'Oligopolistic distribution harms consumers'<\/p>\n
JAKARTA (JP): Indonesian consumers have to pay more than those
\nin neighboring countries do due to oligopolistic practices in the
\ncountry's distribution networks, economists said here last week.<\/p>\n
Anggito Abimanyu and Heru Nugroho from the Center for Inter-
\nUniversity Economic Studies at Yogyakarta-based Gadjah Mada
\nuniversity said Indonesian consumers were poorly protected.<\/p>\n
They acknowledged that Indonesia had a number of non-
\ngovernmental organizations specializing in consumer protection,
\nlike the Indonesian Consumer Foundation.<\/p>\n
\"But their existence is often distorted by the less-democratic
\nauthorities,\" they said in a paper at a seminar at the Center for
\nStrategic and International Studies.<\/p>\n
In the case of medical products, for instance, the state
\nagency for food and drugs control at the Ministry of Health does
\nnot have the power to effectively control industrial product
\nprices, they said.<\/p>\n
Citing his 1994 study, Anggito said that in Indonesia
\nindustrial products' prices were 33 percent more than overseas
\nprevailing market prices.<\/p>\n
A study by U.S.-ASEAN Business Council in 1995 confirmed
\nAnggito's results, showing that Indonesian consumers paid more
\nthan consumers in neighboring countries.<\/p>\n
Indonesians would pay 6 percent to 7 percent less if the
\nefficiency of Indonesia's distribution networks was the same as
\nthose in the Philippines.<\/p>\n
Anggito and Heru said distribution costs in Indonesia tended
\nto decline. However, distribution costs for certain products,
\nespecially instant noodles, shoes and electronic goods, tended to
\nincrease.<\/p>\n
They said Indonesia's distribution structure had been
\npracticing oligopoly to maintain high profit levels in the
\nproduction sector.<\/p>\n
In 1996, 159 of the country's 209 largest producers used their
\nown distribution networks to market and distribute their products
\nto wholesalers and even retailers.<\/p>\n
Meanwhile, the 10 largest trading houses controlled 82 percent
\nof total turnover of the country's trading.<\/p>\n
\"The consequence of the high concentration in the distribution
\nnetwork is that the dominant producers gain most,\" Anggito said.<\/p>\n
Anggito and Heru suggested the government do more to protect
\nconsumers and reduce the level of consumerism among Indonesians.<\/p>\n
Indonesia is the second biggest consumer country in East Asia
\nafter the Philippines, according to the World Development Report
\n1996.<\/p>\n
Indonesia's consumption expenditure was 61 percent of its
\ngross domestic product in 1994, below that of the Philippines,
\nwhich spent 71 of gross domestic product on consumption.<\/p>\n
In 1980, Indonesia spent only 52 percent of gross domestic
\nproduct on consumption.<\/p>\n
Hong Kong ranked third in consumerism with 59 percent of
\ngross domestic product on consumption, followed by Thailand with
\n55 percent, Malaysia and South Korea with 53 percent each, and
\nSingapore with 40 percent only.<\/p>\n
Data at Indonesia's Central Bureau of Statistics shows that
\nhousehold expenditure on food-related consumer goods increased by
\n5 percent per annum during the 1990-1995 period, while
\nexpenditure on non-food consumer goods rose 12 percent per annum.<\/p>\n
In 1990, 60.36 percent of Indonesian households' expenditure
\nwas on food and only 39.64 percent on non-food consumer goods. In
\n1995, they spent 56.86 percent on food and 43.48 percent on non-
\nfood consumer goods.<\/p>\n
\"There are at least two reasons for this phenomena. Firstly,
\npeople's real income is increasing. And secondly, consumer goods'
\nprices, especially of non-foods, is decreasing,\" Anggito said.<\/p>\n
Anggito and Heru agreed that the high level of domestic
\nconsumerism was the prerequisite for sustained high economic
\ngrowth.<\/p>\n
\"The improvement in the people's incomes and domestic demand
\nwill drive more economic activities, both in their variations and
\neconomies of scale,\" Anggito said.<\/p>\n
Increasing income, however, would not automatically initiate a
\ngrowing demand. Therefore, the role of advertising is
\ninstrumental in translating higher income into demand.<\/p>\n
Advertising expenditure in Indonesia has been increasing
\nsignificantly over the last five years, from Rp 1.02 trillion in
\n1992 to Rp 4.68 trillion (US$1.9 billion) last year.<\/p>\n
Television absorbed the most advertising expenditure, Rp 390
\nbillion in 1992 and Rp 2.35 trillion in 1996, followed by
\nnewspapers with Rp 337 billion in 1992 and Rp 1.53 trillion in
\n1996. The rest went on magazines, radios, cinemas and billboards.<\/p>\n
However, if such a high level of consumerism is not well
\ncontrolled and not balanced by output, it could force high
\ninflation and create a current account deficit trap.<\/p>\n
To reduce excessive consumerism, especially at middle and
\nupper class level, the government should impose higher taxes on
\nluxury goods, Anggito and Heru suggested.<\/p>\n
They also said the government should strengthen and optimize
\nthe roles of the existing agencies and non-government
\norganizations in protecting consumers.<\/p>\n
If necessary, the government could form institutions to
\ncontrol consumerism and encourage more saving, they added. (rid)<\/p>",
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