Milk producers agree to cut prices up to 20%

JAKARTA (JP): Milk producers agreed yesterday to reduce factory prices of their products between 10 percent and 20 percent in response to a mounting outcry over the good's soaring cost.

The chairman of Milk Processing Industries (IPS), Sabama, said yesterday producers would cut prices of powdered milk for adult and infants by 20 percent, and of baby formula milk by 10 percent.

"Milk producers under the IPS reached agreement with the industry and trade minister earlier today (yesterday) that we ought to take part in relieving the people's burden by lowering our prices," Sabama said.

Although the price reduction went into effect yesterday, he said it may not be fully implemented until Wednesday.

The IPS will have to conduct a minimal two-day preparation, include checking companies' stocks and other technical matters.

Sabama said he hoped the price cut would encourage a commensurate reduction in retail prices of milk.

The price reduction is based on the latest price of milk, he said, but he did not divulge either factory prices or average retail prices of milk.

The association would monitor prices of milk sold by the distributors and large retailers, he said.

"Supermarkets are the easiest to monitor, and we'll conduct weekly checks on their highest retail prices."

He said there were more than 400 grocery stores in Jakarta, but added the association would be unable to closely monitor small retailers as this would be more costly.

IPS will warn retailers which did not reduce their prices, and would terminate the distributing license of distributors found selling milk at rates exceeding the agreed prices, Sabama said.

Although admitting that some distributors had raked in more profits than others, he said association had urged them and retailers to guarantee the supply so that there would be no more panic buying of the food.

The price of milk, much of which is imported, has risen by 100 percent to 300 percent since January, along with a 70 percent slump in the value of the rupiah to the U.S. dollar.

Local milk producers import most of their dairy milk from New Zealand, Australia and the United States.

Sabama said the sector would have to slash their production costs in order to lower their prices.

He said the producers raised their prices at the beginning of last month at a marginal level to be able to buy dairy milk.

"We were not thinking of making a profit then."

In order to slash their prices, Sabama said the companies would have to reduce cost of promotions, distribution, variable expenses and factory and operation overheads.

The director general of trade in the ministry, Ilchaidi Elias, said yesterday it was possible prices could go lower in the future.

"As of now, at the rate of the rupiah and the composition of the production costs, they can only squeeze the prices this much," Ilchaidi said.

Further reductions might follow, he added, if "... the economic condition gets better, imports are easier and the rupiah has stabilized ..." (das)