Cartels in Indonesia: Indian Beef Imports Fail to Push Prices Lower
Over the past couple of years there have been many reports about Indonesia's beef mafia (referring to certain cartel practices in the nation's beef industry; practices that come at the expense of the Indonesian consumer as prices are kept high intentionally). A new report published on Beef Central on Monday (10/04) discusses why beef prices have not become more affordable for Indonesian consumers despite the government allowing imports of cheap frozen buffalo meat in mid-2016.
Beef is a popular ingredient in Indonesia and used in various local dishes. However, due to limited domestic beef supplies, high demand, and problems related to beef imports we often see beef prices surging high, hence giving rise to inflationary pressures in Southeast Asia's largest economy where millions and millions of people live below - or just above - the poverty line.
To offset the impact of limited domestic beef supplies, imports are required. However, over the past couple of years several problems occurred related to these beef imports. Importers tended to wait for local beef prices to go high before distributing foreign beef on the domestic market (in order to benefit maximally), while the government's quota policy was highly insufficient and vulnerable to above-mentioned abuse (inefficient because the government is usually too late with allowing a higher beef import quota, hence imports arrived only after beef prices had already surged dramatically).
In mid-2016 the Indonesian government decided to allow cheap frozen Indian buffalo meat to penetrate the Indonesian market in order to boost supplies of beef hence making beef prices more affordable for the consumer. By that time, beef prices in Indonesia had gone as high as an average of IDR 125,000 (approx. USD $9.40) per kilogram. Since late-2016 a total of 50,000 tons of Indian beef has been imported into Indonesia.
Read more: 32 Indonesian Companies Fined, Found Guilty of Forming Beef Cartel
Indonesia's State Procurement Agency Bulog was appointed as importer and sold the imported frozen Indian meat (wholesale) for IDR 55,000 per kilogram with the requirement that re-sellers had to sell the meat at a price of around IDR 65,000 per kilogram. However, we are now eight months later and Indonesian beef prices have remained around the same level as before the start of Indian beef imports. Based on Beef Central's findings this stubbornly high beef price in Indonesia is caused by the middleman's (namely the chain of wholesalers and retailers) eagerness to profit maximally from the cheap Indian imports by selling it at the same price as - or just below - locally produced beef. As such, it are only the middlemen who take advantage of the Indian imports, not the Indonesian consumer. This is where the government should step in and encourage the chain of middlemen to seek less profit from the meat sales. Or the government could open beef imports to the whole private sector (competition and rising supplies should bring beef prices down). It is assumed the government is not interested to select the last option because it uses the quota system in order to encourage domestic beef production.
The story on Beef Central also informs that the Indian beef meat imports have successfully penetrated Indonesia's low-end service sector (the small retailers), especially in West Java. It also detects the illegal distribution of Indian beef around other regions of Indonesia.
Read more: Still a Long Road toward Beef Self-Sufficiency for Indonesia
Indonesia's Bulog is set to import 51,728 tons of Indian beef in the remainder of 2017 in a bid to stabilize the supply side of beef, while it keeps 39,500 tons of the meat in warehouses ahead of the Ramadan month and Idul Fitri celebrations, a period that always gives rise to a big boost in consumption of food (and thus significant inflationary pressures).
Data from Indonesia's Statistics Agency (BPS) shows Indonesia's annual national beef production capacity now stands at 468,369 tons, while the nation's annual beef consumption stands at 729,911 tons, a big deficit that needs to be plugged through imports.