A NEW report examining the performance and potential of Australia’s trade relationship with Indonesia has recommended simplifying certification processes to help alleviate non-tariff barriers and boost agricultural trade.
The inquiry was referred in November last year to the Joint Standing Committee on Trade and Investment Growth chaired by Queensland Nationals MP Ken O'Dowd with WA Liberal MP and Katanning farmer Rick Wilson a contributing member.
The Committee’s investigation held four public hearings in Canberra, published 27 submissions and tabled a report this month making four core recommendations.
The report, “Leveraging our advantages - The trade relationship between Australia and Indonesia” recommended that - subject to the finalisation of a satisfactory Indonesia Australia Comprehensive Economic Partnership Agreement (IA-CEPA) - the Australian government develop a campaign to actively promote business opportunities presented by the agreement.
The IA-CEP agreement is anticipated to be concluded by the end of next year.
The report also recommended the Australian government - through the IA-CEPA negotiations - focus on reducing non-tariff barriers to trade like the standardisation of food and pharmaceutical labelling and certification requirements.
“The Committee further recommends that the Australian government establish a national food and pharmaceutical certification process, agreed by the Indonesian government, to simplify this process for Australian exporters,” it said.
The report said the Indonesian market was well placed to grow alongside projected population growth – but the trade relationship between Australia and Indonesia was “clearly under-developed”.
“In 2015-16 Indonesia was Australia’s 13th largest trading partner, trailing behind smaller markets such as New Zealand,” it said.
“The Australia-Indonesia Business Council (AIBC) pointed out the stark contrast in these relationships noting that there are 12,000 Australian companies with $86 billion invested in New Zealand, population 4 million, and ‘less than 300 on the ground in Indonesia’ and $11 billion invested in a country with a population of 250 million.”
Non-tariff trade barriers on agriculture in focus
The report detailed core areas of concern for Australian farm exporters about restrictions on trade to Indonesia that also limit economic opportunity.
It cited Dairy Australia’s submission that said non-tariff barriers “hinder the ability of Australian dairy manufacturers to leverage competitive advantages conferred by a: history of food safety; credible domestic regulatory system; and reliable cold storage supply chains”.
“Submitters noted that non-tariff measures imposed by the Indonesian government such as permit limitations and cattle import quotas and restrictions, labelling requirements and duplication in customs processes, provide an ongoing barrier to improving trade,” the report said.
“The uncertainty created by Indonesia’s ad hoc import exclusions not only causes a great deal of difficulty for Australian exporters but may also in the longer-term cause difficulties for Indonesia as Australian exporters look to other markets with more consistent and predictable trade policies.
“Industry submissions acknowledged the efforts being made by the Australian government to reduce the impact of non-tariff barriers and called on the government develop strong government-to-government and industry partnerships to reduce the impact of the barriers imposed by Indonesia.
“However, it was also submitted that the multiple trade partnerships and programs in existence in Australian states and territories create unnecessary duplication for Australian agribusiness.
“The necessary requirement for Halal certification in order to access the Indonesian market was given as an example of the need for comprehensive national partnerships and programs to reduce market disruption.”
The report also said inquiry submissions noted concerns about Indonesia’s self-sufficiency goals and changing rules for the agricultural sector, “which places pressures not only on Australian producers but also Indonesia’s security of supply and price stability”.
It referred to the Consolidated Pastoral Company’s submission which said the introduction of Indonesia’s cattle breeder protocol - which requires one animal imported for breeding purposes for every five animals for feed lotting - is a challenging prospect for the company and its feedlot operations in Sumatra.
“The requirement for a 5 to 1 ratio feeder to breeder cattle importation is not economically viable as it is cost prohibitive to feed breeder cows in feedlots that are designed for 120 finishing of Australian feeder cattle, not for feeding cows for many years,” it said.
“The 5 to 1 rule started in late 2016 and will be audited at the end of 2018 with feedlots who do not comply losing the ability to import cattle in 2019.
“For feedlots to comply with 5 to 1 they would have 140pc of their feedlot full of breeding cattle by the end of 2018.
“They would also not be producing beef for consumption and this will put significant pressure on Indonesian beef prices.”
The Department of Agriculture and Water Resources’ submission also attacked concerns about Indonesia’s pursuit of food security through self-sufficiency, saying it makes agricultural trade with that trading partner “challenging and unpredictable”.
“Indonesia is aiming to achieve self-sufficiency through domestic production of staples - rice, corn and soy beans - an increased production of beef and sugar,” it said.
“Indonesia uses import restrictions, including bans and quotas, to support local producers while negatively impacting Australian exporters.
“Australia’s agricultural trade relationship with Indonesia is frequently characterised by unexpected changes to import conditions leading to loss or reduction in access and uncertainty for Australian exporters.
“More recently, Indonesia’s pursuit of self-sufficiency goals across a number of key commodities has been balanced by sensitivity about high retail food prices and better recognition of the role that imports play in maintaining price stability.”
Strong outlook for farm exports to Indonesia
The Committee’s report made specific mention of agricultural trade saying such products featured highly in the trade relationship, with Indonesia being Australia’s sixth highest value export market in 2015-16.
It said agricultural commodities accounted for 58 per cent of total goods exports with wheat ($1.1bn), live cattle ($578m), sugar ($476m), beef and veal ($315m), raw cotton ($130m), and skim milk powder ($120m).
Grapes, recovered paper and red meat animal offal exports have also grown strongly in the five years from 2010 contributing to a 24pc growth in total agricultural exports over this period, it said.
“Agricultural imports from Indonesia are also strong, having tripled in the five years from 2010 with the largest increases in dressed hardwood, household and sanitary paper products, cocoa, plant extracts and tuna,” the report said.
“Alongside key commodities, submitters suggested that there are opportunities in emerging markets that should be harnessed.
“Although a majority Muslim nation, both the Wine Makers Federation of Australia and Australian Pork Ltd submitted that there are opportunities to grow the wine and pork market, recognising that non-Muslim minority populations in Indonesia account for over 30 million consumers and with increasing international visitors to Indonesia, there is also a visitor market for this produce.”
The report said the AIBC had also noted that Indonesian agriculture’s ‘poor capacity for reliable, high quality supply to domestic markets’ offered Australia an opportunity in the short-term to share agricultural expertise, and in the long-term, collaborate in accessing third markets.
“The Indonesia-Australia Partnership on Food Security in the Red Meat and Cattle Sector was cited by a number of submissions as ‘an example of a mutually beneficial economic cooperation program which should be used to support momentum in the IA-CEPA negotiations and demonstrate the benefits of a closer economic relationship between Australia and Indonesia’,” it said.
It also said there was a need to improve infrastructure in Australia but also the issue of inadequate infrastructure in Indonesia
“This can be seen as both a barrier to trade and an opportunity for Australian businesses. Indonesia is focussing on infrastructure development as a key to economic growth and this is widely recognised as presenting significant opportunity for Australian business,” it said.