Westernization of the Asian Diet: The Case of Wheat Consumption in Indonesia

MADE BY : Mukazhanov

Azamat /////////////////////// ///////////////////// Checked By: Aloysius Amin

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INTRODUCTION
Consumption of wheat-based products.

Rising income and urbanization are driving forces in the rise of

wheat consumption (Huang and David, 1993).

As high income consumers demand more variety, on the one

hand, and as more choices are made available in urban areas (Regmi and Dyck, 2001).

Wheat in Western societies & Asia.(Pingali and Rosengrant ,

1998).

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INTRODUCTION
Report of the USDAs Foreign Agricultural Service ,

Grain: World Markets and Trade states that (Global Wheat Import Demand Shifts East).
Coarse cereal consumption declines sharply between rural and

urban areas from 1.98 to 0.63 kg/month, but wheat consumption jumps from 4.40 to 4.72 kg/month.
On average, in Japan, South, Korea, Taiwan, Indonesia,

Thailand, Malaysia, and Philippines, half of total wheat supply is consumed in the form of noodles and steamed breads.
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INTRODUCTION
1971, Indonesia imported all of its wheat flour requirements,

averaging around 337 thousand metric tons (tmt) annually.

Birth of the local flour milling industry in Indonesia.

(first flour mill, PT. Bogasari Flour Mills, in 1971). Strengthened with the establishment of Indofood in 1994 (the largest instant noodles manufacturer in the world,13 billion packs per annum) .

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INTRODUCTION
The strong import growth in Asian market.

Wheat-breeding programs (Hard White Wheat program in the

United States).
Government of Indonesia (GOI) policy over expanding

consumer basket.(rice market is 7% of world production traded VS 19% of wheat production).

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INTRODUCTION
Shifting imported products from flour to wheat million metric

tons of wheat in 1976, two million in 1990, three million in 1993, peak of four million in 1996.(4% of total world wheat imports after following only Egypt, Japan, and Brazil.)

Severe macroeconomic crisis(1997, Indonesia). GOI agreed to

liberalize the wheat market.

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EVOLUTION OF POLICY REGIMES

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WHEAT AND WHEAT FLOUR CONSUMPTION

Per capita monthly consumption of cereals and other wheatbased products

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WHEAT AND WHEAT FLOUR CONSUMPTION

Per capita wheat consumption in selected countries

72kg per person <China 35kg per person<Malaysia

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WHEAT FLOUR MILLING SUB-SECTOR

Profiles of wheat millers

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Type of wheat flour users and product categories

LSI large-scale industry SMSI small- to medium-scale industry

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Wheat Flour Double-Hurdle Demand Model

Disaggregation of wheat into classes. (e.g., Hard

Red Winter, Hard Red Spring, etc.)

Consumption decision of households - two-step process.

1) Households decide whether or not to consume. 2) Households decide how much to consume. 3) The standard sample selection model is used since the observed consumption level in the data is not a random sample but is systematically chosen from the entire population.

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Wheat Flour Double-Hurdle Demand Model

The model has a censoring rule [1a] that

determines participation in the market and a regression equation [1c] that estimates the level of consumption, i.e.,

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Wheat Flour Double-Hurdle Demand Model

Where the error terms are independently (across observations) and jointly normally distributed, i.e.,

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Wheat Flour Double-Hurdle Demand Model

Since the variance of the censoring equation [1a] is not

identified, it is normalized to unity in [1d]. Equation [1a] represents the first stage of the consumption decision. From this specification we derive two important equations. The first is the probability for a positive consumption, which can be determined in [2],

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Wheat Flour Double-Hurdle Demand Model

The second equation is the conditional mean given in

[3], i.e.,

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Wheat Flour Double-Hurdle Demand Model

