Flour floors consumers

We were confused by the explanations given by Beddu Amang, the chief the National Logistics Agency (Bulog), the state monopoly for basic food commodities, about the wheat flour price. As it turned out, our confusion was also shared by other newspapers, as reflected in the substantial differences in the factual content of their front-page stories regarding Beddu's statements on Friday.

Some newspapers confirmed, while several others denied, that the government had subsidized the wheat flour price. But what Beddu was not magnanimous enough to acknowledge is the fact that the flour price stabilization program has been financed by the end-consumers -- including the farmers and laborers who eat noodles, biscuits, cakes, or snacks made from wheat flour.

Beddu said the domestic wheat flour price had remained stable despite the fluctuations in the international flour prices because distributors were charged what he called a subsidy reserve fund amounting to Rp 256 per kilogram. But Beddu again stopped short of admitting that the subsidy fund collected from the distributors has always been passed on to the end-consumers through the retail prices. That means that if in some years the domestic prices were lower than the international prices that was made possible because the difference had been paid in advance by the end-consumers through the Rp 265 subsidy reserve fund collected by Bulog from its distributors. In fact, Bulog might well have pocketed significant sums of interest income during periods in which the subsidy reserve funds were not required to stabilize prices.

Hence, the bottom line of Beddu's explanations is the bitter fact that Bulog's flour price stabilization actually has not served to do much in so far as the interests of the end-consumers are concerned because the international price fluctuations have always been compensated for by the end-consumers.

Then, if that is the case, why has the government not freed the importation of wheat grain so that the domestic prices are formed by open, fair market competition between several importers, or millers, and not by the less than transparent transactions between Bulog and PT Bogasari Flour Mills and PT Berdikari.

A recent study by the Institute for Development of Economics and Finance shows how Bulog's wheat and wheat flour monopoly has been greatly benefiting the subsidiaries of the Salim Group -- PT Bogasari, PT Indofood Sukses Makmur and PT Ubindo biscuit.

Bogasari holds the right to mill 85 percent of the wheat grain imported by Bulog under transactions unaccountable to the public. Indofood, which dominates almost 85 percent of the domestic noodle market, and PT Ubindo, a major biscuit producer, together use almost 45 percent of the total volume of the flour which Bogasari mills. While other food companies have to buy flour from Bulog's distributors, the Salim Group's subsidiaries procure it directly from Bulog at much lower prices.

The Salim Group, therefore, has been raking in high profits both from the grain milling and from the below market price of flour. No wonder the group succeeded in dominating the noodle market in just a few years. Even countries which pursue a liberal economy (free-fight capitalism) do not allow such flagrant market distortions and oligopoly from the upstream to the downstream industries.

Various studies, including those by the World Bank, have also shown how Bulog has created private monopolies, or strengthened oligopolistic practices, at the expense of the end-consumers and the industrial users (downstream plants) of the commodities the agency monopolizes.

Becoming a distributor of Bulog is a guarantee of handsome profits because the profit margin of distributors has been fixed and the demand for the commodities under Bulog's monopoly is inelastic in relation to price developments. No wonder the process of appointing distributors often becomes a "lucrative business" within the agency itself.

We think it is now high time for the government to review Bulog's monopolies of wheat flour, sugar, soybeans and soy meal. Almost all studies by independent organizations have concluded that those monopolies have been doing more harm than good to the end-consumers and industrial users. Bulog needs to maintain only its monopoly in rice to secure reasonable earnings for the millions of farmers and to maintain food security, a vital component of political stability.