Axing Bulog monopolies deals blow to food industry

Axing Bulog monopolies deals blow to food industry

JAKARTA (JP): The elimination of the State Logistics Agency's
(Bulog) monopoly in the import and distribution of wheat, wheat
flour and sugar would be a big blow to food companies, analysts
said yesterday.

They said the scrapping of Bulog's monopoly in the commodities
beginning next month would push up prices according to market
mechanisms.

"The increase in the price of the commodities will certainly
jack up the production costs of most food companies," he said.

"Food-related companies, however, cannot make the same move
because raising prices will be too risky for them," he said.

The government scrapped Bulog's monopoly in the import and
trade of several important foods as part of reform measures
announced by President Soeharto last week.

"With the new measure, Bulog will no longer operate as a
buffer stock agency to stabilize prices. The elimination of its
monopolies will therefore result in a sharp increase in prices,"
Christina Lim of Harita Securities said.

Companies such as Mayora Indah, a publicly listed producer of
crackers, cookies and candy, would certainly be hurt by the
economic reforms, she said.

Christina said the reforms would also bite into earnings of
other food-related companies, such as Ultra Jaya, Siantar Top,
Suba Indah and noodlemaker PT Indofood Sukses Makmur.

Edi Widjojo, an analyst from Mashill Jaya Securities, said the
increase in the price of sugar and wheat was inevitable, but
food-related companies could not directly pass on the price
increase to consumers.

"They have to absorb some of the increase, which will cause
their profit margin to decline," he said.

He said the sharp drop in economic activities would slow down
demand. "Raising prices will certainly be difficult for them,
because with higher prices, they will lose buyers."

The government estimated that the major cutback program, the
austere budget and the economic slowdown, due to the impact of
the sharp drop in the rupiah against the U.S. dollar, would
result in zero growth in the country's gross domestic product,
with inflation soaring to about 20 percent.

"With inflation seen at such a high rate combined with zero
economic growth, no one expects public consumption to be normal
or increase," Syahrial of Pentasena Securities said.

"Companies in all industries will have to face poor earning
performances, except for resource-based companies with dollar
earnings," Syahrial said.

Satellite operator Indosat, state tin mining company PT
Tambang Timah, Davomas Abadi and Fiskar Agung are predicted to
have better earnings this and next year because they generate
their revenue in dollars while production costs are in rupiah.

"Only companies in this category will be able to survive and
make profits," Syahrial said.

Pentasena Securities said previously there were only 22 of 282
companies listed on the Jakarta Stock Exchange which were
financially viable with sufficient cash, while the remaining 160
had technically gone bankrupt. (aly)