Govt to continue clove trading arrangement

JAKARTA (JP): Despite an official disbandment of the private sector clove trade monopoly, a similar trade arrangement will remain in place, Minister of Cooperatives and Small Enterprises Subiakto Tjakrawerdaya has said.

Speaking to journalists after meeting President Soeharto at the Bina Graha presidential office, Subiakto said Soeharto has liberalized clove trading through Presidential Decree No. 21/1998.

"Henceforth, we will continue the current clove trading regime, not through government regulations or a monopoly, but through a partnership among cooperatives, the BPPC ... and cigarette producers," Subiakto said.

The Clove Marketing and Buffer Stock Agency (BPPC) is a private institution assigned by the government to solely conduct clove trading.

The BPPC, controlled by Soeharto's youngest son Hutomo Mandala Putra, was granted a clove-trading monopoly in early 1991. Since then, farmers have been obliged to sell their cloves to the agency through village cooperatives.

Producers of clove-blended cigarettes have had to buy their cloves from the agency.

Under the government's agreement with the IMF signed by President Soeharto last month, the BPPC must be eliminated by June.

Subiakto said following the IMF agreement, clove farmers and cooperatives made written agreements that the former would sell their cloves to the latter.

The cooperatives will then sell their cloves to the Confederation of Primary Cooperative Associations (Inkud), which will, in turn, sell the commodity to cigarette makers.

The BPPC said earlier that it would transfer its monopoly and stocks to Inkud.

"This way, the clove trade regime will continue, and most importantly, farmers will still enjoy good clove prices and can nurture their clove trees well," the minister said.

He said the liberalization of clove trading did not mean that the clove trade arrangement under the BPPC was not successful.

The regime is successful in stabilizing clove prices, he said.

Subiakto said if current clove trade practices did not continue, clove prices would drop drastically by June as harvests started.

He contended that cigarette producers currently have enough clove stocks for two years of production and that the BPPC held 164,000 tons of clove in stock.

According to the BPPC, the domestic cigarette industry requires some 100,000 tons of clove per annum.

"So, practically nobody will buy cloves following the coming harvest. If nobody buys, then prices will automatically go down," Subiakto said.

"And don't forget that the clove market does not work perfectly. But it tends to be oligopolistic, with many sellers and producers but few buyers. It even tends to be monopolistic.

"So, in this imperfect market, do you expect the clove trade to be liberalized? Just answer that yourselves. Surely, the tendency is that producers will be the losers," he said.

When asked if cigarette producers would still be obliged to buy cloves from the BPPC, Subiakto responded: "There is no such obligation, but a willingness, because so far they have worked together well."

Subiakto also reported yesterday about the fate of the country's 80,000 dairy farmers following the liberalization of the trade of domestic milk through Presidential Decree No. 4/1998.

Under the new decree, milk producers are no longer required to buy domestic dairy products. They may import all of their raw materials.

However, Subiakto said, the country's milk producers have agreed to absorb all domestic products at Rp 850 a kilogram -- far lower than the price of imported milk which costs Rp 1,400 a kilogram at an exchange rate of Rp 10,000 against the U.S. dollar.

He said even if the rupiah strengthened to 5,000 per dollar, milk producers have agreed to buy domestic products at competitive prices.

"Hopefully in the near future, I will witness a signing of purchase contracts between dairy farmers and milk producers for a period of at least five years," Subiakto said.

The minister also said domestic banks were behind schedule in disbursing government-sponsored low interest rate loans to small and medium enterprises.

Banks have disbursed Rp 62.5 billion in loans for December and January -- only 11 percent of the funds allocated for the two months.

He said the government has allocated Rp 2.2 trillion for the loans. The loans carry an annual interest rate of 17 percent, far lower than the market rate of over 30 percent. (prb/rid)