Beef cattle industry 2011

related to agricultural businesses. These type of business are found in less fertile and less water areas, high temperatures and sparsely populated like Sulawesi and East Nusa Tenggara. The third one is capital-intensive and large scale business development, but limited just to the calves rearing or better known as feedlotters. The type of cattles that was developed for the national cattle industry are Bali bull, Peranakan Ongole (PO), Aceh, Sumba Ongole (SO), Madura, and Coastal Cattle. Bali cattle are scattered in almost all provinces in Indonesia, however, there are 11 provinces that have potency as a source of it’s seeds with an average population over 90,000 heads and the population growth of 2.8 to 5.9%. Province with a highest population of Bali cattle are South Sulawesi, Bali, East Nusa Tenggara, West Nusa Tenggara, South Sumatra, North Sulawesi, Gorontalo, South Kalimantan, Central Sulawesi, West Sulawesi and Lampung. PO cattle is found

The production volume of beef cattle in Indonesia is still far to meet the consumers needs. The Improvement of living standards and society economic levels, has increased the demand for meat. This is certainly an opportunity for beef cattle fattening business in Indonesia. On the other hand, the government through the Directorate General of Livestock Services has launched the Self-Sufficiency Program in 2014, in an attempt to overcome the level of local production. Based on the data of livestock type production, beef cattle contribution was about 16-19% of overall meat production in the country. Beef cattle is the second largest source of meat after the broiler. Indonesia has three types of beef cattle farms. First, the beef cattle business which can not be separated from the mainly agricultural fields which can be found in Java, Sumatra and Kalimantan. Second, the development of beef cattle that is not

in eight provinces that have potential with a population of 75-778 thousand heads and a population growth of 2.8 to 6.5%. The rearing of this species can be found in East Java, Central Java and Lampung. The other breeds of cattle are Aceh from NAD, Coastal cattle in West Sumatra, Madura Cattle from Madura Island, Sumba Ongole (SO) in Sumba, East Nusa Tenggara Province. Accordingly with the high cattle population in East Java and Central Java, the number of beef cattle industry in these two province is the largest in Indonesia, respectively 28% and 11%. For the outside of Java island, the highest number of this industry is located in South Sulawesi (8%), followed by East Nusa Tenggara (7%) and Bali (4%). Beef production in 2009 was recorded at 409,308 tons. Beef production in Indonesia is not evenly spread in all provinces in Indonesia. Beef production centers in Indonesia is located in East Java, West Java, Central Java, Jakarta and South Sulawesi. Government policies that support the development of beef cattle farms nationwide described through various regulations that directly and indirectly related with beef cattle agribusiness, including investment and farm layout, business license and fees, production and quality control, as well as business financing which is provided in the Cattle Breeding Business Credit scheme

Over view “”Based on the data of

livestock type production, beef cattle contribution was about 16-19% of overall meat

production in the country. Beef cattle is

the second largest source of meat after

the broiler.”

Beef Cattle Industry at a glance

Inside this issue:

Overview 1

Economic View of Beef Cattle

2

Bali - Nusa Tenggara as Economic Corridor for Beef Cattle

3

Policies and Regula-tion

4

Statistics 5

Investment Guide 7

2 0 1 1 Agribusiness Update

Page 2 Beef Cattle Industry at a glance

To find whether an area can be developed for livestock business, especially beef cattle farm, it would require analysis for it’s business carrying capacity. Some factors which colerated with cattle business are marketing, production infrastructure and business management. When all of carrying capacity is evaluated whether it is feasible or not, then the investment fund can be given. Factors that determine beef cattle farm is the cost of feed. This is because of feed cost is the largest component of overall production costs.

Cattle breeding performed by the Government is implemented through the Technical Implementation Unit (Unit Pelaksana Teknis/UPT). Seed production is being organized by three UPT, namely Livestock Embryo Center (Balai Embrio Ternak/BET) in Cipelang, Center for Artificial Insemination (Balai Besar Inseminasi Buatan/BBIB) in Singosari, and Artificial Insemination Center (Balai Inseminasi Buatan/BIB) in Lembang, which is supported by several local BIB. Currently there are fourteen local BIB, which is located in West Sumatra, Central Java, Bali, North Sumatra, Jambi, South Sumatra, Bengkulu, Lampung, Yogyakarta, South Kalimantan, West Nusa Tenggara, South Sulawesi, Southeast Sulawesi and East Kalimantan. Cattle breading can also performed by private nurseries by nursery companies. Any nursery companies should have principle approval, business licenses and permit of livestock expansion. The nursery company also should have more than 100 heads of beef cattle, the business does not conflict with local RUTR / RDTR regulation to avoid social conflicts in the future, and able to carry its operations in accordance with Good breeding Practices (GBP).

