Indonesians want more beef. But with growing demand and limited supplies, the government has approved a 1 million hectare purchase of Australian land to keep hamburgers headed to their home country.
According to ABC News, beef prices are hitting record highs in Indonesia, and the government is ready to revise its “self-sufficiency” policy to allow for foreign-based farms. Specifically, the country hopes to breed cattle on Australian land before shipping them off to feedlots in Indonesia. Not only does this free up land in Indonesia, but it also cuts costs. Breeding is cheaper in Oz, while feeding is cheaper in Indo.
At an acreage equal to the ACT, Indonesia’s purchase is no small pudding. For Australian agriculture, this move could be both a blessing and a curse. From the information available, it seems that operations will be run by an Indonesian state-owned enterprise, knocking Australian ownership out the window.
But some corporations like Ridley (ASX: RIC) Australian Agricultural (ASX: AAC), Elders (ASX: ELD) and Primeag Australia (ASX: PAG) stand to benefit from potential product sales or contract work, or even economies of scale and technology and infrastructure spillover effects. If approved by Australian regulators, the true benefit to Australia and its companies will only emerge once Indonesia sets up shop and investors get a first-hand glimpse of just how “self-sufficient” this land will be.
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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.