Offal and beef demand in Indonesia and Australia's trade prospects (a case study of Makassar City)

Understanding meat demand and its characteristics are important in giving a more accurate evaluation of the factors that govern consumers’ willingness to pay for meat products, and in understanding the relationship and responsiveness between variables. Demand for meat, including beef and beef offal is continuously increasing in Indonesia, and studies in meat demand have been conducted extensively. However, most of those studies did not consider offal products. This study focuses only on the consumption of offal and beef, considering that domestic production has not met the domestic demand. In addition, some problems still appear as the beef self-sufficiency program has not yielded the maximum desired results. This study has five main purposes. Firstly, it provides up to date information about the determinants of social-demographic factors for offal and beef expenditures with probit model analysis. Secondly, it estimates the demand elasticities for offal and beef (local and imported) by using the linear approximate of almost ideal demand system (LA/AIDS) model with the inclusion of Inverse Mill Ratio (IMR). Thirdly, this study estimates the potential impact of socioeconomic and demographic factors, product attributes (quality and affordability) and market factor (availability) on the willingness to pay (WTP) for imported offal with the hedonic price model approach. Fourthly, this study examines the actual WTP for imported offal and calculates the marginal implicit price (marginal willingness to pay) by using the hedonic price model approach. Finally, this study explores Australia’s trade prospects for imported offal in Indonesia based on the LA/AIDS, WTP and descriptive analyses. Research findings show that several important factors such as age, income, ethnicity, occupation, family size and level of education significantly affect the expenditure for local and imported offal, and local and imported beef. Offal and beef are classified as necessity goods in Makassar, and consumers rely heavily on offal and beef products. This result is supported by the positive expenditure elasticity of the study, where consumer income increases the demand for local and imported offal and beef. The WTP analysis reveals that if the price of imported offal on the market increases, the willingness to pay for the product will decrease. Therefore, the availability of the products in the market should be a large focus of the Indonesian Government, including local and international firms. Maintaining the sustainability of meat products in the country, including with efficient trade policies of imported offal and beef is crucial. Australia as a major exporter of live cattle and beef products in Indonesia could gain more insight from this perspective. The research contributes to the literature of the demand and practice studies, especially in assisting producers, marketers and policy makers in developing effective supply, including the market share of offal and beef in Makassar City. The results of this study will have important implications and better understanding of beef and offal industries in Indonesia.