Indonesia —stage set for greater beef demand

7 May 2008

Indonesia’s growing population and increasing per capita incomes are setting the stage for even
greater beef demand in what is already a key Australian live cattle and beef export market, a
recently released report from the world’s leading food and agribusiness bank says.

While Australia remains in prime position to supply the forecast extra demand in the Indonesian
market, the Rabobank report says that there are external factors that could have a negative
impact on Australian live cattle and beef sales to Indonesia.

Among these threats are rising inflation and the potential of increased competition if the bans on
Indian buffalo meat and Brazilian beef and live cattle are lifted.

Report author and senior Rabobank Food & Agribusiness Research and Advisory analyst, Wendy
Voss says that prospects for future growth in this important market will be determined by
population expansion, income growth, the cost of beef —in both absolute terms and relative to
key substitutes — and cultural trends.

Between now and 2015, the Indonesian population is forecast to grow by 27 million people, the
report states. “If per capita beef consumption is maintained at recent levels - an average of 1.71
kilograms for 2004-2006 - this would add around 45,000 tonnes worth of increased beef
consumption,” Ms Voss said. Assuming an average carcass weight of 240 kilograms, an extra
190,000 head of feeder cattle would be required to meet this increased demand, she added.

GDP growth is also expected to continue; with per capita GDP forecast to rise by 6.9 percent in
2008 to USD 1,951, Ms Voss said. “This continued rise in income for Indonesian consumers
would be expected to support further increases in beef consumption,” she said.

Rising per capita GDP, however, cannot guarantee an increase in meat consumption in
developing countries, discretionary spending, the amount of money spent by consumers on
nonessential items after basic necessities have been purchased, must also be examined, she
said.

In contrast to developed countries, where food accounts for approximately 15 percent of total
household spending, over 53 percent of all expenditure in Indonesian households goes toward
food, Ms Voss said, adding that of this, approximately one-quarter is allotted for grains, such as
rice, and cooking oil, which are staples for all households in Indonesia. “Kerosene is another
major cost for Indonesians; only approximately 10 percent of Indonesians are estimated to have
access to electricity or gas for cooking, with most households still using kerosene or wood to
cook,” she said.

The Indonesian government has implemented a number of strategies to ease rising domestic
food prices, such as the diversion of palm oil from export to domestic markets in order to reduce
cooking-oil prices, the report says.

“As yet it is not clear whether or not these policies will succeed. If basic commodity prices
continue to rise, this could lead to reduced beef spending, despite the expected rise in GDP in
2008. If the government can reduce inflation while maintaining GDP growth, this should increase
discretionary spending and thus encourage increased consumption of beef, through an overall increase in meat consumption and possible ‘trading up’ from chicken to beef by consumers,” Ms Voss said.

Given the increase in Indonesia’s population and income, and assuming basic food prices can be
kept under control, beef demand in Indonesia should continue to grow over the next decade,
according to the report.

“With Indonesian cattle herds stable and imports from India and South America banned due to
foot-and-mouth disease, Australia remains in a prime position to supply the extra demand in the
Indonesian market through live cattle and beef exports,” Ms Voss says.

However, according to the report there are factors outside of the Australian cattle industry’s
control which could have a negative impact on Australian live cattle sales to Indonesia, such as
rising inflation. “In addition, the threat of lifting the ban on Indian and Brazilian imports would open
up the market to increased competition from lower-priced products,” Ms Voss said.

“Such uncertainty in a key market highlights the importance of continuing to find and develop
markets for Australian beef and live cattle,” she said.

Rabobank Australia is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 100 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is ranked as one of the world’s safest bank by Global Finance magazine. Rabobank operates in 42 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank Australia is one of Australia’s leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 50 locations throughout Australia.

Contact

For further information please contact Jen Reid, Public Relations (Tel: 61 2 8115-2744) or email on sydney.pr@rabobank.com.

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