Indonesia beef prices soar amid sufficiency drive

[March 20, 2013]  JAKARTA, Indonesia (AP) -- Haji Hidayat makes his living selling one of Indonesia's most popular dishes: a tasty meatball soup known as bakso. Earlier this week, after 22 years he decided to take a break and leave the capital for his village, no longer able to afford to keep ladling the brothy goodness customers had come to expect from him.

The price of beef, the main ingredient in bakso, has hit a record high while other essential components -- garlic, shallots and chillies -- have also recently skyrocketed.

Beef now costs more than $10 a kilogram (2.2 pounds), up from around $6 a kilogram nine months ago. Meanwhile in the past month alone, sellers at a traditional market in Jakarta report garlic has leaped three and half times to $7.20 a kilogram, while shallots increased more than fourfold to $4.60 and chilies more than tripled to $5.15.

"This is insane!" said Hidayat, who held out as long as he could after hiking the cost of a bowl of his steaming soup last month from 30 cents to $1 to offset rising beef prices. "If we subtract the seasoning, our buyers don't like our meatball soup. If we raise the price, they can't afford to buy, so I'd better close my stall until the price returns to normal."

Other desperate bakso sellers, who typically hawk their dish from rolling food carts, ignited a firestorm late last year after opting to cut corners by mixing pork into their meatballs -- a forbidden food for most in the world's most populous Muslim country.

Analysts say the high cost of beef is an inevitable side-effect of Indonesia's drive to achieve self-sufficiency in the meat as well as corn, rice, sugar and soybeans by 2014, a policy sparked by the global food crisis that hurt tens of millions in developing countries in 2007 and 2008. Garlic, shallots and chillies are not among those commodities but the surge in their prices, pinned on market manipulation by importers and flooding, underline other problems in the food industry that complicate efforts to keep prices affordable.

The spiraling costs have sparked intense debate in the media and online, prompting President Susilo Bambang Yudhoyono to demand the trade and agriculture ministries stop pointing fingers and fix the surging prices. A watchdog organization accused garlic and shallot importers of creating a cartel by holding shipments of the pungent cloves hostage on the dock while prices climbed.

Last year, Indonesia slashed import quotas for live cattle by more than a third and boxed beef by nearly two thirds as part of its self-sufficiency plan, but its domestic production has not been high enough to fill the gap. Further import reductions are planned this year. The government says imported beef now accounts for only 14.5 percent of national consumption, down from 53 percent in 2010 with imports reduced from 220,000 tons to an expected 80,000 tons this year.

The self-sufficiency policy got significant political impetus in 2011 when Australia temporarily banned exports of live cattle to Indonesia following a public outcry over a video showing animals bellowing in pain and slowly bleeding to death at an Indonesian slaughterhouse. Then in 2012, Indonesia banned U.S. beef imports following one reported case of mad cow disease. Washington has accused Indonesia of protectionism and in January filed a complaint with the World Trade Organization.

Vice Agriculture Minister Rusman Heriawan said the government is pressing ahead with its agenda even as he acknowledged it had overestimated the ability of Indonesia's smallholder cattle farmers, many of whom have just three or four cows, to supply the market.

"Unfortunately, there are too many distortions which are not taken into account, causing meat prices to soar so high. We need time to correct all the deficiencies that exist," he said.

People in Jakarta, who eat six times more beef than the national average, should "learn to realize self-sufficiency," he said.

In a report last year, the Paris-based Organization for Economic Co-operation and Development called Indonesia's self-sufficiency goal "misplaced." Its archipelago geography, unreliable transport and lack of industrial farming mean it is ill equipped to engineer a significant increase in local food production. The OECD warned of rising prices that would ultimately harm the country's poor majority.

Andrzej Kwiecinski, senior agricultural policy analyst at the organization and the report's main author, said beef is possibly the least challenging of the commodities in which Indonesia hopes to achieve self-sufficiency. Rice and corn production were already close to meeting local demand while sugar and soybean production is years away from that.

Consumption of beef remains low across the country of 240 million at about 2 kilograms per person on average, with chicken and fish the main sources of protein. The beef price hikes will mostly affect people in cities and would likely lead to less public protest than sharp increases in the other targeted commodities.

But by continuing to drive prices higher, many small family farms, with herds of less than 10 cattle, may also be tempted to sell all their animals, including breeding stock, to capitalize on large profits, he said. This would work against the goal of producing more domestic cattle over time even as it pushed prices ever higher.

"This is not the way food security would be achieved," Kwiecinski said. "This is further contrasting with the objective of meeting consumers' demand and satisfying food requirements by the population."

Self-sufficiency is not simply about having enough cattle, but adequate facilities and infrastructure must also exist to distribute the herd across the world's largest archipelago nation, consisting of more than 17,000 islands, said Khudori, an agriculture and husbandry analyst from the country's Political Economic Association. Many Indonesians go by one name.

Getting beef to markets can take months as it passes from local traders to inter-island traders to retailers.

"Given the lack of supply, we need a huge volume of imports to stabilize the price," said Thomas Sembiring, chairman of Indonesia's Beef Importers Association.

"It is now the government that controls the price," he said. "But it blames importers over the fluctuation."

The situation is further worsened by rampant corruption, poor infrastructure and excessive government red tape, which all contribute to rising prices, he said.

And while garlic and shallots are not part of the self-sufficiency plan, both are potentially plagued by illegal business dealings.

The Business Competition Supervisory Commission, a government watchdog organization, said Monday that numerous importers had conspired to hold hundreds of containers of imported garlic and shallots at a port in Surabaya, East Java, until shortages drove prices sky high.

"Domestically, we're not ready to enhance productivity, resulting in a supply shortage," Commissioner Syarkawi Rauf said at a news conference. "And this is what speculators are trying to take advantage of."

The price of chilies has been affected mainly due to poor domestic crops, partially blamed on flooding.

But bakso seller Hidayat says he doesn't care what's to blame. His family depends on the $10 he earns every day serving up his famous soup, and he prays prices for all its ingredients will soon go back to normal so he can get back to work.

"It's bad enough to fall off a ladder, but then you get hit by the falling ladder too," he said, quoting an old Indonesian saying. "We are being hit twice," he said. "It's hard for us and we can't stand this situation any longer."

[Associated Press; By NINIEK KARMINI]

Associated Press writer Margie Mason contributed to this report.

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