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Are annual live cattle quotas for Indonesia enough?

Mark Henry - Thursday, December 10, 2015

Food Security and political stability have always walked hand in hand. Every political regime lives by this fact. From Marie Antoinette to Mao, the ironclad rule for a successful political regime has always been to ensure that the masses have adequate food. Rarely is an ideological sentiment so unifying, nor a violation of ethics so egregious that its revolutionary clout exceeds that of a steep rise in grain prices.

The immense destructive power of hungry populace are mesmerising and news-friendly. Even in an age of domestic narcissism, North African food riots will generate clicks. Take the bread-riots that precipitated the Arab Spring in 2008 for example. For all the grotesque appeal of a food riot, it is worth remembering that the relationship between political stability and the food doesn’t end once basic nutrition is accounted for, particularly in low and middle income economies.

High end agricultural products tend not to be massively important to food security in the basic nutritional sense, nor do shortages guarantee riots. The world can more than adequately feed itself without Australian beef, but being able to and expecting to, are two different things. Governments which oversee prohibitive price rises in luxury food products still have reason to be wary. This may in part explain Indonesia’s drive for self-sufficiency in beef, a commodity in which that nation does not hold a comparative advantage. Indonesia is highly exposed to Australian producers for supply of warm beef into wet markets and at the same time, reticent to let consumers ride the seasonal volatility of north Australian cattle production. Consistently high prices are likely to do less damage to public opinion than those which are more volatile yet lower over the long term.

The Indonesian Government would obviously prefer consistent beef supply and prices, and has a preference that this is achieved through greater domestic self-sufficiency. However, achieving this is extremely difficult in a nation where the principal use of cattle is to provide farm horsepower, where average herd sizes are extremely small, where the highest priority use of land is for grain production, and where the technical and logistical infrastructure for beef production remains limited.

This tension between consistent pricing and supply, and desire for domestic self-sufficiency was played out in 2015 when Indonesia drastically cut quarterly import quotas, creating a domestic beef price spike. The sensitivity associated with this issue was then demonstrated by ministerial change and a subsequent significant increase in import quotas the following quarter. Australian exporters responded, but what if they hadn’t? It is doubtful Brazil has the supply chain infrastructure or quality and biosecurity standards that would enable that nation to fill the gap quickly.

As it stands the quarterly quota system places much of the market risk on Australian producers. Agriculture & Water Minister, Barnaby Joyce among others have been pushing for greater certainty through annualised quotas. Quotas provide a mechanism to control prices. Increasing the quota period decreases price control and supplier disruption, thereby transferring risk off Australian producers and back on to the Indonesian Government. Whether or not the Indonesian Government is prepared to absorb more of the risk is an interesting question, but in an era where demand from other importers such as Vietnam and China is growing rapidly, the Indonesian Government might have little choice.

 
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