Mgb 340 - Analysis of the Australian-Indonesia Beef Trade

Analysis of the Australian-Indonesia beef trade

MGB340

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Executive summary

Purpose and method of this report

Australian beef is re-knowned for its quality and freshness, this has led to its demand globally. Indonesia is Australia’s largest export market for live feed cattle, therefore, further improvements to enhance market share should be examined.  The purpose of this report are to:

• Study the Indonesian market regarding its export policies and consumer demands.
• Recommend ways to enhance trade between Australia and the Asian Pacific market.

Reports and surveys from different institutions were used to compile information concerning market share and implemented policies that facilitate beef export.

Findings and conclusions

Australia is facing stiff competition from other emerging countries who have been granted access to the Indonesian red meat market. This has resulted in negotiations to remove some trade barriers that won’t hinder trade agreements and ensure profitability. The Indonesian Government has opened its market more allowing easier trade between the two countries.

However, this study shows that more is required in order for the Australian beef to compete successfully with the increasing Indian buffalo meat consumption, and the Indonesian goal for self-sufficiency.

Recommendations for development of the beef industry

The recommendations the beef industry development include:

• Enhanced animal wellbeing to maintain healthy livestock.
• Optimisation of the market accesses by combating trade barriers.
• Enhance profitability through farms, feedlots and processor productivity.

1. Introduction

The beef and cattle industry is Australia’s leading agricultural enterprise and third largest international beef exporter behind Brazil and India.  Its beef is renowned for its superior quality due to strict standards and regulations that ensures food safety and animal welfare. According to the Australian Bureau of Statistics (ABS), Australia produced approximately 2.07 million tonnes cwt of beef and 2.7 million grainfed cattle. Indonesia, who has the 4th largest population in the world, consists of a population that is largely Muslim whose choice of meat is beef and chicken. Indonesia’s rapid economic growth makes it a vital market for Australia’s beef importing 64,787 tonnes of meat product in 2015/2016, according to Australian Meat Industry Council (AMIC).  This enables Australia to have the largest marker share of 81% followed by New Zealand(15%) and United States of America(4%), according to Meat and Livestock Australia (MLA).

1.1 purpose of the study

With the entry of Indian buffalo meat, the Indonesian government is facilitating the provision of affordable beef to its local consumers. This has led to the reduction of Australian beef export to Indonesia. The Indian buffalo meat has penetrated the wet market where majority of Indonesians purchase fresh produce. Indonesia is the largest importer of live cattle in 2016 with 595,950 feeder cattle shipped to the market (MLA, 2016). Around 70% of Australia’s feeder cattle import also steered to the wet market, were also largely affected by the low demand.

The report will highlight the economic issues affecting trade relations between the two countries

1.2 scope of the study

The study investigates:

• The economic contrast between Australia and Indonesia.
• Factors affecting their trade relations.
• Impact and evaluation of political economy.

1.3 Sources and methods

The information was accumulated from annual trade reports and publications from trade organizations and governmental institutions. Data collected from different institutions highlighted factors that cause shift in demand. The information compiled is from the 2015/2016 and 2016/2017 reports due to the emerging competition and political factors.

2. Findings and Discussion

The finding of the study will be grouped in two categories, economic comparison and political economy.

2.1 Economic Comparison

In this category, the study analyses the Australian and Indonesian economy, highlighting their differences and similarities and their effect on trade between the two nations.

2.1.1 Australia economy

Due its access to quality education, health services and financial market development, out of 138 countries Australia is ranked 22nd according to the Global Competitiveness Report 2016-2017. Australia is ranked 6th in financial market development, 9th in higher education and training and 10th in health and primary education, see Appendix A.

Economic growth is projected to increase around 3% by 2018 supported by growth in the non-mining sector. Demand for natural resources and energy in Asia has created a growth in commodity export. Australia’s natural resources that include extensive reserves of coal, natural gas, uranium, gold and iron have attracted foreign investment. Due to the minimal restriction on import of goods and services, productivity has increased making the economy more dynamic. Australia has formed bilateral free trade agreements (FTAs) with New Zealand, Thailand, Singapore, Indonesia, Chile and Malaysia expanding the market for its commodities and services.

2.1.2 Indonesia economy (oecd/worldbank)

Indonesia GDP expanded 5.0 percent in Q1 2017 an increase from 4.9 percent year-on-year (yoy) in Q4 2016 but weaker than the forecast of a 5.2 percent rise. An increase in exports and government consumption were the main factors the GDP growth. Private consumption growth remained flat in Q2 and Q3 of 2017 due to lower lending rates and the stability of the Rupiah despite price hikes (OECD, 2016). The rise of commodity prices and higher government spending on infrastructure has led to the recovery of business investments. Export of commodities such as rubber, coal and copper are growing due to the high external demand and stronger global growth, see Appendix B.