Wheat price increase kills small bread producers

By Sylvia Gratia M. Nirang

JAKARTA (JP): The 300 percent price increase of wheat flour since early this year has left most small and medium foodmakers on the brink of collapse.

Many small-scale bread producers and other wheat-based industries have been forced to stop production.

"With such an increase, bread is no longer affordable for the common people, our main buyers. It means we have not much choice but to stop operations," one baker said.

For larger bakers, the sharp increase in the wheat price is not so serious because they not only have a wider market segment but also have stronger finances.

"Such an assumption might be true, but for us the surge in the wheat price is a real problem because we have to keep prices affordable for everyone," an executive of a major bakery said.

The price of wheat flour has increased more than 300 percent this year from Rp 800 per kilogram in January to Rp 3,290 in August. Last week's increase was the fourth in 1998.

Yuniwati, manager of the Dunkin Donuts outlet in Plaza Senayan, said her company had previously managed to keep its old prices despite the rise in price of wheat.

But the 46 percent increase in the wheat price last week left the company no choice but to adjust the prices of its products, she said.

"We had to raise our prices by at least 20 percent," Yuniwati said, adding that the increase in the prices had caused an approximate 20 percent drop in sales.

Pius Indrawan, store manager of Holland Bakery Kelapa Gading said that bakery sales in his store had dropped by at least 30 percent since last month following a 15 percent hike in prices.

"We are trying to keep our old prices despite the rise in wheat prices last week. It means that it will kill our profit margins because the price of other important items such as sugar is also rising," he told The Jakarta Post.

The State Logistics Agency (Bulog) has raised the price of the wheat flour since January in line with the government's program to phase out the subsidy on the commodity.

The price of wheat flour was increased 46 percent last week and 86 percent in July.

According to the agency, the price of wheat flour would be Rp 4,000 per kilogram if the monopoly was eliminated.

Yuniwati said that the first and second increases did not affect her store much because they were not as big as the last two.

"Besides, our sales were still good at that time because people's purchasing power was still strong. They still had extra money to buy bakery goods and cakes," she said.

Eva Riyanti Hutapea, chief executive officer of PT Indofood Sukses Makmur, the biggest instant noodle producer in the country, said that none of the country's wheat-based industries had remained unaffected by the increase in wheat flour prices.

"Even for a big instant noodle company like us, it really hurts...," Eva said.

Last month, Indofood raised its instant noodle prices by about 20 percent.

Indonesia relies on imported wheat and wheat flour to meet the local demand. Bulog has said it will import 4.25 million metric tons of wheat flour this year to meet the domestic demand.

About 22.8 percent of the local demand is used by the instant noodle industry, 21.3 percent by the bakery and cake industry, 12.5 percent by households, 3.9 percent by the cookie industry and 39.5 percent by small-scale food producers.

Kosim Purwohardjo, the chairman of the Meatball and Noodle Producers said that the recent increase in the wheat flour price would force most medium and small-scale noodle producers to shut their business because they could not afford to buy raw materials anymore.

"The prices of wheat flour and other raw materials for noodles such as eggs are already too high. If we raise our prices, there will be no more buyers," he said.

"Noodle sales have declined at least 50 percent since July due to the increase in prices," he said.

Reza Malik, the chairman of the Cooperative of Jakarta Bakery Producers said that bakery sales has dropped at least 40 percent in the last two months.

Bulog chairman Beddu Amang has said that the price of wheat flour will be raised further until the government totally lifts the subsidy on the commodity in October.

"After that we will leave its prices to fluctuate according to market conditions," Beddu said, adding that the agency would stop importing wheat and wheat flour when the subsidies on the two commodities are stopped.

He said that thereafter the private sector alone would import wheat while the agency would concentrate on importing rice and sugar.

The chairman of the Indonesian Association of Food and Beverage Producers, Thomas Darmawan, criticized Bulog's move on raising the wheat flour price, saying that the new price was higher than the international price.

He said the wheat price in the international market was set at US$170 per ton. With the transportation and processing costs, wheat flour would be $240 in the Jakarta, or Rp 2,880 per kilogram at an exchange rate of Rp 12,000 per U.S dollar.