Rural areas showed a consistent strong FMCG consumption growth
We have observed strong FMCG sales value growth in rural areas, outpacing the urban growth trajectory substantially (see Fig. 1); the same trend lingered in Jan-25. The acceleration in rural consumption growth was attributable, in our view, to: 1) better soft commodity prices; and 2) more government incentives. Agriculture currently is the largest sector in rural, contributing ~40mn to the workforces, making it the largest customer for FMCG firms in Indonesia. We track four key soft commodities to gauge the wallet size of farmers and agriculture labor: rice and corn (~12mn direct farmers), palm oil (~6mn direct farmers), and coffee (~1.5mn direct farmers); all of those key commodities have shown an uptrend in prices over the past year (see Fig. 4-7). On top of that, fertilizer prices last year also declined by 40% y-y, providing higher margin for farmers. In our view, wallet size of farmers has continued to expand this year on the back of a +10% hike in the government’s minimum buying price for rice and corn, B40 to support palm oil prices, and a prolonged global supply shortage that has lifted coffee prices. On the other hand, government has been consistently disbursing village funds and social assistance programs (see Fig. 8-9), and these programs are immune to budget cuts. Instead the government plans to enlarge the village incentives significantly in the near future (e.g., the upcoming Koperasi Merah Putih program). In our view, the higher disposable income of farmers and agricultural laborers will continue to flow to low-ticket-items, especially branded FMCG, as they perceived branded FMCG as the most affordable luxury items that they can enjoy.
General trade records the fastest growing FMCG transaction value
Strong FMCG consumption in rural was also reflected in growing traffic in general trade (GT). From Aug-24 to Jan-25, GT was the fastest-growing channel for FMCG transactions (see Fig. 2). Companies with a large GT distribution network can capture increasing consumption of rural through GT channels, in our view. Moreover, we view school canteens as potentially the next growth driver for GT, as students may fully utilize their money for snacking activities after having free nutritious meals from the government’s program (read: Follow the money).
Government budget cut trigger more downtrading trend in middle-income class
The government’s recent budget cut might deplete government expenditures in the near term, which mostly affects middle-income class buying power, in our view. Meanwhile, low end consumers should have a buffer from favorable soft commodity prices and social assistance programs. The middle-income class might reduce frequency of consumption of non-food (except for beauty related) products, but will keep buying food products due to its inelastic nature. We believe they will increasingly become value-for-money oriented for FMCG.
With the aforementioned situation above, we prefer FMCG in the food category with competitive pricing and strong brand equity; Mayora Indah (MYOR IJ, Buy) and Indofood CBP (ICBP IJ, Buy) are the best companies to fulfill those criteria, in our view, not to mention both have the largest GT coverage among all listed FMCG firms. MYOR and ICBP could benefit from the rise of FMCG consumption in rural areas, as well as the middle-income-class downtrading trend. MYOR is a must-have long-term stock, in our view, given its ability to continuously expand sales domestically and overseas. We see margin pressure as a temporary issue; currently the stock is trading of 14.3x FY25F P/E (-1.1SD to its five-year mean), with a foreign-to-local ownership ratio at 0.5x (read: All-time high sales + market share). ICBP has the strongest pricing power among Indonesia FMCG, given a very high market share for instant noodles in Indonesia and Pinehill (unlisted, subsidiary of ICBP) regions; currently, the stock is trading at 10.9x FY25F P/E with foreign-to-local ownership ratio at 1.2x (read Consistent double-digit core profit growth). For retailers, Alfamart (AMRT IJ, Buy) is also benefiting from increasing consumption in rural and lower-tier cities, especially outside Java, which is reflected in an estimated strong SSSG of 6-7% in Jan-Feb-25F. AMRT now is trading at a 22.5x FY25F P/E, but foreign-to-local ownership ratio has reached a high level at 6.5x (read: Mini-market retailers' SSSG remains strong).
Fig. 1: Indonesia FMCG sales value index by area: urban and rural
Rural has stronger growth trajectory than urban due to better soft commodity prices, more government incentives, and lower baseSource: Companies, Verdhana research
Fig. 2: Indonesia FMCG sales value index by sales channel: general trade, minimarket, and hyper/supermarket
General trade transaction grew faster than others for the past six monthsSource: Companies, Verdhana research
Fig. 3: Indonesia workforce by sector (mn people) in 2024
Agriculture absorbs the largest workforce, contributing the biggest FMCG transaction in terms of volume, in our viewSource: BPS, Verdhana research
Fig. 4: Indonesia unhulled rice price forecast (IDR/kg)
Government increased the minimum buying price for unhulled rice by +10%, potentially contributing additional of ~IDR15tn to farmers’ wallets. There are approximately 12mn direct farmers working to produce paddy.Source: BPS, Verdhana research
Fig. 5: Crude palm oil price movement (USD/MT)
The price remains at favorable level above 1,000 USD/MT; note that average farmer’s breakeven point hovers at 500-600 USD/mt. There are approximately 6mn direct farmers managing palm oil.Source: Bloomberg Finance L.P., Verdhana research
Fig. 6: Coffee robusta price movement (USD/MT)
The price almost doubled y-y due to global supply shortage issue. Approximately 1.5mn direct farmers have benefited.Source: Bloomberg Finance L.P., Verdhana research
Fig. 7: Fertilizer price index
Pices have declined significantly over the past two years, providing lower input cost for farmers.Source: World Bank, Verdhana research
Fig. 8: Village fund budget (IDRtn)
Since Jokowi era, more money has been disbursed in rural areas; Prabowo regime continued this program and even the new government plans to enhance the budget i.e., through upcoming Koperasi Merah Putih program.Source: MoF, Verdhana research
Fig. 9: Social assistance programs
These programs help to buffer the consumption of mid-to-low-income class
Government main social aid programs
Est. economic benefit to household (IDR 000/year)
Assumption
Nutritious meal
4,800
Assuming 2 kids/household; estimated to cover 6mn students in 2025F
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