Discuss with us!

Login with

or

Login

New registration

If you are not a participant, you can register here.

Our comment and community guidelines

The purpose of this platform is exchange. The comment function should make a factual discussion possible. In order to warrant this, the editorial staff reserves the right to delete comments which are detrimental to such a discussion or do not refer to it. There is no entitlement to publication.
More information can be found in our Comment-Guidelines.

  • Author: Moritz Seiler

METRO's Position on Protectionism in Indonesia

Indonesia experiences increasing protectionism. Most of the policies reflective of this trend are non-tariff measures, as tariffs are already very low. METRO GROUP’s subsidiary Classic Fine Foods (CFF) cannot realize its full potential due to this protectionism and is prevented from delivering the highly specialized high-class products from the EU which Indonesian customers demand.

Classic Fine Foods (CFF):

Since August 2015, CFF is a 100% subsidiary of METRO GROUP. The company employs approximately 800 people and generates annual sales of more than US$200 million. It is a cornerstone in METRO GROUP’s strategy to boosts its food service delivery (FSD) capabilities and provides a unique exposure for METRO GROUP to Asian mega cities and the Middle East.

Classic Fine Foods (CFF) is serving 6,000 exclusive accounts, primarily top chefs and 5-star hotels in 25 cities in 14 countries, including Singapore, Dubai, Hong Kong, Bangkok, Kuala Lumpur, London, Ho Chi Minh City, Jakarta and also operates in China and Japan. CFF has its own direct sourcing centre in Rungis, France, one of the largest food markets in the world, while also sourcing products from other markets including Australia and New Zealand.

CFF Indonesia:

In 2015, CFF had around 700 active customers between Jakarta and Bali with 300 being key accounts (90% of turnover). The total purchases from EU suppliers amounted to Euro 2.5 million. Imports from the European Union: dairy (Italy), cold cuts (Italy), foie gras (France), sea food (France), dry goods & condiments (France / Italy), chocolate (France), pastry ingredients (France / Switzerland).

Indonesian Trade Policy

Indonesia experiences increasing protectionism. Most of the policies reflective of this trend are non-tariff measures, as tariffs are already very low. The introduction of a more restrictive cap on certain sectors, the ban on raw mineral exports, and the provision of greater authority for ministers to issue intervention and monitoring policies are just a few examples. This trend began during the tenure of former president Yudhoyono but is continuing under President Joko Widodo (Jokowi). The government and the parliament passed laws on food (18/2012), farming (Law 19/2013), and horticulture (Law 13/2010) that had a serious impact on openness to trade and investment.

For example, the law on food authorizes the government to regulate trade in food through price and quantity stabilization, while the Law on Farming draws strategies to protect farmers, e.g. through the “elimination of the practice of high-cost economy.” Protectionism reached new heights after the Cabinet’s shake-up in 2012. The Ministry of Agriculture and the Ministry of Industry added new products to the list of those that require permits. The Ministry of Trade reinstated import licensing on a number of products and imposed tighter control over the distribution of imported goods.

Import Licenses and Import Permits

METRO GROUP’s subsidiary CFF is suffering from such non-tariff measures as described above in various forms. While non-tariff measures usually target commodity retailers, highly-specialized CFF also suffers by not being able to provide targeted service levels to its local customers and ever higher costs.

1. Quarterly Forecasts / 80% Import Realization

  • CFF has to extend its general import license, the so-called APIU [1] every five years.
  • Additionally, there are a number of product categories, for which import licenses need to be renewed by quarter, such as beef, lamb and pork or by semester, such as fish, sea food, fruits and vegetables, dairy , horticultural items and honey.
  • In order to qualify for application for those specific permits, CFF needs to provide a purchase forecast for the next quarter and, when it comes to meat, is required to prove a minimum of 80% of import realization in comparison to the previous forecast period.
  • Further to protectionist measures, the reasons for this rule on 80% import realization are concerns that feedlot mafias in Indonesia might be hoarding beef.

Consequences for CFF

  • CFF is forced to fulfil the 80% import benchmark until the end of the license’s validity to be eligible to apply for new permits for the following period. This regulation, which ignores the dynamics of actual demands, is affecting almost all product ranges in almost every quarter.
  • It is very difficult to fix the purchase forecast taking into account the challenge of finding the right balance between a conservative stock position while also keeping enough room for development.
  • An excess of forecast pushes CFF to overstock positions. This may lead to massive food waste.
  • A shortfall of forecast, on the other side, puts product availability and stock management under pressure with direct impact on CFF’s service level to customers.
  • CFF is suffering from costs to handle governmental bureaucracy. 6 persons (1 general manager, 1 operational manager, 2 staffers for license & clearance, 2 staffers for product registration) are solely employed for this purpose


METRO GROUP believes that the best way to combat the practice of hoarding is to open the economy to additional (e.g. beef) imports, undercutting the prices of the stocks that are allegedly being hoarded. 

