The cement tug of war<\/p>\n
The way the Indonesian government is currently trying to
\narrest the steep rise in cement prices will not put an end to
\nthis perennial problem. Another wave of price increases is highly
\nprobable next year as the government is simply extinguishing the
\nfire without investigating its root causes.<\/p>\n
We wonder why the government continues to see the problem as a
\nquestion of supply and demand every time cement prices increase.
\nIf there was a shortage, then a rise in prices would not be
\nconsidered unusual, but only as the normal work of market forces.
\nThe fact is that the country is hit annually with higher cement
\nprices and although it has been this way over the last few years,
\nthe government still considers the trend unusual.<\/p>\n
Instead of beating around the bush, we feel that the
\ngovernment needs to look at the problem from other perspectives.
\nIn our opinion, the government should thoroughly investigate the
\nchain of distribution that begins with the factories and finishes
\nin the hands of retailers. They also need to review the real
\nfunction of the local price references for cement and then
\nintroduce a sensible import policy.<\/p>\n
Minister of Industry Tunky Ariwibowo pointed out on Monday the
\n20 percent increase in demand as being higher than estimated,
\nthus citing it as the main reason behind the steep price
\nincrease. At a hearing with the House of Representatives on
\nTuesday, however, the cement industry association claimed that
\nthe supply from domestic producers actually increased by more
\nthan 21 percent between January and September. The association
\neven notified the government as early as last December about its
\nprogram to produce 21.3 million tons this year, or 93 percent of
\nthe total installed capacity of its members.<\/p>\n
These contradictory explanations cause us to suspect that
\nthere are other factors besides the perceived shortage that have
\npushed cement prices up.<\/p>\n
Both the government and cement producers argue that the demand
\nhas been rising by an unusually high rate during the current dry
\nseason as contractors and developers accelerate the
\nimplementation of their projects. It would be strange if the
\nministries of trade and industry, who meet annually to discuss
\ncement demand and production with producers, were not well
\napprised of the seasonal cycles in cement consumption. The demand
\ncycle could have been dealt with by better stock management.<\/p>\n
We tend to see the problem more as a tug of war between the
\ngovernment and cement producers over their differing opinions as
\nto what reasonable levels of cement prices should be. In January,
\n1993, the government raised the local price references for cement
\nby only 9.3 percent on average, as compared to the 12 percent to
\n15 percent asked for by the producers. The producers grudgingly
\naccepted the new prices because they knew that the government-set
\nprice references are merely guidelines that are not legally
\nbinding. Indeed, we have never heard of any cement producers
\nbeing fined for violating the price references.<\/p>\n
That is quite an anomaly. Over the past few weeks, the main
\ncontroversy has been over the rise of cement prices way above the
\nlocal price references. Since the price references are not
\nceiling prices and not legally binding, we don't see any point in
\ncomparing the market prices with the price references. After all,
\nas the producers acknowledged to the House, the actual retail
\nprices depend on market forces. So, what is the meaning and real
\npurpose of the price references?<\/p>\n
Instead of periodically fixing meaningless price references
\nand resorting to a contingency measure of allowing imports every
\ntime the cement price spirals, the government should pursue a
\nmore sensible, yet permanent import policy with reasonable tariff
\nrates. Opening up the market to imports with tariffs of five
\npercent, for example, will keep the domestic producers on their
\ntoes. Cement is a bulk commodity and is costly to transport.
\nForeign made cement will not automatically flood the Indonesian
\nmarket simply because of the opening of imports because sea
\nfreight costs will make the prices uncompetitive.<\/p>\n
The latest cement crisis is making it more imperative than
\never for the government to expose the industry to the market
\nforces by abolishing the mechanism of local price references. The
\nauthorities also need to open the domestic markets to imports and
\nfacilitate the smoother implementation of cement investment
\nprojects. Such a policy will prevent collusion between the
\nproducers and distributors and will provide the government, end-
\nusers and cement investors with more reliable indicators of the
\nsupply-demand equation.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-cement-tug-of-war-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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