'Oligopolistic distribution harms consumers'

'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)