If 2013 was a year of market consolidation for Australia’s live cattle trade, 2014 is shaping as a year of growth.

A major focus for exporters in the past year has been to bring the supply chains of importing customers up to speed with Australia’s new mandatory animal welfare standards in all export markets.

With much of the hard work now done, 2014 looks set to result in a return to historically high shipment volumes, particularly to Indonesia which has announced plans to import 720,000 cattle this year, an 80 percent lift on the 400,000 it imported in 2013.

With growth in demand will come new challenges, not least of which will be to find the large numbers of feeder and slaughter cattle from dry northern Australia that Indonesia is now seeking, while also supplying the needs of important emerging and re-emerging markets such as Malaysia, Vietnam and the Philippines.

Indonesia has ramped up its cattle import volumes for 2014 in order to improve supply and take pressure off beef prices, which is tied in with a broader goal of easing rising inflation.

Its newly introduced 'reference-price' system for cattle and beef imports will link future import permit volumes to the price of beef in Jakarta.

Under the new system the price of secondary cuts of beef in Jakarta wet markets dictates how many live cattle and tonnes of boxed beef Indonesia needs to import from quarter to quarter.

At present the price of beef is somewhere between 95,000 and 110,000 Indonesian Rupiah per kilogram, and the Indonesian Government wants to see it come down to a reference price level of 76,000 IR/kg as quickly as possible – hence its recent decision to ramp up import permits to improve supply.

If and when the 76,000 IR/kg price target is achieved, the Government has indicated it will then ease back or even stop imports until prices rise again and more imports are needed to bring them back to the reference level.

The strategy relies on the laws of supply and demand to influence the price of beef, but does not allow for the opposing influence of a weakening local currency.

For several months the Indonesian Rupiah has been weakening dramatically against the US dollar and the Australian dollar.

As the Rupiah weakens against the US and Australian currencies, imported beef in Indonesia becomes more expensive. This in turn works against the Indonesian Government's goal of using increasing volumes of imported beef to bring the price of beef in wet markets down. 

The rising cost of cattle in northern Australia is also working counter to the Indonesian Government’s desire to reduce prices in wet markets.

For the first time in at least two years the stars have aligned for northern cattle producers in a market sense, because there are now more orders than there are cattle, and prices for live export feeder steers have shot to above $2.20/kg liveweight ex-Darwin, up from around $1.50/kg in the middle of last year.

If only the storm clouds would align as well. The increasing prospect of a second failed wet season in a row does not bode well for northern Australia being able to supply the cattle South East Asian markets are now demanding and to allow producers to take full advantage of the improved pricing conditions suddenly available.

The squeeze is now effectively on exporters and importers. They are caught between having to pay higher prices to secure cattle from Australia at one end while facing pressure from the Indonesian Government to sell cattle at the other end at prices that support its desire to cap wet market prices at 76,000 IR/kg.

Another event of importance to the trade this year will be the Indonesian general and presidential elections from April onwards. Whichever party, or coalition of parties, ultimately takes power, and more importantly where they stand on the question of how big a role imports should play in shoring up food security, will have important ramifications for the live cattle shipping industry going forward.

Sections of Indonesia’s political ranks are pushing for Indonesia to permit the import of beef from Foot and Mouth Disease free-zones within FMD-affected countries, such as Brazil, and a bill that would allow this to happen is currently before the Indonesian Parliament.

Advocates of the policy decry Indonesia’s heavy reliance on beef from Australia and want its import options expanded.

On the other hand Indonesia’s farmers, veterinarians and a number of political parties are vehemently opposing the move based on the potentially devastating impact a future FMD outbreak would have on Indonesia’s important cattle farming sector.

However, regardless of the outcomes of the elections and the FMD-related bill, the picture is still a bright one for Australia's live export trade in 2014. A combination of strong economic growth and increasing per-capita consumption of beef in Indonesia suggest that Australia, with its close proximity, productive, tropically adapted genetics and clean, disease-free cattle, remains well placed to continue to be a major supply partner for Indonesia.