A better policy approach, as suggested by Permani in this Forum, would have been for Australia to remain engaged with Indonesia, trying to improve the situation with education in terms of better treatment of animals and building on decades of collaborative agricultural research between the two countries, such as that developed by the Australian Centre for International Agricultural Research (ACIAR). Research funded by ACIAR has shown a high value of returns to both countries on research in improving this supply chain, but the imposition of a ban crudely wipes out these gains.

The livestock trade between Australia and Indonesia developed off comparative advantage in both countries. Extensive far northern Australia has a comparative advantage in rearing young cattle. Indonesia has a comparative advantage in fattening and processing such cattle into Halal markets within their region, for example through its cheaper labour costs. Australia is relatively disadvantaged in such processing (with the exception of premium product) by arrangements, such as the tally system. Labour arrangements are based on a fixed number of animals being slaughtered and, in the process, all the benefits of any productivity improvements go to what have become part-time labour in under-utilised facilities, discouraging investment in processing facilities.

The problem in the Australian–Indonesian livestock trade until recently was that an Indonesian ‘ban’ applied; achieved by not issuing licenses, restricting trading ports and the like. This was driven by a self-sufficiency policy that involves aspects such as credit subsidies that, to be effective, need to be very costly from an economic perspective, either by restricting competitive trade or the extent of subsidies (estimated in joint ANU, University of Adelaide and Indonesian Ministry of Trade research to be of the order of $5 billion over five years for 90 per cent self-sufficiency). In contrast, a policy aimed at improving Indonesian productivity through R&D was estimated to be far more cost-effective and actually improved animal welfare. Such R&D is quite diverse and could include humane killing, which is in a producer’s own interests as a traumatic killing generally results in tougher meat that must be sold at lower prices. Such R&D is already provided through non-government channels; for example Australia’s LiveCorp, in a world first, has been developing a strategic vision for improving animal welfare in Indonesia.

The proposed Australian ban on livestock exports to Indonesia will be ineffective in its various guises if the policy objective is better, more humane, treatment of livestock in Indonesia. At first the policy seemed to be specifically abattoir-focused, which was never going to be enforceable. It then shifted to Indonesia as a whole, but again, livestock could have been traded to countries such as the Philippines and then on-sold to Indonesia at little cost given the freer trade among ASEAN members. Indonesia could have tried to constrain this trade — as it has on occasions with Australia through licenses and the like or even on protectionist, non-economic quarantine grounds as Australia does with many products — but that would have been Indonesia shooting itself in the foot, rather than Australia shooting itself in the foot, as it is now. The final move seems to be to ban livestock exports altogether seeing as the WTO may have embarrassed Australian agricultural trade policy again by disapproving of such country-specific policies. The WTO is becoming more concerned with the negative impacts of export bans, taxes and like policies.

The main certainty of the ban from an Australian perspective is that it will cost internationally-competitive Australian jobs to competing exporters like New Zealand or Brazil (via live or slaughtered meat trade competition). It may also induce retaliatory action by Indonesia, most probably a ban or trade constraints against Australian meat imports or even other key imports like wheat, favouring competitors like the United States or Canada. But, ultimately, no one wins in a trade war and Indonesia would lose as well as Australia in such retaliatory actions.

Longer term, all the efforts of trying to convince Indonesia that trade is a better way to address food-security concerns than self-sufficiency policies (which is dependent on a strong certainty of supply through trade) has been badly if not permanently damaged by recent events in Australia. It would have been better all round if the bans had been banned, forcing more thoughtful, efficient policies to be applied.

Dr Ray Trewin is Visiting Fellow at the Crawford School of Economics and Government, Australian National University.