As
expected,
beef
prices increase despite sufficient live cattle
Risti Permani ; Post-Doctoral Fellow
at School of Economics, University of Adelaide
JAKARTA
POST, 26 Juli 2012
Muslims around
the globe, including those living in Indonesia, are welcoming the fasting month
of Ramadhan. Although the key lesson of fasting is self-control by refraining
from eating and drinking, rising food prices have always been the norm in
Indonesia at the beginning of Ramadhan. Increased demand for food is 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 hold gatherings with their family and relatives more often than they normally do. They also mark the month, as well as the end of Ramadhan, Idul Fitri, as the festive season.
They tend to consume and serve their guests better quality food than they normally have. This puts pressure on food items, especially the ones considered to be special, such as beef, thereby increasing prices. This year is rather different, following the changing nature of trade relations between Indonesia and Australia.
It is inevitable to eventually talk about Indonesian beef markets without including Australian live cattle and beef exports to Indonesia. This is a love-hate relationship.
The relationship has been put to the test since mid 2011 following the spread of a video showing Australian cattle being subjected 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, June 9, 2011) 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 a 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 a substantial impact on Australia.
In 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, the total number of live cattle may not tell us the entire story to be able to conclude that the country can soon be 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 Post, Dec. 27, 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.
Such preferential treatment, however, should be temporary in order to give people incentives to improve their productivity.
Following the 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 three-month demand.
But now, Ramadhan is coming and demand for beef has increased. Average prices are expected to reach Rp 100,000 per kg or about US$10/kilogram.
Beef sellers at retail markets have blamed import quota cuts to be the major cause of price hike. They experience supply shortage and blame importers on acting as “oligopolists” controlling supply.
Importers, who previously only supplied imported live cattle, have now turned to distributing domestic cattle following the implementation of the 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 have unfortunately also experienced price increases, as we predicted.
The government insists that we still have enough back-up supply at the feedlot, as stated by Minister of Agriculture Suswono (Gatra, July 18, 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 arguments should be applied. The Indonesian government should provide temporary protection and assistance to domestic farmers.
We emphasize the term temporary, meaning that the government must know when it can lift protection. Ongoing coordination between the Minister of Trade and the Minister of Agriculture is much appreciated for further discussion, but not by merely focusing on protectionist trade policy.
If it were true that Indonesia does have sufficient supply of live cattle and beef, monitoring of distribution and industry practices would need to 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 in further net economy-wide losses coming from protectionist policies. ●
Ramadhan is perceived to be the best time to give food to the poor. During this month, Muslims also tend to hold gatherings with their family and relatives more often than they normally do. They also mark the month, as well as the end of Ramadhan, Idul Fitri, as the festive season.
They tend to consume and serve their guests better quality food than they normally have. This puts pressure on food items, especially the ones considered to be special, such as beef, thereby increasing prices. This year is rather different, following the changing nature of trade relations between Indonesia and Australia.
It is inevitable to eventually talk about Indonesian beef markets without including Australian live cattle and beef exports to Indonesia. This is a love-hate relationship.
The relationship has been put to the test since mid 2011 following the spread of a video showing Australian cattle being subjected 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, June 9, 2011) 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 a 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 a substantial impact on Australia.
In 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, the total number of live cattle may not tell us the entire story to be able to conclude that the country can soon be 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 Post, Dec. 27, 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.
Such preferential treatment, however, should be temporary in order to give people incentives to improve their productivity.
Following the 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 three-month demand.
But now, Ramadhan is coming and demand for beef has increased. Average prices are expected to reach Rp 100,000 per kg or about US$10/kilogram.
Beef sellers at retail markets have blamed import quota cuts to be the major cause of price hike. They experience supply shortage and blame importers on acting as “oligopolists” controlling supply.
Importers, who previously only supplied imported live cattle, have now turned to distributing domestic cattle following the implementation of the 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 have unfortunately also experienced price increases, as we predicted.
The government insists that we still have enough back-up supply at the feedlot, as stated by Minister of Agriculture Suswono (Gatra, July 18, 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 arguments should be applied. The Indonesian government should provide temporary protection and assistance to domestic farmers.
We emphasize the term temporary, meaning that the government must know when it can lift protection. Ongoing coordination between the Minister of Trade and the Minister of Agriculture is much appreciated for further discussion, but not by merely focusing on protectionist trade policy.
If it were true that Indonesia does have sufficient supply of live cattle and beef, monitoring of distribution and industry practices would need to 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 in further net economy-wide losses coming from protectionist policies. ●
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