International Business as Current Topic in Exports - Case Study Example

Running Header: International Business - Current topic in Exports Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: International Business - Current topic in Exports Abstract This paper is going to explore the events that lead to banning of live cattle export from Australian to Indonesia. The ban resulted to short-term and long-term implications on the Australian cattle industry. It is evident that the highly affected group by this ban is Australian livestock producers. The paper has also explored on general implication on the economy of Australia as a result of this ban. Some of these implications are worsening in the bilateral trade relationship, loss of lucrative market, and contravening principles of fair trade. This ban will also have implication on wheat growers since Indonesia is the biggest importer of Australian wheat. Finally, the paper has discussed the implication on the side of Indonesia as a result of this ban. Introduction Recently, a journalist filmed the terrible deeds that were being done at Indonesia slaughterhouses after being exported from Australia. There were so abattoirs in Indonesia mistreated cattle before dying in slow and painful death. After this inhumane mishandling were air on television, even the lover of meat admitted that the manner in which cattle were being handle was far from humane. When the Australian authority observed poor handling of the cattle in Indonesia, they decided to put a ban on exportation of live cows. On June 2011, the Australian federal government took a decision of banning the exportation of live cows to Indonesia after an outcry from public and a threat of revolt from backbench (Farr 2011). Ludwig Joe, the Minister of Agriculture, put sign on the order and elaborated that the ban would be in place until measures were developed to make sure that they is humane handling of cattle and other animals along the entire chain of supply (Coorey & Allard 2011). The decision to ban the 318 million $ yearly sector was approved by cabinet and had a possibility of sending ripples across Indonesia beef industry. The federal opposition and the cattle industry in Australia posed an opposition to the ban decision. Julia Gillard, the prime minister indicated that the government would draw the map hand in hand with Indonesia to initiate radical changes on the way to handle cattle in abattoirs of Indonesia. The absolute ban on live cattle export became apparent when a 1900 heads of cattle being planned to be shipped to Indonesia was halted from loading at West Australia in Port Hedland. Objectives: -To analyze the impact on the Australian cattle industry after the ban on exportation of live cattle to Indonesia -To analyze the impact of live cattle exports ban on Indonesia Short-term and long-term Impact on the Australian cattle industry Indonesia is the biggest export market for Australian live cattle accounting for 60% of the entire Australian cattle exports. The Australian cattle industry currently support Indonesia with 25 % of its needs of cattle meat and 20,000 were exported to Indonesia in 2010. The export industry of live cattle is worth more than 300 million $ annually (Daley& Sedgman 2011). The impact on live cattle industry in Australia is expected to be huge. There are long term and immediate implications on this ban. Producers of livestock are more prone to the ban. This is because such producers don’t have other ways of obtaining income, such as crop farming. The ban has been imposed only after many of the producers have just recovered from the adverse draught and are still being faced by high cost of production. Additionally, the hardest hit will be live cattle exporters. The immediate impact will affect live cattle that are either in transit elsewhere or already in ships. These will cause the return of the cattle to the producers. Exporters of live cattle, who mostly charter ships for almost 12 months, will be forced to remain in this contract until the end, unless room existed within the agreement to cater for bans from governments. Companies of road transport that specifically deal with the movement of cattle to various ports will also be affected (PPB Advisory Insights 2011, p. 3). Although, they might be able to change to ferrying cows to slaughterhouses located n south. Additionally, cattle stations that specifically deal in exportations of live produces will be highly affected. There is dismal demand for the cattle products in Australia, hence reducing any options for processing beef locally and either exporting the meat or consuming locally. This would result for huge discount on these cattle to encourage domestic consumption. The other implication will be unavoidable increase in cattle targeted for domestic market in Australia will push up the supply, lowering demand for cattle. This will be worse since it will combine with