Australia’s Beef Exports to Indonesia Highlights Wider Potential for Halal Products

Australia’s agricultural products, particularly its cattle and beef, are important merchandise exports to Indonesia. Indonesia is the largest export market for Australian feeder cattle and frozen beef and the fifth largest market for boxed beef. This is despite the fact that beef consumption per capita is only 2.23kg in Indonesia, compared to the world average of 6.4kg per capita.

On average, Indonesia imports over 500,000 heads of cattle from Australia annually, or 62 percent of Australia’s total cattle and beef exports. In 2021, the total value of exported Australian red meat and livestock to Indonesia decreased to A$883 million (US$652 million), from A$1.2 billion (US$886 million) in 2020 mainly because of softening demand due to the COVID-19 pandemic. However, this still represented 30 percent of Indonesia’s total beef demands for the year.

An increasing and expanding Indonesian middle-class with a growing preference for beef is expected to continue to drive demand for Australian red meat. Further, this also presents opportunities for Australian Halal food exports to the world’s largest Halal food market – Indonesia’s Muslim consumers are expected to spend US$247 billion on Halal food and beverage by 2025.

Australian producers will find increased competition from New Zealand, Brazil, and India as well as from Indonesian producers as the local government seeks to reduce imports and become self-reliant on beef.

Why does Indonesia import so much live cattle and beef products?

A fragmented domestic market and low output

Indonesia’s cattle industry is highly fragmented and roughly 80 percent is dominated by smallholder farmers, concentrated mostly on the island of Java – East Java province alone accounts for 30 percent of Indonesia’s cattle population.

Smallholder farmers often raise cattle for their savings rather than for the commercial market, which significantly impedes the potential of the domestic meat supply. Most cattle breeders are also low-skilled farmers who have low-input, low-output production systems and face fundamental challenges to expand their cattle businesses. This includes limited access to finance and capital, the lack of collateral, and a local financial sector that is cautious in providing loans due to the inherent risks.

As a result, domestic production can only satisfy about 40 percent of Indonesian demand for beef.

Previous government initiatives to promote self-sufficiency in meat production, include placing import quotas and the 5+1 feeder-breeder import policy, to promote domestic cattle herd. However, these programs have not been effective in meeting the constantly increasing Indonesian demand for beef; some protectionist policies have subsequently been abolished or revised.

In addition, Indonesian infrastructure primarily focuses on slaughterhouses and feedlots, which are compatible with cattle fattening/finishing, but unsuitable for cattle breeding.

High transportation costs

High inter-island transportation costs have also made domestic meat normally priced at a premium. Indonesia has one of Southeast Asia’s highest logistic costs, accounting for 24 percent of GDP, compared to seven percent in Singapore and 13 percent in Malaysia. This is in part, due to the country’s size, which encompasses over 17,000 islands, and the unbalanced infrastructure development between them.

This results in the distribution of goods requiring sea, road, and air transport, thus increasing logistics complexities.  

Infrastructure development has been a cornerstone of President Joko Widodo’s administration, spending some US$359 billion during his first term between 2015 and 2019, and spending more during his second term up to 2024. As such, the government’s new National Logistic Ecosystem (NLE) program aims to streamline the flow of goods and documentation from the ports to the warehouse. The government hopes the NLE can reduce logistic costs to 17 percent of GDP.

Demand for Australian beef will continue to rise

Beef, which is priced between US$7-10/kg, was once to be beyond the affordability of the Indonesian population. However, the country’s expanding middle-class and vibrant economy will continue to drive demand for Australian cattle and beef products.

An expanding middle-class

The country’s middle-class now encompasses 20 percent of the population or just over 52 million people. Indonesia has one of the world’s fastest-growing urbanized consumer markets with an average annual growth rate of 2.24 percent. The urban population was 57.3 percent in 2021, compared to 17.8 percent in 1972. Moreover, between 1971 and 2020, Indonesia’s real GDP per capita also grew significantly from US$701 to US$3,757.

Beef products enjoy considerable popularity in cosmopolitan areas such as Jakarta, which makes up 70 percent of the total beef demand in Indonesia as well as other major cities, such as Surabaya, Bandung, and Medan. Further, tourist destinations like Bali also present a growing consumer market for Australian beef products.

Tech-savvy consumers

The modern Indonesian consumer is also tech-savvy and an avid online shopper. Customers are purchasing more sophisticated meal delivery services that include beef products. Indonesia is ASEAN’s largest digital economy, which is expected to have a gross merchandise value (GMV) of US$146 billion by 2025.

From this US$146 billion value, e-commerce is expected to have a GMV of US$104 billion and food and transport, US$16.8 billion in GMV. In addition, more than 183 million Indonesians use a smartphone with more than 30 million engaging in online shopping.

