The Indonesian Food and Beverage Producers Association (Gapmmi) has begun preparing alternative markets to anticipate the disrupted logistics due to the escalating Iran-Israel conflict.
Gapmmi Chairman Adhi S. Lukman said they hoped alternative markets in Latin America and Australia can replace the Middle East market, which is predicted to be affected.
“The alternatives are in the Northern and Southern hemispheres, like Latin America. Similar to the case of Russia-Ukraine war, the Southern hemisphere is also quite helpful, like Australia,” Adhi said during a meeting at the Ministry of Industry on Tuesday, April 16, 2024.
Both regions are considered safe and will not impact the increase in logistics costs. It is common that logistical costs will increase if goods delivery passes through conflict areas, especially for ships passing through the Suez Canal.
Besides the disrupted logistical access, Adhi also sees that the conflict is further pressuring the exchange rate of the Indonesian rupiah against the US dollar, which is increasing.
“We import a lot of raw materials, which will certainly affect our production costs,” he said.
If the conflict persists, the association is concerned that the supply chain of industrial raw materials will be disrupted. Moreover, based on the Food and Agriculture Organization (FAO) report, there has been a 1 percent increase in global food prices in March compared to February. The increase in raw material prices and the skyrocketing production costs of the food and beverage industry will reduce the profit margin of domestic companies.
“Just Iran’s attack on Israel alone has led to a 1 percent increase in global food prices compared to February, especially grains, some dairy products, meats, and so on,” Adhi said.
However, he admitted that the food and beverage industry remains robust due to high exports and the benefit from the strengthening US dollar. Adhi mentioned that the value of food and beverage exports throughout 2023 reached US$11 billion.
He said further that this situation must be anticipated immediately by the government and the business world, especially regarding interventions to mitigate the weakening of the exchange rate of the rupiah against the US dollar.
“We hope the government can immediately anticipate, especially this exchange rate if the Central Bank (BI) can immediately intervene, because this is a period after the (Idul Fitri) holiday. Hopefully, it will be done soon, so that it won’t be too burdensome,” Adhi said.
He expressed hopes that the government would evaluate the existing regulations to compensate for the cost increase that occurs, one of which is through policies related to import duties on raw materials.
“Most of the raw materials for the food and beverage industry are subject to quite strict regulations, such as the Trade Minister’s Regulation. Meanwhile, finished products have zero import duties. We hope the government can review whether import duties can be suspended temporarily during this difficult time, so that there is a balance between finished products and raw materials,” he concluded.
