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Sorghum To the Rescue?
How Wheat Become So Expensive
What's going on?
Indofood plans to develop instant noodles made from sorghum flour in collaboration with the Agricultural Ministry.
What does this mean?
Wheat flour is the primary ingredient in many of our favorite foods. Bread, cakes, biscuits, noodles, pasta — you name it. But Indonesia don't actually grow wheat. This crop is unsuitable for cultivating in tropical climate like ours.
So we rely exclusively on imports. In fact, we are the second largest importers in the world at 11 million tonnes a year, only behind Egypt. Major trading partners are the US, Australia, Canada, and Ukraine. Because of this, local prices of wheat-based food products are subject to volatility in global wheat price.
And the past two years have shown how volatile it can be. Wheat price was USD 225 per tonne in Jan 2020. In May 2022? USD 521 per tonne — a 132% increase.
Wheat Price - 5 Year Historical; Source: US Department of Agriculture (USDA)
What are driving prices up?
The US and North Africa had a poor harvest in 2021-2022 due to drought, leading to lower production.
Ukraine-Russia war limits how much wheat these two top producers can export, further restricting supply.
Responding to sharp inflation, other producing countries started to get paranoid and curb export. For instance, India began banning wheat export in May 2022 to secure enough domestic supply (Similar to how President Jokowi banned palm oil exports earlier this year).
What does this have to do with Indofood?
They are the largest producer of instant noodles, whose main ingredient is wheat flour. In 2022 alone, they have responded to wheat and general inflation by hiking the price of its beloved Indomie by 8-10%. Other food producers like Sari Roti and Mayora have also applied similar price increases to protect their profit margin.
To reduce our dependence on wheat imports, the government is promoting the use of alternative grains like sorghum and cassava. This collaboration with Indofood is part of that strategy. Additionally, a plan is in place to expand sorghum farming in East Nusa Tenggara (NTT). While wheat requires a cold and dry climate, sorghum is more suitable for cultivation in tropical areas.
Why should we care?
Diversifying our food sources is a good plan. Food inflation impacts low-income earners the hardest, so substituting an imported food crop with locally-sourced alternatives makes sense.
In practice though, there are a few challenges to consider:
Supply-side: Can we grow sorghum economically at scale? This is not trivial. We will need to invest in training programs, technology, and financing to help farmers maximize crop yield and ensure consistent output. Current sorghum price is at Rp 3.500 per kg, so farming costs needs to be below that to be sustainable. And even if we manage to get cost low enough, there is a risk that wheat prices may come down from this year's high. If wheat manage to get to pre-2021 prices of Rp 3.000 per kg, food producers would have little incentive to switch.
Demand-side: Do Indonesian consumers actually like sorghum? This is where the private sector will be crucial. FMCGs like Indofood can use their experience in new product development to conduct taste test, experiment with marketing campaigns, and scale up production if consumers respond positively. Food entrepreneurs and small businesses will also play a role in creating and promoting new food products.
All things considered, it is unlikely for wheat to be completely replaced given how long it has been in our food culture (Fun Fact: The US introduced wheat to Indonesia in 1969 through a food aid program, and wheat consumption has grown ever since). But having a locally-made substitute will help reduce the impact of future price shocks.
Until next time...