March is shaping as a challenging month for Australia’s live cattle industry as the realities of Indonesia’s recent quota cutbacks take effect.
The Indonesian government has issued import permits for 60,000 feeder cattle for the current January-March quarter, well below the 90,000 head volume Australia exported to the market during the equivalent quarter last year.
Most exporters expect this quarter’s 60,000 head quarter to be all but filled by the end February, given that Australia exported more than 70,000 cattle to Indonesia during January and February alone last year.
If that happens, exporters will face at least one month without their major market until new import permits for the second quarter are issued by Indonesia in early April.
They are now under pressure to find alternative markets to keep surplus shipping capacity gainfully utilised during March.
Exporters have to pre-book shipping capacity 12 months in advance and cannot simply relinquish the cost of carrying chartered vessels when orders fall short of the previous year’s expectations.
If alternative orders cannot be found, they also face significant demurrage costs, which can range from several thousands of dollars to more than $20,000 per day depending on the size of the vessel, when ships are lying idle in port.
“Exporters in the last couple of weeks have been scrambling to see where else within their markets they can place the ships,” Northern Territory Live Exporters Association chief executive officer Kevin Mulvahill told Beef Central on Friday.
The quota cutbacks are central to Indonesia’s well-documented aspirations to achieve self-sufficiency in beef production by 2014.
The country’s June 2010 move to enforce 350kg weight limits on cattle imports was an earlier manifestation of the same policy.
There are now signs it wants to increase imports of breeding cattle to support its self-sufficiency push. Media reports said the issue was discussed when Australia’s foreign minister Kevin Rudd visited senior Indonesian ministers in Jakarta earlier this month.
Mr Mulvahil said that while he was not aware of Government-level confirmation of increased orders, he was aware of anecdotal reports of an increase in inquiry for breeding type cattle into Indonesia.
Breeding cattle are subject to a separate import protocol and are not included in the 60,000 head feeder cattle quota for the current quarter. Mr Mulvahil said it was up to individual breeding projects in Indonesia to apply for permits through the Indonesian Ministry of Agriculture.
Specifications were typically for high-Brahman content heifers, while pregnancy status differed from order to order.
The more stringent protocols surrounding breeding cattle imports generally meant that it cost more to import breeding heifers compared to feeder heifers.
While there had always been a number of shipments of breeding cattle from Australia into Indonesia each year, the reduction in quotas for feeder cattle meant that orders for breeding cattle were gaining prominence, with more exporters competing for them.
Mr Mulvahil said the constantly shifting trading environment with Indonesia was proving to be a learning process on both sides.
While Indonesia maintains its push for full self-sufficiency, Australian exporters were continuing to invest in supply chain upgrades to support the long-term feeder cattle export trade to the country.
Exporters were focused on rebuilding trust with Indonesia and assuring customers that Australia was is still a reliable trading partner.
The feeder cattle trade was a natural fit for both countries – Northern Australia was ideally suited to breeding tropically adapted feeder cattle for the Indonesian market, while Indonesia’s resources of abundant labour and low cost-feed meant it was ideally suited to feeding them.
“It is about focusing on the long term, and getting the market place to a standard that will allow for the trade to continue at a higher level in the long run,” he said.
“If we can prove to Indonesia that they can rely on Australia as being a good trade partner and ensure that their food security to some extent is protected, the trade should be able to go along and rebound stronger continue it in the long term .”