Wheat price increase kills small bread producers

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.