What about monopoly on clove trading?<\/p>\n
The government has abolished monopolies in some commodities
\nbut maintained a private agency's monopoly in clove trading.
\nEconomist Kwik Kian Gie discusses the costs and benefits of the
\nclove monopoly.<\/p>\n
JAKARTA (JP): The International Monetary Fund's (IMF) reform
\npackage for Indonesia, which includes measures on finance, fiscal
\naffairs and trading, has scrapped the monopolistic practices of
\nthe National Logistic Agency (Bulog) but failed to address the
\nmonopoly in clove trading.<\/p>\n
The package is more concerned with the kinds of commodities,
\nnot the holders of the monopolies, because only monopolies in
\nwheat flour, soybean and garlic have been scrapped from Bulog,
\nwhile its monopolies in sugar and rice have been maintained.<\/p>\n
Clove trading is now monopolized by the Agency for Clove
\nBufferstocking and Trading (BPPC), a private organization
\nestablished to carry out clove trade set within government
\ndecrees.<\/p>\n
But it is questionable whether clove should be regarded as
\nbeing as vital as sugar and rice, such that the government
\nconsiders it necessary to maintain its monopoly, or whether clove
\nis more important than wheat flour, soybean and garlic, or edible
\noil.<\/p>\n
Perhaps the IMF suggested the scrapping of Bulog's monopolies
\nbecause it is a government agency so bearing in mind that a
\nmonopoly by the government means etatism, an ideology which is
\npopular in Indonesia but a taboo for the United States.<\/p>\n
BPPC's monopoly in clove trading is contradictory to economic
\nprinciples because it is based on assignment from the government.<\/p>\n
Privatization should be based on self-regulation by all
\nrelated private parties -- including producers and consumers of
\nclove -- without involving a third party, like BPPC, which has no
\nbusiness in production and consumption.<\/p>\n
What are the benefits of BPPC, which aims to help stabilize
\nthe revenues of clove farmers by fixing prices and controlling
\nthe volume of production?<\/p>\n
Market mechanism of clove trading has been eliminated. Why?
\nBecause a free market mechanism could harm clove farmers. Clove
\nprices are very elastic -- prices usually fall very sharply when
\nproduction is abundant and soar when supplies are scarce, causing
\nfarmers' revenues to fluctuate wildly.<\/p>\n
The number of clove trees in Indonesia once had a total output
\ncapacity far exceeding demands. If there had been no coordinated
\nreduction of the trees, farmers would have suffered. BPPC,
\ntherefore, was given a monopolistic authority in everything.<\/p>\n
Under the arrangement, big producers of clove-blended
\ncigarettes, for example, are required to buy clove from BPPC at
\nRp 12,000 (US$3.47) per kg and smaller producers at Rp 10,000.
\nFarmers are only allowed to sell their clove at Rp 5,000 a kg to
\nvillage cooperatives, which will also give them Rp 2,000 a kg in
\ninvestment capital for trade regulations and another Rp 1,000 in
\nthe fund for the conversion of plantation areas from clove to
\nother crops. The remainder of the funds are used for various
\npurposes, such as procurement costs of Rp 125 for the
\ncooperatives, processing costs of Rp 150, packaging costs of Rp
\n60, procurement costs of Rp 75 for the association of village
\ncooperatives, warehousing costs of Rp 70, surveying costs of Rp
\n30, bufferstocking costs of Rp 50, insurance costs of Rp 150,
\ndepreciation costs of 3 percent, operational costs of Rp 500,
\ncosts for banking interest -- depending on developments --
\noperational costs of Rp 25 for the National Clove Body, a
\ncontribution of Rp 150 for clove tree diversification and costs
\nfor clove transportation to cigarette producers.<\/p>\n
Farmers complain that they cannot sell their clove to
\ncooperatives because their produce is of low quality, or the
\ncooperatives have no cash to pay. The farmers are forced to sell
\ntheir products to brokers, who will not give them investment
\ncapital for trade regulations and funds for the conversion of
\ntheir plantation areas. Where have such funds gone to?<\/p>\n
Because the difference between the total money received by
\nfarmers and the prices paid by cigarette producers is so large,
\nthe government should have BPPC audited.<\/p>\n
Based on rough calculations on the total sales of 100,000 tons
\nof clove per annum, cigarette producers will have to spend no
\nless than Rp 1.18 trillion (at Rp 11,800 per kg), while farmers
\nreceive only Rp 350 billion (at Rp 3,500 per kg), leaving the
\ndifference to reach up to Rp 850 billion.<\/p>\n
Now that the farmers' revenues are declining, many of them
\nhave let their trees go untended or replaced them with other
\ncrops, causing the country's clove production capacity to
\nsteadily decline.<\/p>\n
As Indonesia's clove consumption is put at 90,000 tons a year,
\nfar higher than current production capacity, the country might
\nhave to import clove in the future and the IMF should support the
\nabolition of the clove monopoly, allowing clove trading to follow
\nthe market mechanism. To protect the interest of farmers, a floor
\nprice -- of Rp 4,000 a kilogram, for example -- should be set.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/what-about-monopoly-on-clove-trading-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}