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An industry dependent on political whim

2nd September 2015

Who would be a cattle producer in northern Australia?

The Indonesian government’s ambitions to make the nation more self-sufficient in beef by restricting cattle supply from Australia have run headlong into market forces – and drawn flak from aggrieved butchers and consumers hit by inflating beef prices (+40% since June).

Authorities swiftly implemented emergency measures in August – issuing permits for another 50,000 slaughter-ready animals from Australia.

This partly reverses the savage cut in permits for the September quarter that were a fifth of the 250,000 head for the same period in 2014 – a decision which left the northern beef industry scrambling to readjust its complex logistics and find market for about 150,000 head of cattle.

Indonesia had claimed its internal beef market is saturated, after shipping in 250,000 head of Australian cattle in the second quarter of this year, as well as high levels of domestic production. Indonesian consumers were not convinced, neither were the butchers.

Indonesia was the biggest market for Australian live cattle in 2014. It accounted for about 56% of Australia’s $1.3bn live trade. However the country has serially tried to establish “self-sufficiency” in beef by maintaining a quota of imports – as reflected from 2011 to 2013.

Its opaque decision-making regarding beef imports and the inconsistency of its quarterly permit system is a perennial challenge for the live export sector and emphasizes the volatility of the live export trade.

Australian cattle producers are urging Jakarta to scrap its ad-hoc permits and move to an annual permit allocation system. According to Alison Penfold, chief executive of the Australian Livestock Exporters Council, a change to the annualized system would allow market signals to be properly interpreted and responded – and in turn give some certainty to both Indonesian customers and Australian cattle producers and exporters.

If that argument is getting traction, there is little sign of it yet from Indonesia.

The viability of the North Australian beef supply chain hangs on political decisions in Indonesia that try to balance a sensitive cost to consumers with support for Indonesian farmers.

The question has to be asked, is this trade actually sustainable?