Where’s the beef in Indonesia?

New Zealand beef exporters have been having a hard time capitalising on opportunities in the ‘Islands of Opportunity’, Indonesia. However, following the recent removal of quotas imposed in 2012 meat exporters are cautiously optimistic that things are on the up again – for now.

According to a recent Rabobank report, Indonesia is an ‘island of opportunity’ for New Zealand agriculture. ‘Indonesia – Islands of Opportunity’ says that there’s an economic transformation underway in the market, which is seeing the country emerge as an economic and political powerhouse in South-East Asia. This is leading to rapidly increasing demand for consumer goods, including food.

Indonesia is the most populous country in South-East Asia with 248 million people, making it the fourth largest economy in the world, and it also rapidly urbanising. The Rabobank report points to a middle class that is expected to surpass 140 million by 2020 and is driving the rapid expansion of the modern food and retail sector.

Michael Harvey, Rabobank

Report lead author Rabobank senior analyst Michael Harvey says the New Zealand food and agricultural industries will need to begin a “journey of diversification’ to help unlock more of this trade opportunity.

While Indonesia was once a thriving market for New Zealand meat exports, principally for frozen beef, New Zealand meat exporters have not been able to capitalise on those identified opportunities since the Indonesian government’s imposition of import quota restrictions between 2010 and 2013.

Aimed at achieving Indonesian self-sufficiency in beef, these saw New Zealand’s frozen beef exports to the market plummet by about 55 percent percent for the year ending December 2012, to just over 6,500 tonnes – the lowest level in a decade. Chilled beef exports fell by 83 percent to $1.3 million FOB for the same period. Despite that, Indonesia still ranked seventh for frozen New Zealand beef exports in 2012 – primarily because of its continued importance as a market for meat and bone-meal. The market is also New Zealand’s twelfth largest market for hides, skins and leather.

Finding that local producers were unable to meet massive demand for beef, which resulted in rising prices, the Indonesian government has more recently announced a number of measures aimed at stabilising the prices ahead of major religious festivals, including Government purchase of beef through the state logistics agency (Bulog).

Phil Houlding, MIA trade and economic managerWhen even this was unsuccessful, the Government finally removed the quotas, replacing them instead with a ‘reference price’, explains the Meat Industry Association’s trade and economic manager Phil Houlding. “If the price of certain secondary cuts of beef falls below the mark (currently set around US$7/kg), imports will be stopped.”

This most recent move has led to an upturn in New Zealand exports to Indonesia. Statistics New Zealand’s latest overseas merchandise trade data shows that 11,457 tonnes of beef and offal worth just over $54 million was sent to the market in the year to the end December 2013. While this represents an increase of 10.6 percent in volume and 8.8% in value on the 2012 year, it is a 58 percent drop in volume and 54 percent fall in value on the year ending December 2011.

“Statistics New Zealand figures for November 2013 suggest that exports for that month were back to pre-quota levels,” says Houlding, adding while exports for December 2013 were up, they were still not back to pre-quota levels (see graph below). However, there is still cautious optimism in the New Zealand meat industry that the worst of the trade restrictions are over.

Monthly exports of beef to Indonesia 2009-2013

“With Indonesian elections in 2014 – and the continuing popularity of protectionist and nationalist politics, as well as the importance of the rural vote – such caution may be justified. There have also been recent moves to open the market to Brazilian beef, which might put pressure on New Zealand’s market position.”

Given the geographic proximity to Indonesia, however, both New Zealand and Australian exporters have natural competitive advantages for trade, argues Michael Harvey: “Particularly for meat and dairy exporters who have lower shipping time and costs than our competitors.”

New Zealand has also been successful in securing better market access through the implementation of the ASEAN-Australia New Zealand Free Trade Area.

“Demand growth for beef in Indonesia remains firm, but is currently being pressured by increasing prices. Common across South-East Asia, falling herds combined with increasing consumption patterns predicate a strong demand outlook for boxed beef exports from New Zealand and Australia.”

Current beef consumption in Indonesia is a relatively small at two kgs per head a year. With its large population, a small increase would lead to huge opportunities for exporters and domestic producers alike, says Houlding.

A newly created agricultural counsellor position based at the New Zealand embassy in Jakarta was announced by the Minister for Primary Industries Nathan Guy in October, “in recognition of the growing importance of the bi-lateral relationship with Indonesia.”




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