Australia wheat sales to Indonesia set to drop

Australia wheat sales to Indonesia set to drop

CANBERRA (Reuters): Indonesia's imports of Australian wheat were expected to fall in 1998/99 because of its financial crisis, the Australian Bureau of Agricultural and Resources Economics (ABARE) said in its June quarter forecasts.

The country was Australia's second-largest market in 1996/97 (July-June), taking 2.4 million metric tons. Figures have not been released for 1997/98 although the Australian Wheat Board has said sales have been in line with the year before.

ABARE has maintained its forecast for Australia's 1998/99 wheat production at 19.3 million tons but sees declining prices because of an increase in world supplies.

Exports of 14.9 million tons are seen returning A$2.86 billion in income.

ABARE forecasts declining imports of wheat by East Asia as a whole in 1998/99, with an easing of rice prices from increasing world production expected to lead to increased consumption of rice at the expense of wheat.

"Although Indonesia has taken record amounts of Australian wheat since October 1997, imports of wheat from Australia are expected to be lower in 1998/99," ABARE said.

Factors likely to affect Indonesia's import demand included difficulty in financing trade, increased domestic production following a return to normal seasonal conditions after the drought in 1997/98, further depreciation of the rupiah and the increased use of export subsidies by other nations, ABARE said.

The possibility was also being raised that the U.S. government may use Export Enhancement Programme (EEP) funding to move into new markets.

Australia is forecast to increase its wheat plantings by two percent in 1998/99 to 11.1 million hectares in 1998/99.

The report added Southeast Asia's financial downturn was expected to continue to dampen Australia's once-booming exports of live cattle to the region for the next 18 months.

The agency said Indonesia was not likely to recover as a market for Australian live cattle "in the near future".

The Indonesian rupiah, a major casualty of Asia's financial crisis, was not expected to recover until 1999/2000, ABARE said.

Before the rupiah began to plummet about a year ago as one of the main victims of Asia's financial crash, Indonesia was the largest market for Australian live cattle, in 1997 taking 43.7 percent of Australia's total exports worth A$400 million.

It was widely expected that imports of Australian cattle were not profitable for Indonesian feedlotters when the rupiah exchange rate fell past 5,000 to the U.S. dollar, ABARE said. Rates on Tuesday were around 14,700 rupiah to the dollar.

"In the past eight months the exchange rate has been significantly higher than this (5,000 to the dollar) and ABARE estimates that the exchange rate will not recover until 1999/2000," ABARE said.

Problems of Indonesian feedlotters had been exacerbated by an estimated 18 percent to 20 percent increase in feed costs caused by the drop in the rupiah, ABARE said.

As a result, only seven feedlots out of 58 were currently operating in Indonesia, it said.

Consumption of beef in Indonesia was also estimated to have fallen in general by 20 percent, with hotel and restaurant sales down 20 percent to 30 percent and wet market and supermarket sales down 15 percent to 20 percent, it said.

Economic growth in Indonesia was forecast to drop to minus 12 percent in 1998 and then to minus two percent in 1999, with a recovery expected in 2000 to about three percent, it said.

"This recovery is contingent on the successful implementation of economic policy and financial market reforms as directed by the International Monetary Fund," ABARE said.

Australia's live cattle trade with Indonesia was not expected to return to the highs of previous years, it said.

In 1997 Australia exported 387,444 head of live cattle to Indonesia in total exports of 882,636 head. In the first four months of 1998 this dropped away to almost nothing, with shipments of only 1,100 head each in March and April.