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Indonesia's beef industry should learn from palm oil industry
Publication Date : 16-10-2013
Former Australian cattle station manager Michael Sheehy has some singular advice for the Indonesian government if it wants to achieve self-sufficiency in beef: Follow the model of the booming palm oil industry and put cattle raising in corporate hands.
As with most of Indonesia's agriculture, the livestock industry is largely confined to low- technology operations - backyard feedlots that mean a higher cost of production and higher prices for consumers as a result.
The Indonesian government has used tariffs and quotas to protect local farmers from international competition. This is a short-term measure which, judging by the current beef price which once reached more than 100,000 rupiah (US$8.80) per kilogram, is clearly not working and does nothing to encourage greater productivity.
Indeed, Jakarta's recent decision to scrap quotas for live cattle imports is a belated admission that self-sufficiency at this point is nothing more than an illusion and that a new approach is needed if it is ever to be achieved.
Breeding programmes have failed miserably. In fact, as part of the backlash against Canberra's brief suspension of the cattle trade in 2011, the government even rejected thousands of imported breeders because they didn't have pedigree certificates.
Sheehy is now the chief operating officer of Jakarta-based Natural Resources Indonesia. His exhaustively researched ideas fit well with those of President Susilo Bambang Yudhoyono, who recently called on Australian beef producers to invest in cattle ranches in Indonesia.
The Indonesian Cabinet recently approved a plan to buy 1.5 million hectares of northern Australian grazing land. But that size of property will sustain only about 10,000 cattle, a mere drop in the bucket given the country's ever-growing appetite for beef.
Sheehy says the challenge and opportunity in Indonesia is to create a large-scale corporate model, where local businessmen must be ready to invest in land and to take a speculative punt on a new enterprise, with Australian and Singaporean partners.
Sheehy's model anticipates a ranch of about 50,000 hectares, valued at no more than US$25 million, and a matching number of cattle, with ownership in a Singapore-based holding company relative to the value of either the land or the cattle.
Land title and security will be huge issues. But Sheehy maintains that the potential is there, particularly in isolated regions where there are millions of hectares of cut-over forest land that has never been developed for agriculture or livestock.
The Australian joint-venture partner or partners would provide the herd, initially made up of two to three-year-old breeders and weighing about 300kg.
The stock is readily available. In May, Queensland farmers offered to donate 100,000 cattle to cover the beef shortfall in Indonesia and to alleviate the grazing pressure on drought-stricken stations in Australia.
The state's Agriculture and Food Minister Ken Baston has proposed sending 10,000 breeding heifers to Indonesia in return for Jakarta agreeing to an annual quota of 500,000 head of live cattle imports, saying a new approach was needed with Australia's northern neighbour.
"There is very strong political support for their farmers which translates into strong protectionist tendencies and a push for self-sufficiency," Baston said. "The old model of us sending cattle and them sending us US dollars has gone."
More urgency is needed on the Indonesian side as well. At current growth rates, the demand for beef in 2020 is likely to be double that of the lowly 2.4kg per capita consumed each year - a figure that hardly reflects real demand due to a fast-growing population and rising affluence, and is one of the lowest in the region.
Only 600,000 of the country's beef cattle are raised on any large scale. Estimates of the total size of the national herd are difficult to assess because census figures misleadingly include dairy cows and buffaloes as well.
For all of palm oil's simplicity as a model, the only way it was able to overcome high start-up costs was through large-scale plantations run by agri-business giants such as Indonesia's Astra Agricultural and Singapore-listed Wilmar International.
The other key to cattle raising, in Sheehy's mind, is to use leucaena as cattle fodder. This is a bushy evergreen shrub which grows well in tropical climes and has a commercial lifespan of 25 to 30 years, similar to that of oil palm.
The less-populated Nusa Tenggara island chain, a significant cattle-raising region during the Suharto years, appears to be the best place to find land that is not otherwise needed for human habitation and intensive agriculture.
During the 1980s, high-quality leucaena covered two-thirds of West Timor's Amarasi district, but insect infestation and the subsequent over-exploitation of forage resources had a devastating impact on sustainability.
That can be turned around. Sheehy believes that with calves born during the wet season, the breeding and nutritional needs of the cow can be synchronised with eastern Indonesia's distinct dry season, which is not normally suited to year-round farming.
Trials conducted by Meat and Livestock Australia show leucaena can support one head of cattle a hectare with live-weight prices of 35,000 rupiah ($3.08) a kilogram, or 10 million rupiah ($880) a hectare.
The cattle would be slaughtered at a centralised regional abattoir to avoid the high cost of transportation to markets on populous Java - higher, in fact, than what producers currently pay to bring live cattle from northern Australia.
The slaughterhouse and the meat processing would be run as a separate business from cattle farming. Prime cuts would go into a nationwide cold chain servicing supermarkets, restaurants and hotels, while low-grade meat would supply traditional markets and meatball makers.
Self-sufficiency in beef involves much more than buying land in Australia.