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Tuesday, October 25, 2016

Should the Greens be supportive of live cattle exports?

By Matt Dalgleish  |  Source: ABS, DAWR, World Bank, Gapminder, Ray Morgan, AC Nielsen, USDA

Key points

  • Live export of Australian cattle dropped significantly in September due to a delay in permits to Indonesia ceasing trade for the month
  • Cultural and cold store constraints indicate that the live cattle export trade and wet markets are a key element to securing Indonesia’s protein requirements 

2016-10-25 Fridges Fig 1

2016-10-25 Fridges Fig 2

2016-10-25 Fridges Fig 3

The most recent live cattle export figures show a noticeable decline in volumes for September due to the delayed issuing of permits from Indonesia, which meant no live cattle were transported there last month. Indonesia accounts for the bulk of the live cattle export trade out of Australia so any changes to trade arrangements can impact upon the local industry in a dramatic manner. However, cultural and capacity constraints mean that the importation of live cattle is a key element of Indonesia’s ability to provide protein for their population – but for how long?

The impact of the delay in issuing T3 permits is highlighted by figure 1 showing the slump in total live cattle exports during September as trade to Indonesia stalled. This meant monthly consignments of 31,638 head were 61.5% below the five-year average for this time of year. The importance of the Indonesian market to Australia’s live cattle export industry demonstrated by the high percentage of market share held by our northern neighbour – figure 2. Indeed, currently sitting at 50.5% of total export volumes, Indonesia dwarfs the percentage of live cattle going to Vietnam (12.3%), China (7.4%), Israel (7.6%) and “other countries” (8.5%).

Live cattle exports and the wet markets that they are sold into are an important distribution network for beef protein within many South East Asian countries - Indonesia, Vietnam and China are no exception. However, the reliance on wet markets is particularly evident within Indonesia with a 2003 AC Nielsen study indicating that 80-90% of shoppers visit a wet market on a regular basis and one third of Indonesian shoppers listing wet markets as their main store type frequented. Indeed, the survey discovered that Indonesian shoppers visit a wet market five times more often than they visit a supermarket, with less than 30% of shoppers using a supermarket for their fresh food purchases.

The reliance on wet markets in Indonesia unsurprising given that at a 2008 USDA report listed refrigeration ownership within Indonesian households at a mere 24.2%. This was backed up by a 2010 Ray Morgan poll showing that, while 68% of households in large Indonesian cities owned a refrigerator, only 37% of urban homes and 22% of rural homes had access to cold storage facilities. Furthermore, this study highlighted that only 32% of rural homes in Indonesia even had access to electricity and the CIA world fact book stating that there are a whopping 48.7 million Indonesians with no power.

Mecardo decided to produce a comparative cold store capacity index between Australia and some of its beef trading partners, in both the cold/frozen boxed beef export sector and the live cattle trade, to get an idea of how easy it would be for Indonesia to transition from live cattle to boxed beef for the bulk of the population and the results weren’t too promising – figure 3.

The index gives a crude measure of how many refrigerators a country could run per head of population, based on the yearly running cost of a modern energy efficient appliance and the total residential power use per annum for that country. The figures indicate that if the only item using residential power in Indonesian homes were refrigerators then the current residential energy use per year would limit the number of refrigerators to less than one per person and that is assuming the most efficient of appliances were being used across the whole country. 

What does this mean?

Remembering that this cold store capacity measurement assumes that all of the residential power use is taken up solely by refrigerators – no TV, no phone chargers, no lights, no computers, no air conditioning, etc. It would be a bit scary to think what the residential power usage would be for Indonesia if they had the same energy use requirements that are displayed by South Korea, Japan and Australia.

Although, on a positive note, if Indonesians were to enjoy a similar standard of living to Australia - with access to cold stores and much higher electricity use (80% of which is fossil fuel generated in Indonesia) they would be able to rely less on wet markets, live cattle imports and buy much more boxed chilled/frozen cuts. It seems it may be some time yet before this is a viable solution.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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