Indonesian Beef Price Rises, while Export Ban gives Northern Australian Farmers Power to Negotiate

15 June 2011 FDI Team

Background

The ban on cattle exports to Indonesia will hit the Indonesian hip pocket and highlights the insecure state of Indonesia’s beef industry. Almost all of the beef Indonesia imports comes from Australia. The export ban will hasten Indonesia’s desire to obtain self-sufficiency, to such an extent that when the ban is lifted there may no longer be much of an export market left for Australia. The situation also offers Northern Australian cattle station owners a unique opportunity to leverage the state and territory governments for more rights to diversify income sources on their land.

Comment

Indonesia currently supplies an estimated 70 per cent of its cattle from domestic sources, while a further 550,000 head of cattle comes from elsewhere, predominately from Australia. How prepared the Indonesian industry is for making up the shortfall in supply is unclear. The Indonesian Government has stated that the domestic industry will be able to continue the supply, while conversely saying that it would look elsewhere to bridge the supply-demand gap.  Fear of insufficient supply already appears to be affecting beef prices.

Reports indicate that beef prices were up by an average of 20 per cent in one market. Overall, the expectation is that price increases will not exceed 15 per cent. The price of beef is still relatively low compared to Australia. The Jakarta Post reported last week that the price of beef in Indonesian cities is already around 25,000 rupiah ($2.75) per kilogram, up from 22,000 rupiah ($2.45) prior to the ban. Likewise, the cost of cattle has risen by between 300,000 ($33) and 750,000 rupiah ($83), to around 8.5 million Rupiah ($941).

If prices do start affecting demand, it may also have an impact on demand for lamb, although early indications are that this is not yet occurring.

If there is a lesson in this for Indonesia, it is that it needs to have more than one supply country for cattle. It also confirms the wisdom behind Indonesia’s desire to be self-sufficient.

Despite all the gloomy headlines in Australia, there is an opportunity here for Northern Australian farmers.

Once the farmers have exhausted the compensation claims now being made, they can use this window of opportunity to push the government-landholder for changes to their lease arrangements. The current leasehold arrangement stymies entrepreneurship and limits the leaseholders’ ability to raise capital to develop other income streams. It could be argued that the current leasehold restrictions also lead to environmentally unsustainable outcomes. If farming on leasehold properties is to remain a sustainable industry, farmers will need to have the flexibility to move quickly into cropping or tourism to maintain their incomes. Now, with the upper hand against the government as a result of the Indonesian export ban, Northern Australian farmers would do well to use this time to campaign against the restrictive lease arrangements and push the state and territory governments for more freedom to diversify their farm income.  

Gary  Kleyn

Research Manager

FDI Global Food and Water Crises Research Programme

[email protected]

 

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