Academic journal article Journal of Southeast Asian Economies

Determinants of Relative Demand for Imported Beef and a Review of Livestock Self-Sufficiency in Indonesia

Academic journal article Journal of Southeast Asian Economies

Determinants of Relative Demand for Imported Beef and a Review of Livestock Self-Sufficiency in Indonesia

Article excerpt

I. Introduction

The beef industry is becoming more economically and politically important in Indonesia. The recent past was characterized by the Indonesian government's ambition to achieve self-sufficiency with regard to this good. (1) Beef self-sufficiency has been primarily motivated by the revitalization programmes in agriculture, fishery, and forestry introduced in 2005. In the past, the term "self-sufficiency" specifically referred to self-sufficiency in rice (Mears 1984). More recently, Indonesia's growing income has led to a diversification of food consumption as the population experiences changing tastes, dietary intake, and purchasing power. While rice remains an important commodity, there is an increasing demand for non-staple and high-protein food commodities such as beef. Another driving factor has been increased reliance on imported live cattle and, in contrast, increased productive female cattle slaughter. In Indonesia, "excessive" reliance on imports is often perceived to be a result of the government's failure to stimulate domestic production rather than as a means of freeing up resources for more competitive activities.

Indonesia must increase its domestic production from 67 per cent of domestic consumption in 2010 to 90 per cent by 2014 (Sarwindaningrnm 2009). Additionally, the cattle population including those that are part of the breeding cycle must increase from 12 million in 2009 to 14.6 million by 2014 (Sarwindaningrnm 2009). Although historical time series data has shown that such a target is an ambitious one given the high volatility in beef production, the Indonesian government believes that the 2011 livestock census, reporting cattle population at 14.8 million, is a positive indication that the target is achievable.

Yet, self-sufficiency is not simply about having adequate cattle, especially if one takes sustainability into account. Various sources suggest that a GDP growth of about 6 per cent per annum has led to a 3 to 5 per cent increase in beef consumption. This figure is expected to rise given increased urbanization, modern retail penetration, and an expanding middle class (estimated at 30 million people in 2012). In the past, the deficit was met by live cattle imports, including slaughter and feedlot cattle, and boxed beef imports. However, the current self-sufficiency programme restricts these imports, in particular boxed beef. The import quota for boxed beef was slashed from 100,000 tonnes in 2011 to 34,000 tonnes in 2012 and was aimed at providing greater opportunities for local beef producers. Despite massive government programmes to assist smallholder cattle producers, only some regions such as West Nusa Tenggara have seen successful results. In the meantime, beef prices continue to increase. While beef distributors and the Ministry of Agriculture have different opinions regarding the cause of this price hike, the increase contradicts the objective of becoming self-sufficient in beef: to promote food security of which providing access to affordable food is a key component.

Against this backdrop, this study aims at reviewing several policy options to achieving self-sufficiency in beef production. In addition, it investigates how the ratio of total imported beef to domestic beef production responds to changes in the relative prices and income in the long and short term by applying the Vector Error Correction Model (VECM) using annual data from 1991 to 2010. Relative price variation may result from changes in national price levels, tariff reductions, and global price hikes. This study also adopts the Impulse Response Functions (IRFs) model to observe causality among the variables. The outcomes are useful for gauging Indonesia's response to a shock in trade flows due to changes in price and quantity. This information may help predict the impact of current government approaches to livestock self-sufficiency on the domestic economy, both in the short and long term. …

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