Global Business Guide Indonesia
Inhabiting a country of exceptional biodiversity, Indonesians have a long history of harnessing the goodness of plants. Herbs and spices have been used for centuries in and around the archipelago to flavour food and drinks, strengthen vitality and treat a wide range of ailments, among other purposes. Today, much of the inherited knowledge on the benefits of plant matter is backed up by scientific research, while a lot more remains to be discovered and applied to industrial processes.
Identifying and marketing the health properties of indigenous ingredients or creating entirely new botanical extracts promises significant business opportunities, but it also requires substantial efforts in research.
Consumers increasingly prefer natural substances over synthetic ones in functional foods, nutritional beverages, cosmetics and medicine. This creates a growing export market for botanical extracts from Indonesia. At the same time, the Indonesian government is pushing for the development of downstream processing industries, and one way for domestic producers to create distinct brands is by employing native botanical resources in the goods they sell.
There is a widening range of applications for natural extracts, which are typically converted into a liquid or dry form and then further processed. A key driver is the increasing global popularity of nutraceuticals (a term derived from the words nutrition and pharmaceuticals), which are dietary products enriched with additional nutrients to achieve specific health benefits. This encompasses so-called functional food and beverages (ready-to-drink and concentrate) as well as dietary supplements (commonly sold in capsules). Beyond general health concerns, nutraceuticals often have specific selling points, for example providing energy for the day, vitality for old age or supporting a slimming or body-building regime. The global nutraceutical market is expected to grow at 7% CAGR in the 2013 to 2017 period to $225 billion USD, driven by increased interest from the developing world (Frost & Sullivan). Growth in the Asia Pacific market is especially strong. Additional demand for botanical extracts comes from manufacturers of personal care products and cosmetics, with organic ingredients becoming increasingly popular among consumers around the world.
The same products are seeing rising demand in Indonesia amid growing awareness about nutritional requirements for a healthy lifestyle. Sales of native herbal products, in particular, are projected to see rapid growth. Increasing spending power especially in the urban centres allows for rising sales of health and wellness foods. Strong and growing business activity in Indonesia, particularly in the food and beverage industry, is set to drive local demand for botanical inputs, which creates an attractive market for domestically cultivated and processed extracts.
A strategic location for producers
Several aspects make Indonesia an attractive country for the production of botanical extracts:
• Indonesia is one of the leading countries in terms of biodiversity, with more than 28,000 unique plant species. The archipelago’s vast tropical forests and marine territory remain under-explored, offering the potential to discover new plants or new benefits of known plants.
• In addition to native plants, Indonesia’s crude palm oil (CPO) industry provides an almost inexhaustible supply of oleochemical feedstock for soap and other products. Downstream industries have yet to take full advantage of this abundant resource
• Indonesia has an ancient tradition of herbal medicine, known locally as jamu. Trusted for centuries to cure all sorts of ailments, jamu remains popular to this day and is increasingly finding its way into industrial over-the-counter drugs.
• Indonesia boasts the largest economy in Southeast Asia with a growing population, rising personal incomes and increasing awareness about the benefits of natural versus synthetic ingredients. Trade integration in the ASEAN Economic Community (AEC) makes Indonesia a strategic hub for producers looking to supply to markets in this fast-developing part of the world.
• Indonesia’s emerging economy has a large and low-cost farming workforce that has proven keen to engage in long-term cooperation with processing industries.
The appeal of native ingredients
Thanks to the use of native herbs and spices in Indonesian cuisine and traditional medicine, locally sourced botanical extracts should be particularly trustworthy in the eyes of local consumers. Manufacturers of fortified beverages such as ready-to-drink cold tea products are already using this to their advantage. Given the wide range of possible applications, the market potential for using domestic ingredients in novel functional foods and industrialised jamu, in all likelihood, is far from exhausted.
With respect to plants that originate from or are most commonly found in Indonesia, such as mangosteen and cubeb, the local heritage of domestic extracts lends itself to branding in export markets, as well. Indonesian companies selling consumer goods abroad can highlight the unique properties of such ingredients in their marketing campaigns.
Industrialisation and certification
Achieving and maintaining a high level of quality and purity is crucial for domestic producers of botanical extracts as they seek to increase the use of their products in consumer goods. The food and beverage, cosmetics and pharmaceutical industries also rely on a constant flow of supplies, which means botanical extract makers need to ensure they themselves have dependable upstream access to the plants from which they derive their product. They also need sufficient storage capacity to cover times of shortages.
With regards to export markets, and for medicinal uses in particular, adhering to foreign standards and attaining the necessary certification is a daunting task, but it promises commensurate sales opportunities. Going the extra mile in terms of standardisation, compliance and quality control will help Indonesian producers of natural extracts and final products gain the trust of foreign consumers.
An opportunity arises here for foreign-based manufacturers or consultants who can help local enterprises leverage modern technology and know-how, meet global standards and acquire international certification. Joint ventures with existing established players in the botanical extracts industry is a further avenue to explore as local companies seek to improve their technological capacity as well as undertake research. Alliances between Indonesian and foreign-based manufacturers of fast moving consumer goods (FMCGs) could bring forth new brands for both the Indonesian and global market. For Indonesia’s botanical extract businesses this is an opportune time to expand their activity on the downstream processing side and push their products up the value chain all the way to the end user.
Identifying and marketing the health properties of indigenous ingredients or creating entirely new botanical extracts promises significant business opportunities, but it also requires substantial efforts in research and in the development of new extraction methods. The healing effects ascribed to jamu products, for example, are based on experience and personal perception. To gain approval beyond Indonesian borders, more research is needed to scientifically establish the safety and effectiveness of such products. Moreover, natural extracts are harder to handle in industrial environments than synthetic additives, necessitating new processing techniques. Ensuring stability, consistent properties and interaction with other ingredients as well as sufficient shelf life requires advanced know-how along the entire production chain.
R&D offers investment opportunities for foreign research firms and sales opportunities for companies that build equipment, such as homogenisers, rotary evaporators and vacuum dryers. However, R&D activities in Indonesia are frequently hampered by a lack of qualified researchers and engineers. Collaboration with local and foreign-based universities may offer a way out, but setting up cooperation schemes requires time and tenacity.