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)