Close observers of the Indoneisan beef market are warning that self-sufficiency policies are destroying demand as opposed to building long-term production.
Through its policy of slashing import quotas and creating a massive shortage of beef in its market, the Indonesian Government has sought to push beef prices to heights that will encourage local farmers to breed more cattle and produce more beef.
However, with widespread reports of female cattle now dominating non-ESCAS slaughterings in Indonesia, there is continued evidence the policy is having the opposite effect, as local farmers seek to capitalise on the lucrative prices by sending breeding cattle to abattoirs as well.
While the self-sufficiency policy might generate a short-term increase in the amount of locally bred beef available to Indonesian consumers for that reason, it is also causing the country to eat further into its breeding herd and working against self-sufficiency aspirations in the longer term.
The Indonesian government has set a five-year target to supply 90 percent of its beef requirements through local production by 2014.
Close market observers believe that as beef prices driven up by the self-sufficiency policy continue to rise, Indonesia may go much closer to achieving that target than many expect, technically speaking at least, largely because of the impact that now unaffordable prices are having on beef demand.
Prices rose to 100,000 Indonesian Rupiah per kilogram as the supply shortage bit during last year’s Ramadan, and were reported to have reached as high as 125,000 IR/kg in some wet markets during the festive season just gone.
The soaring prices have sparked protests by wet market beef vendors and have caused manufacturers of popular bakso meatballs – which are sold on the street by ‘kaki limas’ and account for more than 70 percent of all beef consumed in Indonesia – to replace beef with chicken to keep prices at a level consumers can afford.
There have also been recent reports some manufacturers have mixed lower-priced pork into bakso balls, creating an uproar in the Muslim population, for whom pork consumption is forbidden, which has further negatively impacted consumer demand for beef.
In attempting to manipulate the levers of supply and demand to influence prices and local production, Indonesia pulled very hard and very quickly.
Dropping quotas from more than 500,000 cattle and 90,000 tonnes of boxed beef in 2011 to just 283,000 cattle and 34,000 tonnes of beef in 2012 was always going to leave a massive hole in supply that local production would struggle to fill.
“It is a cynical way to look at it, but it is one way to make Indonesia self-sufficient,” an experienced exporter told Beef Central last week.
“If you keep rising the price of beef, nobody will buy it.
“Then there will be beef around that nobody is buying, and the pollies will say, well, there is plenty there so we must be self-sufficient.”
The beef self-sufficiency policy is said to be proving a boon for Indonesian chicken farmers, who are now receiving more than 30,000 IR/kg for their product in wet markets, almost twice the level of earlier last year.
Another well-placed trade source said he believed that in reality Indonesia was about “three million breeders behind being self-sufficient”, which, even for a country with Australia’s breeding herd and resources, would take years to turn around.
Policy 'destroying demand'
A United States meat export industry official who toured Jakarta’s beef industry last year also delivered a similarly frank assessment of how Indonesia’s self-sufficiency policy was playing out.
“Indonesia set a target of 90 percent self-sufficiency in beef production by 2014, but it can only attain that goal by destroying demand,” US Meat Export Federation senior vice president for the Asia Pacific, Joel Haggard, said after returning from the market.
Mr Haggard said there was “simply no way” Indonesian domestic production could replace the volume of supply cut off when import quotas were reduced by almost half in one year.
At the same time, Mr Haggard said the excessive restrictions had done “no favours” for Indonesia’s cattle industry.
“In an announcement viewed as a major negative signal toward the future of Indonesia’s domestic beef industry, Santori, one of Indonesia’s largest cattle importers and feeders, has announced plans to establish China’s largest cattle feedlot in Shandong province,” Mr Haggard said.
He added that Governors of some cattle producing provinces in Indonesia were also placing restrictions on cattle movements across their borders to protect local supply.
The USMEF said analysts generally agree that with imports capped at 80,000 mt this year and total consumption hovering near 500,000 mt, Indonesia's goal of reaching a 90 percent self-sufficiency by 2014 "may be feasible”.
“But this ‘success’ will likely happen in large part because record high prices will further stifle Indonesia’s beef consumption, which is already one of the lowest in Asia at approximately two kilograms per capita,” Mr Haggard said.
There was little room for Indonesian households to move when prices rose, because Indonesians already spent about 45 percent of their total income on food.
The USMEF believes Indonesia should be focusing on policies that grow demand for beef, rather than stifling it.
“If Indonesian beef consumption rose modestly – let’s say to a very plausible four kilograms per person, which is the average for residents of Jakarta – the country could sustain the domestic industry at its current size while also becoming a 500,000 metric ton importer,” Mr Haggard explained.
“If the government would allow demand to grow, there would be room in this market for everyone to succeed.”
The US Government last week launched a complaint procedure through the World Trade Organisation against what it terms as “restrictive trade measures” applied by Indonesia on a range of horticultural and animal product imports, including beef, which it said unfairly disadvantage US exporters.
Despite the impacts to Australian exporters, who export far larger volumes of beef to Indonesia than their US counterparts, the Australian Government is not taking similar action, saying it is instead it is discussing trade issues directly with Indonesia.
2013 shipments underway
Meanwhile Australian cattle shipments to Indonesia under the new 2013 import quota are underway, with five vessels reported to have left Darwin and Fremantle in the past two weeks.
With a total first quarter allocation of just 56,000 head, some smaller importers will have all but filled their entire permit allocations for the January to March quarter in the first shipments of the season.
Similar to last year, quota will double in the second quarter to allow feedlots to stock up in advance of Ramadan which commences this year on July 10.
Ramadan is a holy month of daily fasting and culminates with the festival of Eid-ul-Fitr, when the period of restraint ends in an extravagant festivities and feasting.
'Danger in assumptions'
Cattle businesses across northern Australia which rely heavily on access to the Indonesian market are pinning their hopes on a change of import policy, particularly when a new Government is formed following the presidential elections in Indonesia next year.
A seasoned veteran of the trade said it was wise “never to assume anything” when it came to trading with the region.
“Everybody is assuming a change of government will fix it. My experience in South East Asia is if you assume anything in Asia, you’re making a mistake,” he said.
“One would like to think they would change, but there is no reason to suggest they will, unless the people get out in the streets and start rioting.
“They are not doing that, at least not yet, because they have got cheaper chicken and cheaper fish at the moment.”