Live Export

Why Aus cattle exports to Indonesia could be set to take a hit in 2017

James Nason, January 16, 2017
Australian steers on feed in Elders' Indonesian feedlot.

Australian steers on feed in Elders’ Indonesian feedlot.

Usually at this time of year Australia’s northern cattle industry is eagerly awaiting news of new cattle permit allocations from Indonesia for the crucial stocking-up phase ahead of Ramadan or Lebaran.

However, changes in cattle importing arrangements introduced last year mean the old quarterly/trimesterly permit allocation system no longer exists.

Under the new rules there will no longer be a single allocation of import permits for importers to share each quarter or trimester, as has happened in the past.

Rather, individual importers can now apply for permits to import as many feeder steers as they would like, but with a significant condition attached.

That is that for every five feeder cattle they import, they must also import one breeding animal as well.

So an importer who applies to receive import permits for 20,000 feeder cattle, must commit to buying and importing 4000 breeding cattle.

The new permits are also only valid for four months.

Additional permits can only be applied for when the cattle from the importer’s previous permit have been imported. (Although it does appear a dispensation is also available to allow live cattle importers to stock up for Lebaran/Ramadan without their exporter having to fully realise the permits they already have in hand.)

Each importer’s performance in importing adequate numbers of breeders in relation to feeders will be reviewed by the Ministry of Agriculture at the end of each year.

It is understood an audit will occur at the end of this year, but no sanctions will apply.

The Ministry of Agriculture will conduct a final review at the end of 2018.

Any importers at that time who have not satisfied the one-to-five breeder-to-feeder requirement will face a 12 month ban on being able to import cattle.

Policy will place upward pressure on female prices

Several importers have already started importing breeding cattle from Australia, but mostly only in a small ways so far.

MLA’s latest LiveLink report shows that 6,326 breeders were shipped to Indonesia in December.

That figure was boosted by one large single shipment of 3751 breeding cattle exported to Santori and Coffey International, as reported by Beef Central back in December.

Most consignments bought by individual importers so far have been limited to few hundred breeders here and there as part of a larger consignment of feeder steers, and not yet at the one-to-five ratio.

This new demand for breeding cattle is likely to place strong upward pressure on the price of already-limited numbers of female cattle in the north in 2017.

The new breeder import requirement is one of a several factors that seems likely to cause potentially large reductions in Australian cattle exports to the major market of Indonesia in 2017.

Aust export cattle prices close to record high

Another is the continued high price of Australian cattle, which is making it very difficult for Indonesian importers to import cattle at a profit.

Exacerbating the challenging conditions importers currently face is the fact they must also sell their finished cattle at a low price to satisfy the Indonesian Government’s mission to lower the price of beef for consumers in the approach to Lebaran in June/July,

Prices for export steers landed in Darwin are currently being quoted at around 375-380c/kg liveweight, which is based on the price of cattle in north Queensland with the freight component added.

This level remains very close to an all-time record high.

Perhaps the biggest factor set to shape Australian live cattle sales to Indonesia this year is the unfolding impact of Indonesia’s decision to open its market to frozen Indian buffalo meat imports last year.

This was motivated by the Indonesian Government’s ongoing goal to try to increase supply in order to lower beef prices, and it seems to be having a bigger effect than may people may have realised (See separate story).

Indonesia to increase import cattle weight to 450kg

There is also another issue looming.

After Indonesia’s trade minister Enggartiasto Lukita visited Australia last year, his take home message was that Australia “promised” $1/kg cheaper cattle prices if he could widen the weight ban on Australian cattle imports.

He has held discussions with the Ministry of Agriculture on that issue and the latter has now agreed to lift average weights to 450kg for feeder cattle, but with 120 days fattening is still required.

Last year Indonesia broadened the specifications for feeder cattle imports from Australia from a top weight of 350kg to an average weight of 350kg, which helped supply a lot by allowing a greater range of feeder cattle to be purchased for the market.

However widening specifications can be a catch-22. Whilst it offers more opportunities for Australian producers and exporters to sell a wider range of cattle to Indonesia, it can also damage Indonesia’s own feedlot industry, by making long-term feeders compete with short-term traders who can suddenly supply the market with finished cattle and weaken the spot market at any given time.

The Indonesian Government’s requirement that Australia drop its cattle selling price by $1/kilogram also suggests an assumption that Australia can simply and easily adjust its cattle selling price to suit a single overseas market at any given time.

However, the price of cattle in Australia is determined not by one entity but by tens of thousands of individual cattle producers responding to market signals.

And with Australia’s herd at 30-year-lows and subject to demand from a wide range of international markets, including its own domestic market, individual producers will always naturally look to achieve the highest return available at any given time.

Many producers would also argue there have been many times they have had to accept unprofitable prices due to oversupply, particularly in drought, and lack of demand, and none would happily surrender the current rare opportunity they have to sell at a highly profitable price. Market circumstances like these do not occur often and are allowing many producers to make long-overdue investments in on-farm infrastructure, which in turn will ultimately ensure that they can continue producing beef well into the future, assuring a quality long-term supply for customers such as Indonesia.

Fewer ships eases pressure on exporters to buy

The response by exporters to the tough trading environment of the past two years or so (based on high cattle purchase prices in Australia versus limited selling prices into Indonesia) has been to reduce their commitments to time-charter shipping where possible.

This has limited the imperative to keep buying cattle at a loss just to keep ships moving and avoid even bigger losses.

Exporters can still sub-charter if and when the opportunity for a positive commercial trade exists, but the reduction in shipping is another factor likely to curtail cattle exports somewhat this year.

There are very few cattle on the market in the Northern Territory due to the wet season at present and therefore very few ships leaving from Darwin.

Exporters who have put cattle away on flood plains will still have cattle moving, but shipping activity would be unlikely out of Darwin or other northern ports of Western Australia during January or February, with most activity during that time likely to occur out of Townsville, depending on monsoonal activity in Queensland.

Indonesian still looking to Brazil, Mexico

Meanwhile, Indonesia continues to look at alternative markets in order to achieve its mission to drive down the price of beef in Jakarta.

Beef Central understands that Minister Enggartiasto will be visited by a delegation from Brazil in March to discuss cattle and beef imports from that that country.

The two issues said to be holding up that supply option are said to be the requirement for island quarantine, which would add substantial cost to the equation, while Brazil has also recently lodged grievance with the World Trade Organisation against Indonesia over poultry import restrictions, which is understood to be causing some trade sensitivities between the two nations.

There have also been more fresh media reports from Indonesia discussing the potential for cattle imports from Mexico, as the Jakarta Globe reports here

  • Keep an eye out for more detail on the Indonesian market situation in Dr Ross Ainsworth’s monthly Southeast Asia Beef Report on Beef Central later this week

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