the current delicate situation of cattle industry in Australia that has arose due to effects of strong Australian dollar and the toughness of capital for producers of cattle who are still struggling to regain after severe drought in the recent history. Due to saturated, market, producers will be forced to move cattle over long distance to slaughterhouses in the south that will lead to additional costs to farmers, further shrinking their margins (Demirdjian & Senguder 2010, p. 351). This will also result to additional stress to animals causing negative effect on quality of meat. There will be high supply to the abattoirs in the south that were recently affected by low supplies caused by floods. However, it is not certain that abattoirs in northern territories and states will have the capability of coping with rising demand considering that there has been several closure of processing units in the recent years. Economic Implications of ban to Australia cattle industry It is vivid that ban on exportation of live cattle, particularly if it is permanent, will taint Australia and Indonesia trade relationship. On annual basis, the live cattle trade between the two nations is approximately $ 320 million. According to Permani (2011, p. 3), more than half of farmers of cattle in Australia in the north territory depend on exports to Indonesia. This implies that the ban will a severe negative impact on performance of Australia economy. The exportation ban for Australia will spread to Australia past investments in development and research of livestock services industry-there is possibility of losing every value under the situation. The ACIAR (The Australian Centre for International Agricultural Research) via government of Australia has financed various projects to evaluate the effectiveness of the programs of Indonesia government and to analyze the beef market chain supply. The Australian government will also take into consideration the cost it might bare if compensation of transporters and farmers is passed. Additionally, there is the social arising from exportation ban, including its implication on farmers welfare and incomes. Additionally, Australia will be in a brink of losing a very promising market with growth prospects. Indonesia has a population of over 230 million persons, hence the large population with very high promise of positive growth of consumption of beef. Indonesia enjoys an economic stability of constant growth of 6.1% in the recent past hence showing the importance of Indonesia as trading partner of Australia (Permani 2011, p. 4). Also, beef for majority of Indonesia population is regarded as a relatively luxury food. As per capita income of Indonesia has improved, so has local demand for imported livestock, specifically from Australia because of its unmatched quality, availability at the supermarkets and relatively affordable price. The lucrativeness of Indonesian market is further improved by relatively low trade barrier. Its tariff on cattle is presently as low as 5 % and getting as low as zero under certain agreements such as ASEAN (under Free Trade Agreement). There exist wide implications for the bilateral relationship (Cameron 2009, p. 37). Immediate decision by Australia government to ban exportation of live cattle to Indonesia might show its unwillingness to cooperate with Indonesia. Suswono, Indonesia Agriculture minister, said that the ban was regrettable since it was reached with no advance consultation with Indonesian government. The government of Indonesia also protested that Australia was not bothering with slaughtering standards until after the revelation of mistreatment of cattle at Indonesia abattoirs. Additionally, 2 of 12 slaughterhouses named by government of Australia are Tenggara and Nusa that were not processing livestock from Australia, and another was in Lumpung that was closed at that time. This is the reason why Indonesia felt that Australian government owed them a clarification and discussion. The ban on export may also bring up issues over commitment on side of Australia to engage in the global economy in a fairly manner. It may also represent violation principles of fair trade and discrimination under WTO (World Trade Organization) (Joshi 2009, p. 57). Ban on live cattle exports pose threat to wheat exports to Indonesia NSW grain farmers are disturbed by the decision to halt exportations of live cattle to Indonesia since this would mean shuttering the biggest bulk wheat export trade of Australia. This is true since Indonesia import 32% of Australia bulk wheat export in 2010, making it the biggest grain importer of local wheat (Suzanski 2011, p. 1). The NSW is worried because the recent step to halt live cattle exports would strain relations on bilateral trade. Indonesia has been one of the most vital markets for exports and grain farmers nearly one-third of wheat exports from Australia- comparing to the other big