IN A decision that has stunned Indonesia’s cattle feeding industry, the Indonesian Government has collectively fined 32 Indonesian lot feeders, including the largest importers of Australian cattle, 106 billion Rupiah or A$10.4 million, for alleged ‘cartel behaviour’.
The massive fines were handed down by Indonesia’s Business Competition Supervisory Commission (KPPU), which said the importers were fined on suspicion of having withheld the supply of finished cattle to market last year in order to manipulate beef prices in the Greater Jakarta area.
Indonesian importers and the broader Indonesian business community have reacted with astonishment to the decision.
Importer representatives have rejected the allegations as unfounded and say the investigation has “totally disregarded normal market dynamics”. They argued during the investigation that importer business models do not allow them to withhold products from the market as the KPPU has alleged.
Indonesia Chamber of Commerce and Industry (Kadin) spokesperson, Permata Adoe, said he “deplored” the agency’s decision, saying it would undermine legal certainty in the Indonesian beef industry.
“We are still in a process of working with the government to increase investment and jobs in the industry. But now the KPPU takes an opposing position,” he said, in comments reported by the Jakarta Globe.
The origins of the issue go back to August last year when Indonesian beef prices surged to record heights in response to a severe shortage of beef in the market.
The tightening of supply followed an Indonesian Government decision to restrict import permits for the crucial Ramadan quarter to just 50,000 cattle, well short of the 200,000 head volume Indonesia had imported in the corresponding quarters of preceding years to ensure supply for the peak annual beef demand period.
The permit cutback coincided with comments reflecting a return to nationalistic policies designed to promote and protect Indonesian beef production, with Indonesian president Joko Widodo stating at the time that Indonesia must “have the courage to stop beef imports”.
In the following weeks prices in Jakarta wet markets soared to record levels of 140,000 IDR/kg, causing butchers to strike and fuelling consumer unrest.
As the tensions mounted the Indonesian Government claimed that the high prices were caused by importers engaging in ‘cartel’ behaviour and deliberately withholding slaughter-weight cattle from market.
Indonesian Police were ordered to conduct night-time raids on feedlots holding Australian cattle. Several feedlots were sealed and all importers were ordered to immediately sell all slaughter weight cattle to alleviate the beef supply shortage and bring prices down. This was despite importers being allocated no new import permits to bring in more feeder cattle to replace the fed cattle they were being ordered to sell.
In public comments at the time the Indonesian Government claimed importers were trying to hold back supply to push prices higher with the aim of inciting a public backlash to increase pressure on the Government to release more import permits.
Importers explained that with no permits available to bring in more cattle, the only way they could produce more beef to alleviate the supply shortage was to hold cattle on feed for longer to add more weight and produce more kilograms of beef per animal.
They were also concerned about the impact the order to immediately sell all cattle would have on their butcher customers. Feeding cattle onto the market in a consistent manner was required to ensure a consistent supply of beef to market for the Ramadan period, they argued.
As public unrest about surging beef prices grew, the Indonesian Government issued a special import permit for 50,000 slaughter-ready cattle. But rather than issuing the permits to private importers as usual, it appointed Indonesian Government food logistics agency Bulog to manage the distribution of the permits.
President Joko Widodo and trade minister Rachmat Gobel publicly referred to a “beef mafia” holding stock back from the market: “There are certain groups that deliberately hold on to the beef supply to raise the price; it is being investigated,” Mr Joko said at the time.
Well before the market spike Indonesian media had presciently predicted that the Indonesian Government’s push to clamp down on imports and its “nationalistic” approach to food policy would cause beef prices to soar by as much as 50 percent.
Teguh Boediyana, chairman of the Indonesia Cattle and Buffalo Breeders Association (PPSKI), said Indonesian policy makers had overestimated the size of the country’s domestic cattle herd, which had led to the “stricter-than-necessary curbs” on beef imports.
The spokesman for the Indonesian Cattle Importers Association (APFINDO), Jono Liano, said the price rise and resulting butchers strike was caused simply because there was no supply of beef, not because importers were intentionally withholding supply.
The issue had all but disappeared from public discourse since the new slaughter permits were released last August.
Massive fines for 32 companies
It suddenly re-emerged after the KPPU handed out significant fines to 32 importers in response to the Indonesian Government’s allegations of ‘cartel behaviour’.
The single biggest fine of Rp 21 billion (A$2 million) was imposed on the Tanjung Unggul Mandiri (TUM) company.
The company’s lawyer Nurmalita Malik told Indonesian media that TUM never colluded with other companies to fix beef prices and said the company’s business model would not permit it to withhold products from the market as the KPPU alleged.
She said that in addition to the charges imposed, the size of the sanctions was unfounded.
The fines will severely compound the financial pressure Indonesian importers who are currently squeezed between having to pay high prices to buy Australian cattle while the domestic slaughter market continues to weaken as the majority of consumers refuse to pay prices for fresh beef that will allow importers any chance of breaking even.
Included in the fines was the Indonesian operations of Australian agribusiness giant Elders, and the Agro Giri Perkasa feedlots, 80pc owned by Consolidated Pastoral Company and 20pc owned by Greg Pankhurst and Dicky Adiwoso.
Investigation shows ‘total disregard for market dynamics’
People within the trade Beef Central spoke to on Sunday, but who refused to be identified publicly, said the Indonesian feedlot industry had been left “truly shocked” by the fines, with one saying the investigation appeared to ignore any facts presented by industry and “totally disregard the basic principles of free market dynamics”.
That the fines were imposed on so many companies, including some that sold no cattle to the Jakarta wet markets during the period in question and supply only high end retail and modern supermarkets, has also stunned the industry.
KPPU chairman of the Commission, Muhammad Syarkawi, quoted in Indonesian media on Sunday, said the fines would create “a deterrent effect on the perpetrators of the cartel”.
He said fines for individual importers were calculated on a formula of 30pc of the estimated profits of their business.
“The companies use their position to withhold, or to reschedule the sales of beef, resulting in an artificial shortage in the market and rising prices, which are hurting consumers,” Syarkawi said.
The 32 companies fined have been identified in Indonesian media as:
- Agrisatwa Jaya Kencana
- Agro Giri Perkasa
- Andini Agro Loka
- Andini Karya Makmur
- Andini Persada Sejahtera
- Austasia Stockfeed
- Bina Mentari Tunggal
- Brahman Perkasa Sentosa
- Catur Mitra Taruma
- Citra Agro Buana Semesta
- Elders Indonesia
- Fortuna Megah Perkasa
- Great Giant Livestock
- Kadila Lestari Jaya
- Kariyana Gita Utama
- Karunia Alam Sentosa Abadi
- Karya Anugerah Rumpin
- Legok Makmur Lestari
- Lemang Mesuji Lestary
- Lembu Jantan Perkasa
- Mitra Agro Sampurna
- Mitra Agro Sangkuriang
- Nusantara Tropical Fruit
- Pasir Tengah
- Rumpinary Agro Industry
- Sadajiwa Niaga Indonesia
- Santosa Agrindo
- Septia Anugerah
- Sukses Ganda Lestari
- Sumber Cipta Kencana
- Tanjung Unggul Mandiri
- Widodo Makmur Perkasa
See Ross Ainsworth’s comment piece on the latest developments in Indonesia: Indonesian beef cartel guilty of price fixing & market manipulation: Please explain?