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Economic Woes Add to Uncertainty in Indonesia; New Zealand Joins U.S. in WTO Dispute

Import restrictions are already a great source of frustration for Indonesia’s beef-supplying trading partners, but economic difficulties are now adding more uncertainty to the business climate. Last week Indonesia’s currency hit its lowest level versus the U.S. dollar in more than four years (before making a modest recovery). It has declined about 13 percent against the dollar since the beginning of the year. Inflation – driven in part by soaring food prices – is also a growing issue. In July the year-over-year inflation rate reached a four-year high of 8.6 percent.

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 mt valued at more than $28 million. It was an especially important destination for beef variety meat, ranking seventh-largest in volume (12,582 mt) and eighth-largest in value ($11.4 million).

U.S. exports plummeted 90 percent last year when Indonesia imposed severely restrictive import quotas in an effort to bolster domestic beef production. Import permits were cut even further in 2013 and U.S. beef/beef variety meat exports (through June) have reached only 423 mt valued at $4.4 million.

In January, USTR announced that the United States would request consultations with Indonesia under the dispute settlement provisions of the WTO concerning many of Indonesia’s trade-restrictive measures, including those targeting imported beef. USTR is pressing ahead with this case, and on Aug. 30 announced that New Zealand will join the dispute.

Indonesia recently announced an increase in this year’s beef import quota equal to 15,000 mt of beef, which will consist of 6,000 mt of frozen beef and 60,000 head of feeder cattle. The additional quota will reportedly be allocated to private importers and not Bulog, the state-operated distribution entity. While this is a step in the right direction, the total import quota for 2013 will still only be 41,000 mt of frozen beef and 351,750 head of cattle. This is an improvement over 2012, but still far below the levels established in previous years (as shown below).

Indonesia’s Beef Import Quotas, 2009-2013
Indonesia-FB
Earlier this summer, Indonesian officials announced plans to implement a reference price system that will allow beef and live cattle imports only when domestic beef prices increase by more than 15 percent from a still-to-be-announced “parity price.” Very few specifics have been made available on this proposal, but on Aug. 28 the Jakarta Post reported that Indonesia will issue regulations next week outlining the plan’s details.

USMEF will provide further updates as new information on Indonesia’s import policies becomes available. In the meantime, exporters serving this once-promising market will likely continue to face significant obstacles.