The popular Indomie Mi Goreng Rendang instant noodles are a big seller across Indonesia. Photo: WikiCommons

JAKARTA – The future supply of world-renowned Indonesian instant noodles hangs in the balance as flour millers scramble to fill a major hole left by the impact of the Russian invasion on Ukraine’s wheat crop, now in greater peril from a threatened new offensive in the wheat-growing eastern region.

Winning back its place last year as Indonesia’s leading wheat supplier, Australia has only a limited ability to boost exports because of forward selling, leaving producers to rely on Canada, the United States, India and, perversely, Russia, to make up the shortfall.

“Flour millers will only have a short window to find alternative sources of supply,” says one market analyst, pointing to early July as the usual start of Ukraine’s winter wheat harvest season. “It’s going to be quite a challenge.”

The Ukraine food industry has already been hit hard, with much of its port infrastructure in ruins from artillery and air bombardment and Russian warships mining and blockading the Black Sea, the conduit for 80% of its wheat exports.

The Ukrainians made the Russians pay for losing their economic lifeline this week with the apparent sinking of the guided-missile cruiser Moskva, the Baltic Sea Fleet flagship, which Moscow blamed unconvincingly on an accidental fire.

Apart from overcoming transport difficulties, it is still not clear how much of the crop Ukraine has been able to plant in the face of the looming Russian offensive and the availability of fertilizer, which is in increasingly short supply, and diesel for farm equipment.

Officials estimate Ukraine has already lost US$1.2 billion in grain exports. “If we fail to get a crop this year, it will be catastrophic for the rest of the world, for Asia and Africa,” Ukraine’s ambassador to Jakarta, Vasyl Hamianin, told a webinar this week.

Ukraine has vast fields of wheat, but Russia’s invasion has made planting and harvesting difficult and exports almost impossible. Photo: WikiCommons

Successive droughts in Australia saw Ukraine take over that role in 2019 and 2020, grabbing up to 30% of the Indonesian market share, followed by Canada (22%), Argentina (18%), the United States (13%) and Australia (11%).

Australia regained its place in 2021 with exports of 4.5 million tonnes – a massive increase over the 820,000 tonnes shipped in 2019 and 2020 following a return to bumper crops in Western Australia, New South Wales, Victoria and Queensland.

Ukraine may have slipped behind, but it still supplied Indonesia with three million tonnes last year, compared with 2.9 million tonnes in 2019 and 2020. Most of that was shipped through the now-heavily damaged ports of Odessa, Pivdennyi, Mykolayiv and Chornomorsk.

In what would appear to be a deliberate strategy, the Russians have also mined and blocked the approaches from the Black Sea, another reason why insurance will be prohibitively expensive or unavailable for the world’s bulk carriers.

Russia, which along with Ukraine accounts for 25% of the world’s wheat trade, exported 1.2 million tonnes of the grain to Indonesia in 2018 and another 500,000 tonnes in 2019, but there have been no shipments since then.

Indonesia has refused to comply with anti-Russian sanctions and the Pertamina oil company recently announced it was exploring the possibility of importing Russian oil. That might conceivably apply to wheat as well if Jakarta can’t find other sources.

From a low during the pandemic, Indonesian demand for wheat-based food rebounded from 10.4 million tonnes in 2020 to 10.7 million tonnes last year, valued at $2.3 billion, making it the world’s third-biggest importer after Egypt and Turkey.

It is also the second-largest consumer of instant noodles, putting away 12.6 billion of the world’s 116.5 billion servings, with enough left over to earn $270 million last year from exports to mainly Malaysia, Australia, Singapore, the US and Timor Leste.

But the home market remains paramount. Indonesia’s wheat consumption, largely represented by noodles, was 26.4 kilograms per capita last year, with analysts predicting it will reach 28.6 kgs over the next eight years as the population grows.

That compares with rice consumption of 124.46 kgs per capita in 2021, or 37,400 tonnes a year, slightly lower than previous years and on a continuing downward track to an expected 111.1 kgs in 2030.

An Indomie noodle stand in Jakarta. The company’s noodles have the lion’s share of the market. Photo: WikiCommons

Indonesia’s popular Indomie brand, which controls 72% of the local market, has become synonymous with packaged noodles and is now available in more than 100 countries, including Nigeria, where manufacturer PT Indofood Sukses Makmur opened a factory in 1995.

Overall, the war’s impact on the world’s key commodities will pose a challenge across the board, not only for industries and societies, but also for the transition to clean energy and progress toward more sustainable food supply systems.

Analysts say critical questions remain about the availability of oil and natural gas, wheat and other commodities, supply chain resiliency, trading block refinement and other related issues. All, they predict, will be impacted by the ongoing conflict and possibly for years to come.

According to most assessments, the direct effects of the war on Asia will be less than in other parts of the world because of its limited exposure to Russia and Ukraine through trade, investment and financial links.

But the indirect effects will be larger, initially because of higher energy prices. If the war drags on, economists warn it could undermine global sentiment and further delay the recovery from the pandemic.  

Food security issues arising from the Covid-19 epidemic have already raised Indonesian public awareness of the importance of food diversification and self-sufficiency, and the risks inherent in being heavily dependent on a single staple.

But while the opportunity for diversification is huge, Indonesia will always have to import wheat, leaving millers to shoulder a price increase of 70-90% over the past year – something they can’t pass on to cost-sensitive consumers.

Workers loading palm oil fruit into trucks in Aceh, Indonesia, on February 29, 2020. Photo: AFP / Zick Maulana / NurPhoto

Crude palm oil, on the other hand, is a good news story for Indonesian growers with exports reaching a record-breaking $35 billion last year, a 55.8% increase over 2020 as prices soared from $715 to $1,194 a tonne by year’s end.

The Ukraine war has pushed prices even higher to nearly $2,000, exacerbated by similar shortages of Ukrainian and neighboring Belarusian sunflower oil, which usually help fill any gaps in palm oil supply.

The high prices brought a 50% hike in Indonesia’s domestic cooking oil, forcing the government to cap the local price at 14,000 rupiah (93 US cents) a liter to preserve supplies. 

But with vendors initially refusing to sell their stocks at the lower price, shelves remained empty in some regions for weeks, including populous West Java where President Joko Widodo is not popular among conservative Muslim voters.

Indonesia is not only the world’s largest producer and exporter of palm oil, but the industry also employs 16.2 million workers, 4.2 million directly and 12 million indirectly, according to the Palm Oil Plantation Fund Management Agency.