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Crisis, what crisis?

Far Easter Economic Review - December 3, 1998

John McBeth, Bireuen – Mention Indonesia's financial crisis to betel-nut farmer Abdullah Ali and the bony face under the floppy hat cracks into a delighted grin. "I'm very happy," says the father of seven at his modest home in the foothills near Bireuen. "Krismon" – a colloquial term for the crisis – "has been very good to me."

Down on the Aceh coast, Mohamad Yahya sits on his brocade sofa surrounded by the comforts of a healthy income and ticks off his profits. The one-time trader in car parts switched to shrimp ponds and now declares himself to be "proud of krismon."

Ali and Yahya are among the many rural entrepreneurs who won riches after the economic downturn, according to Teuku Mahmud, an agronomist at Syiah Kuala University. "The farmers have been asking me why the crisis has come so late," jokes the US-trained academic.

From the fabled spice islands in the Banda Sea to the rich agricultural lands of South Sulawesi and Sumatra, many rural folk – the people who usually get the thin end of the wedge when times are hard – have been revelling in the combined effect of Indonesia's economic meltdown and a bumper harvest. For a long while after May, when the rupiah hit record lows against the US dollar, farmers selling crops for export were on a roll: From nutmeg and cloves to palm oil, cacao (the source of cocoa) and shrimps, their goods earned local-currency profits of a sort most growers could previously only have dreamed of.

That's a completely different world from populous Java. Jakarta and the island's other cities grew spectacularly during the boom years as new factories sprung up – but they have been hit hardest by the economic crisis. "It stands to reason," says a Western researcher. "In rural areas you can grow most of your food and you can also gain from the price increases in commodities. In urban areas, they've had to bear the brunt of the increased costs."

True, there are signs that, with the rupiah's recent strengthening and inflation at 58%, the windfall profits earned by some farmers are fading. But there's little doubt there have been large pockets of prosperity – just how large, nobody seems to know – while the national economy has contracted more than 15% this year. Some analysts, for example, have taken to studying power consumption as a rule-of-thumb guide. On Java, industrial demand has gone from a modest 8% increase in 1997 to a 13% decline this year – a swing of 21 percentage points. But on the other main islands of Kalimantan, Sulawesi and Sumatra, which also make money from export crops, consumption has remained steady through much of the bad times.

The World Bank's Indonesia director, Denis de Tray, recently pronounced the crisis to be an urban-Java phenomenon. He says spending in middle-class rural households actually rose by more than 10% in the year to August 1998. In urban areas, spending fell by 10%.

In rural Sulawesi and Sumatra, says de Tray, "things are actually booming." Certainly, the farmers there can't believe their good fortune. As the crisis began to bite in May, shrimps rose from 17,000 rupiah ($1.6) to 150,000 rupiah a kilogram. Patchouli oil, an ingredient for perfumes and medicines, went from 50,000 rupiah to 1.2 million rupiah a kilogram. Pinang (betel-nut) jumped from 800 to 16,000 rupiah and cacao rose from 1,200 to 17,000 rupiah. And Central Aceh farmers, who produce 95% of Indonesia's aribica coffee, saw prices nearly triple from 10,000 to 28,000 rupiah a kilogram.

Soaring prices mean spending power, which is good news for Kasmon Affifudin and his motorcycle showroom in Aceh's road-junction town of Bireuen. When commodity prices were at their peak between May and September, sales tripled, with previously down-at-heel coffee and shrimp farmers lining up to buy new motorcycles for cash. "We sold so many," he recalls, that his company "sent people up from Jakarta to see it with their own eyes. They couldn't believe it."

On Aceh's picturesque western coast, 70-year-old Ali Makam cheerfully admits he's never heard of krismon and hasn't a clue what patchouli oil is used for once it is extracted from the leafy nilam plant. But he knows a good thing when he sees it. When nilam prices rocketed, he switched from growing peanuts and pepper, the two crops he has grown most of his life. His first harvest several months ago made a good profit, earning him a total of 4 million rupiah – even though the price had dropped by then from 1.2 million to 400,000 rupiah.

Near Bireuen, in Central Aceh's rolling foothills, Abdullah Ali diversified from cacao into betel-nut about six years ago. He now has 3,000 trees spread over the three hectares he leases from a local landowner. Ali has benefited from dramatic price increases for both products, but he says that with a wife and seven children to feed he still can't afford to splurge on house improvements or a motorcycle – the two priorities for most Acehnese farmers with new-found wealth.

About 40,000 Aceh farmers now produce more than 18,000 tonnes of the mildly narcotic betel-nut a year. Most of it goes to India and Pakistan, where it is either chewed or processed for paint and cosmetics. Like the coconut, the pinang tree requires little attention.

In northern Aceh, shrimp farmer Ridwan Syah Mahmud realized 136 million rupiah in income from the two shrimp ponds he harvested between May and September – almost double what he would have expected in normal times and clearly the best windfall he has had since he started shrimp farming in the late 1980s. Around him, even local rice farmers have been abandoning their fields and going into shrimps. Who can blame them? Rice fetches only 3 million rupiah a hectare at the local rice mill. Shrimps fetch 30 million rupiah or more.

The story has been the same almost everywhere. But with the rupiah strengthening in recent weeks, reality is only now beginning to bite. Although he may have a healthy bank balance, 36-year-old Ridwan points to a hefty rise in shrimp feed. A 25- kilogram bag of feed, which contains a high percentage of imported protein, is now priced at 300,000 rupiah, a six-fold increase. With shrimp prices sliding back from 150,000 to 60,000 rupiah a kilogram and costs for feed and other inputs remaining high, his once-healthy profit margins are being whittled down.

Clearly, a stronger rupiah – it has strengthened 28% since mid-September – doesn't explain some of the wild price drops. Acehnese farmers and officials alike accuse traders in the North Sumatra capital of Medan of manipulating prices and other acts of skulduggery. One of the biggest sore points is coffee, much of it grown in the cooler climes of the Central Aceh highlands. "Traders mix our coffee with inferior-quality coffee from Java and by the time it gets to Medan some of it is only 60% of what it was," complains agronomist Mahmud.

A spokesman for the Medan Coffee Exporters' Association rejects such allegations. "There's never any mixing of the beans," he says. "Maybe these farmers are trying to make trouble." Nonetheless, the American Coffee Traders Association recently sent a letter to growers complaining about the consistency of Aceh's prized, organically grown, aribica coffee, which makes up just 7% of a national output dominated by robusta varieties.

The traders are also blamed for doctoring Acehnese patchouli with sticky, inferior oil from the kruueng tree to boost profits. Mulyono, an official at essential-oil distiller and exporter Djasulawangi, admits the practice is widespread. "This mixing and cutting is a huge problem for the industry and it's hurt our international reputation," he says. His own company monitored the oil carefully, but "there's not much you can do about all the small traders in Medan. There are also bad farmers that are doing this."

Whoever is to blame, the drop in quality has resulted in fewer customers for the traders and prices falling even further from a summer wholesale price of 1.2 million to 130,000 rupiah. And that means the farmer gets less for his produce. "What can we do?" asks Ali Makan and other farmers gathered around their homemade patchouli refinery near the West Aceh town of Lhokkruet. "We don't know anything, we can't do anything." Shrimp farmer Mohamad Yahya voices similar anger over the recent slump in prices. "The traders claim it's because of overproduction, but I think they're playing their own game," he says.