The three types of elasticities are the elasticity of participation

from [2], the elasticity of the conditional mean from [3] (i.e., for those with positive consumption), and the elasticity of the unconditional mean, which accounts for both. It is assumed that the vector of explanatory variables in [1a] and [1c] have the same elements. The elasticity of participation is,

and the elasticity of the conditional mean is

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Wheat Flour Double-Hurdle Demand Model

The elasticity of the unconditional mean accounts for

both [4] and [5], i.e.,

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Wheat Flour Double-Hurdle Demand Model

Likelihood function of all the observations with no actual consumption. It is common knowledge that an estimation of the model using only equation [1c] presents several serious problems. To avoid these problems, the model is estimated with4/18/12 the likelihood

The data have 60,406 to 60,675 households in the sample.

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Wheat and Wheat Flour foreign suppliers

With no domestic production of wheat, Indonesia depends entirely on foreign suppliers. In the mid -1990s the major wheat suppliers of Indonesia were: Australia, Canada, Argentina and Saudi Arabia. During 2000 2003 Saudi Arabia left the wheat market of Indonesia. Argentinas market share considerably declined from 15 % to 1 %. Canadas market share dropped from 30 % to 15%. On the contrary, Australia became a dominant wheat supplier on this market (58 %). The U.S. raised its share a little on account of aid programs and credit obtained by the country. China and India have market shares of 3 % and 18 % respectively.

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Wheat and Wheat Flour foreign suppliers

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Wheat and Wheat Flour foreign suppliers

Table 8 shows the foreign suppliers of wheat flour: China 22

%, India 20 % and Australia 16 %.

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Wheat and Wheat Flour foreign suppliers

The main reasons for Australias dominance in Indonesias market are: a) competitive prices; b) suitability of the ASW (Australian Standard White) variety for noodle production; c) proximity to Indonesia (Fabiosa, 2006). Australian Wheat Board gave a credit scheme to Indonesia. Also Canadian Wheat Board provided food aid (wheat) and offered export credit facilities.
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Analysis of Alternative scenarios

In this study Fabiosa investigates the influence of two scenarios on the wheat flour market of Indonesia using the new demand estimates.
1. A partial liberalization scenario explores the effect of removing the

applied duty of 5 %, the 10 % VAT and the 2.5 % sales tax for wheat flour.

2. A second scenario examines the influence of a fast income growth. In the first case (see table 10) the wholesale price for wheat flour in

Indonesia declines by 13.66 %, which affects consumption rise by 7.06 %. Consequently, consumption increase leads to growth of wheat net imports by 7.04 %. The growth of wheat import demand induces the change of the world price and its rise by 0.23 %.

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Analysis of Alternative scenarios

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Analysis of Alternative scenarios

Under the fast income growth scenario an additional 4 % in real income growth in Indonesia expands consumption by 2.60 % and as a result the net trade increases by 2.59 %. The demand growth puts an upward pressure on prices, therefore the world price and domestic wholesale wheat flour price will increase by 0.09 %.

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Conclusion
Indonesia is accounted for the largest instant noodle producer in the world market. Without producing wheat it has the largest wheat miller in a location. It is included in top five major wheat importing countries in the world (4 % of the world market). Before the policy changes of 1996 BULOG (the Indonesian National logistic agency) was the sole importer and distributor of wheat and wheat flour. During the macroeconomic crisis (1990) the Government of Indonesia had to liberalize the wheat sector. According to Fabiosa high income elasticity for wheat products might be expressed in the form of a growth in the probability of consumption for households which currently do not consume wheat products and an increase of consumption for current consumers households. On the contrary, income growth and urbanization affect negatively on the probability of rice consumption. Considering the urbanization and income growth trend in Indonesia Fabiosa suggests that wheat consumption will increase faster but rice consumption growth will be slower. Income growth and removal of trade barriers will lead to increase of wheat products consumption and import growth. Australia, China and India have a closer location to Indonesia than North American suppliers, thus they may be able to capture most of the market share. On the other hand, the U.S. and Canada also have chance to compete in this market.

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