While any boost to import quotas from Indonesia is good news for Australia’s northern cattle industry, the trade continues to grapple with conflicting signals and deep uncertainty, despite last week’s announcement of additional quota.
The quota situation appears to be changing on an almost daily basis as Indonesian Government leaders look to develop a new policy that protects local cattle production while allowing enough beef to be imported to prevent supply shortages and massive price spikes, which are currently occurring during Ramadan.
Wet market prices have hit 120,000 Indonesian Rupiah per kilogram in the past week, well above the high prices of last year, reflecting the additional impact of severe cutbacks to boxed beef imports on top of already reduced feeder cattle imports.
As the cost of beef makes it harder for Indonesian consumers to enjoy the traditional Ramadan staple of Beef Rendang, Indonesian president Susilo Bambang Yudhoyono recently berated his trade and agriculture ministers for not doing enough to address the supply shortage and to stabilise prices.
That high-level pressure was said to be the major catalyst for last Friday’s sudden decision by trade minister Gita Wirjawan to release emergency quota for the import of 25,000 head of slaughter cattle.
The quota situation appeared to change again on Saturday when Mr Wirjawan told Indonesian newspapers that the Government is also planning to abolish import quotas altogether, in favour of a new system that will allow imports to increase whenever the local price for beef rises 15 percent above a “parity” or benchmark price.
Despite those statements, the Australian Government and cattle industry have yet to receive any official confirmation that will happen.
While last Friday’s 25,000 head quota announcement was seen as a boost for Australia’s cattle industry, the deal has also come with a new degree of price manipulation that has not previously been seen in the market.
In allocating the new quota, Indonesia’s trade minister Gita Wirjawan has told cattle importers behind the scenes that they will not be able to sell cattle above a maximum price that he sets. Any that sell beef above the price cap will not be issued permits in future.
The minister has also told importers to sell all cattle that they imported during the second quarter (April to June) from their feedlots by the end of August.
The policy is designed to force a significant supply of low-cost beef onto the market to reduce beef prices during Ramadan, however, it is also causing significant problems for importers.
They have yet to be told at what level prices for finished cattle will be capped. It is understood the minister will calculate the cap price for finished cattle based on the end-price he wants to see achieved for beef in Indonesian wet markets – said to be around 75,000 Indonesian Rupiah per kilogram.
In the past Indonesia has operated as a free market, with importers able to sell the cattle they import and finish to market weights for whatever price they can attain in the market place.
Indeed, as importers explained to Beef Central earlier this year, the ability to gain a higher price for finished cattle in the current supply-starved environment has been essential to many feedlot businesses remaining viable in the face of dramatically reduced throughput volumes caused by Indonesia's import quota cutbacks.
New developments on the quota front that have been communicated by importers to Beef Central this morning include an announcement that fourth quarter (October to December) quota for 46,000 feeder cattle will now be able to be imported in September, and additional quota for the rest of the year may be released after Lebaran in mid-August.
Importers have also been told that further permit for slaughter cattle, in addition to the 25,000 head announced last Friday, may be issued if prices in the market drop significantly.
Importers say they desperately need clarification as to whether quota is in or out, and whether the 350kg weight limit will remain in place, or if it will be replaced by the parity pricing mechanism raised by Mr Wirjawan in the Indonesian media on Saturday.
One Indonesian import industry source said a number of importers are asking the Indonesian Government to consider simply increasing the weight limit from a cap of 350kg to a cap of 380kg.
Their argument is that this would significantly increase available supply from northern Australia, while keeping out slaughter weight cattle that can undercut local cattle on price.
At 380kg, imported cattle are still well below the 420-460kg weight range desired by butchers in wet markets, and would still suit the mandated requirement for imported feeder cattle to be fed for a minimum of 60 days in Indonesia.
An Australian industry source told Beef Central that the constantly changing policy environment in Indonesia stood as the major barrier to Australian companies responding to Indonesia’s requests for co-investment in its cattle and beef industry supply chain.