Clove monopoly fails<\/p>\n
There was nothing really surprising about the fact that the
\nseminar held by the Saraswati foundation on Tuesday came to the
\nconclusion that the 58-month old semi-private monopoly, the Clove
\nStock Management Company (BPPC), has failed to accomplish its
\nmission of ensuring better earnings for farmers.<\/p>\n
In fact, the monopoly was doomed to failure from the outset
\nbecause it was assigned to do something which runs counter to the
\nmarket forces and to carry out a mission, which is not only
\nirrelevant for a private institution, but which even most
\ninternational commodity pacts have failed to accomplish.<\/p>\n
Nonetheless, the views of the seminar's panel of economists
\ncan serve as a well-meaning reminder to the government that it
\nmust cope with the negative repercussions of the monopoly's
\noperations.<\/p>\n
Besides failing to accomplish its task, the monopoly has had a
\ndamaging impact which may continue to affect the clove industry
\nand village cooperatives for years to come.<\/p>\n
Evidence of this damage can be found in the sharp
\ndeterioration in the farmers' trust in their village cooperatives
\nat a time when the government is launching a drive to encourage
\nthe farmers to join the cooperatives, which are considered one of
\nthe mainstays of the economy. Many clove growers have been
\ndeclared administratively unqualified to withdraw the compulsory
\nsavings of Rp 1,900 for every kilogram of cloves they sold. They
\nfeel they have been cheated by their cooperatives, which
\ncollected the funds, because the administrative requirements for
\nthe withdrawal of their savings were not announced until two
\nyears after the collection of the savings started.<\/p>\n
Minister of Cooperatives and Small Enterprises Subiakto
\nTjakrawerdaya recently acknowledged that only 24 percent of the
\nRp 157.7 billion in compulsory savings collected in 1992 could be
\nreturned to the farmers because many farmers could not meet
\nthe requirements for reimbursement. The remainder has been
\nregistered as the assets of cooperatives.<\/p>\n
The monopoly also has made things much more difficult for
\nclove-cigarette companies because they are now subject to several
\neconomically unsensible rulings issued by the government to help
\nthe monopoly to sell its stocks. Regulations, such as those which
\nset the minimum clove content of every clove blended cigarette,
\nand the ones which link purchases of cigarette duty bands from
\nthe government with clove procurement invoices from the monopoly,
\nhave been hurting small and medium-scale companies.<\/p>\n
Given the failure of the monopoly, it is perhaps high time for
\nthe government to review the function of the Clove Stock
\nManagement Company (BPPC). However, it is clearly not viable to
\noutright free clove trading because the farmers could fall victim
\nto oligopsony once again because the four largest cigarette
\ncompanies alone account for more than 90 percent of the domestic
\nclove demand.<\/p>\n
We suggest a partially open market mechanism whereby cigarette
\ncompanies are free to buy directly from village cooperatives at
\nthe government-mandated floor prices, with the Federation of
\nVillage Cooperatives acting as the buffer-stock manager to defend
\nthose prices.<\/p>\n
We reckon the federation and its member cooperatives have
\naccumulated the equivalent of hundreds of millions of dollars in
\nthe forms of savings and equity funds from the farmers over the
\npast four years. Those funds can be used to finance its market
\noperations: Buying cloves at a time when the prices tend to fall
\nbelow the floor prices and sell stocks in case of supply
\nshortage.<\/p>\n
Such an arrangement will be much better for the cigarette
\ncompanies, compared to the tight restrictions they are facing
\nunder the present system of monopoly. That scheme also will
\nenable the farmers to gain a greater portion of the final price
\nof the spice. At present BPPC sells cloves to cigarette companies
\nat more than Rp 10,000 per kilogram, much higher than the actual
\naverage price of Rp 2,825 the farmers got last year.<\/p>\n
Of most importance, however, is that the floor producer price
\nshould be set in such a way so as to discourage imports and
\nsmuggling. We think cigarette companies have probably learned a
\nlesson and that this should discourage them from engaging in any
\nkind of oligopsony in the future.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/clove-monopoly-fails-1447893297",
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