Indonesia Soybean Industry A Guide for Foreign Investors

Indonesia Soybean Industry: A Guide for Foreign Investors

  • InCorp Editorial Team
  • 16 May 2023
  • 5 minutes 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.

Verified by

Hotdo Nauli

Senior Legal & Delivery Manager at InCorp Indonesia

Hotdo heads the Legal and Delivery team at InCorp Indonesia, managing Product Registration, Legal Advisory, and Business Licensing. With over 8 years of experience, she focuses on compliance and integrity, ensuring all client operations align with Indonesian laws and regulatory standards, including contract reviews and sector-specific licenses. She is also a licensed advocate and a member of the Indonesian Advocates Association (PERADI). 

Frequently Asked Questions

    A newly established PMA company in Indonesia is typically provided with import facilities, tax holidays, tax allowances, or investment allowances.

    • Import facilities
      Investors in Indonesia, particularly in manufacturing, may benefit from import tax exemptions for capital goods and raw materials through the Master List Facility. The imported goods must meet specific criteria, such as not being produced locally or not meeting industry demand despite local production.
    • Tax holiday
      The government offers CIT reductions of 50% or 100% for 5–20 years for listed pioneer industries, based on investment value. After this period, a CIT reduction of 25% or 50% applies for two fiscal years. Non-listed sectors can also apply by meeting criteria demonstrating pioneer industry status.
    • Pioneer industries are industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy.

    • Tax allowance
      For companies in certain designated areas or regions, the government may provide the following tax concessions:
      Net income reduction up to 30% of the amount invested, prorated at 5% annually for six years, on condition that the assets invested are retained for the same duration.
      Accelerated depreciation and/or amortisation deductions
      An extension of tax losses carried forward for a maximum of ten years
      A 10% (or lower if treaty relief is available) withholding tax rate on dividends paid to non-residents
      The applicant eligible has to meet high-level-criteria for the above tax facilities:
      High investment value or for export purposes
      High manpower absorption
      High level of local content
    • Investment allowance
      The government offers a reduction in net income of up to 60% of the investment, distributed at 5% annually over six years of commercial production, contingent upon the retention of invested assets for the same duration. To qualify, applicants must meet business line eligibility criteria and employ a minimum of 300 Indonesian workers in the project.
    • Super deduction
      This facility could be granted to certain businesses, such as:
      60% reduction in net income of the amount of tangible fixed assets invested for labor-intensive industries, distributed throughout a certain time frame.
      Up to 200% reduction in the gross income of the amount spent for human resources development in certain competency activities.
      Up to 300% reduction in gross income of the amount spent for certain R&D activities in Indonesia.

    The minimum number of shareholders to incorporate a PT is two

    The investment requirement for PMA companies in Indonesia varies based on their classification under the Indonesia Industrial Standard Classification (KBLI). Generally, a minimum investment of IDR 10,000,000,000 (ten billion Indonesian Rupiah), excluding investment in land and buildings, is needed to conduct one business activity in one location.

    Investors considering investments in Indonesia should assess existing International Investment Agreements between Indonesia and other countries. Having a business presence in countries with such agreements may offer incentives like stronger investment protection and higher foreign shareholding in Indonesia.

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