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.