Australia might have hit a roadblock in its beef trade with Indonesia but it is not going to be a long term obstacle, according to a new report from Rabobank.
According to Australia-Indonesia Live Cattle Trade, while the next 12 to 18 months may be difficult for Australia's northern cattle industry, the long term cattle export outlook to Indonesia remains strong.
Last year in the same month, Australian cattle exports to Indonesia were suspended for a month after footage of cattle being treated inhumanely at Indonesian slaughterhouses was aired on an Australian television station.
Though there is still some uncertainty in the market on both sides of the trade, the report added that the upside of demand from Indonesia remains bright and likely to provide strong future opportunities for cattle exports from Australia.
Northern cattle industry in intense pressure
Luke Chandler, report author and Rabobank’s general manager Food & Agribusiness Research and Advisory, said that the northern cattle industry has been dealing with a period of immense uncertainty since the suspension.
“The industry is now operating in a changed environment under new Australian government animal welfare regulations for live exports,” he said.
“Indonesia's import quotas for Australian cattle have also been significantly reduced in 2012 as the Indonesian government continues to push for the goal of beef self-sufficiency,” he added.
According to Chandler, only time will tell if the restricted quotas currently being imposed by the Indonesian government are a short-term issue or, “something the northern Australian cattle industry will need to readjust to in the longer term.
"It appears likely Indonesia's live cattle imports will recover over time.”
The report acknowledged that Indonesian quotas for 2012 have forced northern Australian cattle producers to look for alternative, and generally less profitable, domestic and export markets for their cattle.
Chandler suggested that the development of a northern Australian processing facility is one option to diversify demand and complement the live trade by providing an alternative local domestic market for the northern pastoral zone.
Indonesia’s inability is Australia’s opportunity
Indonesia's growing economy and increasing consumption of beef suggests self-sufficiency goals may be difficult to achieve and there is likely to be an ongoing need for live imports to complement domestic production.
“This may provide an opportunity for live cattle quotas to recover over time and the northern Australian cattle industry is well positioned to capture additional demand and supply low-cost disease-free beef to the Indonesian market,” Chandler said.
According to Chandler, competition to supply Indonesia is limited, but a change in Indonesian policy to allow imports from FMD-affected countries such as India would be a potential 'game-changer' for Australia's competitiveness.
“The risk of a change to this policy remains low at present, particularly given the Indonesian government's self-sufficiency ambitions which mean they would not want to put their domestic herd at risk of disease,” he said,