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The beef conspiracy

Global Asia - May 9, 2011

Joe Cochrane An outcry is growing over the government's move to restrict imports of cattle and beef. While government officials say the aim is to boost domestic production, Globe Asia finds other, more suspicious, undertones.

In a land already brimming in mysticism and the supernatural, 2008 was one for the books in Java. At some point during that 12-month period, the cattle population of East Java province miraculously grew by nearly 680,000 head. How this happened cloning, spontaneous reproduction, insertion by tractor beam from hovering UFOs nobody knows, and the Ministry of Agriculture is fastidiously avoiding questions on the subject.

According to the ministry's own figures, the cattle population jumped from 2.7 million to nearly 3.4 million without explanation. What happened to those cattle remains a mystery, and there hasn't been any evidence to prove they ever existed. The ministry' figures on East Java cattle that were slaughtered or transported live out of the province grew at normal rates between 2008 and 2010, meaning the extra 680,000 somehow remain in hiding, or if you believe in such things, were beamed back up to their alien space ships.

Thomas Sembiring, chairman of the Indonesian Meat Importers Association (Aspidi), doesn't believe in aliens or magical forces. He also doesn't believe the agriculture ministry's figures on the stunning growth of East Java's cattle population. "Can you do that without producing like a pig?" he asked rhetorically during an interview at his office in Central Jakarta. "If you look over the stats, a lot of questions cannot be answered."

Indeed, East Java's curious cattle population boom is just the tip of the iceberg. Indonesian cattle and beef importers, Australian and New Zealand exporters, as well as government officials from those two countries are asking questions about many of the facts and figures coming out of the Ministry of Agriculture these days. Among factors being questioned are the ministry's formula for calculating Indonesia's beef demand for 2011, its system for awarding import quotas for boxed beef and live cattle, its decision to reduce boxed beef imports by 58%, and the actual size of the country's cattle population.

Individually, these figures are troubling, but cumulatively they indicate the country's beef industry is staring into the abyss. Finally making its way onto the front pages after simmering for most of 2010, the crisis centers around the Ministry of Agriculture's controversial blueprint to achieve beef self-sufficiency by 2014. And as with so many cases where Indonesian politics intersects with big business, the beef industry is beset with allegations of political corruption, collusion and nepotism, religious discrimination and conspiracy theories of involvement at the highest levels of the Indonesian government to drive out foreign meat importers and corner the market of a multi-billion-dollar industry.

What is true or untrue remains to be seen. But according to Indonesian and foreign industry experts, this much is known: the country has no hope of becoming self-sufficient by 2014, or even by 2020, despite what the Ministry of Agriculture claims. In addition, say the experts, the ministry's self-sufficiency program has instead caused a chain reaction that is making the domestic beef industry less self-sufficient while simultaneously reducing available supply and driving up prices.

Worse, the Indonesian government may find itself dealing with chronic and extended shortages of beef, as well as higher prices, as Australian exporters turn to more open, friendly and reliable markets in Russia, Turkey and Egypt for live cattle and boxed beef. "There is nervousness in Australia about Indonesia as a trading partner," said one Australian agriculture industry official, who would only speak on background given the sensitive nature of Indonesia's beef industry debate.

"The warning bells should be there for Indonesia that they are being by-passed in the international trade system, especially since they want self-sufficiency," the official said. "It's conceivable that Australia could by-pass Indonesia and do shipping contracts with Turkey and Egypt." That would, of course, be tragically ironic given that the Yudhoyono administration touts food security as the main reason for its self-sufficiency drive for beef as well as rice, corn, soya and sugar.

Given Indonesia's growing population growth figures, combined with the millions of expected new entrants into the country's middle class in the coming years, there could be a lot of angry, hungry voters. Indonesian meet processing companies are already angry, warning that the lack of supply for their bakso, beef sausages and other products will force them out of business. More than half of all imported beef into Indonesia is used in the manufacturing sector.

Seeds of disaster

How could it all go wrong for such an efficient industry? Beef and cattle imports were one of the sectors notable for immunity to Indonesian and Australian diplomatic spats, even in the wake of East Timor's independence referendum in 1999 and eventual statehood. Between 2003 and 2009, annual live cattle exports from Australia to Indonesia nearly doubled to 773,000 head, an average increase of 19% a year.

Choice cuts of Australian boxed beef for five-star Indonesian hotels, restaurants and upscale grocery stores grew by 46% during the same period. New Zealand, while a smaller player, doubled its boxed beef exports to Indonesia in the past two years. The formula for success was a no-brainer. Australian cattle breeders are among the most experienced and efficient in the world, and Indonesia's 240 million consumers are increasingly eating more beef as the economy booms.

They also view Australian beef as better quality for acceptably higher prices, and trust that it is healthy and meets halal standards. The industry had run like clockwork for more than two decades. And the benefit is not all one-way. Imported Australian cattle go directly to feedlots in Java and Sumatra to be fattened up before being slaughtered. This has created an agriculture sub-sector for Indonesian farmers who sell leftover corn, grasses, pineapple skins and other refuse to the feedlots. A single feedlot can employ up to 700 young Indonesian men and women.

"The growth in the trade of feeder cattle has led to more jobs in Indonesia, has led to more use of their by-products. It's been a successful way of increasing their production," says Allister Lugsdin of Meat and Livestock Australia. He also notes that the Australian government and the country's meat and livestock industry have spent great time, effort and money helping their Indonesian counterparts improve productivity, efficiency, and health and hygiene within their domestic industry.