Investment Scheme

Beef cattle fattening business outline can be divided into small-scale or households business (£ 100 heads), medium scale (100-500 heads) and large-scale (>500 heads). The example of financial analysis calculation is carried out for medium-scale cattle fattening, which has population of 400 heads. The business implementation is performed by purchasing 100 heads each month. It require 115 days for feedlot and 5 days for adaptation per each fattening period,

Beef production in Indonesia, including from imported feeder cattle which is fattened in Indonesia in 2009 was recorded at 409,308 tons. Beef production in Indonesia is not evenly spread in all provinces. Beef production centers in Indonesia are located in East Java, West Java, Central Java, Jakarta and South Sulawesi. The spread of beef production is influenced by the consumer location, usually in big cities with better slaughter house facilities (RPH). However, since 2007 up to 2009, the growth of local meat production supply is lower than the consumption rate. This deficiencies are met by importing meat from abroad, mainly from Australia and New Zealand.

so in total it would take 120 days. Death or mortality rate at 1 percent. The number of workers is adjusted to the needs of technical management during fattening process. The feed contain 6 kg of concentrate and 25 kg of forage for each cattle per day, with tis feeding rate, the increase rate of cattle body weight would achieve 1.1 kg per day. This enterprise development requires a total investment cost for about Rp 1 billion for facilities and Rp 2.35 billion to purchase the cattle. The monthly working capital needed is about Rp 182.54 million per month. This effort is assumed by 100% self funding.

The analysis results of overall project shows that the investments can be refunded within 40.12 months and created net present value (NPV) of Rp 321.36 million, equivalent to internal rate of return (IRR) of 17.90%. The project will catch break even point after the selling of 5.430 cattles. With the assumption of interest rates at 14.00%, it can be concluded that the project is quite feasible to be implemented.

Some things should be considered for beef cattle fattening business is as follows:

The consumption rate of beef has a tendency to increase, while production, so far can not be able to meet domestic consumption needs.

Government's policy towards the import of beef and calfes should be concidered, as this would have implications for the national beef cattle fattening business.

The development of cattle and beef prices are likely to increase in accordance with the increase of community income, this show that beef cattle business still has good prospects.

This good prospects should also be supported by the availability of forege for the cattle feed.

Economic View o f Bee f Ca ttle

“With the assumption

of interest rates at

14.00%, it can be

concluded that the

project is quite

feasible to be

implemented.”

Page 3 Agribusiness Update

The main economic activities of animal husbandry contribute approximately 16 percent to the GDP of the food and agriculture sector for the Bali - Nusa Tenggara Economic Corridor. Most of the cattle population in this corridor is consumed locally, only a small amount is marketed to other provinces.

The type of animal husbandry with the most potential for development in the Bali – Nusa Tenggara Economic Corridor is beef cattle. Cattle can be developed to produce seven types of “gold”, i.e. red gold (meat), white gold (milk), white bullion gold (bone), yellow gold (urine), brown gold (skin), blue gold and green gold (manure). Cow urine can be used as organic fertilizer, while its feces can be used as green manure and biogas energy.

The growth of cattle population in West Nusa Tenggara rose rapidly from 2009 until 2010 but did not grow rapidly in Bali and East Nusa Tenggara. In contrary, production growth in Bali and West Nusa Tenggara decreased in 2008, with West Nusa Tenggara experiencing a steep decline. This production decline is due to the rampant slaughter of productive female cattle, cattle smuggling, as well

as reduction in the seed quality for animal husbandry. The biggest challenges in the development of farm activities include the limited infrastructure that can support the distribution of cattle products, lack of venture capital and weak human resources and animal husbandry institutions.

