Indonesia is South-East Asia’s second-largest soybean meal consumer, but it has no crushing industry. This is partly because it is one of the smallest soy oil consumers, due to the abundance of cheaper palm oil.
That fact would limit a domestic crusher’s revenue from selling soy oil domestically; they would be required to move soy oil largely into the export market, similar to Malaysian soybean crushers.
“Investments in soybean crushing facilities in Indonesia could generate positive margins and could be economically feasible if the produced soy oil is exported.
“South Asian countries are suitable export destinations due to their strong soy-oil import demand growth and their proximity to Indonesia," said Oscar Tjakra, senior analyst, grains and oilseeds, Rabobank.
Indonesia consumed 4.4m tons of soybean meal in 2017. Rabobank says it expects soybean meal consumption to grow to 5.6m tons in that market by 2027 given the increasing meat production in Indonesia. Soybean crushing facilities could be build Indonesia on the back of this growing soybean meal demand, argues the Dutch bank. Soybean meal crushers need to be located near large soybean meal consumption areas, with appropriate logistical capabilities. The western part of Java fits the bill, added the analysts.
Rabobank sees opportunities for establishing soybean crushing in Indonesia because of:
- The large and increasing demand for animal feed in Indonesia
- Indonesia’s proximity to large soy oil importers
- A good sales network and efficient logistics for edible oil exports
- Weather and trade policy uncertainties
The strength of the rupiah will also play an important role in crusher margins, as soybean needs to be imported for processing. Similarly, the rupiah will also determine the competitiveness of Indonesian soy oil exports to South Asia, compared to South America.
For soybean crushing in Indonesia to work, several factors are needed:
- Large scale facilities to benefit from economies of scale
- Soybeans origination and efficient handling capabilities from vessel to crushing plant
- Domestic soymeal sales and distribution capabilities, and
- An edible-oil export sales network and efficient logistics, which are already in place in some Indonesian ports.
Rabobank said the supply of soybean meal into Indonesia recently has been challenged by the drought in Argentina and the trade war between the US and China increasing soybean meal prices.