Global Business Guide Indonesia

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Manufacturing | Indonesia’s Recycling and Bio-based Plastic Sector: A Promising Future Investment

Indonesia has a major problem with plastic which is only set to worsen with further economic development and rising levels of consumption. A study published in the journal Science named Indonesia as the world’s second largest source of plastic waste dumped into the sea after China. The country produced around 3.2 million tonnes of plastic waste in 2010 and an estimated 0.48 – 1.29 million tonnes of that waste ended up at the ocean.

To tackle this issue, the government has made a commitment to reduce waste by 20% in 2019. One route to achieving this goal is by reducing, recycling, and reusing plastic waste and developing environmentally friendly as well as biodegradable plastic products.

However, Indonesia’s recycled plastic and bioplastic industry, which is expected to help the country achieve its waste reduction goal is frustrated by the lack of government support. Instead of receiving incentives from the government, the sector has been hamstrung by a variety of taxes which have hampered its growth.

Indonesia Biobased Recycled Plastics
Plastic business players argue that Indonesia’s plastic waste problem is not caused by the country’s plastic consumption but due to its poor waste disposal and management system.

Growing albeit slowly

Indonesia’s recycled plastic and bioplastic industry has recorded sluggish growth in the last few years in line with the decline in oil prices which led to the fall in plastic raw material prices. Recycled plastics are mostly traded in the domestic and export markets in the form of plastic chips, dacron for doll filling, geotextiles for road construction (See High Stakes for Indonesia’s Infrastructure Sector), home furnishings and furniture.

According to the Indonesian Plastic Recycling Association (Adupi), which was established in 2015 and has 200 members, the market potential for recycled plastics in the country is extensive. Out of the 4.6 million tonnes of domestic plastic consumption in 2016, 600,000 tonnes was recycled plastic (See Indonesia's Plastic & Packaging Industry: Still Dependent on Raw Material Imports).

In terms of the export market, seven companies dominate the sector; most notably Langgeng Jaya Group, which exports nearly 10,000 tonnes of recycled plastics a month at a price of IDR 5,000 per kg. Its largest export markets are China, South Korea, Europe, and Japan.

Meanwhile, unlike recycled plastic, bio-based plastic consumption in the country is still low. According to the Association of Indonesian Olefin, Aromatic and Plastic Industry (Inaplas), biodegradable plastic consumption is still less than 1% or around 3,000 tonnes a year.

There are many factors behind the sluggish growth of the bioplastic industry, from costly technology and raw materials to the reluctance of the retail and the food & beverage industry to use it given the higher costs associated with it. Nevertheless, the Ministry of Industry has set a target to increase bio-based plastic consumption to 5% of total national plastic consumption in the near future.

Key challenges

Raw material issues

One of the challenges facing the Indonesian recycled plastic and bioplastic industry is the slump in oil prices, the main ingredient of conventional plastic, which has put pressure on the prices of recycled and bio-based plastic products.

Another huge challenge is the country’s poor waste management system. Unlike Thailand and Singapore which have arrange for waste sorting at a household level, Indonesia’s recycled plastic industry has to manually collect and sort the garbage through the help of individual trash collectors which takes more time and money.

Meanwhile, bio-based plastic also faces a similar supply side issue. Bioplastic is a polymer made from naturally occuring materials such as corn, cassava, sugarcane, palm oil biomass, potato or microbiota. This type of plastic is biodegradable because it is made from natural components. Other benefits include high permeability, moisture content, and evaporation rate which are capable of keeping fruits and vegetables fresh up to three days longer.

Most domestic bio-based plastics are currently made from cassava. This has made it difficult to mass produce bioplastics as cassava is an important commodity in the Indonesian food supply chain and the country still imports cassava to meet its domestic needs.

Tax burdens

A further challenge faced by the recycled and bio-based plastic industry is the various taxes levied on it. In addition to the common income tax, the government also imposes 10% value added tax (VAT) and even proposed to the House of Representatives to charge an excise tax on plastic products including plastic packaging and bags.

The government, in this case the Ministry of Finance, argued that plastic products are harmful to human health and the environment so that its consumption must be controlled through the imposition of an excise tax. Meanwhile, Adupi and 16 other members of the Cross Association Forum of Plastic Manufacturers and Consumers (FLAIPPP) are strongly opposed to the plan as it will cause plastic prices to soar.

