It is like an annual ritual: Every year, as Ramadhan and Idul Fitri approach, the prices of staple commodities, especially food, rise sharply. The reason is an increase in demand. In fact, the actual demand for such staple commodities is relatively inelastic.
Even if the prices are low, the consumption of rice, chili, onion, eggs, sugar, cooking oil, vegetables, and the like will not increase dramatically. On the contrary, although expensive, the public is unable to avoid it. If the prices of chili or garlic reach Rp 100,000 per kilogram, people would still look for them, although they have to reduce their purchases.
This means that even if demand increases, it is driven more by psychological factors. People are worried about price increases so, ahead of the Ramadhan fasting month, they tend to increase the purchaseof stock.
At the same time, retailers also increase their stock of staple commodities, which leads to a general decline in supply on the market.
Wholesalers may also take advantage of the situation by limiting supply or by claiming that delivery is disrupted due to the limited number of trucks operating before the Idul Fitri holidays. As the result, the availability of basic commodities appears to be rare ahead of Idul Fitri.
Ironically, the price increase occurs only on the distribution line between traders and retailers. The prices of chili, tomato, onion, and vegetables at the farming level do not change significantly.
Similarly, the price of eggs and chicken from breeders remains stable. Unfortunately, with an integrated trading practice, breeders cannot sell eggs and chicken directly to consumers. The increase in fish prices, for example, only occurs at fish auctions, while the fishermen still get a low price.
The fundamental problem is that the market is dominated by suppliers (oligopoly) and a long distribution chain. With such dominance, suppliers can control the amount of supply that will enter the market, especially if stocks are concentrated in the hands of a small group.
An oligopoly tends to have the power to determine prices. In addition, with the long distribution chain, traders at every point on the supply chain take a profit margin. As a result, the disparity in prices between producers and consumers is very wide.
If the source of this market disruption is not effectively resolved, the sharp fluctuation of basic commodity prices will be repeated every year. Although there is a sufficient quantity of supply, speculators still have room to control the market.
Thisis because the government\'s anticipation policy is the same every year (business as usual). The government approachis to hold a market operation or intervention and setting a reference price. Italso establishesa food task force to crack down on hoarders and cartel practices conducted by rogue traders by sealing, seizure, or taking the case to court.
The trade minister issued Decree Number 20 of 2017 concerning Registration of Staple Commodities Distributors. One of the decree’s instruments is the implementation of a single price for three food products, namely sugar (Rp 12,500/kg), packaged cooking oil (Rp 12,000/liter), and frozen meat (Rp 80,000/kg).
The government sets a retail price ceiling (HET) for modern retailers, which is used as a reference price for traditional marketsto follow. So far, the HET for the three products has been relatively effective, because it has received agreement from producers to distributors.
Unfortunately, the government\'s reference price set under Trade Ministery Decree No. 27/2017 has had little influence. The market has its own pricing base. Meanwhile, market operations in some locations have certainly been ineffective, if the goal is to stabilize prices. In face, market operations should be used to eliminate the power of oligopolists to control supply.
The key is to improve the unhealthy market system. The government should have supply distributionthrough retailers and retailed at a price set by the government. Thus, wholesalers will automatically release their stock to the market at the government\'s reference price.
Simply put, the effectiveness in keeping prices stable lies in the seriousness of the government to nurture the distribution chain and to curb oligopolistic practices.
Cartel practices and the food mafia are not the cause, but the impact of the government’s absence. Therefore, the State Logistics Agency (Bulog) should resumeits role as a buffer stock agency and instrument of price stabilization.
In addition, discrepancies in production data and politicization of determining food imports should be avoided. In principle, food imports are allowed only as long as domestic production is inadequate. If this is carried out properly, Ramadhan and Idul Fitri will be blessed months spurring household consumption.
ENNY SRI HARTATI
Director of the Institute for Development of Economics and Finance
