Home grown: cattle and beef self-sufficiency in Indonesia

Following the global spike in food prices in 2008, there has been a renewed interest in food security. A modest increase in prices over long-term trend in 2009, and some forecasts of higher commodity prices in the longer term, have reinforced concerns. In addition to the concerns with relatively high prices, export bans imposed by some countries in 2008 after prices spiked lent support to the view that the international market can no longer be relied upon to deliver adequate supplies at reasonable prices. Supposedly in response, many countries are attempting to reduce reliance on imports and achieve self-sufficiency where possible. However, in Indonesia, policies are being implemented to increase domestic production of not only staples such as rice, but of non-staple products such as sugar and soybeans. Furthermore, policies have been introduced to reduce the country's dependence on beef imports, with the objective to move to becoming 90 per cent self sufficient by 2014. Achieving self-sufficiency across a range of commodities including beef may be technically feasible, but the cost of such policies is considerable. In addition, while moderating the price effects of external shocks, such as those experienced in 2008, a self-sufficiency policy with minimal reliance on trade leaves the domestic market exposed to internal shocks such as those caused by floods, droughts or disease. A computable general equilibrium model, GTAP, is used to analyse the impacts of moving towards self-sufficiency in live cattle and beef. A lower estimated Armington elasticity of substitution between domestic and imported cattle for Indonesia is used in the scenarios rather than those provided. Annual welfare would be reduced by an estimated US$458 million if cattle and beef imports were reduced by 90 per cent. A $40 million annual subsidy Indonesia has introduced to cattle producers is a transfer that creates fewer distortions and welfare losses. Under current industry performance, a subsidy of up to $5 billion over 5 years might be needed to achieve 90 per cent selfsufficiency. A policy of funding research and development would provide greater gains, although these could take some additional time to show benefits. Greater integration between northern Australia's live cattle trade and Indonesia's cattle feeding and processing industries through investment and technology transfer, offers the potential of not only better meeting Indonesia's food security desires in relation to beef but also strong processed meat export opportunities in rich neighbouring ASEAN members to the benefit of both countries.