The number of dairy milk cooperatives in Indonesia reached 340,000 units and the number of dairy farmers reached 120,000 who have on average three to four head of cattle, while the national production to meet domestic demand only 25% of the total consumption of about 700,000 tons per year. The rest are fulfilled by imports. While the number of dairy cows in Indonesia is only 350,000 to 400,000, with the average three dairy cows per dairy farmer. In fact, if a dairy farmer wants to provide his overall family needs, he must have at least 8 cows.
So far, from an average of 10 liters of milk produced per day by dairy farmers, the purchase price ranges from IDR1,650 to 2,800 (US$0.17 to US$0.29) per liter, depending on the quality of milk. In fact, if the cooperatives can buy with a price above IDR3,100 per liter, dairy farmers can get more for their families. Unfortunately, the government set the price too low at the dairy farmer level, for each liter less than IDR3,000, whereas production costs have reached almost the same as the price itself. Government also never gives systematic support to dairy farmers.
On February 2009, the government issued a Ministerial Regulation (PMK No.19/PMK.011/2009) that zeroing import tariff for dairy products. This regulation is in accordance with the rules of the World Trade Organization (WTO) which set the import tariff for dairy products to zero percent in 2017. But afterwards, on May 2009 the government issued a revised regulation (PMK No. 101/PMK.001/2009) imposing import tariff five percent on seven specific dairy products—including six products of "Full Cream Milk Powder (FCMP) plus one butter milk product.
However, this increase was not directly protecting dairy farmers, nor improving their standard of living. The damage is done. Milk prices can not automatically rise.
The implementation of import tariff up to five per cent is still too small. This is because the price of fresh milk in the country is much lower than the price of dairy farmers in a number of major dairy-producing countries like Australia (up to IDR 4,400). Even more developed dairy producers, one among them is Australia is still providing subsidies to their dairy farmers. Subsidy is meaningful, not to expand and export—but to Indonesian context it's the matter of survival.
Earlier in 1983, Indonesia has a policy to protect domestic dairy farmers through the Joint Decree of Three Ministers: Minister of Agriculture, Minister of Industry, and Minister of Trade and Cooperatives. At that time, Dairy Processing Industry (or IPS in Bahasa) is required to buy milk from local dairy farmers in addition to dairy imports as raw materials for industry. On the other hand, the implementation of this joint decree caused dependency of dairy farmers to IPS. Farmers do not have the right to determine the price. The right to set prices and quotas of milk are mainly in the hand of IPS.
The dependence is continued to harm dairy farmers up to this day. Approximately 90 percent of fresh milk from farmers is absorbed by the IPS, which only consists of five large companies. All five companies are PT Nestle, PT Frisian Flag, PT Ultra Jaya, PT Sari Husada, and PT Indomilk-Indo-Lacto.
So, as long as this dependency exists, dairy farmers would never have remunerative price for their products. Moreover, the fate of these farmers remains in the hands of foreign companies and therefore controlled by global markets. For example, Nestle has unilaterally lowered the price twice in 2008-2009.
The first markdown by Nestle occurred in December 2008 (IDR3,900 to IDR3,700 IDR per liter). The second markdown put into effect on April 2009 (IDR3,700 to IDR3,400 per liter). Although farmers and Indonesia Milk Joint Cooperative (GKSI) have been against those markdowns, Nestle has never shifting positions. The large dairy corporation argued that the global price of milk was also down, therefore they must do the same within Indonesian case. Moreover, there was also threat not to buy local products, because the price is higher than imported milk and dairy products. Soon, this step is followed by other dairy processing companies. Nonetheless, the facts in the field tell otherwise, because the price sold to consumers is decreasing (and it has been pretty much the same). The facts clearly saying which side who wins. Small dairy farmers have never received a decent price for their milk products, can't compete with imported fresh milk and dairy products, and low-income consumers still are not able to buy milk.
Currently, milk prices in farm gate reach IDR3,500 to IDR3,700, or still 15 percent higher than imported milk. National milk production per day can only fulfill 25 to 30 percent of the dairy processing industry needs, where the remaining 70 percent still have to be imported.
Alternatives to improve dairy farmer’s life
To improve the livelihood of the people—especially farmers, it's not sufficient if only the government to be relied on. Government who’s pro to neoliberal policies (especially the WTO's), like Indonesia, is hard to really side on people. Initiatives that emerged from the farmers themselves should be encouraged. The first step to improve the farmer’s welfare is by encouraging the independence of dairy milk cooperatives to be able to have a milk processing equipment, so that they can directly sell their ready-to-drink products to consumers. This will cut the dependence to IPS (and those corporations), so the farmers and consumers themselves can determine the remunerative price—as well as affordable for the people. This also means that farmers' fate will also be independent from the global markets.
In order to create direct distribution channels from dairy cooperatives to consumers, it is need to launch a big campaign about the importance to drink fresh milk in Indonesia. This is because milk is not highly included in Indonesian diet until these days. If the level of public consumption of fresh milk is increased, it also directly helps dairy small farmers to be able to sell their milk products at reasonable prices. This would also correlates with increasing the income level, create jobs, etc.
Fresh milk consumption of Indonesian people is only 50 cc of the average milk consumption of 7-10 liters per person per year. Livestock statistics in 2007 showed levels of milk consumption for residents of Indonesia around 10.47 kilograms per capita per year. From that level of consumption, the consumption of liquid milk in the form of ultra high temperature (UHT) was 4.6 percent (118,500 tons), sterilized 2.7 percent (69,000 tons), pasteurized 1.2 percent (30,000 tons), and powdered 42.3 percent. Meanwhile, powdered milk price are more expensive and highly controlled by large companies.
From the above description, there are obviously many problems in dairy sector. But the conclusion is that the current situation do not favor the small and medium producers, neither the poor consumers. The both parties got no milk.
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