As expected, beef prices increase

Cattle, Indonesia

Muslims around the globe including those living in Indonesia will soon be welcoming the fasting month, Ramadhan. Although the key lesson of fasting is to self-control by refraining from down to sunset from eating and drinking, food price’s increase has always been the norm in Indonesia at the beginning of Ramadhan. Increased demand for food are due to various reasons. Ramadhan is perceived to be the best time to give food to the poor. During this month, Muslims also tend to have gatherings with their family and relatives more often than they normally do.  They also mark the month as well as the end of Ramadhan, Eid Fitr, as the festive season. They tend to consume and serve to their guests better quality food than they normally have. This gives pressure on food items, especially the ones considered to be special food such as beef, to have a price increase.  This year is rather different. There is another factor contributing to beef price increases in Indonesia.

It is inevitable to talk about Indonesian beef market without including Australian live cattle and beef exports to Indonesia. The relationship is a love-and-hate relationship. The relationship has been put to the test since mid 2011 following the spread of a video showing Australian cattle being subject to inhumane treatment in Indonesian abattoirs. The video had prompted a one-month ban on live cattle exports to Indonesia. Our previous opinion piece (The Jakarta Post, 9 June 2011) and policy brief suggested that assistance to improve Indonesian livestock industries’ productivity and animal welfare regimes should have been chosen by Australia and the experience could be a learning curve for Indonesia to improve its regulatory framework for animal welfare.

Nevertheless, both countries – whether they like it or not, or whether they want to admit it or not- need each other. Australia is a big producer of live cattle and beef and has solid reputation of producing good, if not the best, quality beef. Australia needs a big market to sell its products making Indonesia with its over 200 million population an attractive market. Given significant  investments in livestock industries in Indonesia that Australia has made, losing the market can have substantial impact on Australia.

Indonesia, on the other hand, as much as it wants to be self-sufficient in livestock its domestic consumption still exceeds its ability to produce domestically. It is true that Indonesia’s latest survey suggested that the country has sufficient live cattle to meet domestic demand.

Yet, total number of live cattle may not tell us the whole story to be able to conclude that the country can be soon self-sufficient in beef.  For example, we need to know the proportion of home-produced livestock as we stated in our previous opinion piece (The Jakarta Post, 27 December 2011). Again, we strongly believe that better cooperation could have been achieved by focusing on improvements in productivity rather than a blunt protectionist trade policy. Indonesian cattle farmers may deserve to enjoy assistance and protection from the government helping them reach economies of scale. But such preferential treatments should be temporary in order to give them incentives to improve their productivity.

Following live cattle and beef quota in early 2012, we predicted that beef prices would eventually increase. In the first half of 2012, the impacts might not have been evident as Indonesia normally has sufficient stocks to meet at least 3 month demand. But now, Ramadhan is coming and beef demand have increased. Average prices nearly reach IDR 100,000 per kg or about $10/kg.  Beef sellers at retail markets have blamed import quota cut to be the major cause of price hike. They experience supply shortage and blame importers on acting as ‘oligopolists’ controlling supply (Pikiran Rakyat 18 July 2012).

Importers, who previously only supplied imported live cattle, have now turned into distributing domestic cattle following the implementation of import quota. For beef retailers, increasing their selling price is not that simple because consumers would react to the increase by shifting their choice to cheaper commodities such as chicken and eggs which unfortunately also experience price increase as we predicted.

The government insists that they still have enough back-up supply at the feedlot as stated by Minister of Agriculture Suswono (Gatra 18 July 2012). Reliance on supply at the feedlot, which  are normally imported cattle, raises a question over the self-sufficiency claim that the government is confident about.

We do not necessarily suggest that the government should excessively open the market. Infant industry argument should be applied. The Indonesian government should provide temporary protection and assistance to domestic farmers. We emphasise the term temporary meaning that the government must know when it can lift the protection up. Coordination between Minister of Trade and Minister of Agriculture is much appreciated to further discussion by not merely focusing on protectionist trade policy (Antara 18 July 2012). If it were true that Indonesia does have sufficient supply of live cattle and beef, monitoring of distribution and industry practices must be improved. Without effective monitoring, having sufficient supply of domestic live cattle and beef cannot be translated into economic gains, neither for farmers nor consumers resulting further net economy-wide loss coming from protectionist policy.

This article is written by Risti Permani.

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Filed under Food and agriculture, Indonesia, Trade

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