Currently, there are purification and breeding centers in each province, which are generally managed on an individual basis. With the high number of house holds involved in animal husbandry activities, development is expected to be able to support the acceleration of economic development in the Bali-Nusa Tenggara Economic Corridor in the future.

Connectivity (Infrastructure)

Infrastructure must improve connectivity to support animal husbandry

production, which can be accomplished through:

Provision of infrastructure to support farming activities through Public Private Partnership (PPP);

Strengthen roads to transport farm products from the center of the meat and non-meat processing industry for distribution to the nearest local port;

Strengthen local ports to increase

distribution of cattle products to other regions, particularly to Jakarta and Surabaya. The Marapokot seaport in the Nagekeo Regency will be developed to distribute animal husbandry and fishery products;

Strengthen the Mbai Airport (also known as Surabaya Airport II) to allow it to transport animal husbandry and fishery products;

Construct new power plants to increase the availability of electricity, especially for the region of Nusa Tenggara;

Provision of clean water to ensure the availability during the dry season in Nusa Tenggara.

The main economic activities for animal husbandry development in the Bali – Nusa Tenggara Corridor will be focused on the development of agri-business activities with beef processing (animal food industry) as the main industrial activity, and supporting industries such as bone flour, leather, organic fertilizer, and biogas industries. Animal husbandry products are not only consumed locally, but also distributed to consumers in other regions.

Ba l i—Nusa Tenggara as Economic Corr idor for Bee f Ca ttle


produce 4F (Food, Feed, Fertilizer & Fuel);

Provide spatial security for farm land and livestock grazing land;

Facilitate financing access for farmers by strengthening the savings and loan cooperatives;

Apply strict sanctions to those who have been caught slaughtering of productive female cattle.

Facilities and Incentives For investors, there are several facilities and incentives that can be granted to investors pursuant to prevailing laws and regulations, as defines below: 1. According to Law Number 25 of 2007

regarding Investment, facilities that be given may be in form of : Income tax reduction up to certain

level of investment made within certain period;

In order to implement the development strategy of the main economic activities for animal husbandry, regulatory and policy support required are as follows:

Increase downstream industries by increasing the value-added activities, such as diversifying products that utilize the skin, bone, blood, faeces, and urine through the strengthening of small industries;

Provide protection of animal husbandry enterprises with policy intended to gradually reduce imports of meat and introduce meat price control policies;

Provide ASUH (Safe, Healthy, Intact, and Halal) quality me at;

Develop policy on sustainable rice-livestock integrated system by optimizing the principles of Low External Input Sustainable Agriculture (LEISA) and zero waste approaches that

Import duty holiday or reduction for imported capital goods, machinery, or equipment domesticaly unavailable for production;

Import duty holiday or reduction for raw materials or support materials for production within certain period and with certain condition;

Value added tax holiday or postponement for imported capital goods or machinery or equipment domestically unavailable for production within certain period;

Accelerated depreciatiton or amortization; and

Property tax reduction, especially for certain business sectors in certain region or area or zone.

2. According to Regulation of the

Minister of Finance No. 176/PMK.011/2009, there is an exemption from import duty on capital goods and raw materials for production for 2 (two) years that can be granted to a new company.

3. According to Government Regulation

of the Republic Indonesia number 52 of 2011 concerning second amandement to the government regulation number 1 of 2007 concerning income tax facility for investment in certain business fields and/or certain regions, the income tax facilities that can be given may be in form of : net income reduction by 30%

(thirty percent) of total investments, are charged for 6 (six) years each at 5% (five percent) per year;

depreciation and amortization; the imposition of income tax on

devidends paid to foreign tax subject to 10% (ten percent) or a lower rate according to the Avoidance of Double Taxation Agreement taht prevail; and

compensation for losses for more than 5 (five) years but not more than 10 (ten) years.

Po l ic ies and Regu la tion


Sta tis tics

East Java28%

Central Java12%

South Sulawesi

6%Aceh

5%

Bali, East Nusa

Tenggara, West Nusa Tenggara

14%

Others35%

Cow Population by Province (thousand heads), 2010

The highest population of cow in 2010 is in East Java. It is around 3816 thousand heads, continued by Central Java with 1616 thousand heads. Bali, East Nusa Tenggara, and West Nusa Tenggara is another provinces with high population of cow. It is about 1965 thousand heads. Total population of cow in Indonesia in 2010 is 13633 thousand heads.

