The Global Beef Outlook and What it Means for Indonesia

Three key global dynamics will shape Indonesia’s beef supply in the long term: changes to Brazil’s cattle industry, a shift in China’s beef import origination, and India’s carabeef export outlook. As such, Indonesian beef producers have but few options to secure long-term beef supply: investing domestically, investing abroad, or diversification.

Considerations in securing Indonesia’s long-term beef supply

Indonesia’s beef import demand will grow at a CAGR of 4% over the next ten years, probably shifting towards boxed beef and carabeef, away from feeder-cattle imports. Indonesia has no obvious cost advantage as a beef-cattle producer, given lack of pastureland, patchy feed availability, and costly inter-island transportation.

To address Indonesia’s long-term food security, we asked ourselves: “how many breeders does Indonesia need to invest now to replace feeder cattle and boxed beef imports by 2027?” The answer is 450,000 head per annum – based on current import levels and average carcass weight of 240 kg/head. Sourcing breeders at this scale represents a significant challenge, in our view, as global exportable breeder supplies are limited. For example, between 2010 and 2017, Australia exported between 87,000 and 139,000 head of breeders p.a. Comparatively, Brazil exported less than 10,000 breeders last year. Climate suitability is another limitation for certain breeds.

The prospect of higher imported beef costs means there are three options for Indonesian beef producers:

  1. Invest in a complete supply chain from breeding to feedlotting, slaughterhouses, and cold chain in collaboration with plantation owners to compete with cheaper beef imports
  2. Invest in grass-fed calves overseas and import the end-products
  3. Diversify towards cheaper proteins and/or high-value niche markets

In the long term, there are three key global dynamics that will shape Indonesia’s beef supply:

  1. Changes to Brazil’s cattle industry
  2. A shift in China’s beef import origination
  3. The outlook for India’s carabeef exports

Limited expansion in US per capita beef consumption and rising production also create opportunities for US exports. But the impact on Indonesia’s beef supply may not be meaningful, as US beef primarily caters to premium markets.

More under-utilised farms to be converted in Brazil

Brazil is switching its beef production from mostly pastureland to a combination of intensive and semi-intensive systems. Only 30% of Brazil’s beef production currently uses these intensive and semi-intensive systems, but we expect this share to increase to 45% by 2025. This transition should boost Brazil’s exportable supplies from 1.8m tonnes cwt this year to 2.6m tonnes cwt by 2025.

China’s official imports to grow faster

As China’s beef imports will require official channels to accelerate; there are two key considerations:

● The extent to which China can replace grey channel imports remains uncertain, although cattle population build-up in Brazil and Australia may help

● Any pressure on global beef prices would encourage ASEAN-5 to import more Indian carabeef

Figure 1: China’s growing appetite for beef, 2010-2027

Indonesian Beef_Fig1

India’s improving milk yields mean declining carabeef exports

As the world’s largest exporter, India faces two long-term issues: a stagnant buffalo replacement rate, and an expanding population.

As milk yields improve, India’s dairy buffalo replacement (i.e. slaughter volume) is expected to stagnate, with commensurate impact on carabeef supply. Domestic demand for bovine meat will also grow – even if per capita consumption stays flat. In our estimate, between now and 2027, India’s carabeef exports will dip by 11%. Historically, there has been no correlation between India’s export volumes and price (in INR terms). This suggests that India will continue to be the fall-back supplier in times of high global beef prices. But pricing will change gradually over the next ten years.

Figure 2: Indian carabeef exports may drop 11% in ten years’ time, 2010-2027f

Indonesian Beef_Fig2

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