There are fears that further cutbacks in live cattle import quotas to Indonesia could be the straw that breaks the camel’s back for some of the many northern cattle operations that depend upon the trade.
Few sectors of Australian agriculture are as heavily reliant upon a single market as the northern live cattle trade is to Indonesia.
The market grew out of mutual complementarity, with Northern Australia able to produce large numbers of tropically-adapted cattle but unable to finish them to viable slaughter weights, and nearby Indonesia lacking the numbers or logistics required to satisfy local beef demand but with an abundance of high-quality and low cost feed available from agricultural by-products to grow cattle.
A world-class feedlot industry developed around the trade in the 1990s and 2000s, with the market taking more than 700,000 cattle in 2009 alone.
However since then the northern cattle industry has experienced tough times, with Indonesia’s renewed political resolve to achieve self-sufficiency in beef production, and increased pressure from animal rights groups leading to a series of high-impact trade disruptions that have dramatically undermined the industry’s viability.
A combination of Indonesia’s July 2010 enforcement of 350kg weight-limits on imported cattle, the Australian Government’s June 2011 suspension of the trade due to animal welfare issues in Indonesian abattoirs, and Indonesia’s decision to halve import quotas in 2012, followed by further cuts for 2013, has hit the viability of the northern cattle industry hard.
Balanced against that is a recognition that northern cattle industry fortunes could turn around just as quickly were Indonesia to suddenly increase import quotas.
Pressure to do that is rising as a beef shortage in the market forces beef prices to double their normal levels.
However, despite that pressure, the Central Government has shown no signs yet of diverting from its tough stance on imports prior to the next presidential elections in 2014.
Many in the northern cattle industry, already feeling the squeeze of rising costs, falling land values and worsening debt-to-equity ratios, are now facing a second consecutive year of severely restricted cashflows as a result of Indonesia’s import cut backs.
Industry leaders have expressed concern that it may only be a matter of time before more banks start moving on financially-stressed operations.
“It is all pretty tough and it is probably going to get tougher next year,” Northern Territory Cattlemen’s Association president David Warriner told Beef Central this week.
“The banks are starting to move on a couple of places, so who knows how much further that is going to go.
“If Indonesia came back in 2014 and wanted one million head of cattle then everything is good again in an instant.
“But if they don’t it is just going to get worse and worse.”
Mr Warriner said many producers were re-negotiating bank arrangements and running as lean as they could and not spending money to try to survive what was a very tough time.
“There is no capital expenditure being done, no decent bull purchases being done, you go into this negative spiral and if you stay into it for too long it is pretty hard to get out of it,” he said.
“You deplete your asset base as well as your genetic base and it has a pretty profound hit at the end of the day, and long lasting.”
Mr Warriner said it was disappointing that quotas had been cut by a further 45,000 head, which appeared to be “out of sync” with what demand was doing in Indonesia and the rise of local beef prices to in excess of 100,000 rupiah per kilogram.