Tuesday, December 27, 2011

Indonesia’s recent plan on live cattle and beef import from Australia

The Indonesia-Australia trade relationship is once again being put to the test. There have been strong rumors circulating about Indonesia’s plan to cut its live cattle and beef import quota from Australia to an amount that is only slightly over half of the 2011 quota.

Export permits may be issued for a total of only 283,000 head of live cattle for 2012. Interestingly, the news has attracted attention from Australian media more than Indonesian media. The plan for the quota cut is said to be related to the 2011 live cattle census.

How reliable is Indonesia’s census data? To the author’s knowledge, there has not been an official release regarding results from the 2011 live cattle census issued by the Indonesian government or Agriculture Ministry. However, according to various Australian news portals, the census concludes that Indonesia has 14.8 million head of cattle.

The results suggest a relatively significant jump from the usual historical trend. According to the Food and Agriculture Organization (FAO) statistics, Indonesia’s live cattle stocks amounted to 12.8 million in 2009.
Between 2005 and 2009, annual stock growth had been about 4 percent.

This implies that to have 14.8 million head of live cattle in 2011 as determined by the census, between 2009 and 2011 Indonesia must have increased its annual stock growth by nearly twice as much as during the 2005-2009 period, namely by about 7.5 percent.

It is true that the Indonesian government through the Agriculture Ministry has implemented various programs in order to achieve self-sufficiency in livestock; a target which has been announced and, yet, delayed, since 2005. The programs have included lowering productive female cattle slaughtering rates, an artificial insemination program and many others.

However, doubling growth rates over the last two years requires new or far more effective programs than the ones Indonesia has already had since 2005. It is not clear whether such a program exists. The artificial insemination program, for example, has been challenged by poor environmental conditions, resulting in high calf-mortality rates.

Despite the effectiveness of the Indonesian government’s programs, it could also be the case that data on live cattle stocks prior to the 2011 census were underestimated. This is a worry, if we think about the quality of policy recommendations derived from inaccurate data.

In addition to the necessity of data, there are some other important aspects that should be considered. First, what is the proportion of home-produced livestock? Domestic stocks that are heavily reliant on imported seeds would question the sustainability and the meaning of being self-sufficient. Indonesia’s plan to cut its import quota can be perceived as “a payback” by Australian industries following a month’s export ban earlier this year.

Worsening trade links between the two countries could limit a number of initiatives that could transfer knowledge and technology from Australia, one of the biggest livestock exporters in the world, to
Indonesia, a country that desperately needs to improve its livestock industry’s efficiency and productivity.

Second, trade barriers would reduce consumers’ welfare. It is not clear whether the import quota cut has taken into account the increase of middle-income families in Indonesia.

These middle- to upper-income groups normally prefer imported beef. Limiting their choice of consumption goods may impact on other sectors, such as the hospitality industry.

Third, an import quota cut may increase the price of poultry due to substitution effects, on which Indonesians spend more. Increased poultry prices could, in turn, have a more substantial effect on inflation rates.

Nevertheless, self-sufficiency in livestock, as well as in other agricultural commodities, has always been and always will be the Indonesian government’s target. Such a policy normally receives strong political support; however, Indonesians are resilient and the government recognizes this characteristic.

Indonesians normally learn something well during periods of economic hardship. So while cutting the imports of live cattle and beef might increase domestic prices, the government knows that Indonesians will make some necessary adjustments at an individual level. However, this may not be the best policy ever employed by a government.

For Australia, there are a number of strategies available to it. Obviously, market diversification is on Australia’s agenda. According to the Federal Agricultural Minister, Senator Joe Ludwig, Australia considers new markets and expanding existing markets including Korea, Japan, Vietnam, Egypt and Turkey.

With regard to Australia’s trade links with Indonesia, there are several investment options. Australia can invest in breeding units. In 2007, according to the Central Statistics Agency, there were only 10 breeding units in Indonesia. Australia can also assist Indonesia to meet its increased demand for effective irrigation and pen systems.

Indonesia’s land limitations increase the demands for better pen systems. In West Nusa Tenggara, a team from the Agriculture Ministry reported that 100 percent of farmers surveyed kept their cattle in confinement (i.e. cages).

This issue is important, given the fact that it is often argued that a free range life for any kind of animal means it lives closer to its natural environment doing what it does best and, therefore, produces better quality meat.

Australia can also assist Indonesia in improving live cattle welfare and health control, an area with which Indonesia still seems to be struggling. It can also assist the Indonesian government in the provision of credit and investment in infrastructure. The high slaughter rate of female cattle is said to be due to farmers’ limited capital.

Most of the above investment options may not provide Australia with the same profits as exporting live cattle. But Australia’s continued goodwill could also indirectly strengthen its trade partnership on other trade commodities and, potentially, offer a wider scope of socioeconomic-political partnership with Indonesia.

As for Indonesia, its protectionist trade policy may be able to help Indonesia achieve self-sufficiency in livestock, but at a high cost. According to Vanzetti et al (2010), improved research and development would provide greater gains but it is a long-term investment.

Greater integration between northern Australia’s live cattle trade and Indonesia’s cattle industry offers the potential of not only meeting Indonesia’s food security objectives but also increasing processed meat export opportunities in rich neighboring ASEAN member states, which could benefit both countries.

Risti Permani, Adelaide, Australia university postdoctoral fellow at the University of Adelaide’s School of Economics in Australia.

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