Indonesia is considering buying Australian cattle estates to secure meat supplies and to promote ranching skills, mirroring moves by other big emerging economies such as China to invest overseas in agricultural land and food processing.
The planned investment, which is at an early stage and would require approval by Canberra, could improve ties between the neighbours after a damaging trade spat led to a suspension of live cattle sales and the imposition of severe beef quotas.
The troubled beef trade could be discussed when Australian Prime Minister Kevin Rudd visits Jakarta on Thursday for talks with Indonesian President Susilo Bambang Yudhoyono.
Australia halted live cattle exports in 2011 after the airing of footage showing harsh treatment of animals. The ban was lifted, but Jakarta then imposed restrictions on Australian beef and cattle imports in a bid to become self-sufficient.
The policies have hurt both sides with shortages and higher prices in Indonesia, while Australia's northern cattle industry has been in crisis, with weak meat prices and plunging land values further hampered by a drought last summer. Better trade ties could boost the cattle and beef trade in Australia, the world's No.3 beef exporter.
"We are planning to buy cattle farms in Australia," said Indonesia's state-owned enterprises minister Dahlan Iskan, adding that not only would this boost supply but also help Indonesian companies learn how to develop local ranches.
A consortium of state-owned firms, including Perum Bulog, PT Rajawali Nusantara Indonesia (RNI), and PT Berdikari, were looking to invest in Australia, he said, adding that Indonesia hoped to feel out Australia on the issue.
Australian farmers are frustrated over the beef standoff with Southeast Asia's biggest economy.
"It's a crazy situation," fourth generation north Queensland cattle farmer Russell Lethbridge told Reuters.
"Indonesia has a population of around 220 million people. They are hungry, they want the protein. We've got the cattle down here ready to go, but the show is right off the rails."
Supply Food to Asia
Australia, which has ambitious plans to boost its food exports to Asia to feed the swelling ranks of the middle class, exported around 750,000 head of cattle a year to Indonesia before the month-long ban on live exports. But for the past two years quotas have pushed exports down to around 250,000 head.
Sutarto Alimoeso, chief executive of Indonesia's Bulog, is leading the push into Australia, although he said the state procurement agency had not yet discussed specific acquisitions.
"We really need to have cattle farms in Australia so that we can supply the beef demand in Indonesia as our demand is expected to rise significantly over the next few years, while our ability to provide it domestically is insufficient."
State-run trading firm, RNI, said the firms involved were preparing a feasibility study to give to the Indonesian government by July 20.
Attempts by foreigners to buy agricultural land or assets in top food producers like Australia and the United States are sometimes politically sensitive.
Chinese firm Shuanghui International's plan to buy top U.S. pork producer and processor Smithfield Foods Inc has faced questions from U.S. politicians over whether the proposed $4.7 billion sale posed a threat to U.S. food supply.
China Invests in Australian Sugar
Indonesia's plans could also face hurdles in Australia.
Investments by state-owned enterprises face particular scrutiny by the Foreign Investment Review Board (FIRB), which decides whether they are in Australia's national interest.
The board might seek guarantees that the investment was on commercial grounds, and that beef produced would be available to global markets rather than restricted to Indonesian customers.
However, Australian industry bodies and state governments back new investment in agriculture.
Western Australian Premier Colin Barnett is keen to develop his state's far north and last year approved plans for China's Zhongfu Group to invest up to A$700 million ($641 million) to build a sugar industry in the East Kimberly Ord river region.
Barnett said he was getting a clear message from Asian countries that they were worried about food security.
"There's growing interest in accessing more agricultural produce from here."
Luke Bowen of the Northern Territory Cattlemen's Association welcomed Indonesian interest in the industry.
"I think it shows Indonesian acknowledgement of the comparative advantage that Northern Australia has in breeding cattle and the Indonesian's comparative advantage in fattening and finishing cattle for slaughter," he said.
Drought-hit Australian farmers have a stockpile of more than one million cattle in northern Australian stations and are keen for more immediate relief. Some have proposed the Australian government should buy cattle before they starve and offer the beef to Indonesia as food aid.
"We have untold thousands of cattle with nowhere to go, and no grass," said cattle grazier Barry Hughes. ($1 = 1.0913 Australian dollars)