Boom-time breakdown

After exports of cattle, boxed beef and offal from Australia and New Zealand exceeded a record $700 million in 2009, giddy producers and importers wondered whether the good times would ever end. Unfortunately, they did. Australian live cattle imports into Indonesia dropped by more than 30% in 2010, and quotas for 2011 were capped at 500,000 head. On several occasions last year, Indonesian agricultural officials announced they were following through on a self-sufficiency plan to increase domestically-born and -bred beef supply to the market to 90% by curbing imported live cattle and boxed beef.

As the Indonesian side spent much of mid-2010 counting how many imported head of cattle it needed, the distribution of import permits began to mysteriously slow down. For 2011, the Ministry of Agriculture capped boxed beef imports at 50,000 tons, a staggering 58% reduction from the previous year despite the fact that beef demand in Indonesia is rising. Sembiring of Aspidi accuses the ministry of estimating total demand for 2010 at 403,000 tons by simply multiplying Indonesia's 237 million people by 1.7 kg, the government's official estimate of per capita annual meat consumption.

"They are only calculating on household consumption, but what about all the other factors? Expatriates, people from international organizations, diplomats and tourists? They are from countries consuming up to 10 times the amount of beef as Indonesians," Sembiring states, adding that the United Nations Food and Agriculture Organization estimates that Indonesians annually consume 2.4 kg per capita.

He notes that actual beef demand for 2010 was 493,000 tons, but the Ministry of Agriculture's projected demand for 2011 is only 456,000 tons, meaning consumption would have to drop despite all the evidence saying it is steadily growing. "They don't consider economic growth... because (beef) consumption among Indonesians is still so low, but it's growing," Sembiring insists.

Adds a New Zealand trade industry official who asked not to be named: "The import quota numbers are totally out of thin air. The numbers are just so far from reality. An argument can be made that Indonesia is less than 50% self-sufficient in beef." What is clear is that the Indonesian government cannot handle increasing demand for beef while simultaneously curbing imports: Domestic production is simply not capable of filling the gap.

A case in point occurred in September 2010 when beef prices in Jakarta skyrocketed ahead of the Idul Fitri holiday due to undersupply, which local traders blamed squarely on the agriculture ministry's efforts to curb imports. The situation only got worse. Given higher prices and lack of supply, Indonesian cattle owners decided to make a quick buck by slaughtering breeding female cows to meet demand, dealing a major blow to government efforts to increase the country's domestic herd size as part of its self-sufficiency blueprint.

The Ministry of Agriculture rushed to pass a regulation banning livestock owners from slaughtering breeding females, but the damage had already been done. One meat importer estimates that "80% to 90% of what's been killed at the moment in Indonesia is productive breeding females."

Under pressure, the ministry has commissioned a census to determine Indonesia's total cattle population, to help it accurately calculate future domestic supply as well as import needs. Its self-sufficiency blueprint states that the population should be at least 13 million, although many believe the actual current number is at most 9 million. Numbers aside, there is growing belief that agriculture ministry officials are either in denial about Indonesia's inability to become self-sufficient in beef production by 2014, or hiding it to make it look like the country is moving toward self-sufficiency.

During a meeting with visiting Australian Agriculture Minister Joe Ludwig in March, Indonesian Deputy Agriculture Minister Bayu Krishnamurti actually spoke about Indonesia becoming a beef exporter to the Muslim world even though Indonesia currently imports around 44% of its beef supply.

Critical shortages

While the enthusiasm of agriculture officials is admirable, the reality is that Indonesia lacks the appropriate tracts of land, feed, genetic skills for breeding, or experience to create an industry similar to those of Australia and the United States, according to industry experts. By one estimate, 40% of cattle in Nusa Tenggara Timur province are under-nourished. "They don't have a snowball's chance in hell" of becoming self-sufficient, says one expert. That still has not stopped the ministry from curbing imports and bringing forward the expiration dates on import permits.

In April two importers filed a lawsuit against the agriculture ministry after 25 containers of beef were stopped at Tanjung Priok Port in mid-January by inspectors who declared the shipping licenses had expired. Then there are the reported allegations that agriculture ministry officials gave preferential treatment on quota allotments to importers linked to Agriculture Minister Suswono's Islamic-based Prosperous Justice Party (PKS).

Two companies whose owners are Christians had their quota allotments reduced, according to an industry source. Sembiring of Aspidi declined to directly comment on the allegations against the PKS, but said: "The quotas were not being distributed equally. Every time the supply is lower than demand, there is always a problem. You get a lot of importers trying to monopolize the quotas."

While many of the domestic meat importers are angry, players such as Sukanda Djaya Anzindo, Indoguna Utama and Bumi Maestro Ayu are avoiding speaking out, apparently in hopes that the crisis can be resolved behind closed doors. On April 13, the agriculture ministry announced that it had increased the quota on imported boxed beef from 50,000 tons to 72,000 tons.

While this is a step in the right direction, industry experts warn that piecemeal increases will not solve what could easily become a long-term supply problem, as imports can't just grow by throwing a switch. "In the world beef market, there is undersupply due to declines in (production in) the US, Argentina and Brazil," states the Australian agriculture industry official. "It's hard to gear up the live trade shipping contracts, regulations to export. It's a long lag. The boxed beef trade can respond more quickly, but it's still a lag time of weeks."

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