Clove conversion project to cost $174m

JAKARTA (JP): The conversion of clove plantations into food crops will require at least Rp 400 billion (US$173.9 million) from the farmers' compulsory savings scheme, an official says.

Jaya Putra, the director for cooperative supervision at the ministry of cooperatives and small enterprises, said the conversion project was originally expected to be financed by special conversion funds collected from farmers.

But since the collection of conversion funds only started this year, while crop diversification has become increasingly urgent for propping up declining clove prices, it has been decided that the conversion program should be financed by farmers' compulsory savings, Jaya said.

He was quoted by Antara as saying that the compulsory savings would be used for bridging loan finance. He did not elaborate.

The clove trade in Indonesia is currently controlled by the Clove Marketing and Buffer-stocking Agency which is chaired by Hutomo Mandala Putra, who is also the chairman of the widely- diversified Humpuss group.

From 1992 until early this year, the government had required the agency to pay cooperatives Rp 7,900 for a kilogram of standard cloves, which have a 10 percent water content and a 3 percent dirt content.

From the Rp 7,000, the farmers received Rp 4,000, Rp 1,900 went to the agency for the farmers' compulsory savings scheme and Rp 2,000 went to buy compulsory equity shares in farmers' village cooperatives.

Part of the funds collected under the compulsory savings scheme were returned to farmers in 1994.

In April this year, however, the regulation was revised through Presidential Instruction No. 4/1996, which abolished the farmers' compulsory savings scheme and introduced conversion funds in an attempt to prop up falling clove prices.

The new ruling fixed prices at Rp 8,000 a kilogram for standard cloves. The farmers received Rp 5,000 for each kilogram that they sold to their village cooperatives, the village cooperatives contributed Rp 2,000 to the National Federation of Village Cooperatives and the agency retained Rp 1,000 for "conversion funds".

There is a 20,000 ton a year oversupply of cloves in Indonesia.

The conversion project is expected to cut back the total area of clove plantations by 220,000 hectares, from 520,000 hectares to 300,000 hectares.

According to earlier reports, the agency holds up to 350,000 tons of clove stocks, which equals three years domestic consumption, mainly by the cigarette industry. (pwn)