markets South Korea and Japan that import 10% and 11% respectively (Geoffrey 2009, p. 69). Additionally, Indonesia has a promising wheat market of exports and it is expanding quickly with potential to continual with positive growth. It is the 4th most populous nation in the globe with an ever increasing demand for prime agricultural produce from Australia. For this reason, NSW farmers are pressing and pushing not to put such ban. If quick solution on such bans, the Australian will unfortunately face a flow-on effect in other agricultural export commodity market. Since wheat would not be spared, this would be devastating for Australian wheat exports. Implications of ban on Indonesia Indonesia might get trade partner from other nations where they will export live cattle from. Importation of cattle from other nations might seem to be effective in short run to stabilize meat price, however, it might bring up concern on standards on food safety. Another issue is that exporting cattle from other nations may shift attention of Indonesia from welfare of animals and Halal practice issue. This will cause Indonesia to miss the chance to learn from this issue. Placing of live cattle exports ban will result Australia to shun from assisting Indonesia, not only in animal welfare and livestock services improvement, but also the ability of the government of Indonesia to offer for basic necessities of the huge population of Indonesia, i.e Halal meat (George 2011, p. 7). Australia has been offering aiding to Indonesian Muslims for many years, particularly in education sector to back Indonesia to upgrade the learning and teaching quality in Islamic secondary and primary schools. This goodwill toward helping Indonesia might be lost as a result of this ban. Livestock industry in Indonesia relies heavily on unskilled farmers where approximately 90% of livestock is Indonesia is kept in terms of small scale by farmers with limited education background (Theodore 2008, p. 117). This put the food security in this country at a questionable situation since it heavily depend on imported livestock. The importation of cattle trade has continued to expand. This implies that ban on exportation of cattle to Indonesia will put the country food security in an awkward situation since it cannot meet the demand on its own. Additionally, impact on ban is elevated by the fact that Indonesia cannot afford to import processed beef since it is very hard and expensive to import refrigerated or frozen meat. This is because many houses, businesses, and vehicles do not have refrigerators. Therefore, they cannot afford to maintain frozen meat fresh. Conclusion In conclusion, the in humane handling of exported cattle from Australia in Indonesian abattoirs resulted to ban on live cattle exports. This ban has a far-reaching implication to Australia economy as well as the Indonesian economy. The export industry of live cattle is worth more than 300 million $ annually, hence the impact on live cattle industry in Australia is expected to be huge. Ban on exportation of live cattle, particularly if it is permanent, will taint Australia and Indonesia trade relationships. Australia will lose a very promising market with growth prospects. This ban will extend to other produce trade such as wheat, since Indonesia is the biggest consumer of Australian wheat. The Australian will face a flow-on effect in other agricultural export commodity market. The goodwill that Australia has been extending toward helping Indonesia might be lost as a result of this ban. The implication on supply chain in Indonesian market will be implicated due to the fact that it doesn’t have capability of importing processed meat. References Cameron, G 2009, Introduction to International Business, Blackwell Science, Oxford. Coorey, P., & Allard, T 2011, Live Cattle Ban to Stay, viewed 31, July 2011, < http://www.smh.com.au/environment/animals/live-cattle-ban-to-stay-20110607-1fr8b.html>. Daley, G., & Sedgman, P 2011, ‘Australia bans live cattle exports to Indonesia’, The Star, viewed 31, July 2011, . Demirdjian, Z, & Senguder, T 2010, ‘Perspectives in global beef consumption’, Journal of American Academy of Business, Cambridge, Hollywood, vol. 4, no 2, pp. 348-356. Farr, M 2011, ‘Cattle industry reeling over live export ban to Indonesia’, Business, viewed 31, July 2011, . Geoffrey, J 2009, The Evolution of International Business: An Introduction, London: Routledge. George, T 2011, Live Cattle Exports: Matter of Public Importance, pp. 3-15. Joshi, R 2009, International Business, Oxford University Press, Oxford. Permani, R 2011, ‘Moving beyond the blame game: the Ban on Australian Live Cattle Exports to Indonesia; Lessons to be Learnt’, Indo-Pacific Governance Research Centre: Policy Brief, vol. 1, no. 5, pp. 2-6. PPB Advisory Insights 2011, Agribusiness, pp. 1-5. Suzanski, O 2011, Live cattle ban threatens wheat exports to Indonesia, pp. 1-3. Read More