Realising an Export Market Opportunity and Helping Meet the Food Security Needs of Indonesia

Gita Wirjawan - Indonesian Trade Minister discussed the importance of Food Security at various events including the Indonesia Australia Business Council Conference

In November 2011, I travelled to Indonesia with my business partners from AsiaAustralis on a multi focal trip. We had been invited to take part in the East Asian Forum as Business Guests, and as part of this trip we attended other business events such as the Indonesia Australia Business Council National Conference and the Australia Business Asia Conference.  The other focus points for AsiaAustralis were to gauge interest and demand for Australian products in the Indonesian market.  Despite the multi focal approach, we were encouraged by the overwhelming interest in Australian food produce. There was clearly substantial demand in the Indonesian market for premium priced Australian food products. The key issue here is to help this clear demand for Australian product translate into business and trade matching with Australian suppliers.

At both the East Asian Summit and the Indonesian Australian Business Council events, government trade ministers such as Dr. Craig Emerson (Australia) and Pak. Gita Wirjawan (Indonesia) discussed the clear and present issues of food security facing Indonesia. Food security in Indonesia is not just a case of maintaining domestic ownership of farming land, but indeed practically feeding the growing Indonesian Population approaching 250 million people.  The food security issue in Indonesia ties in with poverty reduction and economic growth. Indonesia is a country of enormous potential and alleviating poverty amongst the urban and rural poor in Indonesia is critical to Indonesia’s economic, political and security stability.

Australian Wheat Exports can help Indonesia alleviate poverty

This demand for food and meeting the food security challenge in Indonesia creates an opportunity for Australian agricultural companies and food producers to jump into the breach. Food security at the low-end of the Indonesia translates into rice and noodles. Indonesia has in the last couple of years opened their market to imported Rice which has had a positive effect on the price of rice and helped feed 10s of millions of people living in poverty. Indonesia also has a hunger for noodles, and Australian grain and flour are helping feed this same impoverished population. Indonesia is increasingly becoming a country of noodle eaters and Australia is perfectly positioned to help provide the flour needed to produce noodles that Indonesian’s like to eat. Flour for noodles requires different mixes to ensure bonding is successful, and to keep the cost low to help meet the food security and market needs. Australian grain and flour producers have ample scope to increase their involvement in this Indonesian market.

Wheat - Noodles, helping to meet the food security needs of a rapidly growing country.

The emerging middle class in Indonesia which has been identified at representing between 80-130 million people (according to World Bank definition of middle class), has seen increasing demand for more diverse food choices than solely rice and noodles. This is reflected in the growth in high-end restaurants from North America and Europe, not to mention China and Japan. There is also a developing demand for fresh bread and baked products such as bread and pastries. As the middle class in Indonesia expands, so does the demand for premium high quality food. Australia here too is filling the breach, with the often discussed live cattle trade, which helps local farmers participate in the wealth generated from the growing demand in meat. Similarly there is demand for high quality boxed beef and lamb, which is the pre-slaughtered high quality meats Southern Australian Farmers are great at producing.  Restaurants in Jakarta emphasize the ‘Australian Beef’ on their menus as a stamp of quality.

The demand for Australian food products is substantial and we should be jumping at the opportunity. Unfortunately we often only hear of the bad news stories associated with Indonesia. Australian farmers, Australian politicians and Australian government bureaucrats need to reassess the opportunities in the Indonesian market. Our closest northern neighbour has enormous market potential for Australian food producers and there is an opportunity for Australia to help Indonesia meet its food security needs, while at the same time building strong business and community partnerships for the future.

If your company is looking to tap into the increasing demand for food in the Indonesian market, please feel free to send me an email (nathan@asiaaustralis.com), and we can have a chat about how AsiaAustralis can assist your company meet the needs of the Indonesian market. Alternatively come along to the Australia Indonesia Business Council Business Forum – “Identifying opportunities for primary industries in the Indonesian market”  in Adelaide on Friday 30th March, click the link to register and for more information.

