For the first time in two years Australia’s trade relationship with Indonesia appears to be showing signs of recovery, following high level meetings between Australia’s newly installed prime minister Kevin Rudd and Indonesia’s president Susilo Bambang Yudhyono in Bogor last week.

After announcing $60 million in funding to facilitate improved ties between the Australian and Indonesian red meat industries while in Indonesia, Mr Rudd took the time during a visit to Darwin on Tuesday to drop in on a Northern Territory Cattlemen's Association and  live export industry meeting on research and development.

Mr Rudd used the visit to update the meeting of individual and corporate producers, exporters, MLA staff and industry representatives on the Australian-Indonesian strategy and to discuss the importance of co-investment between the two countries going forward.

Northern Territory Cattlemen’s Association executivedirector  Luke Bowen said Mr Rudd was very clear in his support for the expansion of Australia’s cattle and beef trade to Indonesia, and for the expansion of the relationship with Indonesia.

Mr Bowen said the gathering were encouraged by the PM’s understanding of the industry both here and in Indonesia and the fact that the Australian-Indonesian trade is effectively a single and mutually beneficial production system, with breeding in Australia and feeding and finishing in Indonesia.

“He was clearly very focused on building a deeper and meaningful, two way relationship and trade in the longer term, which was very positive and very well received by everybody,” Mr Bowen said.

“It gave people the confidence that he certainly knows the subject material and is committed to the trade’s future.

“His visit was also perfectly timed because it allowed the industry to get a summary of the discussions and announcements made in Indonesia last week.”

Mr Bowen told Beef Central that the Northern Territory Cattlemen’s Association will lead an Australian cattle industry delegation to East Nusa Tenggara (NTT)  in September to expand the understanding of opportunities for increased cooperation including potential for co-investment  in Indonesian cattle breeding enterprises.

Indonesia has made it clear that it wants to see greater ‘co-investment’ between Australian and Indonesian businesses as it moves to shore up a more secure supply of beef for the future.

Shoring up beef supply

With an estimated annual consumption rate per person of 2.2kg of beef per year – which is expected to grow substantially in coming years – and a current population of 240 million people, Indonesia requires more than 500 million kilograms of beef each year to satisfy demand.

In the past Indonesia has relied heavily on Australia to meet that supply, particularly in the form of live cattle imports that can be fed in Indonesian feedlots and then distributed to abattoirs close to local wet markets to provide an affordable and accessible supply of beef to the entire population.

However the Gillard Government’s June 2011 decision to suddenly cut off Australian cattle supply to the market without warning in the month leading up to Ramadan, when it is traditional for all Indonesians to eat Beef Rendang, exposed just how vulnerable Indonesia's beef supply was.

Indonesia’s response to the shock of suddenly losing a critical supply of beef was to push harder than ever to achieve self-sufficiency by slashing annual import quotas from more than 500,000 head of cattle and 90,000t of boxed beef in the year of the ban to just 280,000 cattle and 30,000t of beef the following year, and less again in 2013.

The tightening beef supply caused by the sudden import cutbacks have since seen the price of beef to shoot up to unaffordable levels for consumers. As this year’s Ramadan holy month commenced on Tuesday, Indonesian media outlets reported that beef prices in Jakarta hit 120,000 Indonesian Rupiah per kilogram, well above the usual 70,000 to 80,000 IDR prices at this time of year.

The soaring prices are also widely reported to have encouraged more farmers to sell breeding cattle for slaughter, which is working against the country’s self-sufficiency goal.

That trend appears to have been reflected in the most recent Indonesian audit of cattle numbers conducted by the Government to assess local production capacity, and likely import requirements.

The Indonesian Government has made no official statement on what its latest census shows, however unconfirmed reports from Indonesian media outlets suggest the final tally is around 12 million cattle. That number – If confirmed – is well down on the 14.8m head count from the previous national census in 2011.

Co-investment key to restoring supply security

Statements by high level Indonesian Government officials in recent weeks, including Indonesian president Susilo Bambang Yudhoyono and the Indonesian ambassador to Australia Nadjib Riphat Kesoema, have underscored the view that

Indonesia’s already-substantial demand for beef is likely grow even further, and that imports from Australia will continue to play an important role in feeding is people.

However, it is also clear that Indonesia’s faith in Australia as a reliable trading partner was shaken to the core by the events of June 2011, and has yet to be restored.

The country’s new policy pushing for Australian and Indonesian businesses to co-invest in cattle breeding, feeding, processing, marketing and exporting developments in Indonesia is clearly motivated in no small way to provide at least some additional insurance against Australia suddenly pulling the rug of supply back out from underneath it in future.

What sort of partnerships are likely?

Australian investment in Indonesia is not new, with developments such as Greg Pankhurst’s Juang Jaya feedlot near Bandar Lampung and Elders’ feedlot near Lampung and abattoir at Bogor prime examples of how such investments have and can work.

The key question now is how future partnerships may take place.

The Indonesian Government has identified some of the largely undeveloped islands that make up East Nusa Tenggara (NTT) in the eastern edge of the archipelago as the region it believes to be most suitable to develop a cattle breeding industry.

While Indonesia’s feedlot industry is based in the fertile, high rainfall and productive country of Sumatra and Java where feed is grown, NTT is considered far more similar to cattle country in Northern Australia, with less rainfall and less fertile soils.

The Northern Territory Cattlemen’s Association, with the support of AusIndustry, is leading a delegation of industry figures to explore development opportunities in NTT in September.

“We will be scoping out the opportunities and looking at what the challenges in line with what the Indonesian Government is proposing,” Mr Bowen said.

“Part of that process is just getting an understanding of where the NTT sits in relation to the broader archipelago of Indonesia, and understanding how things operate there.”

He said opportunities were likely to range from investments in infrastructure developments to assisting Indonesia’s cattle industry with technical know-how, genetics and breeding technology.

In response to people who were concerned that Australia may be doing itself out of a market by helping Indonesia to build up its own cattle production systems, Mr Bowen said that was unlikely.

“You have to spend a bit of time up there to know that with the demand that is there,” he said.

“There is an enormous demand that is going to keep increasing, and we believe there is enough room for Australian and Indonesian producers for a long time to come.”