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Investors weigh-up risks and rewards at Indo beef trade forum

James Nason, 23/08/2013

 

Indonesian ambassador to Australia Nadjib Riphat Kesoema and vice minister for agriculture Rusman Hariawan at the Indoz Trade Forum in Brisbane. Indonesian Government ministers have urged Australian businesses to seize the opportunity created by Indonesia’s booming economic progress to invest in the country’s cattle industry and beef supply chain.

It has been just over 12 months since Indonesian president Susilo Bambang Yudyhono visited Darwin and encouraged Australian investors to partner with Indonesian businesses to allow both countries to benefit from Indonesia’s drive to achieve food security and ultimately self-sufficiency.

While the sheer scale of the potential economic opportunities offered by Indonesia has created clear interest among Australian investors, and has prompted a number of trade-scoping visits to the country, the invitation has yet to yield any substantial new signs of investment.

Indonesia clearly wants that to change.

A two-day trade forum currently being hosted by the Indonesian Government’s investment promotion arm BKPM in Brisbane, which has brought together more than 60 Indonesian officials and a similar number of high-level Australian cattle and beef industry stakeholders, is evidence of its determination to see greater co-investment occur.

At the first day of the forum yesterday Indonesian Government ministers and officials highlighted the immense economic opportunities available in Indonesia and declared the country open for business to Australian investment.

BKPM deputy chairman Himawan Hariyoga said direct investment from Australia in Indonesia’s cattle and livestock industry totaled just $5.5m since 2006.  He noted this was particularly small given the size of the cattle and beef trade to country.

“Distinguished participants, I hope it becomes clear as to why we expect more direct investment from Australia, our main trade partner in the cattle business,” Mr Hariyoga said 

Long-term partnerships the key

While Indonesia is maintaining its ambitions to achieve self-sufficiency in beef production by 2014, its own figures show that its domestic production of 500,000t will fall short of expected consumption by 100,000t this year.

Once a proud beef exporter, the country’s expanding population, economic growth and increasing taste for beef have seen Indonesia’s production capacity lag behind consumption for some years.

Food security now stands as one of the single most important issues for Indonesia as its population rapidly expands.

Until June 2011 Australia was seen as a highly reliable trading partner, but that perception was shattered when the Gillard Government suddenly cut off supply of cattle to the country without warning in the wake of footage showing cattle being mistreated in Indonesian abattoirs.

Despite the heavy impact of that event on Australian-Indonesian relations, Indonesia still sees its near neighbor as the most logical and viable supplier cattle and beef to make up the shortfall between domestic supply and domestic consumption.

However, Indonesian speakers at yesterday’s forum were emphatic in their point that they do not just want to see the gap between supply and demand in future filled by short-term trading alone.

Rather, they want to see long-term, co-investment partnerships developed between Australian and Indonesian businesses, that they believe will deliver greater certainty to both countries.

Himawan Hariyoga described the forum as an ‘historic moment’ that brought hundreds of committed stakeholders together in a strong spirit of partnership to find solutions to the problems both countries were facing to develop investment cooperation.

Underlining the opportunities that exist, Indonesia’s vice minister for trade Bayu Krisnamurthi said that while many people’s view of Indonesia was limited to Jakarta and Bali, more than 50 mid-sized cities in Indonesia (of some 600 cities in total) were currently experiencing double digit growth.

“Now these 50 cities give us a distribution headache,” he explained. “It is not enough to just feed Jakarta and the price will be stable. No, we need to make sure that the supply has to come to all those cities, if not the national inflation will be affected.”

He said Indonesia’s growing middle class of 50 million people had high disposable income and “they are asking for more and more beef”.

Pinpointing the opportunities

So, more specifically, where do the opportunities for direct and co-investment lie?

In opening the forum Indonesian ambassador Nadjib Riphat Kesoema said the Indonesian Government saw three primary options: direct Australian investment in Indonesian cattle breeding and beef value-adding chains, direct Indonesian investment in Australian cattle country, and, Indonesia’s most preferred way, co-investment partnerships between Australian and Indonesian businesses in Indonesian production systems and supply chains.

BKPM deputy chair Himawan Hariyoga said investment opportunities could cover a wide range of businesses along the supply chain from breeding and cattle raising, cattle transportation and meat processing and distribution.

Indonesian vice minister for agriculture Rusman Heriawan said Indonesia had identified several investment opportunities in different regions.

These included the opportunity to develop beef cattle on pasture in eastern territories of Indonesia including NTT and Papua; the integration of beef cattle and oil palm plantations in western territories such as Kalimantan, and the integration of beef cattle and food crops in densely populated areas such as in Java.

Ambassador Kesoema encouraged Australian investment in Indonesian export abattoirs.

“As a prominent country, and trusted to conduct the Halal process, by Muslim countries around the world, Indonesia is ready to cooperate with you all in the export of beef and value-adding for goods to other countries. 

“This would be beneficial in terms of reducing costs of processing, Indonesia is the closest neighbor to Australia, so we stand ready to become a gateway for Australian export.

“Indonesia will be the natural gate for Australia to come to the ASEAN community with the population of 600 million people.”

Rewards versus risks

Indonesia needs food security, Australia needs market security. Finding mutually beneficial solutions involves weighing the rewards against the risks.

One of the key reasons Australian investors at yesterday’s forum gave to Beef Central to explain the lack of direct investment to date was the uncertainty they saw in making direct investments in Indonesia.

Sudden and unexpected changes in policy and regulation that can dramatically alter trade viability are chief among those concerns.

Highly visible examples in recent times include Indonesia’s sudden decision last year to require full pedigree information on commercial breeders, an unresolved issue which has seen thousands of imported females stranded for more than a year in Indonesian feedlots.

Added to that was the bureaucratic wrangle between Indonesian departments that left thousands of tonnes of Australian beef stranded on the wharf at Jakarta and denied access to the market, despite having all necessary import permits.

Both examples have cost the exporters involved, all private companies, hundreds of thousands of dollars.

Mr Hariyoga acknowledged in his address that doing business and investing in Indonesia was “not easy”.

“Quality of infrastructure, labour skills, corruption, clarity and consistency of policy and legal regulatory issues are among the concerns of investors,” he said.

“The Government has recognised these issues and is working hard to address them.

“Now the Government is undertaking policy and regulatory reforms to improve the investment environment in Indonesia to ensure investors that investment in Indonesia is profitable and sustainable, safe and comfortable.”

Several Australian speakers also outlined this country’s commitment to Indonesia as a supplier of cattle and beef and technical industry expertise including federal agriculture minister Joel Fitzgibbon, Queensland agriculture minister John McVeigh, Austrade general manager Jane Madden, Katter Australia Party leader Bob Katter and Meat & Livestock Australia managing director Scott Hansen.

The value in the forum has extended beyond the opportunity provided for stakeholders on both sides of the trade to better understand their counterparts’ needs, but in the numerous personal interactions and one-on-one meetings that have occurred inside and outside the forum between potential trading partners on both sides as the event has continued.

The forum continues today with speakers including the chair of Indonesia’s National Meat Processing Association Ishana Mahisa, Northern Territory Cattlemen’s Association president David Warriner and the head of the Oceanic Cattle Station Nissin Sunito.

Stay tuned to Beef Central for more reports from the Indoz Trade Forum  

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