Simpler distribution system crucial for stable food prices
Simpler distribution system crucial for stable food prices
By Budiman Moerdijat and Devi M. Asmarani
JAKARTA (JP): Yanti has never felt the need to understand
economics, nor does she normally care about the inflation rate or
the ups and downs of the rupiah.
But as the monetary crisis bores deeper into the lives of
ordinary Indonesians, the 30 year old sighs every time she digs
into her purse to pay more for the same products she bought just
days before.
"The price of rice. It's crazy!" Yanti cries.
Add to that the increased prices of cooking oil, sugar, eggs,
meats, chili and milk for her two year old child, and her
household expenses have soared unbelievably.
Continuing price hikes have inspired students to take to the
streets and challenge the government. Such moves by students led
to the resignation of president Soeharto last month.
But with the new government pledging to provide the basic
needs of its people, and the "reforms figures" racing to become
its social control, essential goods are becoming even more
unaffordable for people like Yanti.
The rupiah's 80 percent depreciation against the U.S. dollar
since mid-last year has contributed much to the soaring prices.
But the rupiah is not the only thing pushing up the prices of
goods.
It seems that only after last month's riots has the government
began to delve deeper into the cause of the price rises other
than the exchange rate debacle.
And what it found was a long and complex goods distribution
system that makes prices susceptible to fluctuations.
During the four-day riots, hundreds of retail outlets, such as
the major grocery chain Hero supermarket, were looted, damaged or
burned down.
Economic activities practically shut down for several days,
and the distribution system was hampered for at least a week.
"From May 12 to 20, we were consumed with fear; delivery
trucks could not run," says H.A. Paweney, the chairman of the
Suppliers and Distributors Association (Ardin).
Many distributors had stockpiled goods, but food supplies
became scarce in the city.
In Hero outlets, stocks of items reportedly fell by 25 percent
to 30 percent for a few days after the riots.
The chairman of the Association of Indonesian Retailers
(Aprindo), Steve Sondakh, said at the time that retailers no
longer stocked items for more than 30 days, some even kept less
than 15 days worth of goods, while others replenished their
stocks daily.
"As a result, supplies were uncertain, distribution costs rose
and the prices of goods increased," Steve said.
Distribution problems also disrupted the operations of
traditional markets in the city.
At Pasar Blok A, South Jakarta, for example traders said
supplies were less at the time of the riots.
The market gets its fresh produce from Kramat Jati central
market and its meat from Cakung, East Jakarta.
Minister of Industry and Trade Rahardi Ramelan recently
dismissed the current distribution system, deeming it inefficient
and vulnerable to social instability.
Distribution
Currently, products go through at least seven warehouses
before they reach customers.
A factory or authorized importer normally appoints a company
as its main distributor.
The main distributor then delivers the goods to hundreds of
distributors in provincial cities.
The distributors then send the products to subdistributors in
regencies.
The subdistributors allocate the products to grocers in
subdistricts, and subgrocers distribute the goods to traditional
retailers, including stores and market vendors.
Some modern outlets such as supermarkets have their own
distribution systems.
Perishable goods go through a simpler distribution mechanism.
Imported farm products are channeled through a main
distributor in the country which then allocates them to
subdistributors.
Produce that comes from local farmers is distributed by
"collectors" to traditional markets.
The collectors are usually small enterprises with limited
capital. They lack efficiency, causing this distribution channel
to be more vulnerable to disturbances.
Either mechanism is deemed insufficient and distorted.
By the time products reach customers, prices are much higher
than the producers' prices.
Rahardi said the current system added between 17 percent and
21 percent to total costs, compared to 7 percent to 9 percent of
distribution costs in other countries.
Furthermore, small-time retailers complain that the current
system only benefits distributors.
Distributors get financial support from the producers when
they buy products.
Rahardi argued that the financial aid should be given to
retailers instead of guaranteeing supplies to customers.
"The distributors' roles should only be as service operators
which collect fees from producers for their services," Rahardi
said. But distributors think otherwise.
Distributors have to cover rising factory prices with their
limited capital, they said.
Retailers often burden them by delaying payment or asking for
large discounts for the products, they claim.
"During the riots, many of our goods at the retailers were
looted and destroyed, and to this day we have not been paid by
the retailers for these goods," Paweney told The Jakarta Post.
If anything, Paweney suggested the sudden price hikes could be
blamed first on frantic customers, then on producers,
distributors and retailers.
"Every time an economist says something like 'we're running
out of food', people frantically rush to grocers and markets,
draining the supplies and pushing up the prices," he says.
The government has come up with a solution to the distribution
dilemma: A distribution center which will cut through the current
lengthy system.
The government plans to make center more accessible.
Retailers, including cooperatives and small-time vendors, can buy
their commodities at the center.
The industry and trade ministry will use warehouses belonging
to the State Logistics Agency which are not in use anymore. It
has suggested that state-own trading companies and the Suppliers
and Distributors Association run the centers.
The distribution center will be modeled after the two central
markets in Jakarta: the Kramat Jati and the Cipinang markets.
Vegetables and fruit produce are sold by distributors to
retailers at Kramat Jati, while rice from different areas is sold
to retailers at Cipinang market.
"Even Tokyo, which is less populated than Jakarta, has 13
distribution centers," Rahardi said.