Dairy cooperatives ready for free trade
JAKARTA (JP): Indonesian dairy cooperatives, which produce most of the country's fresh milk, are optimistic local dairy farmers will survive when they must compete with foreign producers in 2005.
Union of Dairy Cooperatives of Indonesia secretary general Salim Al Bakry said yesterday dairy farmers would survive in the free-trade era because their milk was as cheap and as good as imported milk.
"Our farmers will survive without government protection," he said.
Indonesia protects dairy farmers by restricting milk imports through an import ratio that has operated since 1982 and is reviewed every half year.
The current ratio is 1:1.7. This mean milk processors are allowed to import the equivalent of 1.7 liters of fresh milk for every liter of fresh milk they buy locally.
In 1995 Indonesia agreed to revoke the import ratio by 2005. It did this at a meeting in Geneva where New Zealand, which is Indonesia's biggest milk supplier, represented other milk exporters.
At this meeting Indonesia and the exporters agreed to stop subsidizing dairy farmers the same year.
Salim said Indonesian fresh milk cost Rp 700 (29 US cents) a kilogram, while imported milk cost between Rp 550 and Rp 600 a kilogram.
He said the Indonesian milk price rose 5 percent a year, while the price of imported milk rose at the same rate because of the dollar's appreciation against rupiah.
By 2005, the price of imported milk would jump more than 5 percent after government subsidies ended, he said.
The price of Indonesian fresh milk would remain stable because local dairy farmers only received small subsidies, if any, from the government, he said.
"European countries give a subsidy to their farmers. New Zealand and Australia also subsidize their dairy farmers, although they don't acknowledge it," he said.
He said New Zealand and Australia did this by providing cheap land.
Indonesian dairy farmers got cheap cooperative credit at 14 percent a year, but this was still higher than commercial interest rates in exporting countries, he said.
"Many of our farmers have even taken credit at commercial rates of 18 and 23 percent," he said.
The Union of Dairy Cooperatives of Indonesia has about 80,000 members.
Salim said foreign milk producers had a comparative advantage over Indonesian dairy farmers because their cattle grazed on farms while Indonesian cattle were lot fed which costs more.
Dairy farming is concentrated in Java where Indonesia's milk processors are located but there is no room for open grazing.
But Salim said Indonesia had comparative advantages over Western countries in that it had cheaper labor.
He said Indonesia's dairy cooperatives did not fear for their future market because domestic milk consumption was rising at an average of 12.8 percent a year.
Ministry of Agriculture figures show domestic fresh milk consumption for the first half of the year will reach 770,360 tons. Domestic suppliers will supply 200,000 tons of this including 161,995 tons from dairy cooperatives. The remaining 570,360 tons will be imported.
The union estimates national fresh milk consumption will reach about 2 million tons. Domestic suppliers will produce 579,400 tons, and 1.4 million tons will be imported. (jsk)