Indonesia’s vibrant foodservice sector

The Indonesia foodservice market is forecasted to grow at a compound annual growth rate of 7.06 percent between 2021-2026, led by millennials and generation Z consumers who are interested in experimenting with new food trends. The Indonesian consumer, on average, dines out with family or friends at least once a week, and beef is usually a favorite choice in higher-end restaurants, particularly Japanese and Korean cuisines.  

The rapid rise in cold chain services

Indonesia is seeing a rapid rise in cold chain services as a response to increasing demand in online food delivery services and packaged food products, agricultural commodities, and pharmaceutical products among the country’s urban consumers. Despite the pandemic, the cold chain industry has seen growth averaging four to six percent.

However, the country’s cold chain industry is still underdeveloped and as a result, more than 10 million tons of food are lost in the supply chain.

Religion and culture

As a Muslim majority country, Indonesia prepares up to 1.7 million heads of livestock (cows, buffalos, sheep, goats, and rams) for the annual Eid-ul-Adha Islamic holiday. The animals are slaughtered, and the meat is distributed around the country as well as abroad to those in need. From this total figure, more than 600,000 cattle are sacrificed, consisting of imported and local cattle.

Further, beef is an integral part of several Indonesian cuisines, of which many are cooked during the Islamic holidays of Eid-al Fitr and Eid-al-Adha. Dishes such as ‘bakso’ (meatballs) and ‘rendang’ are popular beef-based local cuisines that have gained popularity abroad.

All meat products entering Indonesia must be Halal certified.

The IA-CEPA presents new growth opportunities

The Indonesia – Australia Comprehensive Economic Partnership Agreement (IA-CEPA) can significantly benefit Australia’s cattle and red meat trade with Indonesia. The IA-CEPA provides preferential tariff treatments for live cattle and beef, as illustrated in the following table.

IA-CEPA Tariffs for Cattle and Beef to Indonesia
Product	Import tariffs
Live male cattle	0% for male cattle still within the quota of 598,000. 2.5% tariff for cattle outside of this quota.
Boxed beef	0% except for frozen bone-in beef which is tariffed at 2.5%.

Under IA-CEPA, Indonesia has set a quota of 598,000 head of live male cattle (as of January 1, 2022) with a zero percent tariff. However, for any additions to this quota, there is a 2.5 percent tariff. The quota is expected to increase by four percent per year to 700,000 heads. For boxed beef and frozen offal, there is a zero percent tariff except for frozen bone-in beef whereby a 2.5 percent tariff applies. The 2.5 percent tariff is set to be removed by 2023.

Increased competition

Australian beef producers are facing fierce competition from suppliers in India, New Zealand, Brazil, and the US.

Indonesia began importing Indian buffalo meat in 2016 as a cheaper alternative to Australian beef and the meat has found a niche within Indonesia’s wet markets. Indonesia has allocated 100,000 tons shipped weight (swt) for its 2022 quota of Indian buffalo meat. Further, Indian producers benefit from the ASEAN-India FTA, which applies a five percent tariff on meat.

Brazil, the world’s top exporter of meat has regained access to Indonesia’s frozen beef industry since 2019 and secured a quota of 20,000 tons swt of beef for 2022. Indonesia’s government is keen to add more Brazilian meat suppliers as it looks to diversify its supply.

Despite importing smaller volumes, beef suppliers from the US and Spain have found a niche in Indonesia. Shipments from the US in 2020 totaled 10,830 tons swt while Spain exported 2,515 tons swt. There is also a premium segment for Japanese beef, which saw imports reach 15 tons swt in the same year.

Significant potential to expand beyond meat

Australia is the fourth-largest exporter of Halal food and beverages to Organization of Islamic (OIC) countries and exports are expected to double to A$14.6 billion (US$10.9 billion) over the next decade. There is also growing potential to expand beyond meat and into other products and services ranging from banking and finance to beverages to pharmaceuticals to fashion.

Indonesia is aiming to be a global Halal hub, and its Muslim consumers are expected to spend some US$247 billion on Halal food and beverage alone by 2025 — the country is the world’s largest Halal consumer market. Indonesia has already attracted many multinational FMCG and F&B companies, such as Nestle, Unilever, KFC, and McDonald’s, among many others who have benefited from having a first-mover advantage and now have substantial Halal propositions in the country.

Indonesia issued a new Halal certification law, under Government Regulation 39 of 2021 (GR 39/2021), which covers the process and requirements needed for businesses to receive a Halal certificate for their products or services.

Further Reading

• Opportunities for Foreign Investors in Indonesia’s Digital Economy
• Indonesia’s Omnibus Law: Halal Certification to Impact Businesses
• Qualifying as a Reputable Exporter and Importer in Indonesia

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