Indonesia Considers Cutting Australian Beef Imports: Future Implications

28 November 2013 FDI Team

While the recent spying scandal is unlikely to result in Indonesia suspending beef imports from Australia, it may further encourage Jakarta to look to other markets in the future, leading to a reduction in Australian exports.

Background

The fallout from the Indonesian spying scandal has continued this week, with Jakarta warning it may cut its live cattle imports from Australia. The 25 November announcement is the latest salvo levelled at Canberra, after it was revealed that Australia was tapping the phones of several high-level Indonesian officials, including President Susilo Bambang Yudhoyono. Although Indonesia is unlikely to suspend live cattle exports, as Australia did in 2011, the controversy may encourage the South-East Asian giant to source cattle from other countries in the future, reducing Australian exports.

Comment

On 26 November, it was revealed that RNI, a state-owned Indonesian firm, had halted talks with the Australian cattle industry in retaliation for the recent spying scandal. Later that day, the Indonesian Trade Minister, Giti Wirjawan, confirmed that his country was considering reducing Australian beef imports in the future. According to Mr Wirjawan, Indonesia’s parliament has begun looking at the legislation which, if passed, would allow the country to import beef from “foot and mouth” countries, such as Brazil and India. In particular, it is thought that Indonesia may follow Malaysia’s lead in importing beef from disease-free parts of several countries. Should this happen, Australia’s beef exports to Indonesia may well be reduced.

Any reduction would come as a blow to Australia’s struggling cattle industry. In October, it was announced that Indonesia would import an extra 53,000 head of cattle for the December quarter amid continuing supply problems. The move had boosted hopes that agricultural ties between the two countries could be revitalised. Those hopes may now have been dashed, however, with Mr Wirjawan declaring that ‘there are other places that I think could help us with our food security aspirations. We’re looking at those possibilities.’  

Whether the legislation passes, given the public health concerns over foot and mouth disease, remains to be seen. But the latest stoush appears to have hardened Indonesia’s resolve to look elsewhere to solve its beef shortage problems. As Mr Wirjawan said, ‘I think you can attribute some of that or a lot of that [looking to other markets] to the unfortunate incident that took place.’

In the short-term, Indonesia is unlikely to suspend live cattle exports completely. The country’s beef shortages and failed food sufficiency plan should ensure that the current agreements, which include 90,000 cattle in the next month, remain in place. As the chief executive of Elders, one of Australia’s largest cattle exporters, told the Sydney Morning Herald, ‘there’d be no winners from a trade point of view in terms of any of this rhetoric turning into action.’

But beyond that, the medium- to long-term prospects are decidedly less clear. Indonesia has been looking to other markets to diversify its beef imports for some time now.  Indeed, this has become a strategic goal for Jakarta in recent times, especially following the Australia’s controversial suspension of live cattle exports to Indonesia in June 2011.

In particular, Jakarta is said to be looking at Brazil and India for future imports. Both countries offer an alternative to Australian cattle, but they may still not be viable alternatives in the near-to-medium term. Brazil has a massive herd and a strong reputation, but its freighting costs are said to be some of the most expensive in the world. The long-haul transportation is also not ideal for the welfare of such animals and any deal is likely to attract the attention of animal welfare groups.

Meanwhile, although Indian cattle are far cheaper than Australian cattle – reportedly half the price – important questions have been raised over the quality of such beef. Finally, both Brazil and India, having experienced foot and mouth outbreaks, potentially pose a significant biosecurity threat, something which Jakarta, even if does eventually import from foot and mouth-free zones, will not treat lightly.

Given that, Australia may not necessarily be in as weak a position as many commentators are portraying. Rather, Chris Muldoon, a prominent member of the Northern Territory Cattlemen’s Association, told Future Directions International that the current crisis is likely to be short-lived, especially given Indonesia’s high demand and growing middle class. He says that the long-term prospects are still sound, describing the agricultural relationship as ‘strong and grounded.’

So, while the current spying scandal is likely to have further encouraged Jakarta to look to other markets, especially as it seeks to diversify beef imports, any drastic reductions in Australian cattle exports appear unlikely.

Andrew Manners
Research Analyst
Indian Ocean Research Programme

[email protected]

 

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