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)

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