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Global Business Guide Indonesia

Indonesia
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Business Updates | Prodding Indonesia’s Local Cattle Industry

Indonesia’s per capita consumption of beef, which currently stands at just less than 3 kg annually, is expected to hit double digit growth within the next two decades; a significant increase from its present rate of 4.2% (Ministry of Trade) and very much indicative of rising demand for red meat in South East Asia’s largest economy. In response to the latest consumer preferences and as part of a broader goal to achieve self-sufficiency in several key agricultural commodities, the government has sought to encourage the development of the domestic beef industry so as to propel local production beyond the 66% of total domestic consumption it currently accounts for (ANZ). As such, an array of different opportunities to investors in the livestock industry are being actively promoted, with an emphasis placed on openings in the storage and transportation of meat and live cattle. Furthermore, in tapping into a market of consumers increasingly conscious of the safety and providence of their food stuffs, companies well versed in international cattle welfare regulations, organic rearing and premium branding are presented with a timely opportunity to improve upon existing standards of practice in local cattle farming.

The Connectivity Conundrum

Much of Indonesia’s present inability to produce enough beef to meet local demand can be primarily attributed to a lack of effective transportation and logistics facilities in prime cattle rearing areas far removed from where beef consumption is highest. As is proposed in the country’s economic master plan (MP3EI), the Bali – Nusa Tenggara corridor is to be dedicated to food and agribusiness activities, which include beef cattle husbandry. There is no doubting the capability of this region in taking on this specialised role – the East Nusa Tenggara province, alone, is already home to Indonesia’s fourth largest cattle population – but the fact remains that the vast majority of Indonesia’s beef is consumed in the western islands of Java and Sumatra, which require a larger supply of meat than is currently provided by the country’s many cattle farms in East Java.

The magnitude of this problem is not to be ignored. Such is the inefficiency of logistics in the industry that it can be cheaper to import beef from Australia than it is to transport it from areas like East Nusa Tenggara (Dr. Harianto, Special Advisor to the President on Food and Energy). To address this, tentative measures in anticipation of the need to improve connectivity between manufacturers and consumers are being mapped out. Among the measures already announced is the government’s plan to develop the Marapokot seaport in Nagekeo, East Nusa Tenggara and improve its capacity to effectively manage high volumes of animal products to be distributed across the archipelago. In the mean time, companies with expertise in livestock transportation as well as the technological capacity to implement comprehensive cold storage facilities for beef are encouraged to enter the market. This technical know-how is needed to minimise inefficiencies related to lengthy delivery times caused by underdeveloped roads and ports that for the moment remain ill-equipped. This industry is open to 49% foreign ownership, presenting opportunities to investors looking to partner with an existing logistics firm and become a specialised arm of their operations focused on the provision of cold storage delivery services and warehouse facilities. This opportunity is particularly promising for companies with expertise in cold storage technology that does not require mains electricity and is thus well-suited for implementation in remote areas.

An influx of capital to fund investment in specialised livestock carriers that would minimise the strain on ordinary cargo ships as well as port management know-how are sorely needed to facilitate the delivery of beef and cattle at a cost not inflated by poor logistics infrastructure. Firms interested in profiting from a boom in the volume of beef shuttled to local consumers should take note that the negative investment list currently allows for up to a 49% stake in cargo businesses. Given that this line of work necessitates close ties to the many local smallholder cattle farmers, cooperation with a local partner is recommended. Companies looking to invest in the development of new ports stand to benefit from revisions to the negative investment list that will soon allow for foreign ownership in seaport management businesses.

Other Opportunities & Outlook

Investors with expertise in responsible cattle husbandry as well as a deep understanding of prescribed guidelines to mitigate animal cruelty, such as the UK’s Code of Recommendations for the Welfare of Livestock, are invited to apply this know-how to a market with a history of having failed to prioritise animal welfare. A host of reports of cattle mistreatment and an accelerating global shift in consumer mindset towards better understanding where food products come from have gradually influenced Indonesians to consider brand credibility prior to making their purchases. Brands with accreditations certifying their compliance with organic and halal standards are thus emerging at the forefront of consumer consciousness for the middle-up market, and the rush to tap into this market has necessitated the creation of ASUH, an Indonesian food certification that guarantees that a product is safe, healthy, wholesome and halal. Symptomatic of a maturing consumer market, the growing preference for responsibly produced meat serves as a launch pad for the introduction of premium priced beef brands as well as organic produce; industries that remain relatively untapped by local businesses and yet to have any dominant players.

Opportunities in Indonesia’s local cattle industry are often overshadowed by its direct links to foreign relations with regional neighbours such as Australia for exports. While the sector is not without its share of challenges; opportunities exist none the less. It is important that investors see through all that clouds Indonesia’s livestock industry, and take notice of the fact that the long term prospects of rearing cattle in Indonesia and investing in areas of business that stand to gain from rising beef consumption as well as an abundance of land capable of supporting livestock are promising. Moreover, what is now most needed to ensure that this potential is realised is a push from investors to improve inter-island supply chains and introduce higher quality products.

Global Business Guide Indonesia - 20th December 2013

Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)