Clove trade's monopoly still needed, Hutomo says

Clove trade's monopoly still needed, Hutomo says

JAKARTA (JP): Clove Marketing and Buffer Stock Agency (BPPC)
chairman Hutomo Mandala Putra said yesterday that the agency's
clove trading monopoly was still needed to protect farmers'
interests.

Hutomo, President Soeharto's youngest son, said BPPC was
actually ready to hand over the trade monopoly to the
Confederation of Primary Cooperative Associations (Inkud), but
the latter was not ready yet as it was still dogged by problems
related to the mismanagement of a huge fund.

"If the clove trading rule (monopoly) is abandoned now, I'm
sure farmers' cloves to be harvested next year would not be
absorbed by the market, as BPPC already has a stock of 164,000
tons," Hutomo said at a workshop on clove trading.

By the end of this year, Hutomo said, BPPC would add another
52,000 tons to its stock, making it enough to supply the needs of
clove-blended cigarette producers until the end of 1999, assuming
that domestic clove demand remains stable at some 100,000 tons
per annum.

Meanwhile, clove production, after declining for the past two
years, would rise again in the next two years to over 100,000
tons per annum, he said.

"Since the current stock can satisfy total consumption needs
until early 2000, it means the new clove harvests of 1998 and
1999 cannot be sold out. And clove prices are most likely to
fluctuate sharply in the coming years," Hutomo said.

He suggested that the intensification and rehabilitation of
clove trees be reconsidered to achieve a balance between supply
and demand.

Last year, the government launched a massive controversial
clove conversion program to reduce the oversupply of cloves. The
program, proposed by BPPC, was met by strong opposition from
farmers.

Last August, the government decided to stop the conversion of
clove trees into other crops as cigarette makers' demand for the
spice was unexpectedly on the rise.

The government estimated that clove consumption by cigarette
producers could climb to 115,000 tons this year, up from 95,780
tons last year.

Data at BPPC shows that the agency had sold 102,000 tons of
cloves to cigarette producers in the last 11 months.

BPPC has been in the spotlight as it is now the only private
institution given a commodity trading monopoly by the government.

BPPC was granted the clove-trading monopoly in early 1991.
Since then, farmers have been obliged to sell their cloves to the
agency, through village cooperatives, and producers of clove-
blended cigarettes have had to buy their cloves from the agency.

The government set the floor price for standard-quality cloves
at Rp 8,000 (US$1.50) per kilogram.

However, farmers only receive Rp 5,000 per kilogram for the
cloves they sell to BPPC. The agency keeps the remaining Rp 2,000
as equity shares in cooperatives and transfers Rp 1,000 to a
special account for crop diversification funds.

BPPC sells the cloves to cigarette producers at a far higher
price, ranging from Rp 10,000 per kilo for small producers and Rp
12,000 for large producers.

Hutomo said the selling price of BPPC's cloves was Rp 9,600
per kilo plus certain interest rates, which made the selling
price different from time to time.

Hutomo also disagreed with the accusation that his agency held
a trading monopoly in cloves, because since 1994, it had not
purchased cloves directly from farmers, but from Inkud.

"So the criticism toward BPPC is misdirected as all clove
purchases are conducted by cooperatives. Yes, there are problems
with cooperatives, like collusion between cooperative officials
and traders," Hutomo said.

At yesterday's workshop, some clove farmers complained that
they could not sell cloves to cooperatives because their produce
was of low quality or the cooperatives had no cash on hand.

They said they were forced to sell their product to brokers at
much lower prices, mostly below Rp 3,000 a kilo.

Responding to the complaint, Hutomo said cooperatives should
have had the money in hand before clove harvests and therefore
Inkud should have directly transferred the money to village
cooperatives' accounts.

Hutomo said funds collected from farmers, Rp 2,000 a kilo, for
equity participation in their cooperatives, had reached Rp 1.1
trillion as of the end of last month, which was now being held by
Inkud.

But reports have said there was suspected embezzlement of at
least Rp 210 billion at Inkud, making it difficult to disburse
the farmers equity participation funds to each village
cooperative.

Hutomo said the problems currently dogging Inkud made it
difficult for BPPC to transfer the clove-trading monopoly to
Inkud.

"BPPC is ready to transfer the clove trade (monopoly) to
Inkud, but Inkud is still consolidating due to its current
problems. If it's forced to take responsibility, I'm afraid the
farmers would be the most affected," Hutomo said. (rid)