Market outlook diverges on grains, proteins as Indonesia launches free meals program

Indonesia's free meals program officially began on Jan. 6, with over half a million recipients, yet market participants hold mixed outlooks on agricultural commodities to be affected by the multi-billion dollar rollout.

The free meals program, part of Indonesian President Prabowo Subianto's 2024 election manifesto, aims to provide nutritious meals to schoolchildren and pregnant women. The ambitious goal is to feed 82.9 million people -- nearly 30% of Indonesia's expected population -- by 2029.

Officials involved in the program have highlighted its benefits, from tackling childhood malnutrition to reducing poverty. The program hopes to involve local farmers in its supply chain and generate new jobs as the government seeks to staff thousands of public kitchens to feed beneficiaries.

However, local market participants have noted that increased consumption demand from the free meals program could put several sectors in a sticky situation, primarily by pushing local prices of agricultural commodities higher. This comes amid concurrent efforts by the government to reduce its reliance on imports and achieve self-sufficiency in several key agricultural commodities by 2027.

Grains trade fears supply squeeze as govt weighs higher demand against self-sufficiency goals

In December 2024, Indonesia's Coordinating Minister of Food Affairs, Zulkifli Hasan, announced that the country would not import several staple agricultural commodities in 2025, including salt, sugar, rice and feed corn. The government also slashed the 2025 import quota for industrial corn -- used for food processing -- to 900,000 mt, about half of the nation's estimated annual demand, stating that the move would compel farmers to improve corn production quality to meet industry standards.

A feed miller based in Surabaya noted that the industry was cautiously monitoring local corn prices. Production output may not be able to keep up with the increased demand generated by the free meals program, which could lead to higher input prices.

"Corn farming is fairly scattered throughout Indonesia, and there are a lot of small farmers. Additionally, not all land is suitable for corn planting as well, and farmers also have to make the decision to switch to other crops depending on profit margins and weather, which is why it has been difficult for Indonesia to raise corn production and achieve self-sufficiency," added the same source.

Other hurdles included limited access and slow adaption of farming technology improvements, which leads to lower yields and farming operation efficiencies, added other sources.

The free meals program is also expected to drive significant demand for rice, with sources indicating that it could potentially outpace domestic production. However, multiple media reports suggest that Indonesia's rice imports in 2025 could remain minimal, with some of last year's unfulfilled import allocations potentially carried over into this year. This aligns with President Prabowo Subianto's Asta Cita vision to achieve food self-sufficiency as quickly as possible.

Trade participants, however, have mixed views on whether Jakarta can avoid rice imports in 2025. "The decision to import is political, so it's unclear what Bulog will ultimately decide," said a Vietnam-based rice trader. A rice seller in Bangkok offered a different perspective, stating, "I believe they might start importing in the second half of 2025. Surely stocks can't keep up with demand."

When approached for comments on the government's plan to stop rice imports in 2025 and its potential impact on the free meals program, officials from Indonesia's state food procurement agency, Bulog, declined to provide any statements.

Protein sector welcomes consumption rise from free meals program

In contrast to the grains trade, optimism surrounds the anticipated rise in chicken and egg consumption. Projections estimate per capita consumption of chicken eggs to reach 21.88 kg/year in 2025. Chicken meat consumption is projected to grow by 3% to 13.21 kg/capita/year, as reported by local news outlets. The free meals program, which could generate an annual demand of 911,100 mt of chicken meat, is also expected to address oversupply issues and stabilize chicken meat prices in the country.

Poultry farmers expressed optimism that this program would boost demand for live birds, improving prices and creating new market opportunities for independent broiler producers.

Similarly, an analyst at S&P Global Commodity Insights said that the program will allow local farmers to expand their revenue through increased production and sales as demand rises, anticipating positive growth in the Indonesian poultry industry.

Another protein component in the free meals program is milk, though it will not be provided daily, said Dedek Prayudi, a spokesperson from the Indonesian president's office.

Indonesia faces a significant deficit in both beef and milk production, leading to heavy reliance on imports. Currently, only 16% of the country's dairy supply is met from domestic sources, while the annual per capita consumption of dairy is estimated at 15 liters.

However, efforts are underway to boost domestic production, ranging from the import of dairy heifers from Australia to a partnership with Vietnam to address challenges plaguing cattle farm smallholders such as low-quality breeding stock, inadequate feed, and restricted access to technology.

"The local consumption supported by this [free meals] program will eventually build Indonesia's local capacity to provide its population with milk and dairy products," noted George Marantika, chair of the Australia-New Zealand committee at the Indonesia Chamber of Commerce and Industry (KADIN).