Crop exporters unable to profit on weak rupiah due to low output, demand

Crop exporters unable to profit on weak rupiah due to low output, demand

Zakki P. Hakim and Andi Hajramuni, Jakarta/Makassar

Palm oil, cacao and coffee producers, who normally make
handsome profits from exports when the rupiah is weak, likely
will not gain much from this current fall of the currency due to
various factors, including the drop in demand and output.

The price of crude palm oil (CPO) is now on a declining trend,
while coffee and cocoa producers' bottom line will not be
affected much by the rising prices of their commodities due to
mediocre harvests.

CPO, cocoa and coffee are Indonesia's main agricultural export
commodities, in addition to rubber.

Indonesia is the second largest CPO producer after Malaysia
with a total output of 9.9 million tons last year. The nation is
also the world's second largest producer of cocoa after Ghana
with a total output of 400,000 tons last year; and the world's
second largest robusta coffee producer after Vietnam with an
output of 420,000 tons last year.

The rupiah, which has lost about 9 percent of its value
against the U.S. dollar this year, closed at Rp 9,290 on Friday.

Indonesian Palm Oil Producers Association (Gapki) chairman
Derom Bangun told The Jakarta Post that the CPO price dropped by
more than 13 percent over the past two weeks due to falling
demand from India, China and Europe, the world largest markets
for the commodity.

The CPO price closed at US$406.58 per ton for August delivery
at Malaysia's Derivatives Exchange on Friday.

He said India had reduced its imports by 13 percent since
April, while China had also cut its imports.

China has slowed down its economic growth to consolidate its
rapid gains recently. However, Derom said that was probably not
the reason behind the falling world demand for CPO.

"Slowing down the growth will, in the short-term, mean a
reduction in investment, and only after that some time later will
people decrease consumption. It'll take more time before
affecting CPO demand," he said.

As far as European demand, Derom said, buyers there had
recently built up their stocks prior to the recent rise in the
U.S. dollar -- beginning in the middle of May -- and postponed
orders after the rise.

"This is a rough time for us," he said.

The situation was aggravated by the fact that local CPO
producers had to pay more for the import of machine parts due the
rise in the dollar, Derom said.

"Thus, we prefer a steady currency," he said.

Unlike CPO, the price of Indonesia's benchmark Sulawesi cacao
is now on the increase, closing at $1,555 per ton at the New York
Board of Trade (NYBOT) on Thursday, an 8.6 percent increase from
two weeks ago.

However, cacao farmers in Sulawesi, the country's largest
cacao producing area, would not benefit much from the increasing
price due to a decline in output, according to Halim Razak, the
chairman of the South Sulawesi chapter of the Indonesian Cacao
Association (Askindo).

He attributed the declining output to the lingering attacks
by pests.

"Farmers have lost their output by almost 50 percent due to
the pod borer bug," Hakim said.

The price of coffee is also up on the international markets,
but the Indonesian Coffee Exporters Association (AEKI) Hassan
Widjaja told the Post that local farmers were likely unable to
enjoy windfall profits from the rising price as their production
had declined since 2002.

Most of the exporters and producers are reluctant to predict
the results of the year's harvest, but Hassan said the output was
likely to be similar to the previous year's declining trend.

"Last year, we exported 217,000 tons, a 16.54 percent drop
from 2002's 260,000 tons," Hassan said.

Coffee futures slightly dropped to 79.95 U.S. cents per pound
on Thursday in the NYBOT after hitting the three-year high of
80.15 cents on Thursday on concerns over possible colder weather
in Brazil, the world's largest producer.