by Professor Ross Kingwell – AEGIC Chief Economist.
It is attractive, but unfortunately wrong, to think that although less grain is now exported to Indonesia, they nonetheless still benefit from the grain that Australian farmers produce, via the use of Australian grain rearing feed-lot beef sold to Indonesia. The reality is that the beef and live cattle purchased by Indonesia from Australia relies mostly on being grass-fed – not grain-fed.
The Whole Story
Until recently, Indonesia has been Australia’s principal export market for wheat. In 2017, 5.17mmt of wheat was exported from Australia to Indonesia. But in 2018, as drought gripped eastern Australia, only 2.23mmt was exported to Indonesia. Worse still, as the drought lingered, up until August 2019, only 0.56mmt was exported from Australia to Indonesia. Australia’s share of the Indonesian wheat market has fallen from 70 per cent a few years ago to just 7 per cent in 2019. Wheat and other grains ordinarily exported from Australia to overseas markets have instead been sent to grain users in eastern Australia..
Historically, the main type of wheat Australia has exported to Indonesia has been low to mid-protein wheat, which is principally used to provide affordable calories in the form of instant noodles. However, as Australian wheat has become more expensive relative to wheat from other origins like Ukraine or Argentina, Indonesian flour millers have switched away from Australian wheat. As a result, Indonesia has imported 0.15mmt, 0.68mmt and 1.74mmt of Argentinian wheat in the years 2017, 2018 and the first six months of 2019, respectively. Indonesian flour millers and noodle manufacturers have learned how to produce instant noodles with higher shares of cheaper origin wheat, thereby reducing their dependence on Australian wheat.
The abrupt diminution of the flow of Australian wheat to Indonesia represents a major change to historical trade flows. But is Australia now just sending its wheat in another form? In other words, are Australia’s beef exports to Indonesia simply a more efficient, value-added way of sending Australian grain to Indonesia? Feed-lot beef, for example, effectively transforms grain into more highly valued meat.
In 2018 and 2019, when Australian wheat exports to Indonesia were dramatically waning, Australian beef exports to Indonesia have increased to 75,000 tonnes in 2019 (Fig 1), with further increases anticipated. Total beef consumption in Indonesia has grown by 24% over the last four years, with the OECD-FAO estimating a further 10% increase over the next five years.
In 2018-19, Australian exports of beef to Indonesia have comprised $690 million of live cattle, $274 million of frozen beef, $48 million of chilled beef and $106 million of beef offal, worth a combined $1.12 billion and making Indonesia Australia’s fifth most valuable beef market.
Are these exports of beef to Indonesia greatly supported and underpinned by grain-feeding in Australia? According to Spragg (2018), Australia’s beef industry absorbed 3.9mmt of feed grains in 2017-18. However, important though the Indonesian market is, it accounts for less than 15% of Australian beef, veal and live cattle exports, and less than 6% of turnover for Australia’s beef sector. Moreover, according to NSW DPI (2017), Cadence Economics (2017) and the MLA snapshot of beef exports to Indonesia, most beef exported from Australia is based on grass-fed beef; not grain-fed beef. The MLA (2018), for example, indicate that, of the 58,000 tonnes of beef exported to Indonesia in 2017-18, only 2% was grain-fed. Thus, in reality, the beef and live beef cattle exported to Indonesia account for a surprisingly small volume of Australian feed grain.
Thus, the answer to the question: Are Australian beef exports to Indonesia simply another indirect way of ‘exporting’ grain to Indonesia? is – No! Australia indirectly may be exporting its pastoral grasses but it is not indirectly exporting much of its grain via feed-lot beef sold to Indonesia.
Cadence Economics (2017) Australia’s recent meat export performance. Report for Food Innovation Australia Ltd. Available at: https://fial.com.au/Attachment?Action=Download&Attachment_id=48
MLA (2018) Market Snapshot: Beef to Indonesia. Available at https://www.mla.com.au/globalassets/mla-corporate/prices–markets/documents/os-markets/export-statistics/oct-2018-snapshots/mla-beef-market-snapshot—indonesia—oct-2018.pdf
NSW DPI (2017) NSW Cattle and Beef Industry Summary. Available at https://www.dpi.nsw.gov.au/__data/assets/pdf_file/0010/691579/NSW-Cattle-and-Beef-Industry-Summary.pdf
Spragg, J. (2018) Feed grain supply and demand report 2018: A report for the Feed Grain Partnership: JCSSolutions Pty Ltd.