Soybean prices unlikely to affect inflation

Esther Samboh and Linda Yulisman, The Jakarta Post, Jakarta | Headlines | Wed, July 25 2012,
Record soybean prices in the worlds largest soybean exporter, the drought-stricken
United States, is pushing up volatile food prices in Indonesia, a major consumer of
soybean cakes (tempeh), tofu, cooking oil and soybean milk.
While it is likely volatile food prices will rise, Indonesias overall inflation will
probably remain stable because soybeans and derivative products only account for
about 8 percent of the consumer prices index (CPI), according to Bank Indonesias
(BI) assessment.
The overall inflation basket is comprised of core inflation, volatile foods and
government-controlled prices like subsidized rice and fuel. Volatile food prices, such
as rice, chili, onions and others, account for only about 16 percent of the overall
inflation basket.
The general implication, I am not too concerned about. Core inflation is well on
track. Volatile food prices are the ones that we need to pay close attention to,
because of Ramadhan and price fluctuations from the drought in the US, BI
spokesman Difi A. Johansyah told a press briefing on Tuesday, in which he described
the soybean price surge as temporary.
The worst drought in more than half a decade in the US has hurt corn and soybean
crops, and water shortages in other leading soybean growers such as Brazil and
Argentina have exacerbated global shipment and production problems. But
agriculture experts and economists estimate that the conditions will return to
normal soon after the dry season ends in September.
Indonesia imports 60 percent of its soybean needs mostly from the US, and the
drought has spiked imported soybean prices in the domestic market to Rp 8,000 (84
US cents) per kilogram, from about Rp 5,000 early this year, up almost 50 percent
so far in 2012.
Across Indonesia, tofu and tempeh producers are reported to have been cutting
back on staff due to higher costs. Producers in Bogor and many other cities in
Indonesia plan to stop production from July 25 to 27, demanding that the
government controls fluctuating soybean prices.
Deputy Trade Minister Bayu Krisnamurthi said his ministry had proposed scrapping

the current 5 percent import duty on soybeans, hoping to lower retail prices. The
Finance Ministry is responsible for setting duties charged on exports and imports.
That would be a temporary solution, Bayu said. The permanent solution was to
increase the countrys production capacity, government officials said.
Agriculture Minister Suswono said that Indonesia needed an additional 2 million
hectares of productive land to make the country self-sufficient in key commodities,
of which 500,000 hectares should be allocated for soybean cultivation.
With enough land for our farmers, our dependency on soy and other imports could
be drastically reduced, he added. Our soybean once had its heyday, but with the
introduction of imports, our farmers have lost out.
Imported soybeans cost less than those locally produced which sell for about Rp
9,000 per kilogram.
If tempeh and tofu consumption is not substituted, it will be difficult for us, Trade
Minister Gita Wirjawan said.
If this weather persists, the impact will be not only be on supply, but also on
prices.