Income redistribution: More money to lower-tier cities and rural areas

We believe reducing the income gap between rich and poor is the ultimate goal of President Prabowo. In our analysis, Indonesia’s income inequality issue has been at an acute stage (see Fig. 2-7); this issue very likely could induce growth stagnancy and even potential social unrest in the future. In our view, agriculture reform, free nutritious meals, and Merah Putih cooperative programs will play vital roles in improving Indonesia’s Gini ratio for at least the next five years. Those three programs will gradually reallocate liquidity from central economy areas such as Jakarta, shifting it to lower-tier cities and rural areas. We believe these initiatives should benefit the low-end-income segment if the programs executed well. On the other hand, this reallocation has been negatively affecting middle-income-class purchasing power, translating to lower spending on hospitality and discretionary items. In fact, in on our previous report (read: Consumer result review 1Q25), we observed that middle-income-class consumers cut their expenses on discretionary items, increasingly downtrading to value-for-money products, and even preferring to shift into in-home consumption to save money.

Agriculture reform: rising farmer income

Among the three main programs mentioned above, agriculture reform has been executed well, in our view. The government has pushed three main strategies to accelerate paddy and corn production since 4Q24, such as 1) providing free water pumping tools to ensure water sufficiency during drought periods, 2) faster fertilizer subsidy delivery, as factories now can directly send to farmers via a streamlined distribution channel bypassing local government procedures, and 3) rising paddy and corn floor prices by ~10% at the farmer level, stimulating farmers to plant more frequently. As aresult, based on USDA data for 2024/2025, paddy production yield reached the highest in the past seven years, while corn farming generated a record-high production (see Fig. 8-17). With higher production yield, higher average selling prices, and lower fertilizer costs, farmers now have more disposable income. We note that the number of farmer households was 28.4mn in 2023 (37.9% of total Indonesia households), with the population reaching roughly ~100mn, making them the largest segment of the Indonesia workforce and the biggest customer base for the FMCG industry.

Free nutritious meal program: Incentives for students + job creation

The free nutritious meal program currently covers 1.1k kitchens (~3.3mn students’ coverage) as of Apr-25 (vs. 32k kitchens and 83mn students’ coverage target), while budget disbursement was still at IDR2.3tn (1.3% of total target). We view this as promising progress, given the complexity of implementation. The government plans to boost the number of kitchens opening starting on Aug-25 onwards (see Fig. 18) on the back of additional supply of trained staff (accountant and nutritionist), not to mention favorable a payment system (shifting from reimbursement to 10-day payment upfront model), which may encourage more private partners to join and build infrastructure. Hence, we are likely to see a surge in liquidity disbursement in 4Q25F onwards, which also will boost low-end consumption. Based on our analysis (see Fig. 19 and read: Follow the money), student households may enjoy +27% disposable income from the free nutritious meal program; the 32k kitchen target also potentially could absorb ~1.1mn workers (assuming 35 staff per kitchen), and more importantly more money would be allocated in a widespread manner through local food suppliers in every province (the amount of money could be 2.9x average village expenditure).    

Merah Putih cooperative: offtaker + stabilizer + distributor

Government aims to open ~80k cooperatives, mostly in villages, through the Merah Putih cooperative program. This program is expected to be launched in Jul-25. The Merah Putih cooperative will operate seven business functions, such as 1) warehousing and cold chain, where they will be the offtaker for farmers’ crops at regulated prices and will store the goods; 2) grocery stores to sell staple products (i.e., cooking oil, gas, rice,), that will be sold at regulated prices to stabilize the inflation rate; 3) logistics with transportation (i.e., trucks) to manage an efficient logistics chain; 4) health clinics to provide affordable and accessible services; 5) drug stores to help distribute affordable medicine; 6) financing services to improve financial inclusion and to support local businesses; and 7) coordination offices. Execution risks would be quite high, given the significantly large amount of funds and staff required. But if executed well, we expect an abundance of money circulating in villages and potentially can absorb 1.6mn workers. However, given the difficulties, we predict substantial implementation will be seen within a couple of years (see Fig. 21-22).

The first beneficiary should be FMCG-related sector

We believe agriculture reform, the free nutritious meal program , and the Merah Putih cooperative will be the main priority programs under President Prabowo’s regime; therefore, we favor stocks that benefit from those programs directly or indirectly. The sector that clearly will get a tailwind, in our view, would be the FMCG sector in general, as most of the beneficiaries are low-end income that come from a low-base and FMCG is the most affordable luxury entertainment that they can enjoy. More money will flow to lower-tier cities and rural areas, which should benefit retailers and FMCG firms with large distribution and point-of sales coverage such as Alfamart (AMRT IJ, Buy), Alfamidi (MIDI IJ, Buy), Indofood CBP (ICBP IJ, Buy), Mayora Indah (MYOR IJ, Buy), and Garudafood (GOOD IJ, Not rated). But for more specific impacts, we expect that the richer farmers may tend to spend more and upgrade their coffee and cigarette products as their daily consumption. Hence, companies such a MYOR and Wismilak (WIIM IJ, Not rated) could potentially enjoy higher demand. From the free nutritious meal program, we suspect students may use their pocket money fully for snacking activities. Hence, affordable snack companies such as ICBP, GOOD, and MYOR (all rated Buy) could capture this trend. Lastly, the implementation of village cooperatives may add more drug stores as new points of sales for healthcare manufacturers and distributors like Kalbe Farma (KLBF IJ, Buy), Medela Potentia (MDLA IJ, Not rated), and Enseval Putera Megatrading (EPMT IJ, Not rated).

Fig. 1: FMCGs + Retailers valuation table

Fig. 2: Indonesia Gini ratio (%) trend

Fig. 3: Gini ratio index (base 2003 = 100) by countries

Fig. 4: Indonesia's distribution of income and consumption, by decile 2020 (D1 – D10 = poor to rich)

Fig. 5: Indonesia GDP per capita (USD) 2023 by areas

Fig. 6: Indonesia continuous village fund disbursement since 2015 (IDRtn)

Fig. 7: Indonesia social aid budget trend (IDRtn)

Fig. 8: 28.4mn (37.9%) out of total 75.0mn Indonesia households are farmers related

Fig. 9: Indonesia's number of workforce by sector (mn people) in 2024

Fig. 10: Indonesia rice production (mn tons)

Fig. 11: Indonesia corn production (mn tons)

Fig. 12: Indonesia paddy production yield/ha (tons)

Fig. 13: Indonesia corn production yield/ha (tons)

Fig. 14: Indonesia rice reserve in Bulog (mn tons)

Fig. 15: Indonesia unhulled rice price in farmers level vs. fertilizer price trend

Fig. 16: Indonesia corn price trend (IDR/kg)

Fig. 17: Indonesia farmer terms of trade (NTP) is indicator to measure the wealth of farmer with formula of selling price index/cost index

Fig. 18: Free nutritious meal program timeline realization

Fig. 20: Free nutritious meal’s financial disbursement mechanism

Fig. 21: Merah Putih cooperative business operations

Fig. 22: 20k villages have agreed to established Merah Putih cooperatives (only legal and organization structure, not the infrastructure and business operation development)

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)