Fuel price hike to affect food and beverages

Zakki P. Hakim, The Jakarta Post/Jakarta

A 40 percent increase in fuel prices would have little direct impact on the production cost of food and beverages, but the prices of several commodities could rise significantly due to higher transportation and packaging costs.

Fuel only contributes between 3 percent and 9 percent of the total manufacturing costs of food and beverages, such as snacks, instant noodles and canned and bottled drinks.

"The fuel prices hike thus might increase prices for most foodstuffs and beverages by only 1.2 percent to 3.6 percent," Indonesian Food and Beverages Association (GAPMMI) executive director Thomas Darmawan told reporters over the weekend.

He went on to explain that the fuel price hike could have an indirect impact on the prices of the commodities through transportation and packaging costs.

But since there has not been any estimate yet for the increase in transportation and packaging costs, he could not say what the impact would be on the prices of the commodities.

According to Thomas, transportation accounts for 5 percent to 8 percent of the total cost of production in the food and beverage production sector.

However, the commodity that would suffer the most from the fuel price hike was ice blocks, which would see its customers paying up to 28 percent more, he said.

Thomas said that fuel prices contributed 70 percent of the total costs of making ice blocks, which were used by fishermen to preserve their catch.

"The government must not forget that the fuel price hike has a very significant impact on ice block prices, and eventually would burden fishermen," he said.

The government must anticipate the consequences as expensive ice blocks would make fishermen reluctant to go fishing, thus it could eventually reduce the national seafood output.

Thomas continued that big corporations had anticipated possible soaring fuel prices by building factories in main cities across the country, thus reducing transportation costs.

"It is the small enterprises that will suffer the most. For example vegetables, the prices of which are dominated by transportation costs. Although vegetables are very cheap in villages, their prices may increase several fold after reaching the cities," he said.

Thomas welcomed suggestions that the government increase the prices during harvest time, when it is considered the perfect time to minimize the effect on the country's inflation rate.

However, he said the government should increase the prices gradually, thus giving time for food producers and the private sector, as well as consumers, to adjust themselves to the hike.

"And the government could remove illegal fees, which are imposed on trucks carrying foods and beverages along main routes across the country," he said and added that without the illegal fees, the effect of the rise in food prices could be suppressed.

Last week, Vice President Jusuf Kalla said that the public would pay to 40 percent more for fuel by early next year, as the government insisted on raising the price of the commodity in order to lower the fuel subsidy.

"(The price hike is) projected to be about 40 percent," Kalla said last week, adding that the government could no longer afford to shoulder greater subsidies for the commodity, the benefits of which are largely enjoyed by car owners.

The fuel subsidy is estimated to reach a whopping Rp 53.4 trillion next year on the back of global oil prices, against an initial projection of Rp 19 trillion.

In comparison, Rp 71.9 trillion has been budgeted for development spending this year. Recent data from the finance ministry showed that the fuel subsidy has cost the government more than Rp 46 trillion this year as of Nov. 23, while the estimated cost for the year was Rp 59.2 trillion.