Indonesia taking us to the cleaners through NT land purchases

Indonesia's Japfa Group (headed by billionaire Handoja Santosa) is the biggest importer of Australian live cattle, and is also Asia's biggest beef breeder.  Last week Japfa announced its purchase of "Riveren" and "Inverway" stations for a figure reported to be over $35 million.  The two properties cover about one and a quarter million acres (5500 sq kilometres) of pastoral lease west of Katherine in the NT, and run about 40,000 head of cattle.  It was effectively a forced sale because the owners, the Underwood family, ran into financial difficulties following the suspension of the live export trade to Indonesia in 2011.

All the indications are that this is just the start, and that a hefty chunk of Northern Australia is set to change hands from Australian to Indonesian ownership at bargain basement prices.  Both sides of politics express support for foreign investment, including in agricultural land, and are openly welcoming the Indonesian land purchases. 

Following the Japfa purchase, Government-owned agribusiness PT Rajawali Nusantara Indonesia (RNI) announced that it is close to sealing a deal to invest at least $32 million in a 51 per cent stake in a cattle station with between 50,000 and 500,000 head of cattle.  Other state-owned firms reported to be looking at buying Australian cattle stations include Perum Bulog and PT Berdikari. 

While unrestricted foreign investment is widely supported for laissez faire economic reasons, an exception can be argued in the particular case of agricultural land.  Nationalistic considerations promote the idea that Australians should own the wide expanses of their own country.  It is also reality that most other countries restrict foreign ownership of their farmland and that foreign investors generally have little to offer Australian agriculture that our own farming community doesn't already provide. 

In Australia's case a further consideration is that much of our agricultural production is exported but faces major trade barriers.  Such barriers lower returns to landowners so that our land is artificially undervalued, making it about the cheapest in the developed world. 

Regarding the land purchases by Japfa and other Indonesian interests, particular objections arise based on considerations of market manipulation, competition policy and taxation.

Even though it was the Gillard government (responding to animal activists) that initially banned the live export trade to Indonesia in 2011, its six-month ban (damaging as it was) got suspended after just six weeks.  The damage was made much longer-lasting, when Indonesia retaliated by slashing our live export quota.  Even though some of the lost quota was eventually restored, the loss of market has continued for the past two years with devastating results.

Northern cattle producers and others associated with the live cattle trade have taken a financial hiding in the form of a major slump in Northern cattle prices, less work for contractors, and the smashing of station land values (down an average 30 per cent). 

In Indonesia shortages of beef caused domestic prices to soar and were blamed for a corruption scandal.  The chairman of a major political party was arrested for allegedly accepting bribes from beef importers seeking additional quota, and a container that was supposed to contain fish turned out to be carrying illegally imported Australian beef.  The reductions in quota have damaged both countries and were not sustainable in the medium to long term.

We now have the situation where big business in Indonesia is buying Australian agricultural land and livestock at distressed prices that reflect Indonesian government actions and Indonesia's position as the dominant buyer of our Northern cattle.  (Would our regulators have been similarly agreeable if, for example, Coles and Woolies had been doing this to their suppliers?  I doubt it.) 

In Indonesia there is an incestuous relationship between big business, the military and the government so that Japfa, as well as the relevant government owned companies, almost certainly had advance knowledge of likely changes to import regulations.  Issues concerning advance knowledge also arise from the fact that Japfa's land purchase was signed off around the same time as an announcement (during PM Abbott's visit to Indonesia)of an additional special quota for 53,000 cattle by the Indonesian government. 

There is an emerging risk that Indonesia's newly purchased cattle stations in Australia will be given preferential access in the allocation of export quotas at the expense of Australian owned enterprises.  Ownership of Australian land by vertically integrated Indonesian companies also raises the prospect of Indonesian companies favoring their own subsidiaries over local contractors and suppliers, and the possibility of transfer pricing threats to our tax revenues.

While Indonesian interests seek to extend their vertical integration through owning large areas of Australian pastoral land, there is no reciprocal access.  There is little chance, for example, of Australian companies being allowed to open their own feedlot, abattoir or distribution network in Indonesia.  An illustration of Indonesia's attitude to foreign ownership occurred in 2012, when the Indonesian government announced that foreign mining companies in Indonesia would have to sell at least 49 per cent of their shares to local interests.

PM Abbott has indicated that Australia would welcome any investment by Indonesia (government or private) in Australian cattle stations.  Even Barnaby Joyce, who previously condemned Indonesian foreign investment in cattle stations as "not in Australia's national interest" has backtracked.  He now reckons that he has since spoken to Territory cattle producers, who are in favour of the sale because it will assist cattle prices.  Many commentators doubt that Joyce has genuinely changed him mind, and put his changed public position down simply to a need for Cabinet solidarity.

The expressed industry support for the Indonesian buyout reflects that this currently is the only available light at the end of the tunnel for northern producers.  The industry had gone through a relatively prosperous period prior to the interruption to the live cattle trade and the prospects are good, provided the trade gets back to its former level.  Producer revenue, however, crashed when access to the Indonesian market was restricted, and producers faced the prospect of going broke in greater numbers if nothing changed.

It seems obvious that the lack of official concern about what is happening in the Northern cattle industry is due to the Australian Government giving priority to "stopping the boats" above all other issues in our bilateral relationship with Indonesia.  Facilitating an unconscionable buy-up of Northern cattle stations seems to be a price being extracted by Indonesia for its promised assistance on this issue.  I believe that, if PM Abbott is placing much faith in Indonesian assistance in solving the asylum seeker problem, then is he deluded.  The facts instead suggest that Indonesian cooperation with Australia on people trafficking is on a par with Pakistan's commitment in the war against the Taliban in Afghanistan.

Australia gives the appearance of being a very poor negotiator in its dealings with Indonesia (despite having a potential lever in the vast sums we provide in aid assistance).  In regard to live-cattle, while Indonesia may have power as the dominant buyer, Australia has just as much market power as the dominant seller, provided we are prepared to organise ourselves.

The plight of our Northern cattle industry is the fault of both the Gillard Government as well as Indonesia, and producers are deserving of much more public assistance.  The Live Exports Assistance Package, worth a paltry $30 million in total, did little to offset the losses endured.  The Australian Government should be assisting its own industry in a time of crisis instead of playing the role of cheer-leader, while Indonesia buys its pick of our northern lands at never-to-be-repeated prices. 

The prognosis is that the Northern cattle industry will return to profitability through quota to Indonesia being fully restored or increased fairly soon.  The price that is likely to be paid is that much of the supply chain in this country is about to become Indonesian owned, something that future generations are destined to blame us for.

All this was started by animal activists complaining about alleged cruelty in Indonesian abattoirs.  The big irony is that, instead of their campaign closing the live export trade, it now looks like resulting in the people being complained about ending up in control of their Australian supply chain as well.