Milk Producers Hampered by Raw Material Price Hike

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Milk processing producers in Indonesia are affected by the increase of raw material price, that has gone up by 40 percent in the first quarter of 2011. Several milk processing producers in Indonesia, such as PT Frisian Flag Indonesia, plans to review its sale price, if raw material prices continue to rise in the second quarter of 2011.

Jan Pieter Tanis, Marketing Director of Frisian Flag Indonesia, said that the company will review its product sale prices per quarter, in line with hike in raw material prices. Frisian Flag has increased its sale price three percent to four percent since January 2011. “We will continue to monitor the development of raw material price," he said.

The largest milk exporter in the world, Fonterra Cooperative Group Ltd, said that raw material for milk has reached its record highest price in March 2011, which was at US$ 4,958 per ton. The price increase happened in line with the demand growth in several countries as China and India. For its July 2011 shipment, the price decreased slightly to an average of US$ 4,008 per ton.

Currently, most of the raw material supply for Frisian Flag still comes from imports such as from Australia, the Netherlands and New Zealand. The composition of raw material supply consists of 75 percent imports and 25 percent domestic.

Frisian Flag Indonesia targets a sale volume growth in 2011, at 15 to 20 percent to one billion liters, compared to 849 million liters in 2010. To increase sales, Frisian Flag launches several new products such as Frisian Flag Kid and Frisian Flag School. The company targets new product sales contribution to reach 24 percent from Frisian Flag Indonesia total sales.

Frisian Flag plans to add investments in Indonesia, if the sales target can be achieved. Frisian Flag currently owns two factories in Ciracas and Pasar Rebo, Jakarta. Production capacity of the two factories reaches 2.5 million liters per day. “We cannot say when and what the value of the investment plan is,” Jan explained.

Cees Ruygrok, President Director of Frisian Flag, said that the launch of new products will be conducted in line with the growth of national milk consumption. In the last five years, milk consumption per capita per consumer in Indonesia increased from seven liters per month to 11 liters per month. “There are about 30 million households that are the targets of our milk consumption market,” he said.

Syahlan Siregar, Executive Director of the Indonesian Milk Processing Industry Association, said that the increase of milk in the processing industry level in the first quarter of 2011, is two to four percent, done to balance the high price of milk worldwide, causing production price to increase. “Several producers have adjusted their sale price,” he said.

Brata Hardjosubroto, Vice-President Public Relation of PT Nestle Indonesia, admitted that there is an increase of milk prices in the processing industry. However, he did say how much the percentage of the Nestle milk product price is. "The amount of increase from the Association reflected the situation of whole milk producing industry,” he said