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Indonesia’s Pulp and Paper Industry as GDP Contributor

What are the opportunity drivers from the pulp and paper industry that can be optimized? How Indonesia has the potential to become the world’s largest producer of pulp and paper?

pulp and paper
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Currently, paper packaging is increasingly being used in various sectors. One of the industries that use the largest paper packaging is quick service restaurants (QSR) or fast food restaurants. The growth of this industry has driven demand for paper packaging products, mainly due to the takeaway preference. In addition, food ordered through delivery services also contributed to the increase in the use of paper packaging. On the other hand, increasing concern for the environment such as global warming, biodegradability, and health problems caused by plastic packaging also contributes to market growth.

How is the growth of the pulp and paper industry of Indonesia? What are the top three products which have the highest demand and show potential?

The Growth and Potential of the Pulp and Paper Industry Globally 

The market value of pulp and paper is predicted to continue to grow to USD 380.12 billion in 2030 with a CAGR of 4% for the period 2022 to 2030. Market growth was triggered by the increasing use of paper-based packaging due to the development of the e-commerce, smartphone, and internet industries, especially in developing countries. The rapid expansion of online retail in the developing countries is seen as supporting the growth. The rapid expansion of online retail in developing countries is seen as supporting growth.

The global trend that is also happening is that a number of companies and even countries are trying to create environmentally friendly and sustainable methods by enforcing regulations on the use of plastic for bags and packaging. This has also fueled a rise in paper bags as a more environmentally friendly and cost-effective substitute for plastic bags. This regulation makes shops, restaurants, supermarkets, and food service providers use paper-based packaging.

Based on its use, paper products on the global market include printing & writing, corrugating materials, tissue, wrapping paper, and others. In 2019, the corrugating segment contributed the largest revenue, namely more than 30% of the total market share in the world. Asia Pacific is a market with a higher demand for pulp compared to the European region. Asia Pacific is also one of the main pulp producers and users in the world, mainly due to high domestic demand supported by easy access to capital.

A Solid Potential of The Pulp & Paper Industry in Indonesia 

Based on data from the Rakyat Merdeka, the pulp and paper industry is also an industry that plays an important role in Indonesia’s economic growth, with a contribution to GDP of 0.67% and generating state foreign exchange reaching USD 7.5 billion in 2021. Where is this foreign exchange generated? From pulp exports worth USD 3.28 billion to several countries such as China, Korea, India, Bangladesh, and Vietnam. 

Meanwhile, the export value of paper reached USD 4.22 billion with destinations to China, Japan, Vietnam, Malaysia, and the Philippines. With this export value, paper ranks 1st, and pulp ranks 4th for exports of forestry products in 2022 in Indonesia. Not only that, but Indonesia’s pulp products also rank 1st in ASEAN and rank 3rd in Asia, while the paper is ranked 4th in Asia. At the world level, Indonesia is ranked 8th for pulp and 6th in the world for paper products.

Based on data from Fisher International, with 115 operating locations from 2014 to 2021, Indonesia plays an impactful role in the global structure of the pulp and paper industry. Forest Insight said that Indonesia has a very adequate availability of raw materials, making Indonesia present a large business potential that has a significant impact on the national economy. In 2022 Indonesia’s pulp industry production capacity will be 12.13 million tons per year, while the paper production capacity will be 18.26 million tons per year.

Also based on data from Kontan.co.id, another impact created by the pulp and paper industry are its ability to provide employment to more than 161 thousand people directly and 1.2 million people indirectly. The Indonesian pulp and paper industry still has greater potential, by diversifying its products to increase added value, such as processing dissolving pulp to become viscose rayon as a raw material for textiles.

Investment in Indonesia’s Market for Diversification of Environmentally Friendly Products

Based on data from Kontan.co.id, PT Riau Andalan Pulp and Paper (RAPP) will make an additional investment of USD 2.16 billion until 2023. The investment is intended for the construction of a paperboard-based green packaging factory with an estimated production capacity of 1.2 million tonnes per year which is recyclable and easily biodegradable. Also on AntaraNews.com that the investment would also increase kraft pulp production by 1.06 million tons and 600 thousand tons of Bleached Chemi-Thermo Mechanical Pulp (BCTMP). 

According to Kontan.co.id, RAPP is a pulp producer of the Bleach Hardwood Kraft (BHK) type and dissolving pulp which uses up to 85% biomass energy in its production operations. The RAPP factory is integrated with the downstream industry and equipped with a modern nursery capable of producing up to 200 million tree seedlings per year and around 150 million trees are planted each year. 

The new investment from RAPP indicates and answers the challenge that the Indonesian manufacturing sector is still vibrant and promising amidst the sluggish global economy. The government sees the paper industry has great potential because almost all types of paper including banknotes and valuable paper that have special specifications in meeting security aspects can already be produced domestically.

Top Demanded Products of the Pulp and Paper Industry in Indonesia

According to the report of the Food and Agriculture Organisation (FAO) 2019, Indonesia’s paper consumption based on application is divided into packaging and paperboard at 49% of the total production, writing and printing paper at 41%, and hygiene paper at 9%. There are the top three pulp and paper products demand and hereby the details of each product type.

1. Packaging and Cartons

Paper and paperboard packaging production was recorded at 6.6 million tonnes in 2020. The growth was 1.5% compared to last year and higher than the industry’s total growth, which was an average of -2%. Paper and paperboard packaging is widely used to produce cardboard boxes, kraft, sacks, to wrap paper. The growth of packaging paper and paperboard is expected to continue positively following the development trend of e-commerce in Indonesia.

2. Writing and Printing Paper

Production of writing and printing paper is the second largest in Indonesia, even though this type of product experienced a decline in growth in 2020 compared to 2019 with a total production of 5.2 million tons. The decline in production is expected to be due to the declining trend of reading offline mass media due to the pandemic. The pandemic has also forced workers and students to carry out their activities at home which has reduced the use of paper.

3. Cleaning Paper

Hygienic paper production grew by 1.4%, from 1.1 million tonnes in 2019 to 1.3 million tonnes in 2020. Some of the drivers of growth came from the increased use of tissue during the pandemic. Consumers prefer to use a tissue instead of a cloth to simply clean their hands. This growth is also predicted to continue to increase due to pandemic factors.

Enter The Indonesian Pulp and Paper Market with BRIGHT Indonesia

Because of the huge impact of the pulp and paper industry in Indonesia, of course, it takes a lot of in-depth research about the pulp and paper market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you.

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

  1. Provide assistance for you in expanding and developing your business by identification of potential partners.
  2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arranging business meetings, and acting as a liaison.
  3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.