This will in turn make local products that rely on plastic packaging, including 80% of the food and beverage industry, uncompetitive both in domestic and export markets. This will result in a slowdown of economic growth, fewer jobs in the sector and eroded state revenues (See Thirst Quenching: Indonesia’s Food & Beverage Industry).

A study by the Faculty of Economics and Business of the University of Indonesia in 2016 revealed that the imposition of an excise tax on plastic packaging could result in the state losing up to IDR 528 billion per year. Based on this simulation, the state will earn revenues of IDR 1.91 trillion per year from plastic excise tax but will lose out on IDR 2.44 trillion.

Plastic business players argue that Indonesia’s plastic waste problem is not caused by the country’s plastic consumption but due to its poor waste disposal and management system which is not in compliance with Law No. 18 of 2008 on Waste Management. Based on data from Inaplas, the country’s plastic consumption of 17 kilograms per capita per year is much lower than other countries. Plastic consumption in Western Europe, for instance, reached 100 kilograms per capita per year.

More government support needed

Despite its tremendous contribution to reducing plastic waste in the country, the Indonesian government’s support for the recycled and bio-based plastic industry is still lacking. The industry has long proposed to the government to waive VAT on their products. They have also asked the government to provide incentives to boost the growth of the industry.

In response to the industry’s request, the Ministry of Industry is considering to make the use of bioplastics mandatory to reduce conventional plastic consumption. This is in line with the green industry concept which will be included in the amendment of Law No. 5 of 1984 on Industry.

Moreover, the Ministry of Industry is also considering to require supermarkets to provide bioplastic bags for their customers like those in the UK, the Netherlands, Italy, and Austria. In addition to reducing plastic waste and reducing the impact on the environment, the move is expected to boost the demand for and sales of bio-based plastics which will in turn drive down its price.

A promising investment for the future

Indonesia’s plastic waste has doubled in the last 11 years which is dominated by food and beverage packaging. This offers huge opportunities for both the recycled plastic and bioplastic industry which can maximise their profits while helping the government solve its waste problem.

we are looking to support the 3R initiative – Reduce, Reuse, and Recycle – in Indonesia in order to raise greater awareness on plastic recycling methods

In terms of technology and production capacity, the sector is more than ready to tap into the plastic market. However, they need the government’s support in the form of tax and fiscal incentives to help them compete with cheaper and abundant conventional plastics. Improving the waste management syatem, removing VAT, cancelling the imposition of excise taxes and requiring supermarkets to use recycled and bio-based plastics can tremendously help the industry to grow.

Currently, there are a number of players engaged in biodegradable plastic production. One of them is Avani, an eco-technology startup which produces bio-based plastic from cassava. A further player is PT Inter Aneka Lestari Kimia which also produces bioplastics from cassava flour under the brand name ENVIPLAST®. The company has 30 production lines and is able to produce bioplastic ore and bags up to 300 tonnes and 250 tonnes per month. Its total production capacity is up to 30.000 tonnes per annum.

Another major player is PT Harapan Interaksi Swadaya which produces Ecoplast, a bio-based plastic made from cassava and Oxium, a recycled conventional plastic. The company has five production lines with a monthly capacity of 600 tonnes of which around 80% are exported.

Despite slow sales growth, the prospect of recycled and bio-based plastics in Indonesia is still promising in line with the increased awareness surrounding environmental issues. This is especially true if the government keeps up its commitment to reduce waste by 20% in 2019.

Nevertheless, going forward, the government and the industry have to look for other alternative raw materials or boost production of existing commodities that are inexpensive and abundant that would allow for the mass production of recycled and bio-based plastics to help drive down their prices. This will eventually speed up the adoption of bioplastics at a critical turning point given Indonesia’s rising level of plastic consumption.

Global Business Guide Indonesia - November 2017

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Indonesia Manufacturing Snapshot

Contribution to GDP: 18% (2015)
Sector Growth: 5.5% (yoy, 2015)
Number Employed in the Sector: 16 million (2016)
Highest Minimum Wage by Province: 3,350,000 IDR/month (DKI Jakarta)
Lowest Minimum Wage by Province: 1,631,245 IDR/month (West Nusa Tenggara)
Main Areas: Automotive, Electronics, Textile & Garment, Footwear, Food & Beverages, Metal Products, Chemicals.
Main Export Markets: USA, Japan, China, Turkey, South Korea, Germany, Singapore, Thailand, Philippines, Saudi Arabia, Malaysia.