Producers vow to delay price rises

JAKARTA (JP): Major producers, distributors and retailers have again pledged to freeze their prices of some basic food essentials until the end of March.

Minister of Industry and Trade Tunky Ariwibowo said yesterday that State Logistics Agency chief Beddu Amang and leaders of associations of food and beverage companies renewed a pledge during a Wednesday night meeting to keep the prices of basic food staples at their current level.

The basic food commodities include rice, sugar, wheatflour and soybeans for the Indonesian soybean Curd and Soybean Cake Cooperative (Kopti).

"However, there is no guarantee the prices of the staples would not increase by the time they are sold to consumers.

"Our economy is driven by a market mechanism. The price for consumers depends on market forces," he said when asked to explain why prices of most food commodities in the market continued to rise despite a similar pledge made earlier last month.

He said the government could only guarantee that the stocks of basic staples in the market were adequate to meet demand so that retailers and consumers would not feel it necessary to stockpile certain commodities.

Last month food producers, wholesalers and distributors pledged to freeze their prices at artificially low levels until a week after the Islamic Idul Fitri holiday.

Idul Fitri ended last Saturday.

Despite the commitment, prices continued to rise between 10 percent and over 50 percent.

The government announced Wednesday that January's monthly inflation rate hit a 25-year high of 6.88 percent.

Retailers increased the prices of some food essentials such as rice, cooking oil and milk by as much as 100 percent prior to the Idul Fitri holiday, celebrated by about 90 percent of the nation.

Tunky said the producers carried out their pledge not to raise prices while some even increased their production levels to press down prices.

"But the stocks of some commodities such as cooking oil, rice and milk are still very low at many food markets and grocery stores," he said.

"It seemed that any increase in production was immediately matched by a similar rise in consumer demand. New stocks, however large, were immediately snapped up by buyers," he said.

But Tunky also blamed the scarcity on retailers who withheld their stocks in a bid to gain "windfall profits" from the steep price rises they expected to occur within the next few weeks.

Many retailers have indeed predicted that prices would surge sharply again next week.

"If we let this situation go uncorrected, it will hurt both the producers and the consumers over time and will cause disorder in our trading system," he said.

"This is a market distortion, and our job is to find that distortion and eliminate it," he added.

The minister also urged companies to operate their businesses at what he called marginal costs by improving efficiency and charging only a fair margin.

Tunky conceded it was still very difficult for producers to properly set their prices due to wild fluctuations of the rupiah rate against the dollar.

The country's currency has dropped in value by almost 80 percent since July.

Most producers at the meeting Wednesday night acknowledged extreme difficulty in determining their production costs and selling prices because the rupiah continued to be volatile.

Tunky also admitted that the uncertainty about prices and the rupiah exchange rate had triggered speculation as many people were buying much more than they needed forcing retailers to build up stocks much larger than their usual levels to gain profit from the situation.

Eva Riyanti Hutapea, vice president of Salim Group's Indofood Sukses Makmur -- the largest producer of noodles and wheatflour- based biscuits and snacks -- said yesterday her company was selling its products far below production costs.

"We are selling a liter of Bimoli (cooking oil) at Rp 2,850 (30 U.S. cents), but the production cost has risen to about Rp 5,000," Eva said.

Jakarta saw massive panic buying for two days early last month due to fears of severe scarcity in basic necessities after the rupiah plunged to below 10,000 to the dollar. (das)

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