USMEF Addresses Key Trade Issues in Indonesia, Philippines, Australia

USMEF has just completed several weeks of outreach activities in Indonesia, the Philippines and Australia, designed to increase the U.S. red meat industry’s footprint in these important markets and deepen its understanding of shifting market forces and market access challenges in the region.

In Indonesia, USMEF conducted a U.S. red meat industry market update for Indonesian buyers and provided them with the latest information on beef and pork safety and quality. The USMEF team, which consisted of Asia Pacific Senior VP Joel Haggard, ASEAN Director Sabrina Yin, Export Services Director Kevin Smith and Economist Erin Borror, discussed market access issues with U.S. Embassy officials and conducted seminars for local beef industry stakeholders. Along with U.S. Ambassador to Indonesia Scot Marciel, USMEF co-hosted a “Great American Barbecue” event at the ambassador’s residence for members of the meat trade and local media. The event was supported through funding from the Beef Checkoff and Pork Checkoff Programs and the USDA Market Access Program (MAP). USMEF also received extensive support for the week’s activities from USDA-FAS personnel in Indonesia, including Counselor Dennis Voboril, Agricultural Attaché Jonn Slette and Marketing Specialist Fahwani Rangkuti. Meat importers in Jakarta also played a role in making these activities successful by generously donating U.S. beef and pork products.

While Indonesia is a promising market for U.S. red meat exports, it continues to present substantial market access challenges.

“Indonesia is a halal-only destination for U.S. beef, but the number of U.S. plants exporting to Indonesia is also constrained by a plant-by-plant registration system,” Haggard explained. “And there are currently a number of U.S. plants whose applications have yet to be approved.”

The Indonesian government has also embarked on a new self-sufficiency initiative for beef and several other staple crops. Its goal is to reach beef “self-sufficiency” by 2014, which is defined as relying on imported beef and live cattle for only 10 percent of the country’s consumption needs. New meat trade regulations codified earlier this year require that the volume of beef and live cattle imports will be determined by an assessment of domestic supply and demand conditions.

In 2011, Indonesia imported approximately 100,000 metric tons of beef and beef variety meat and 400,000 head of cattle. But the government has indicated that this year’s beef import quota will total approximately 34,000 metric tons, while live cattle imports will be restricted to 285,000 head. Local beef importers and distributors, including retailers and restaurants, believe the government has over-estimated the number of locally available cattle, and are increasingly concerned over the availability of affordable beef during Ramadan, a religious holiday when beef consumption peaks. Ramadan will commence in mid-July this year, worrying importers and distributors who have largely completed their beef purchases under this year’s first semester (half-year) quota of 14,000 metric tons. Retail beef prices have increased by double digits in the past few weeks, prompting a newly formed association of importers, meat processors, retailers, restaurants, and other small businesses to lobby Indonesia’s agricultural and trade ministries for additional quota volume.

“It’s frustrating to see the difficulties importers are having in Indonesia, and the challenges they face in getting import permits,” Borror added. “We spoke with several members of the trade and it was clear from all of them that they would like USMEF’s assistance in gaining better access and acquiring the products they need.”

To examine the progress Indonesia has made in local beef production, the USMEF team visited one of the country’s most progressive cattle feedlots, located several hours outside of Jakarta.

“The facilities were excellent and very modern, accommodating both local cross-bred cattle and Australian feeder cattle,” Borror said. “But they face some tremendous challenges, not the least of which is the climate. You’re basically trying to feed cattle on the equator in a very humid, jungle-like climate. They are also trying to improve genetics in the cow-calf sector, but doing so in confinement because of the lack of pasture land. This presents some very high costs because of the length of time you have these cattle on feed.”

Borror explained that Indonesia currently has one of the lowest meat and poultry consumption levels of any Asian country, making it something of an outlier in the region.

“Considering that Indonesia’s predominant Muslim population does not consume much pork, total estimated per capita beef consumption of 2.5 kilograms per person is very low,” she said. “Current total beef consumption is estimated at about 550,000 metric tons per year, although that figure relies heavily on the accuracy of Indonesian government cattle assessments that many believe overstate domestic cattle supplies.”

“Indonesian beef consumption would be much higher if there were no quantitative restrictions on cattle and beef imports,” added Haggard. “Using Indonesian government estimates of current consumption, it is easy to envision a market that would be double that size, or approximately 1 million metric tons. That would still translate to a modest consumption level of 4 kilograms, but would generate annual imports in excess of 600,000 metric tons.”

With the economy growing at an enviable pace of 6 percent or higher and consumer income essentially doubling in the past five years, supplying retailers and restaurant chains with a consistent beef supply is a difficult challenge.

“The U.S. industry’s ability to supply large volumes of single cuts – such hearts and back ribs – looks like a good fit for Indonesia,” said Smith. “End user demand will grow more sophisticated here, and more focused on specific item needs. There is definitely great interest and more room for U.S. product.”

Because of the large Muslim population, opportunities for U.S. pork have traditionally been much more limited in Indonesia. But with a growing expatriate population and an influx of immigrants from China, demand for pork is on the rise. Borror says the U.S. industry is well-positioned to capitalize on this situation if market access challenges can be overcome.

“We absolutely saw significant opportunities for U.S. pork,” she said. “At the Great American Barbecue event, we had a separate table with U.S. pork ribs and sausages, and they were definitely a huge hit. We provided a thorough update on U.S. pork to importers and members of the trade and interest was very high. Market access for pork has been a bit better than on the beef side, though some importers noted that they were also having problems obtaining import licenses for pork.”

Prior to traveling to Indonesia, Smith and Yin visited the Philippines, holding a seminar for members of the local meat importers association on proper cold chain management. After fielding objections from the United States and several other major meat exporting countries over discriminatory new cold chain regulations that mainly targeted frozen imported products, the Philippine government amended its regulations to allow traditional meat retailers – an important sales channel for imported frozen pork and poultry – more flexibility on how they store and sell products. The government also made a commitment to undertake a risk assessment to study critical control points in all of the country’s meat distribution and sales infrastructure, and to work toward a system in which local, freshly slaughtered meat and imported meat will be subject to the same cold chain requirements.

Borror and Smith also traveled to Australia to meet with government food safety officials over access for certain categories of processed pork products. Australia was more than a $200 million market for U.S. pork in 2011, despite being strictly limited to processed products and pork destined for cooking facilities in Australia. Borror said that while the long-term goal is to gain access for a full range of fresh and frozen U.S. pork, there are still important short-term gains that can be made in the processed products category. The team also discussed the continued lack of access for U.S. beef in this market, as well as beef trade issues of mutual interest on which the U.S. and Australia can work together.

U.S. beef and pork exports to the region show increasing trends, and Indonesia, the Philippines and Australia remain regional priorities. In 2011, the U.S. exported 17,847 metric tons (39.3 million pounds) of beef products to Indonesia, valued at $28.2 million - an increase of 34 percent in volume and 12 percent in value over 2010. Due to a softer European currency and the market-chilling effect of new cold storage regulations, U.S. pork exports to the Philippines declined 11 percent in value last year to $92.2 million and 26 percent in volume to 38,883 metric tons (85.7 million pounds). At the same time, U.S. beef exports to the Philippines increased 17 percent in volume to 12,760 metric tons (28.1 million pounds) and 30 percent in value to $38.1 million. U.S. pork exports to Australia reached a new record in 2011 of 64,350 metric tons (142 million pounds) valued at $204.6 million – an increase of 23 percent in volume and 38 percent in value over 2010. With this performance, the United States captured 44 percent of Australia’s imported pork market last year.