Flour floors consumers

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.