A government policy to impose import duties on raw materials may push fertilizer prices up and consequently food prices as well, an industry executive warned on Wednesday.
On Dec. 22 the Finance Ministry began imposing an average 5 percent import duty on capital goods, where previously there was none. The duty is applicable to, among others, phosphorus and potassium, two of the main ingredients in fertilizers.
Johan Unggul, chairman of the Indonesian Fertilizer Trade Association (ANPI), said the new import duty has forced fertilizer manufacturers to raise their prices by 5 percent.
“We have contracts with buyers that say we have to pay a 10 percent penalty if we are late in delivering the raw materials. It’s either that or pay the (5 percent) import duty,” Johan said.
He said higher fertilizer prices would force many farmers to cut down on their usage. “This could reduce the amount of crops they produce, hurting food sustainability levels.”
Johan said the higher price of fertilizer might push food prices up by 20 percent in the next three months when harvests yield lower than expected results.
“Every rupiah a farmer invests in fertilizer could yield five times the amount in profit from their crops,” he said.
Ratna Sari Loppies, executive director at the Indonesian Association of Flour Manufacturers (Aptindo), said the price of flour could increase by 5 percent as wheat was among the goods hit by the new import duty, but producers were still maintaining their prices at the moment.
Ratna said flour manufacturers could increase prices gradually but she was worried that an increase could trigger social unrest.
“As much as 70 percent of the 3 million tons in local flour supplies go to small and medium businesses. An increase in the price of flour would trigger an increase in the price of many staple products such as noodles and bread,” she said.
Higher wheat prices would also push up the price of feedstock, which absorbs 20 percent of the flour supply, she said.
Food prices have risen sharply since December and economists have warned that headline inflation would translate into core inflation if the central bank did not act urgently. President Susilo Bambang Yudhoyono has made tackling inflation a priority since it could slow down the country’s robust economy.
Suryo Bambang Sulisto, head of the Indonesia Chamber of Commerce, asked the government to scrap the import duty as it may prompt a higher inflation rate.
“We have asked them to revoke the policy and compensate those affected for their loss,” he said.
Industry Minister M.S. Hidayat said the government was discussing the new duty and its effects. “There’s a good chance that we will (revoke it),” he said.