3458,9

1525,3729,1 670

1845,9

4530,83816,2

1616,8773,7 701,7

1965,8

4758,9

East Java Central Java South Sulawesi Aceh Bali, East Nusa Tenggara, West Nusa Tenggara

Others

Cow Population by Province (thousand heads), 2009-2010

2009 2010

409308

435299

Tahun 2009

Tahun 2010

Meat Cow Production (ton), 2009-2010

Source: Statistics Indonesia, 2011




Province 2007 2009 2010 2011

Project Investment

Thousand US$ Project

Investment Thousand US$

Project Investment

Thousand US$ Project

Investment Thousand US$

Sumatera 1 2933 - - 2 0 3 6758,3

Java - - - - 1 0 - -

Bali and Nusa Tenggara - - 1 180 - - - -

Total 1 2933 1 180 3 0 3 6758,3

Investment Realization for Livestock Cattle and Buffalo (KBLI 0141) by Foreign Direct Investment, 2007-2011 (source: BKPM, 2011)

Province 2006 2010 2011

Project Investment Million Rp



Sumatera - - 1 - 3 8096

Jawa - - 1 - 2 300

Bali and Nusa Tenggara - - 1 - 1 0

Kalimantan 0 26593,7 - - - 26593,7

Papua - - - - 1 72962,4

Total 0 26593,7 3 - 215904

Investment Realization for Livestock Cattle and Buffalo (KBLI 0141) by Domestic Direct Investment, 2006-2011 (source: BKPM, 2011)

“The data above are for

livestock cattle and

buffalo sector (KBLI

0141). This sector

include: nursery and

farming for ox, cow, and

buffalo; milk production

of dairy cattle, and ox;

and production of

bovine sperm.”


In ves tment Gu ide

Permit License Mechanism Attachments required to be submitted with applications : 1. Letter of recommendation from the

related country or letter which is issued by the Embassy/ Representative Office of the related country in Indonesia if the applicant is The Government of another country;

2. Copy of valid passport if the applicant is a foreign individual;

3. Copy of Articles of Association of the company in English or its translations in Bahasa from sworn translator if the applicant is a foreign company;

4. Copy of valid Identity Card (KTP) if the applicant is an Indonesian individual;

5. Copy of Articles of Establishment of the company and any amendment (s) and approval from the Minister of Law and Human Rights if the applicant is incorporated under the law of Republic of Indonesia;

6. Copy of Tax Registration Code Number (NPWP) for the applicant, either for Indonesian individual or

company which is incorporated under the law of the Republic of Indonesia;

7. This application should be properly and duly signed with sufficient stamp duty by all applicants (if the company is not yet incorporated) or by the company's Board of Directors (if the company is already incorporated) attached with Power of Attorney with sufficient stamp duty from whom signs and/or submits the application if the applicant is represented by another party (provisions concerning the Power of Attorney is strictly regulated in this regulation (article 63).

One Stop Shop Based on Presidential Decree 27/2009 and as part of its 100-day program, BKPM is implementing a one-stop-shop system (PTSP), to cut bureaucratic redtape and allow investors to process business licenses faster. Its goal is to streamline and consolidate the number of steps and places an investor must go for business permit issuances.

The program requires the consent of some 16 ministries relevant to the investment approval process, to delegate its authority to BKPM in granting licensing and non-licensing services. As of February 5, 2009, all relevant ministries have signed off on the various decrees necessary, and BKPM is moving forward with the implementation process at both the central and regional level. National Single Window for Investment (NSWI) In order to facilitate PTSP even further, the National Single Window for Investment (NSWi) was created. NSWi is an electronic platform for investments that enables investors to apply for license and non-license services online. The ability to fully automate the investment license process would significantly enhance the efficiency of licensing services. The system was first launched in January 2010 in the Free Trade Zone and Free Port of Batam.

Contact Us: Directorate of Planning for Agribusiness and Other Natural Resources Deputy of Investment Planning Jalan Jendral Gatot Subroto No. 44 Jakarta 12190

Phone: +62 21 522 5837 Fax: +62 21 522 5837 E-mail: [email protected] Website: www.bkpm.go.id

Small Business & Entrepreneurship

Beef cattle industry 2011