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Beef Trade Still Stymied in this Once-Promising Market

In its peak year of 2011, Indonesia was a top 10 volume market for U.S. beef and beef variety meat exports at 17,847 metric tons (mt) with an export value of more than $28 million. With a population of more than 250 million, it was an especially important destination for beef variety meat, ranking as the seventh-largest in volume (12,582 mt) and eighth-largest in value ($11.4 million).
Indonesia
U.S. exports plummeted 90 percent last year when Indonesia imposed severely restrictive import quotas in an effort to bolster domestic beef production. Specifically, the number of import permits issued annually was reduced from 100,000 mt in 2011 to 40,000 mt in 2012. Although Indonesian officials maintained that this import permit system was not a quota, it clearly set a quantitative restriction on the annual volume of beef imports.

The quantity of permits was cut even further in 2013 – to just 32,000 mt. Predictably, U.S. exports have dropped even more, reaching (through May) only 358 mt valued at $3.8 million.

U.S. exporters are not alone in their frustration. According to the Global Trade Atlas, Indonesia’s imports from all sources plunged from more than 140,000 mt in 2010 to 41,712 mt in 2012. Through April, the 2013 import pace dropped another 28 percent. Leading supplier Australia reported a small year-over-year increase in beef exports through May (13,669 mt, +9 percent) but this was still more than 75 percent below the pace established in 2009. In addition to its disruptive impact on the market, Indonesia’s import permit system has also been linked to a scandal in which regulatory officials were arrested and charged with accepting bribes from importers.

Indonesia’s import policies have kept consumption at an extremely low level. According to the Food and Agriculture Organization of the United Nations, Indonesia’s annual per capita beef consumption is only 1.8 kilograms. Total beef, poultry and pork (limited due to religion) consumption is just 10.5 kilograms. This is dramatically lower than its ASEAN neighbors and less than half the developing country average of 25 kilograms – despite an economy that is growing 6 percent annually and a per capita GDP of $5,100.

U.S. pursues relief through the WTO
In January, the Office of the U.S. Trade Representative (USTR) announced that the United States would request consultations with Indonesia under the dispute settlement provisions of the World Trade Organization (WTO) concerning many trade-restrictive measures, including those targeting imported beef. In comments filed May 30, USMEF highlighted some of the most damaging aspects of Indonesia’s beef import policies, including:
  • The import permit system not only effectively sets an annual maximum import volume, but also establishes the volume that individual companies are permitted to import.
  • Permits are only allocated once every six months, making planning by importers extremely difficult.
  • Permits are issued for specific product categories from designated countries and importers are not permitted to change the product mix during the six-month period when the permits are valid. This built-in inflexibility prevents importers from reacting to changes in demand in the Indonesian market.
  • For much of 2013, Indonesia would not issue import permits for hearts and livers, items which once accounted for 70 percent of U.S. exports. (This policy has since been modified.)
  • Also beginning this year, imported beef can no longer be sold in retail stores unless it is purchased and distributed by BULOG – a designated government entity. Non-BULOG import permits are only allocated for use in the foodservice and processing sectors.

In recent weeks, the Indonesian government has faced a backlash from consumers and local media for policies that have contributed to a significant spike in beef prices. This was especially true as the Ramadan holiday (July 9-August 7) approached with beef in very short supply.

Some measures were recently taken to ease the supply situation, but they unfortunately offered little help for U.S. exporters. First, Indonesian trade officials agreed to import an additional 25,000 head of Australian cattle over a three-month period. (Through May, Australia’s feeder cattle exports to Indonesia were up 12 percent to 152,863 head, but still down 43 percent from the same period in the peak year of 2009.) Officials also decreed that air shipments of fresh, chilled, Prime beef cuts may enter Indonesia outside of import permit limits, but only at three airports and under very specific circumstances – a provision unlikely to be utilized by U.S. exporters.

BSE-related restrictions lifted, but will it help?
In a recent move specific to U.S. products, Indonesia reopened the market to imports of U.S. bone-in beef, offal and beef products – items that had been banned following the BSE case detected in California in April 2012. This action was taken after the World Organization for Animal Health (OIE) upgraded the United States’ BSE risk classification from controlled risk to negligible risk. Except for certain specified risk materials, the market is now open to U.S. beef and beef products from cattle of all ages.

While this appears on the surface to be a very positive development for U.S. exporters, it will be of limited benefit to the U.S. industry unless importers are able to navigate the permit system and get the product into the country. USMEF has advised exporters to work closely with their importers to ensure that an avenue exists for entry, as this market has become somewhat notorious for delaying beef shipments at the port.

Last week Indonesia’s Ministry of Trade announced that it might adjust the volume of imported beef allowed into the country in order to stabilize supplies and ease the pressure on beef prices. The announcement, however, included only vague details of a domestic price trigger mechanism that will be used to determine whether the volume of imports will be increased. The ministry says more details of this plan will be developed over the next two months, so USMEF will monitor this proceeding carefully.

Any relief in sight?
USTR continues to press ahead with the U.S. government’s case in the WTO, and so far Indonesia has not acknowledged that its import permit system and associated policies violate WTO trade obligations. In fact, Indonesian officials continue to publicly defend misguided and unrealistic goals for beef self-sufficiency. Responding to consumer unrest over rising prices and pressure from its major beef suppliers, Indonesia has tweaked its import policies, but the changes do not go nearly far enough to bring it into WTO compliance. For Indonesia to fulfill its potential as an import market it must first acknowledge that it does not have the capacity to achieve self-sufficiency and then introduce trade-compliant import policies. This is not likely to happen without continued pressure from the United States along with Australia, New Zealand and other beef-supplying nations.