METRO GROUP calls for an end of the quarterly forecasts and the 80% import realization due to the unnecessary operational and bureaucratic difficulties they generate for companies involved in Import.

2. Limited Import Permits

  • In general, beef and poultry are under the spotlight of the Indonesian authorities and are subject to import regulations. Dairy is also considered a strategic category and sometimes UHT-milk (ultra high temperature processing) is banned for import. Other items like fish, sea food, fruits, or vegetables are subject to limited types of products which are allowed for import.
  • Also, the capacity for EU members to get country approval for exports to Indonesia is crucial for the trade of imported goods. The Indonesian government allocates only a very small budget for country inspections and it is slowing down the registration of new countries willing to export to Indonesia.

Consequences for CFF

  • METRO GROUP’s subsidiary CFF exclusively delivers to 5-Star restaurants and top chefs – a service that does not in any way relate to self-sufficiency concerns regarding commodity products, such as rice, sugar, soybean, beef, and corn.
  • However, these regulations reduce product availability with direct impact on CFF’s service level to customers and further perspectives of development in the country.
  •  CFF is very limited when it comes to importing the following products from the EU to Indonesia:

              - Beef
              - Veal
              - Premium poultry
              - Fruit (e.g. citrus)
              - Vegetables (e.g. potatoes, carrots)
              - Fish and sea food species (incl. fish and seafood
                that can be found in Indonesian maritime territory)

The strategic regulation approach hits more business actors as its actual target – self-suffiency  – requires. This hampers the Indonesian economy both as regards retail as well as the hospitality sector to develop.

Fewer import permit regulations allow a broader range of highly specialized products to be offered to Indonesian customers, increasing taxable domestic consumption.

METRO GROUP calls for a diversification of current import permit regulations to support the development of the HoReCa sector.

METRO GROUP calls for an increase of numbers of countries allowed for import to Indonesia. In this regard, raising the budget for respective country inspections is a crucial step forward.

3. Technical Barriers

  • There is a wide range of procedural measures that have the effect of non-tarriff barriers. Among these are: Extensive quarantine regulations from the Ministry of Agriculture, overseas pre-shipment inspections on imports ordered by the Ministry of Trade, and the application of Indonesian national standards by the Ministry of Industry. Additionally, the BPOM (Badan Pengawas Obat dan Makanan, i.e. National Agency of Drug and Food Control) is being used by the government as technical barrier for imports.
  • At the moment, also most of the suppliers’ certifications are not recognized in Indonesia.

Consequences of Technical Barriers:

  • CFF is either not allowed to import the product or suffers from massive bureaucrat hurdles entailing serious cost disadvantages.
  • All technical barriers for imports add to the costs of importing products.


A softer and more comprehensive registration process could help to extend product range availability.

A better acceptance of the standard at the country of origin would facilitate the registration of the goods at BPOM.

Fewer procedural measures lower import costs which would be forwarded either to the consumer or would increase margins for traders, widening the tax base.

General Thoughts by METRO GROUP

  • METRO GROUP believes that increasing protectionism generally proves immensely counterproductive for an economy. Rather than pursuing interventionist policies the Indonesian government should return to the basics of investing in infrastructure, logistics, and consistency of rules and regulations.
  • METRO GROUP highly supports the ambitions of the Indonesia-EU Partnership towards a “Comprehensive Economic Partnership Agreement”. This planned agreement in terms of market access, would consist of a deep FTA. This would imply access liberalization in goods, services and direct investment, complemented by ‘behind-the-border’ commitments covering a range of sanitary and technical regulations issues based on internationally accepted requirements or standards where feasible.

Footnote
[1] An Import Identification Number (API) is required in case a company wishes to import goods into Indonesian territory. An API-U (general) is the import identification number that is applicable to companies that wish to import specific goods for general trading purposes.

Moritz Seiler

Information about the author

Moritz Seiler is Manager Asia and International Affairs of Corporated Communications and Public Policy at METRO AG Moritz.Seiler@Metro.de