The Negative Effect of Australian International Agricultural Policy on Australian Agricultural Exports

Animal Cruelty is inexcusable, and there needs considered policy responses that are not knee-jerk and business destroying

Australia has a long-standing reputation for producing high quality agricultural produce, and in many cases these different crops are unaffected by disease and parasites which affect the same crops. Protection of these crops from unwanted disease has been one of the key reasons for restricting agricultural imports. This has been the case up until quite recently with apples (from New Zealand and China), and Mangos from Indonesia. In the case of apples, their import restriction had to be lifted under risk of WTO retaliatory action, while mangos are still currently prohibited from being exported from Indonesia to Australia. There have also been ad hoc responses to other domestic political issues such as the live export of cattle to Indonesia and subsequent suspension of the trade. Ultimately Australian policy responses in these cases have affected or risk effecting Australian agricultural exports in the future, and it is important that Australia see itself as part of a global trading system, not isolated and insular.

Animal cruelty is a terrible thing, however, the reaction of the Australian Government, and its handling of the Indonesian Live Cattle issue has been less than satisfactory. The live export ban of Australian Cattle to Indonesia announced in June 2011 has been disastrous for the Australian Cattle industry, and more broadly to agricultural industries looking to expand their export exposure to the Indonesian market. Additionally there are important questions that need to be asked about the impact of this unilateral trade sanction upon the future trade relationship between Australia and Indonesia, and the Australia – Indonesia Comprehensive Economic Partnership Agreement that has been under negotiation for the past 12 months.

Unfortunately the Live Export ban was implemented unilaterally, without consultation with the Indonesian Government, and as such the Australian Government has made a crucial political ally in our region to look foolish and inept. The Australian Government effectively got on a very high horse and was determined to take a high moral stand, irrespective of the international political, and trade repercussions. This unilateral response has been made to appear xenophobic due to the lack of consistency in the reasoning for the ban. The Australian Government banned live export of animals to Indonesia, while allowing live trade to other countries which had similar animal welfare standards. The ban included abattoirs which did adhere to World Standards and Australian Best Practice, such as the Elders run Abattoir in Indonesia. And, most damning was that the moral standard the Australian Government was enforcing upon a sovereign country, were the same standards not enforced inside Australia – there are multiple Abattoirs in Australia (including SA) where stunning of animals prior to slaughter is not mandatory. How could the Indonesia Government not feel there was an underlying xenophobic reason for the Ban?

So what are the repercussions of this ban to the broader business community?

Since the re-opening of the live cattle trade, the export numbers have cut substantially by Indonesia. This effects Australian Farmers

The Indonesian Government subsequently announced a reduction in the import permits awarded to Australian Exporters. This has an immediate effect for the cattle farmers in the north of Australia, as it means they will not be in a position to sell all of their cattle. Losses are to be made. We have seen a number of large agricultural companies such as Elders announce profit downgrades and potential losses as a direct result of the ban. These large agricultural companies in many cases are diversified and so can pass on the cost to other parts of their business in the Southern Australia, but what about smaller companies and farmers? The ban may result in small farmers leaving the industry. There are also flow-on effects to complimentary industries such as transport in the north of Australia. This experience has been very damaging for the Indonesian Government, and has demonstrated the danger of being over reliant upon one trading partner such as Australia for vital food supplies. Australia has for many years leveraged its close geographic proximity to Indonesia to sell grain, meat, seafood and other agricultural products to Indonesia. The Indonesian Government will now reassess if this trade is in the best interests of the people of Indonesia. If the Australian government was prepared to cease all cattle exports to Indonesia over a small issue could they do it again but with a different resource, such as Grain? I would not be surprised if Indonesian agricultural importers looked to other markets in North and South America to diversify their imports, and secure supply. If this was to occur, then the net effect would be negative for farming communities in Southern Australia.

There have also been recently announced new restrictions on the import of Australian fresh food to Indonesia. This may seem a little strange given the food security issues at play in Indonesia, however, it is a case of Indonesia playing the global trade game well, and essentially playing the Australian game of arbitrary restrictions on imports. The restriction on import into Australia of Indonesian Mangos is great concern from Indonesian farmers and politicians, and when this is combined with the Live Cattle Trade debacle it is easy to see how the Indonesian government could see Australian policy as being biased. Ultimately these policy decisions affect the export ability for Australian farmers. Australian farmers therefore are punished for the policy decisions of ‘protectionism’ from the Australian Government. So when we think about the effect of the international agricultural policies, we should consider the broader impact upon the Australian business community. Let’s hope, now that Australia can mend some of the bridges it has been burning in the past year. The export success of Australian business relies upon it.