'Oligopolistic distribution harms consumers'
JAKARTA (JP): Indonesian consumers have to pay more than those in neighboring countries do due to oligopolistic practices in the country's distribution networks, economists said here last week.
Anggito Abimanyu and Heru Nugroho from the Center for Inter- University Economic Studies at Yogyakarta-based Gadjah Mada university said Indonesian consumers were poorly protected.
They acknowledged that Indonesia had a number of non- governmental organizations specializing in consumer protection, like the Indonesian Consumer Foundation.
"But their existence is often distorted by the less-democratic authorities," they said in a paper at a seminar at the Center for Strategic and International Studies.
In the case of medical products, for instance, the state agency for food and drugs control at the Ministry of Health does not have the power to effectively control industrial product prices, they said.
Citing his 1994 study, Anggito said that in Indonesia industrial products' prices were 33 percent more than overseas prevailing market prices.
A study by U.S.-ASEAN Business Council in 1995 confirmed Anggito's results, showing that Indonesian consumers paid more than consumers in neighboring countries.
Indonesians would pay 6 percent to 7 percent less if the efficiency of Indonesia's distribution networks was the same as those in the Philippines.
Anggito and Heru said distribution costs in Indonesia tended to decline. However, distribution costs for certain products, especially instant noodles, shoes and electronic goods, tended to increase.
They said Indonesia's distribution structure had been practicing oligopoly to maintain high profit levels in the production sector.
In 1996, 159 of the country's 209 largest producers used their own distribution networks to market and distribute their products to wholesalers and even retailers.
Meanwhile, the 10 largest trading houses controlled 82 percent of total turnover of the country's trading.
"The consequence of the high concentration in the distribution network is that the dominant producers gain most," Anggito said.
Anggito and Heru suggested the government do more to protect consumers and reduce the level of consumerism among Indonesians.
Indonesia is the second biggest consumer country in East Asia after the Philippines, according to the World Development Report 1996.
Indonesia's consumption expenditure was 61 percent of its gross domestic product in 1994, below that of the Philippines, which spent 71 of gross domestic product on consumption.
In 1980, Indonesia spent only 52 percent of gross domestic product on consumption.
Hong Kong ranked third in consumerism with 59 percent of gross domestic product on consumption, followed by Thailand with 55 percent, Malaysia and South Korea with 53 percent each, and Singapore with 40 percent only.
Data at Indonesia's Central Bureau of Statistics shows that household expenditure on food-related consumer goods increased by 5 percent per annum during the 1990-1995 period, while expenditure on non-food consumer goods rose 12 percent per annum.
In 1990, 60.36 percent of Indonesian households' expenditure was on food and only 39.64 percent on non-food consumer goods. In 1995, they spent 56.86 percent on food and 43.48 percent on non- food consumer goods.
"There are at least two reasons for this phenomena. Firstly, people's real income is increasing. And secondly, consumer goods' prices, especially of non-foods, is decreasing," Anggito said.
Anggito and Heru agreed that the high level of domestic consumerism was the prerequisite for sustained high economic growth.
"The improvement in the people's incomes and domestic demand will drive more economic activities, both in their variations and economies of scale," Anggito said.
Increasing income, however, would not automatically initiate a growing demand. Therefore, the role of advertising is instrumental in translating higher income into demand.
Advertising expenditure in Indonesia has been increasing significantly over the last five years, from Rp 1.02 trillion in 1992 to Rp 4.68 trillion (US$1.9 billion) last year.
Television absorbed the most advertising expenditure, Rp 390 billion in 1992 and Rp 2.35 trillion in 1996, followed by newspapers with Rp 337 billion in 1992 and Rp 1.53 trillion in 1996. The rest went on magazines, radios, cinemas and billboards.
However, if such a high level of consumerism is not well controlled and not balanced by output, it could force high inflation and create a current account deficit trap.
To reduce excessive consumerism, especially at middle and upper class level, the government should impose higher taxes on luxury goods, Anggito and Heru suggested.
They also said the government should strengthen and optimize the roles of the existing agencies and non-government organizations in protecting consumers.
If necessary, the government could form institutions to control consumerism and encourage more saving, they added. (rid)