Thekabarnews.com—The Djarum Group, which has long been known as one of the biggest kretek cigarette producers in Indonesia, is making a serious entry into the dairy business. They are developing a large-scale integrated dairy farm in Brebes, Central Java.

The company is developing a dairy farming project through its subsidiary PT Global Dairi Bersama on some 710 hectares of land. The farm will have a capacity of up to 30,000 dairy cows.

The project is designed to produce about 180,000 tons of milk a year. Therefore, it is one of the country’s biggest dairy farm investments.

The Brebes project is a big step up for the company’s dairy ambitions compared to Djarum’s existing dairy farm in Subang, West Java. That farm is home to some 6,000 cows.

At first glance, the move looks like a normal business expansion. However, it is part of a much bigger long-term diversification strategy. In the long run, a conglomerate like Djarum can’t afford to rely too heavily on a single source of revenue.

The tobacco business is still a very lucrative one. Nonetheless, it is under increasing pressure from excise taxes, public health regulations, restrictions on advertising, and changing consumer attitudes to smoking.

Big companies do not usually wait for a downturn in their core business to line up alternatives. Instead, they build new pillars while the existing businesses are still strong. Djarum has been following that strategy for years.

The group has expanded well beyond cigarettes to encompass banking with Bank Central Asia (BCA) and electronics with Polytron. It has also entered the property, retail, technology, venture capital, and food and beverage businesses.

The dairy sector appears to be the next strategic frontier. Milk is a very attractive industry because of its direct link to daily household consumption and school nutrition. It is also vital for food manufacturing and government food security programs.

Indonesia also has a large structural gap. The production of fresh milk in the country is still far from fulfilling the needs of the people. As a result, the country is heavily dependent on imports. This provides a lot of market space to local producers.

Djarum is also more engaged in the upstream production process by developing its own dairy farm instead of just introducing a milk brand. In the dairy sector, it is often more vital to manage the raw ingredients than just the branding.

And farm ownership means better quality control, a more stable supply, and stronger long-term cost efficiency. This is in line with MilkLife, a dairy brand of Djarum under the Savoria Group food and beverage ecosystem.

With large-scale farm ownership, MilkLife can compete not only on packaging and promotion but also on stronger production credibility as well. However, the dairy market is anything but vacant.

Major milk, yogurt, and processed dairy product players such as Ultra Jaya and Cimory already dominate significant market segments. The market Djarum enters is highly competitive, not an easy one.

The company, however, has strong capital, wide distribution networks, and decades of long-term corporate experience. Patience is essential in dairy farming. It doesn’t get results overnight.

Big farms require land management, animal health systems, feed supply, cold chain logistics, waste management, and processing facilities. This undertaking is not a business that is based on short-term trends.

The Brebes project can also have a major impact on the local economy through job creation and support for feed farmers. It will also help the establishment of a new agricultural ecosystem in the region.

But environmental management will remain a major test, especially in the areas of waste, water consumption, and land sustainability.

This is more than just a milk story for Djarum. It’s a business survival move. The company is not quitting cigarettes; it is creating more legs to stand on, and this time one of those legs is a giant glass of water.

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