Fuel price hike to affect food and beverages

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.