With the coronavirus pandemic impacting profitability for Australian cattle producers and Indonesian feedlots and abattoirs, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) presents an opportunity for more focussed collaboration in the red meat and cattle sector.
To monitor market conditions and provide much-needed insights on COVID-19 impacts, Meat and Livestock Australia, in conjunction with the Partnership, are conducting a series of monthly webinars on key industry issues.
To date, three webinars have been held—in early May, June, and July— with a combined attendance of around 400 government and industry representatives. During these sessions a number of issues affecting profitability in the red meat and cattle sector were identified.
Indonesian feedlots are facing historically high prices for Australian feeder cattle, exacerbated by the disruption of export shipments from Australia, causing landed cattle prices to increase by up to 30% during 2020.
During the pandemic the value of the Indonesian Rupiah also dropped to its lowest level in over 20 years. Unfavourable exchange rates have severely reduced the purchasing power of Indonesian cattle importers and beef consumers.
Meanwhile, social distancing and other restrictions have disrupted the logistics and transportation supply chain, causing longer delivery times and substantially increased cattle feed prices.
FIGURES CONFIRM CHALLENGES AND OPPORTUNITIES AHEAD
In his June presentation, Mr David Goodwins, Monitoring and Evaluation Specialist for the Partnership’s Advisory and Support Group, provided updates on beef consumption and demand over Eid al-Fitr.
“Demand for fresh beef in Jakarta was high during May, despite COVID-19, social restrictions and business closures,” Mr Goodwins said. “Feedlots were able to sell off most of their fattened stock, but the margins were slim. The cattle being sold were purchased when the price was high in Australia and exchange rates were not favourable.”
Mr Goodwins said that the results for the industry over the year to date were more sobering.
“The industry has reported a drop of around 10% to 20% in beef sales compared to the same time last year,” he said. “Feedlots expect imports to reach around 500,000 for 2020, well down on the 676,000 head imported in 2019.”
Profitability for Indonesian beef producers is expected to be further impacted by the resumption of the importation of Indian buffalo meat, which had been suspended due to COVID-19 related trade barriers.
An estimated 70,000 tonnes of Indian buffalo meat had been imported into Indonesia across late May and June, with consumer prices for fresh beef expected to fall as a result.
“Generally, the feedlot industry expects to suffer losses in coming months,” Mr Goodwins said.
On a more positive note, Mr Fery Saputra, Deputy General Manager of Aeon Supermarkets, highlighted the optimistic outlook for the retail market in Indonesia.
He cited a 53% increase in meat sales in supermarkets during the pandemic due to consumers being forced to cook and eat at home, and noted a small shift away from poultry, likely due to the perception that red meat builds strength.
Mr Saputra emphasized the importance of educating Indonesian consumers at point of sale, and through marketing programs and social media, particularly around the differences in various cuts of meat and why consumers should be prepared to pay more for certain products.
IA-CEPA PROVIDES A SPRINGBOARD FOR INNOVATION
Four key industry figures in Indonesia—Mr Didiek Purwanto, Chairman of GAPUSPINDO; Mr Suhandri, General Secretary of ASPIDI; Mr Juan Adoe, Deputy Chairman for the Food and Cattle Industry at KADIN Indonesia; and Mr Dicky Adiwoso of Juang Jaya Abdi Alam, emphasized the difficulties faced by Indonesian feedlots and abattoirs.
All four noted that some Indonesian feedlots may fail to survive if the current commercial environment persists. They encouraged supply chain innovation, appropriate policy settings, and a long-term vision to overcome market conditions and to forge a way ahead for a post-pandemic recovery.
They also noted the need for Indonesia and Australia to continue to work closely together to reinvigorate and strengthen supply chains in both countries, and that consequently, the implementation of IA-CEPA in July has come at a crucial time.
A key benefit for Australian cattle producers and Indonesian feedlots is the Agreement’s removal of the 5% tariff on live cattle imported into Indonesia. This took effect from early July and will help to reduce feeder cattle prices and enhance profitability for Indonesian enterprises.
According to Mr John Karatsoreos, Regional Trade Division Director at Australia’s Department of Foreign Affairs and Trade (DFAT), from its inception the IA-CEPA includes an immediate quota for 575,000 live male cattle with a 0% in-quota tariff.
“Those quotas will grow by 4% per annum over five years to 700,000 head,” Mr Karatsoreos said.
“Annual cattle import permits will be issued without seasonal restrictions, with a review after five years to consider further increases. Restrictions for female cattle exports from Australia to Indonesia will also be eliminated.”
“In addition, the tariff on frozen beef will be cut from 5% to 2.5% for unlimited volumes, with the tariff being eliminated after five years.”
“There will also be duty-free access for 500,000 tonnes of feed grains into Indonesia in the first year, with a 5% annual increase thereafter.”
Mr Fadjar Sumping, Director of Animal Health at the Indonesian Ministry of Agriculture, noted that the importation of Australian cattle was essential to provide a rapid response to an increasing local demand for fresh beef.
Mr Sumping added that the post-pandemic period will offer an opportunity to reimagine the red meat and cattle sector, including Indonesia as a centre for re-exporting beef from imported Australian cattle.
His view is shared by the Partnership’s David Goodwins.
“The COVID-19 situation has put significant pressure on the industry, but it is leading to significant innovation and product diversification’. Mr Goodwins said. ‘This includes a 300% increase in on-line meat sales and the development of new meat products with longer shelf lives that directly respond to new consumer taste preferences and demands”
A SNAPSHOT OF IA-CEPA
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) entered into force on the 5th of July 2020.
IA-CEPA creates a framework for Indonesia and Australia to unlock the vast potential of the bilateral economic partnership between the two countries.
The Agreement aims to foster economic cooperation between businesses, communities, and individuals, paving the way for expansion and diversification of economic, social, cultural, and political relations.
As strategic partners and the two largest economies in Southeast Asia, Indonesia and Australia will use the Agreement to support their shared interest in fostering a secure and prosperous region.
Speaking as part of the Partnership’s second webinar on the 5th of June, Ms Elisabeth Bowes, Chief Negotiator at DFAT, said IA-CEPA would extend and expand commercial and social relationships between Indonesians and Australians.
“The Agreement covers more than just trade,” Ms Bowes said. “It includes capacity-building packages and additional working and holiday visa arrangements for Indonesian people.”
Mr Tom Connor, Assistant Secretary at DFAT’s Indonesia branch, said that the Government of Australia was preparing a $40 million Economic Cooperation Program (ECP) to support IA-CEPA.
“The ECP will focus on agri-food, manufacturing, and services,” Mr Connor said. “The program will support expanding traditional trade as well as deepening industry linkages to develop a second wave of commercial opportunities. These will include cutting-edge areas such as the digital economy and scientific research.”