Beef Self-Sufficiency Nowhere In Sight


BMI View: We see Indonesia's goals to become self-sufficient in beef production as overly optimistic. In fact, the restrictions imposed on beef imports since 2010 are exhausting the local beef sector as they push retail prices to records and incentivise the slaughter of local cattle in excessive volumes. As a result, we believe Indonesia will have no choice but to make the recent reduction to import restrictions perennial.

Indonesia's beef self-sufficiency goal is wreaking havoc with the sector. In 2011, the country imposed restrictions to beef and cattle imports, in order to favour local production. However, this led to a shortage of beef meat in Indonesia since 2012. Retail prices are skyrocketing and averaged IDR89,200/kg so far in 2013, up 16% compared with 2012 and 28% compared with 2011. Beef prices reached record highs in August 2013 around the Idul Fitri celebrations that mark the end of Ramadan. As a result, producers have been liquidating their herd to take advantage of the prices, and the cattle herd (buffalo, beef and dairy cattle) was at 14.2mn heads in May 2013 according to the Indonesian Central Bureau of Statistics, compared with 16.7mn head in 2011. Driven by the increase in slaughtering, beef production grew strongly in 2011/12 and 2012/13, to 490,000 tonnes that year. Output should decrease strongly in 2013/14 to 410,000 tonnes as prices ease with the imports and due to the lower availability of live cattle.

Decline In Production
Indonesia - Beef & Veal Local Production & Imports ('000 tonnes)

Indonesia has started to disband its import restrictions in order to ease domestic prices and aborted the quota system in July, moving to a reference price mechanism for imports The Indonesian Government intends to issue permits for cattle and beef imports when the Indonesian beef price for secondary cuts exceeds the reference price of IDR76,000/kg (US$6.9/kg) by 15%, while imports will be restricted when the price falls to 5% below the reference price. However, it is unclear yet whether the new rules will be limited to 2013. The change in Indonesia's policy will help imports regain a large part of the lost ground since 2011. Australia's cattle and beef industry should benefit the most, as it will see its exports to Indonesia boom in 2013 and 2014 if the country maintains its open imports policy next year. Indonesia imported 266,000 heads of cattle from Australia in 2012/13, compared with 375,000 in 2011/12 and way below 700,000 in 2010/11.

Indonesia's Imports Bound To Pickup
Select Countries - Live Animals (LHC) & Bovine Meat (RHC) Imports, US$mn

Overall, we believe Indonesia will have little choice but to ease its import regulations over the medium term, as domestic demand will slowly surpass production. We see Indonesia's goal set in 2010 to reach self-sufficiency by 2014 as unachievable. Moreover, Indonesia's plan to invest in cattle breeder stations abroad is still far off. The government announced in September it approved a plan to buy 1mn hectare of farmland in Northern Australia in order to solve its own crippling beef supply problems. Under the plan, young cattle will be raised in Australia and exported to Indonesia to be fed until they are ready for the beef market.

More Permits Coming
Indonesia - Retail Beef Meat Prices & Price Beyond Which Import Permits Are Issued (IDR/kg)

However, the acquisition of a large cattle station in Australia will be difficult, given the recent tensions over foreign investment in farmland in Australia. Moreover, the recent change in Australian government and new ruling Liberal-National coalition will probably complicate the process of foreign investment and increase delays ( see 'Coalition Spurs Mixed Developments In Business Environment', September 20).

INDONESIA Beef & Veal Production, Consumption & Trade
2012 2013f 2014f 2015f 2016f 2017f
Notes: f BMI forecasts. Sources: 1 Indonesian Directorate General of Livestock and Animal Health Services, FAPRI; 2 FAPRI.
Beef & Veal Production, '000 tonnes 1 460.0 490.0 410.0 450.0 467.0 485.0
Beef & Veal Consumption, '000 tonnes 2 539.0 540.6 543.3 567.8 593.3 620.0
INDONESIA Pork Production & Consumption
2012e 2013f 2014f 2015f 2016f 2017f
Notes: e BMI estimates. f BMI forecasts. Sources: 1 FAPRI.
Pork Production, '000 tonnes 1 620.8 636.3 638.0 648.0 660.0 672.0
Pork Consumption, '000 tonnes 1 605.1 613.4 625.6 638.1 650.9 663.9
INDONESIA Poultry Production & Consumption
2012e 2013f 2014f 2015f 2016f 2017f
Notes: e BMI estimates. f BMI forecasts. Sources: 1 USDA.
Poultry Production, '000 tonnes 1 1,540.0 1,570.0 1,620.0 1,670.0 1,735.0 1,790.0
Poultry Consumption, '000 tonnes 1 1,560.4 1,585.4 1,644.1 1,704.9 1,766.3 1,835.2
This article is tagged to:
Sector: Agribusiness
Geography: Indonesia