Live Export

Trade awaits answers on Indonesian import policy

James Nason, 30/08/2013

“Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.”

Those words from American professor John Allen Paulos probably sum up better than most the challenges facing those at the coal face of Australia's $500 million per year cattle and beef export trade to Indonesia.

To require certainty in a market as culturally, religiously and politically different as Indonesia is to Australia is to strive for an impossible goal.

Where elections in Australia are fought between two major parties, in Indonesia they are fought by dozens. Multi-party coalitions are required to win Government, and typically result in different ministries within the same regime being run by different, and often rival, political parties.

That in turn can result in significant discrepancies in public policy announcements from one department to the next. Where one senior minister espouses staunch support for abolishing imports in favour of supporting local production, another talks openly about increasing imports to foster more open trade. 

Added to this can be complicated layers of bureacracy within each ministry, each with the apparent power to change important regulation at a moment’s notice.

Uncertainty in such an environment is the norm. It may not make life easy, and is an area that investors say must be addressed if more trusting co-investment relationships in future are to flourish.

But for now at least, being flexible enough to roll with the punches, and having sufficient capital in place to absorb the occasional financial hit as rules and regulations suddenly move against you without warning are all part of the landscape.

Those who can survive in this climate are well placed to succeed in a market that offers enormous growth opportunties, based on the fundamentals of a large and growing population of 250 million people who are developing an increasing taste for beef. 

News this week of possible major changes to import quotas is the latest  chapter in an ongoing story of ever-changing signals within the Indonesian market. 

In the Jakarta Post on Wednesday, Indonesian trade minister Gita Wirjawan said the Indonesian Government plans to announce major changes to import quotas next week that will see a new system introduced which will base future import requirements on prices in Indonesian wet markets.

Supporting the minister's comment's, Trade Ministry director general for foreign trade Bachrul Chairi told the paper that a parity price will be set at 76,000 Indonesian Rupiah (US$6.75) per kilogram.

Beef will be allowed to be imported when the domestic price reaches that price level, and once the price exceeds the level by 15 percent, additional imports will be authorised.

"However, we will not permit imports if the price goes five percent below the reference price," he announced at the House of Representatives.

Given that prices are currently reported to be in the IR 90,000/kg-100,000/kg range, substantial imports would be required immediately to bridge the existing gap between demand and supply and bring prices down were the policy to be introduced right now.

The parity-pricing policy has been advocated by trade minister Gita Wirjawan for a couple of months now. Importers were again briefed on the policy earlier this week, and Indonesian media reports suggest there is a strong chance the new policy will be adopted. 

However, there is also a fair chance at least the policy will meet strong resistance from other departments within the Central Government, in particular from the Ministry of Agriculture, which is responsible for improving the livelihood of Indonesian farmers, and is the major advocate of the policy to acheive self-sufficiency in beef production by 2014.

The lack of detail currently available on the parity pricing policy makes it hard to determine if it would be positive or negative for Australia’s live cattle and beef export trade to the market.

Questions being asked by the trade include whether the new system would favour cattle or boxed beef imports, how often the parity-price will be set and how it will be determined, what incentives will be offered to industry to bring the price down, what would happen in the event of imports increasing but prices not changing, and how long new permits would be valid for, such as monthly or quarterly.

One trade source said it was unlikely that Indonesian cattle farmers and breeders, and therefore the Agricultural Ministry, would support the policy, but how that would impact on the policy's chances of being adopted remains yet to play out.

Wherever debate on the final policy lands, sources say it is likely that there will be a change in import policy from quotas to a more supply-demand control mechanism starting in 2014.

Northern Territory Livestock Exporters’ Association chief executive officer Bernie Brosnan told ABC radio yesterday that the proposed price-based system for imports would be a positive Australia's live export trade in the short term if it goes ahead.

"Initially, we see this as a step forward on the previous quota policy … beef is trading up there at the moment at around 100,000 rupiah (a kilogram) and they're trying to drop it down to 76,500 rupiah (a kilogram) which is the parity mark," he said. 

"So there's a lot of supply which has to go in there to get a change in that price."

Trade minister Wirjawan told the Jakarta Post that new regulations were likely to be announced next week, which may help to provide a clearer picture about what lies ahead for Australia’s $500m a year live cattle and beef trade with the market.

Until then, as they say, the only certainty is uncertainty.

“It is all very confusing,” said one trade source, who asked not to be named, on the challenges of trying to do business in a constantly changing policy environment.

“It’s like flying a plane in heavy cloud at night with most of the instruments unserviceable,” he said.

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