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MADE BY : Mukazhanov Azamat////////////////////////////////////////////
Checked By: Aloysius Amin
Westernization of the Asian Diet:
The Case ofWheat Consump
tion in Indonesia
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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 onehand, 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 WheatImport Demand Shifts East).
Coarse cereal consumption declines sharply between rural andurban areas from 1.98 to 0.63 kg/month, but wheatconsumption jumps from 4.40 to 4.72 kg/month.
On average, in Japan, South, Korea, Taiwan, Indonesia,Thailand, Malaysia, and Philippines, half of total wheatsupply 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 (thelargest 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 expandingconsumer 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 metrictons of wheat in 1976, two million in 1990, three million in1993, peak of four million in 1996.(4% of total world wheatimports after following only Egypt, Japan, and Brazil.)
Severe macroeconomic crisis(1997, Indonesia). GOI agreed toliberalize 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 wheat-based products
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WHEAT AND WHEAT FLOUR CONSUMPTION
Per capita wheat consumption in selected countries
72kg per person
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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 theobserved 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 regressionequation [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 notidentified, it is normalized to unity in [1d]. Equation [1a]represents the first stage of the consumption decision. Fromthis specification we derive two important equations. The firstis the probability for a positive consumption, which can bedetermined 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 participationfrom [2], the elasticity of the conditional mean from [3] (i.e., forthose with positive consumption), and the elasticity of theunconditional mean, which accounts for both. It is assumedthat the vector of explanatory variables in [1a] and [1c] have thesame 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 forboth [4] and [5], i.e.,
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Wheat Flour Double-Hurdle Demand Model
Likelihood function of all the observations with no actualconsumption.
It is common knowledge that an estimation of the model usingonly equation [1c] presents several serious problems. To avoidthese problems, the model is estimated with the likelihood
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The data have 60,406 to60,675 households in the sample.
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Wheat and Wheat Flour foreign suppliers
With no domestic production of wheat, Indonesia dependsentirely on foreign suppliers. In the mid -1990s the major wheatsuppliers of Indonesia were: Australia, Canada, Argentina andSaudi Arabia. During 2000 2003 Saudi Arabia left the wheatmarket of Indonesia. Argentinas market share considerablydeclined from 15 % to 1 %. Canadas market share dropped from30 % to 15%. On the contrary, Australia became a dominant
wheat supplier on this market (58 %). The U.S. raised its sharea 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 Indonesiasmarket are:
a) competitive prices;
b) suitability of the ASW (Australian Standard White) variety fornoodle production;
c) proximity to Indonesia (Fabiosa, 2006). Australian WheatBoard gave a credit scheme to Indonesia. Also Canadian WheatBoard provided food aid (wheat) and offered export creditfacilities.
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Analysis of Alternative scenarios
In this study Fabiosa investigates the influence of two scenarios onthe wheat flour market of Indonesia using the new demand estimates.
1. A partial liberalization scenario explores the effect of removing theapplied duty of 5 %, the 10 % VAT and the 2.5 % sales tax for wheatflour.
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 inIndonesia declines by 13.66 %, which affects consumption rise by7.06 %. Consequently, consumption increase leads to growth of
wheat net imports by 7.04 %. The growth of wheat import demandinduces 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 % inreal income growth in Indonesia expands consumption by 2.60% and as a result the net trade increases by 2.59 %. Thedemand growth puts an upward pressure on prices, therefore
the world price and domestic wholesale wheat flour price willincrease 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 fivemajor wheat importing countries in the world (4 % of the world market). Before the policychanges of 1996 BULOG (the Indonesian National logistic agency) was the sole importer anddistributor of wheat and wheat flour. During the macroeconomic crisis (1990) theGovernment of Indonesia had to liberalize the wheat sector.
According to Fabiosa high income elasticity for wheat products might be expressedin the form of a growth in the probability of consumption for households which currently donot consume wheat products and an increase of consumption for current consumers households.
On the contrary, income growth and urbanization affect negatively on theprobability of rice consumption. Considering the urbanization and income growth trend in
Indonesia Fabiosa suggests that wheat consumption will increase faster but rice consumptiongrowth will be slower.
Income growth and removal of trade barriers will lead to increase of wheatproducts consumption and import growth. Australia, China and India have a closer locationto Indonesia than North American suppliers, thus they may be able to capture most of themarket share. On the other hand, the U.S. and Canada also have chance to compete in this
market
