Indonesia’s Lower Import Quotas Create Record-high Beef Prices, Market Turmoil

Retail beef prices in Indonesia recently hit record levels following further government-imposed curtailment of imports of both fresh/frozen beef and live cattle. Beef supplies – both domestic and imported – are reportedly very scarce, according to sources contacted during a USMEF trade visit to Jakarta late last month.

In late November, the Indonesian government announced it would restrict 2013 beef equivalent imports to 80,000 metric tons (mt), divided between a maximum of 238,000 head of live feeder cattle and 32,000 mt of boxed beef. This is a further reduction from 2012, when 85,000 mt were initially divided into 283,000 head of cattle and 34,000 mt of boxed beef – though the government eventually allocated an additional 7,000 mt of beef in the second half of last year for use by Indonesia’s beef ball manufacturers.

“Indonesia set a target of 90 percent self-sufficiency in beef production by 2014, but it can only attain that goal by destroying demand,” said Joel Haggard, USMEF senior vice president for the Asia Pacific region. “As recently as 2010, Indonesia imported approximately 141,000 tons of beef and beef variety meat, and more than 500,000 head of Australian feeder cattle. There is simply no way to replace that much product domestically.”

The spike in beef prices has led to public protests by small vendors, as well as intense competition for scarce quota. Media reports have also uncovered incidents in which wild boar meat was mixed into traditional beef ball recipes. This has created an uproar in the Muslim population, hurting the beef ball business and overall beef consumption. In 2013, the government has banned the distribution and sale of imported beef to the retail sector, and the 32,000 mt beef product quota is being divided into a 55 percent share for manufacturing and 45 percent for the hotel, restaurant and institutional (HRI) sector. Current market access conditions only allow for boneless cuts of U.S. beef derived from cattle under 30 months of age, and importers have been told by government authorities import applications for beef hearts and livers will not be approved from any foreign supplier, regardless of the country of origin.

Importers applying for HRI quota must provide a breakdown of their request into three categories of cuts and their countries of origin. For the manufacturing sector, only two chemical lean specifications (65 percent and 85 percent) will be allowed. Following approval of semiannual quota amounts for each importer, no adjustment in the cut mix or country source is allowed. In anticipation of severe supply shortfalls, a coalition of retailers, processors, vendors, importers, caterers and hotel groups has formed the Jakarta Meat Council and made direct pleas to senior government officials for additional quota.

“Although tighter quotas provide an incentive to handle higher-margin beef products such as U.S. middle meats, we see importers facing difficult decisions on how to allocate products among their loyal base of end-users,” said Sabrina Yin, USMEF-ASEAN director. “Chain restaurants utilizing large volumes of lower-cost – but also lower-margin – beef products face the most difficulty. Well-established beef importers have also informed us that several new end-user associations have managed to capture some of the dwindling quota, further pinching product availability.”

Meanwhile, these excessive restrictions have done no favors for Indonesia’s cattle industry. Governors of some cattle-producing provinces have imposed restrictions on the transport of live cattle across their borders. In an announcement viewed as a major negative signal toward the future of Indonesia’s domestic beef industry, Santori (one of Indonesia’s largest cattle importers and feeders) has announced plans to establish China’s largest cattle feedlot in Shandong province.

Indonesia’s cattle population and beef consumption are topics of speculation and intense debate, and Indonesian leaders appear committed to their ambitious self-sufficiency goals. In October, the Indonesian House of Representatives joined the fray, passing a bill aimed at “food sovereignty.” Analysts generally agree that with imports capped at 80,000 mt and total consumption hovering near 500,000 mt, reaching a 90 percent self-sufficiency goal by 2014 may be feasible. But this “success” will likely happen in large part because record high prices will further stifle Indonesia’s beef consumption, which is already one of the lowest in Asia at approximately 2 kilograms per capita. It is also important to note that Indonesians already spend about 45 percent of their household income on food.

“If Indonesian beef consumption rose modestly – let’s say to a very plausible 4 kilograms per person, which is the average for residents of Jakarta – the country could sustain the domestic industry at its current size while also becoming a 500,000 metric ton importer,” Haggard explained. “If the government would allow demand to grow, there would be room in this market for everyone to succeed.”