By Jon Condon
While the sudden disappearance of any export market is damaging, early industry reaction suggests the cutbacks in quotas to Indonesia next year will have much less impact on the boxed beef trade than it will on live cattle exports.
The Australian media was awash late last week with the news out of Indonesia over the allocation of quotas for live cattle and boxed beef imports for 2012, after the news was broken on Beef Central in a news-blast to email subscribers on Thursday afternoon.
The Indonesian Government has indicated that live cattle next year will be limited to 283,000 head while boxed beef imports will be capped, from all sources, at 34,000 tonnes.
That’s substantially below the 90,000-100,000t of beef and offals imported from all sources (Australia, NZ and US) in 2011. For the 12 months ended October, 2011, Australia’s share in the boxed trade was 41,000t, down from 51,600t for the same period a year earlier.
The reduced import quotas announced through the three bodies involved in meat and livestock imports – the Co-ordinating Ministry of Economic Affairs, the Ministry of Trade and the Ministry of Agriculture – are based on the Indonesian Government’s vision of achieving self-sufficiency in beef within the next three years.
According to ASPIDI, the Indonesian Meat Importers Association, the government’s decision is “too hasty” and has not been based on input from the business community on what the market will need in terms of imported beef and livestock supply in order to avoid price increases.
Indon beef prices on the rise
Already, there are signs that retail beef prices are rising in Indonesia, perhaps more in ‘anticipation’ of coming supply constraint, rather than any current shortage. One reliable source in the market said local cattle prices are continuing to rise, providing tangible proof in the market place that a shortfall in the local cattle supply is real.
Prices of local Indonesian cattle had not fallen significantly in Java since the Korban religious festival in early November.
“Normally Korban will see local cattle values rise quickly and settle back quickly. This year, that hasn’t happened. Local cattle are, for the most part, more expensive now than imported cattle, and we have not seen that for a very long time,” Beef Central’s source said.
Beef prices in Jakarta are said to have increased 10-15pc in the past two months as beef and cattle supply dries up, and the latest Government announcement has only enhanced that trend.
The trade in Indonesia is now asking at what point the Government is likely to react to the local price situation through quota access for cattle and beef. There is an expectation that despite the Government’s commitment to self-sufficiency in beef by 2014, the realities of the market will require a review of the 2012 quota levels, especially as the country approaches Ramadan, and possibly much earlier in the 2012 year.
A high level industry/Government meeting in Canberra last week concluded that ‘there was just no way’ that Indonesia could meet its citizens’ beef requirements (from either livestock or boxed import sources) at the quota levels suggested for next year.
One well-informed source said the Government’s self-sufficiency drive was largely a political agenda, linked to the upcoming Indonesian elections, understood to be due some time in 2012.
President Susilo Bambang Yudhoyono, who has served since 2004, cannot run for re-election again, meaning even greater political manoeuvring in the interim.
“The quota decision for next year, if it is executed according to the plan, will either result in liquidation of Indonesia’s domestic beef herd, which is unsustainable; prices for beef going through the roof; or both,” the source said.
“Almost every year they have announced some form of quota arrangement or control, and then varied it upwards as the year has unfolded.”
Last year, one of the reasons for slowdown in beef trade was a political/regulatory standoff involving more than 150 containers of Australian beef left on the wharves in Indonesia, some for four months.
An added problem for beef exporters next year is a new request from Indonesia to include import permit numbers on the supplied Health Certificates from January 1. As the allocation of import permits for next year are still to be made, Australia has asked for a three-month extension, given that it cannot attach an import permit number that it does not possess.
Where Indonesia does play a valuable role for Australian boxed exports is in the area of fancy meats (offals). DAFF export figures show Australia’s offal exports to Indonesia for the 2011 year to November reached 12,500t, ranking the market fourth in order of volume importance for Australian fancy meats.
Some exporters have spent significant amounts of money installing Halal-based systems specifically to qualify for offal exports to Indonesia, which in the past has paid a globally-competitive price for certain offal meats, like livers.
To add to problems, Indonesia has in recent times applied a series of restrictions on the range of offal items that can be exported. While these moves were explained on both religious and health grounds, the underlying reason is likely to be political, more than anything else.
The incongruous part of the offal ban is that exactly the same body parts are being ‘imported’ and sold into the Indonesian consumer market, as part of the Australian live cattle trade.
While the possible decline in boxed trade volume next year will hurt some beef and offal exporters, they are not unfamiliar with sudden and unexpected developments in offshore markets, and would find suitable alternatives elsewhere, one exporter contact said.
“Due mostly to improved standard of living, Indonesia has come a long way as a customer in a relatively short time. But it still has to go through this diverse political process. We might not like it, but unfortunately, it’s part of the international fabric of beef trade in which we are operating,” the contact said.
“Exporters face similar challenges every week, every month. Markets have fallen over and retreated, for various reasons. Diversifying market options and flexibility are the keys to moderating the impact from such events,” he said.
Brazilian beef imports possible?
Another prospect that must not be ruled out next year, as the Indonesian political process evolves, is some change in the nation’s current position on access to the market for beef from Brazil.
Last year, Indonesia made a preliminary decision to allow import of Brazilian beef from certain non-FMD endemic regions, on a zone-wide rather than a country-wide basis. That political decision was quickly overturned on appeal in the Federal Court on biosecurity grounds, and the four Brazilian plants that originally gained export approval could not activate the plan.
A recent Government statement, however, suggested there might be a review of the last year’s Federal Court action. Such a move would defy logic when the nation has a stated aim next year of reducing boxed beef imports by 70pc, but it should not be completely ruled out, given current politics. Another factor against any real prospect of significant trade out of Brazil is the current strength in the Brazilian beef market.
While the Australian live cattle trade has few real alternatives to Indonesia, should next year’s quota limits be enforced, the same does not apply for beef.
Markets like Russia, the Middle East and other areas of central Europe have emerged as very substantial customers for Australian manufacturing beef and fancy meat products like those that have previously gone into Indonesia in larger quantities. Even Japan now takes much larger quantities of Australian manufacturing meat, for burger consumption, in a rapidly changing global market structure.
All the current and earlier issues discussed above are making Indonesia something of a ‘problem child’ to deal with in terms of Australia’s boxed beef trade.
Dependability and prior notice on import permit structure is just one example. As at December 22, there was still no clear indication as to what volume might exist for permits for the first January-March quarter of 2012. One suggestion is that permits next year might be issued for six months, rather than three, but the fact is, nobody knows.
Commercially, Australian meat traders facing such accumulated challenges respond to this by adding a ‘risk premium’ in pricing. As the risk factor in dealing with a customer country rises, so does the price. One reason why the margin on grinding meat sales into the US is so low, is because the market is so dependable, predictable and reliable.