Representatives from the governments of Australia and Indonesia have agreed to a Memorandum of Understanding on Agricultural Cooperation, with the aim of increasing the volume and value of imports between the two countries.
The deal was signed by Agriculture Minister David Littleproud on the back of a three-day tour of Indonesia where he help ministerial talks with the aim of promoting agricultural trade.
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) will implement tariff rate quotes (TRQs) similar to those featured in the recent Australia-UK free trade agreement.
The agreement will allow live cattle, some fruit and vegetables, and feed grains to be imported with a reduced tariff. Once the annual quota is reached, the tariff returns to a higher rate. Imports of carrots, for example, up to 5000 tonnes per year will attract a 10% tariff, or 12.5% thereafter. After five years, the quote volume will increase to 7,500 tonnes per annum, with a decrease to the in-quota and out-quota tariffs to 5% and 10% respectively.
Minister Littleproud said that the agricultural cooperation deal would strengthen trade ties between the two countries that have bloomed since the 2020 trade deal.
“Indonesia is Australia’s fourth largest agriculture, fisheries and forestry export market, valued at $2.9 billion in the 2020/21 year,” he said.
“Indonesia is Australia’s largest market for wheat, largest market for live cattle, and fifth-largest market for beef.”
“Two-way trade for the agriculture, fisheries and forestry sectors was $4.07 billion, which shows that Indonesia is not just a respected partner but a valued one as well.”
Deal Hoped to Ease Indonesia’s Food Price Problem
Economists hope that the trade deal might ease the crippling food prices facing Indonesian consumers. The government’s focus on self-sufficiency and agricultural nationalism has inadvertently increased food prices and reduced supply creating economic uncertainty and dissuading private investment in the industry.
According to data from the Lowy Institute, the country’s poorest consumers spend around 64% of their income on food. The price of beef is double the World Bank’s reference point and staples including rice are often double the price of many other countries. Despite Indonesia’s focus on domestically grown food, food imports have increased fivefold over the last 20 years.
While the agreement is seen as a step forward for both parties, there are still some hurdles to be addressed. Australia lost significant face with Indonesia in 2011 after the live export ban – a backwards step that wasn’t recouped until 2014. The Australian export sector needs to rebuild trust with its trading partner – an exercise that requires time and reliability.
Australian exporters have long suffered the notorious red tape synonymous with doing business in Indonesia. While Indonesian feedlots pivot to deal with the rising cost of stock feed, they are yet to be able to take advantage of the tariff-free quota increase on Australian feed grains that was implemented at the beginning of 2022. The amendment increased the annual quota-free volume of feed grains to 551,250 tonnes per year, but according to Beef Central, no significant volumes have been moved.
Industry sources said that the Indonesian government has not yet included feed grain types on the list of importable products.