Live Export

Indo announcement not necessarily final word on quotas

James Nason, 29/05/2013

While Indonesia has stopped short of announcing new import quotas for Australian cattle, opting instead to move second half quotas forward by a month, some optimism remains among importers that a further boost to cattle import orders may still be likely.

A prime motivation behind Indonesia’s decision to ease some restrictions on beef import quotas this week, a move which runs counter to its five-year beef self-sufficiency plan, is to rein in runaway inflation.

In some ways Indonesia’s self-sufficiency drive has been responsible for triggering the inflationary problems that are now causing Jakarta to ease some of the import restrictions which underpin the policy.

It is well documented that the drastic reductions Indonesia has made to import quotas for beef and cattle since 2010 have resulted in a severe supply squeeze in the market, which has pushed beef prices to record heights.

Soaring beef prices have in turn contributed to higher prices for chicken and other foods which have helped to drive up the annual rate of inflation, now running well above 5pc.

This comes as the Indonesian Government is facing significant pressure to reduce or remove the generous subsidies it provides to keep fuel prices at inexpensive levels for consumers.

The fuel subsidy is set to cost the Indonesian economy an unsustainable $30 billion this year, a blowout that is putting enormous pressure on the Indonesian Government to reduce or remove it.

A key problem is that any move to reduce the subsidy will force up fuel prices which in turn will contribute even more to soaring inflation.

As one source within Indonesia explained to Beef Central yesterday, the Indonesian Government wants to bring food prices under control before it cuts fuel subsidies, to reduce the overall impact on inflation. Therein lies the mounting urgency to improve beef supplies as quickly as possible, particularly with the peak period of demand for beef – the Ramadan festival in July-August – now just around the corner.  

“The key driver in all of this has been their decision to restrict beef and cattle imports, because that has driven food prices higher, and a lot of other things higher with it, and now they have to reduce the beef price in order to rein food prices back in before they decrease the fuel subsidies,” the source explained.

Indonesian’s trade ministry has been in favour of increasing beef and cattle import quotas to improve beef supplies and stabilise prices in Indonesia, while the agricultural ministry, which has championed the self-sufficiency policy, has strenuously resisted moves to increase imports to date. 

However it is understood that with beef now in critically short supply heading into Ramadan, and the potential that exists for beef to be pushed even higher than the 100,000 Rupiah per kilogram level that prices hit last year, the agriculture ministry has quelled its opposition to import increases for the time being.

The revised quota arrangements announced by Indonesia’s trade minister Gita Wirjawan on Monday night contain no new quota for live cattle, but do bring forward second semester quotas by one month, which will help exporters to make use of shipping currently floating underutilised at great cost.

Contacts within Australia’s cattle export trade and Indonesia’s import trade appear divided on the question of whether the urgency Indonesia is facing to stabilise beef prices will result in actual increases in live cattle quotas.

Some take the view that as long as agriculture minister Suswono holds an influential position within the Indonesian Government, any major diversion away from the self-sufficiency will be unlikely.

However some import industry sources have indicated they believe significant quota increases are still likely, this year at least, as part of the current one-off push underway to manage beef prices.

As part of this week’s announcement, the Indonesian trade minister said the National Food Logistic Agency (Bulog), a government agency responsible for regulating rice imports and domestic supplies to keep prices at affordable levels in Indonesia, will be given expanded powers to issue exclusive quota for the import of animals or animal products, with the specific aim of stabilising beef prices at consumer level.

One importer said trade minister Wirjawan has indicated in meetings with importers this week that the Bulog will be given license to issue about 20,000t of additional quota this year, or about 3000t per month, over and above the decision to open the high-end beef market to air-flown prime beef cuts.

If the 20,000t figure as explained to importers proves correct, it would have the potential to make a significant difference to supplies and prices in the market, in contrast to the allowance for air-flown prime beef imports, which will ultimately involve small volumes of chilled beef for the five-star restaurant trade.

Based on a standard calculation of 180kg of beef per head, 20,000t of quota would amount to the equivalent of 111,000 cattle.

Quota is typically divided between boxed beef imports and live cattle imports. Boxed beef imports provide the advantage of offering an immediate solution to supply shortfalls, while live cattle imports encourage local employment and value-adding opportunities within Indonesia, and supplying beef to the many areas where refrigeration and cold-chain infrastructure does not exist.

One importer believes the decision to bring third and fourth quarter quotas for live cattle forward is designed to make room for new quota later in the year, with the Indonesian Government currently conducting a census of domestic cattle numbers to determine actual supply and demand needs.

“I think it is a reasonable assumption that we are going to see new quota at some stage,” the cattle importer told Beef Central.

“As to when we that happens, that is the news everyone wants to hear.”
 

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