Restrictions on exports destroy rattan producers
Restrictions on exports destroy rattan producers
JAKARTA (JP): The 1996 World Bank report on Indonesia once
again sharply criticizes the export restrictions on various
commodities as counter-productive and as a major cause of
inefficiency in resource uses.
The report, released on Friday, cites the results of
comprehensive studies on rattan, plywood and crude palm oil to
describe the devastating impact of the export restrictions on
inputs upon downstream industries.
The World Bank observes that the bans on raw and semi-finished
rattan exports which were introduced in 1986 and 1988 have caused
a crisis in the rattan-processing industry in Java because most
producers of semi-processed rattan in Kalimantan and Sulawesi
have been edged out of the market.
The following are more excerpts from the reports:
The number of people employed in the rattan industry in Java
has declined sharply from 187,000 in 1991 to 68,000 in 1993.
The bans did immediately stimulate the rattan industry as the
prices of raw rattan were depressed. Exports of finished rattan
rose sharply by 71 percent in 1989 and by 40 percent in 1990 to
US$220 million.
The labor force of the processing industry increased from
150,000 to 187,000 in 1991.
However, the depressed raw rattan prices began to drive rattan
gatherers out of business and large areas of cultivated rattan no
longer or rarely were harvested.
Moreover, most traditional rattan-processing industries in
Kalimantan and Sulawesi (which produced mainly semi-finished
rattan) went bankrupt. The number of rattan processors in
Sulawesi fell by nearly one quarter and in Kalimantan by nearly
50 percent in the five years following the bans.
Ultimately, supplies of raw rattan for the Java industry began
to dry up.
The ban on log exports has reduced domestic log prices to
below the world market levels, thereby effectively giving plywood
producers a large input subsidy.
The effective subsidy to domestic log processors, mainly
plywood, paper and pulp, is estimated at between $2 billion and $
4 billion a year.
The plywood industry, which is cartelized by the Indonesian
Plywood Association (Apkindo), is estimated to absorb $750
million of the subsidy through excessive use of logs in
processing.
Apkindo controls entry to the industry and all plywood
manufacturers are required to market their exports through the
association.
Indonesia is one of the lowest-cost producers of crude palm
oil in the world with an average cost of only $127/ton. With palm
oil prices now hovering above $600 per ton, the industry could
benefit greatly from exports.
But motivated by a desire both to keep inflation under control
and to protect the poor, the government intervened in the palm
oil market in 1991; imposing a high export tax, managing buffer-
stock operations and directing sales from state-owned palm oil
estates to domestic cooking oil producers.
The export tax did limit the rise in domestic prices but it
did so by transferring income from the oil palm growers, who
primarily are outside Java, to the government and to consumers,
who are primarily in Java.
About 22 percent of the oil palm growers are smallholders whom
the government would like to help, not hurt.
The government interventions thus transfer income but do not
accomplish their intended purpose-- improving consumer welfare.
The interventions also create needless uncertainty for
potential investors. (vin)
Labor -- Page 11