significant strikes.

With tempeh and tofu being a staple in most of Indonesia’s middle to lower-class households, the reliance on imported soybean triggered the Indonesian government to develop policies to meet domestic demand through local suppliers.

A way that Indonesia can address this issue is by increasing self-reliance in the Indonesian soybean industry. National production capacity must be prioritized so as not to depend solely on imports. Prioritizing the production capacity of the soybean industry in Indonesia might help minimize the risk of increasing prices. Keeping up with increasing demands every year is enough evidence to why being self-reliant is a necessary measure to take.

There are factors to consider in developing the soybean industry in Indonesia, such as improving the selling prices, seeing that growing soybeans is a much less competitive commodity when compared to other staple food items like rice. Creating market stability and market certainty for farmers to grow soybeans is a problem that the Indonesian government needs to address sooner rather than later.

Adopting Technology to Boost Soybean Production

The decrease in soybean farmland from 1.3 million hectares in 1990 to 621,000 hectares in 2005 shows the farmers’ reluctance in cultivating soybeans. This results from low market prices that are below production costs and a lack of soybean price guarantee.

The low productivity of the soybean industry in Indonesia is due to the absence of technology being introduced to production processes in other commodities and a bad post-harvest management system.

With the adoption of the Smart Soybean Enterprise, which is an agribusiness system that seeks to help optimize productivity, things are looking positive for the future of Indonesia’s soybean industry. This system maximizes the cultivation of SOPs, usage of seeds, contract farming, and post-harvest handling, which meets the industry standards to qualify for food product processing.

Having partnered with over 2,200 farmers, utilized 294 hectares of land, and absorbed 8,820 workers, there is still a long way to go for the Smart Soybean Enterprise. Albeit a positive gesture, it is still a challenging endeavor for the country, and Indonesia will still be relying on international importers to provide the ever-increasing demand for soy.

This poses a clear opportunity for international players to start investing in Indonesia by setting up a company and reaping the benefits from this issue, especially since the imports are at 80% of the total demand.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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Frequent Asked Questions

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.