Australia’s cattle and beef trade with Indonesia is again in unfamiliar waters after the Indonesian Government yesterday confirmed it will scrap the import quota system in favour of a regulated price mechanism.
A benchmark price of 76,000 Indonesian rupiah (A$7.60) per kg will now determine whether cattle and beef imports will be allowed in or blocked to aid domestic beef suppliers.
Indonesia’s Trade Minister Gita Wirjawan and Agriculture minister Suswono jointly confirmed the new policy in Jakarta on Tuesday.
The policy is aimed at keeping a lid on beef prices in Indonesia and curbing rising inflation.
Cutbacks in import quotas in recent years under Indonesia’s drive to achieve self-sufficiency in beef production have led to massive shortages in the market, sharp price rises and strong upward pressure on inflation.
The high beef prices have also encouraged more Indonesian farmers to cash in their breeding females for slaughter, highlighted by reported cattle census details which show a drop in Indonesian cattle numbers from 14 million head to 12 million head in the past two years, which has also worked against the goal of achieving self-sufficiency.
By removing quotas Indonesia is now hoping to improve supply and bring the price of beef back to a more affordable level for consumers.
There is still confusion in the trade as to what the policy will mean in the long term, and whether the 350kg weight limit on cattle imports will remain in place.
Despite yesterday's public announcement, Importers and in turn exporters have yet to receive formal confirmation of the changes. Australian Livestock Exporters Council chief executive officer Alison Penfold said the detail contained in the ministerial orders and new regulations when they are issued will be critical to determining what the new rules will mean to the trade going forward.
However, with the price of beef in Jakarta wet markets still well above the benchmark price, currently trading in the IR 95,000-100,000/kg range, it seems likely that orders for live cattle and frozen beef from Australia will increase in the short-term at least.
One trade source said the price of cattle in northern Australia is also likely to come under upward pressure in coming weeks as orders increase for available supply.
Mr Wirjawan told reporters yesterday that the benchmark price of Rp 76,000 ($6.60) per kilogram was attractive and reasonable for importers because the current price at slaughterhouses hovers at around Rp 30,000 per kilogram.
“We will evaluate the price periodically,” he said.
The self-sufficiency policy and associated import quota restrictions have been plagued by controversy recently with several senior political figures currently facing court over allegations of accepting bribes in return for favouring some importers with additional import permits.
Mr Wirjawan told reporters yesterday the new regulation is aimed at sending a message that Indonesia is willing to be proactive in its efforts to stabilise prices for basic food commodities.
“Its aim is also to reduce inflation expectation,” he said.
The Jakarta Globe has reported that Indonesia’s inflation accelerated from 4.3 percent in January to 8.79 percent in September, which was the fastest in almost five years.
Mr Wirjawan said the government is still pushing ahead with its food self-sufficiency program.
“This is temporary, we still have high hopes that mid- to long-term policies to increase domestic production can be implemented."
Agricultural Minister Suswono said the price mechanism will provide some sort of security for domestic breeders as price will not fluctuate as much and they will not be impacted negatively by external factors.