Beef price: what the .... were they thinking about?

Hi everyone. This is my first blog in this Café after 3 years

I rarely purchased weekly magazine until the current corruption scandal on beef import quota. Partly is because the case involves PKS party, a staunch promoter of government by faith (or something around that idea).

But as we all know, while faith is necessary for those wanting to pursue heaven, it may still require additional efforts to ensure sound principle of governance. The recent corruption case on beef import is self-evident that political interest overrode good faith and basic economics principles.

In front of cabinet members, the ministry of agriculture faithfully embarked in a series of jaw dropping maneuver promising self-sufficiency in beef by 2014.  This supposedly to be achieved through program to increase supply of domestic cattle industry and protecting it with limit on how much beef can be imported (quota). To back up the story, proponents of this program often refer to “cow census” and suggest that we should have faith that there are enough cows across Indonesian islands to satisfy consumers demand.

No doubt, promoting development of domestic cattle industry is a good idea. Local and small cattle breeders in Java and Sumatra can benefit from sound government program to improve their competitiveness. There are also few other locations in Indonesia that are suitable for large scale private cattle ranch industries, providing there are adequate ports and ships to transport them to consumers around the country.


But the outcome of self-sufficiency in beef was sealed when import quota was drastically reduced in mid 2012 (instead of keeping the rate of increase constant).


Indeed, the “cow census” might have misled the government to think that there is enough cows for consumption. The fact is that not all cows are available for immediate slaughter, some households use cows as savings for their rainy days. The national consumption figure for beef, which is likely derived from Susenas, is also likely underestimated because it does not capture beef consumed outside the house (i.e., buying bakso, eating rendang, sate Padang, etc.)

What is happening represents a very basic economic principle: in the absence of import, domestic cow industry will never produce beef at the quantity where supply equals to consumers demand. Instead, they will produce beef at the quantity where marginal cost of slaughtering the last cow equals to marginal revenue from selling it to consumers (in slightly technical jargon: MC = MR) and set equilibrium domestic price of beef higher than price level where more import were allowed.

Media commentators can blame importers or domestic cow industry for allegedly forming cartels to influence price. Although this may not be ruled out, the fact remains that there is little or no incentive for a rational domestic cow breeder or slaughter house to supply consumers beef at competitive quantity and price levels As simple as that.

'Redenominasi' vs 'sanering', for dummies

Redenominasi: fewer zeroes, same bowls of mie bakso. Sanering: same zeroes, fewer bowls of mie bakso.

Blusukan

Dear Kate,

What's "blusukan"? Any economics on it?

Struggling Indonesianist

Dear Strugling Indonesianist,

Apparently you've been trying hard to read Indonesian news. I know it's fun, right? Here's a secret to learn the language quickly: just read the news over and over again, check the ones with pictures, forget dictionary or thesaurus. You'll get the feel eventually.

But lemme try. Blusukan perhaps means an impromptu visit by a top official to his/her subordinates - or as the media put it, to the people. It's done in order to get information from the grass root first hand, maybe. It can also be seen as an act of caring. When else a governor or a president pay a friendly visit to the poor? Empathy is the keyword.

But "impromptu" might not be a correct term. I would think any visit by a governor or a president would involve lots of preparation and security procedures. Some streets should be closed, alleys cleared. Some media get invited with special access to the site - but for regular cars, motorcycles, pedestrians, it's probably a detour. So, with all due respect, the economic impact for street sellers having to postpone their business a couple of hours might be negative. Let alone the extra time needed by motorists to deal with the additional traffic jam. It's great to meet with our leader occasionally. But probably you don't want it all too often.

Best,

Kate

 

"Please stop the price decline!"

An MP from PKS urges the government to stop the declining prices of crude palm oil and rubber (link here*). He points out, rightly, that the reason why prices are going down is because the demand is low due to the still weak global economy.

His solution is to get together with the other producers to form a collusive cartel so as to limit the supply and apply a monopolistic power.

But as he said, the problem is on demand. Limiting the supply might increase the price momentarily (or halt the decline), but as long as the purchasing power of the buyers is weak, that would not help.

His second solution is to force domestic consumption. Sounds like another call for the mighty Bulog?

*) It has come to my attention (thanks to @sillysampi on Twitter) that many of my links to Kompas were gated. My apologies. I try to link to non-gated ones from now on (if available); otherwise, I'll mark it as "gated".

Computer self-sufficiency, anyone?

It's not just on rice, soybean, sugar, corn, and meat. Apparently the self-sufficiency is coming to computer business too (links updated, now non-gated). Oh, maybe not totally. They expect Foxconn to come and serve domestic economy.

But the funniest comment comes from the quoted telecommunication expert. According to him, import restriction on cellphones, laptops, and tablets is necessary to block "low quality and consumer-harming" products from entering the country. 

Happy new year!

Dear Patrons,

We wish you all a happy new year. What, resolution? Yes, of course we will try to brew more coffee, post more stuff, and all. But again, incentives matter. We'll see.

Best,

Kate

One day, three news, one story

News one: infrastructure development lacks funding 

News two: hefty amount for fuel subsidy is allocated

News three: fuel smuggling increases

What's the story? Allocative inefficiency is a good recipe for under-development and black market.

Stupid gun fetish

In the aftermath of yet another shooting spree in US (may the victims rest in peace), the gun fetishists again argue foolishly against stricter gun control. They say that had the teachers been armed, such mass killing could have been prevented (e.g. here, here, here).

That's ridiculous. Teacher's job is to teach students, not to shoot a gun. They should be able to devote their time to improve their teaching skill, not their shooting skill. If they now have to arm themselves with guns, they need special training, a lot of practices, and of course guns and ammunitions. Now, there are hundreds of thousand of schools in US. (Sounds like a good business for gun sales; but that's not the point). 

At the same time, knowledge keeps growing, teachers need to update themselves with all that, so they can teach better. That's where they are better at, teaching. Not shooting.

Rage against the machine, Platini edition

Michel Platini doesn't like the idea of inviting technology into sports. He strongly opposes goal-line technology, as, according to him, it is too expensive.

He said it's cheaper to have referees with "good glasses" standing close to the goal-line. Platini surely advocates the idea of replacing all traffic lights with policemen. Technology too expensive? Well, the first time human civilisation invented television, telephone, and what not, people thought they were too expensive. Or of course, the standard fallacy: technology leaves people unemployed. Who invents technology?

I guess Luddism never dies.

(Possible) Distributional Impact of Cutting the Science

Suppose the government decided to slash (or integrate, or reduce, or ... whatever) science subjects out from elementary schools curriculum. What would the private elite (read: expensive) schools do?  They would follow government's plan, yes?

I don't think so. More likely, they will provide additional hours for science with additional fee (rich) parents are more than happy to pay. 

Or, private sectors will spot market for private course on science, especially for those wealthy parents whose kids are enrolled in public schools that have to follow the instruction. 

By the end of the day, well-off kids get more science -- so much for a new curriculum that cuts science.