BPOM Cash Cow is Sweeping Away Profits for U.S. Exporters

UNCLAS JAKARTA 000555 SENSITIVE SIPDIS DU/S PSHEIK FAS/OA SHALE FAS/OCRA/BPETLOCK, HIGGISTON, RADLER FAS/OSTA/JAFLEMINGS FAS/ONA/EHUBBARD FAS/OFSO/WAINIO USTR BWEISEL/KEHLERS GENEVA FOR MIN COUNSELOR DMILLER CANBERRA FOR AG COUNSELOR GPETTRIE WELLINGTON FOR AG ATTACHE SCANDURRA E.O. 12958: N/A TAGS: EAGR ETRD ID SUBJECT: BPOM Cash Cow is Sweeping Away Profits for U.S. Exporters in Indonesia Reftel JAKARTA 2007 002823 ¶1. The Indonesian Food and Drug Authority (BPOM) confiscated over $500,000 of U.S.-produced packaged foods for retail sale. New import registration requirements resulted in the value of U.S. exports of breakfast cereals and snack foods dropping by $1.2 million, an 87 percent decrease in just two months. The biggest impact is on small U.S. and Indonesian businesses. Decision makers in BPOM are refusing to engage on the problem suggesting a solution will require pressure from other Indonesian ministries. End Summary The Cash Cow Providing Income -------------- (SBU) 2. Since 2001, the Indonesian government requires packaged products for retail sale and selected processed products for use as ingredients be registered with the National Food and Drug Authority. Registered imported products are issued an ML (imported food) number. Importers place stickers on the package with the ML number and other information in Indonesian. The burdensome list of documents needed to complete the registration process creates a rent seeking opportunity for BPOM and Customs officials. (see Reftel) Importers have two options. They can pay a consultant, usually retired BPOM officials, to create false documents or they can have a freight forwarder "facilitate" clearance at the port. Traditionally, BPOM officials and police sweep retail stores during the Muslim holiday month of Ramadan, when local officials feel social and cultural pressures to increase income. Retailers sometimes pay BPOM officials to ignore unregistered product or for advance notice of the inspections. BPOM is Sweeping Up -------------- ¶3. In November 2008, BPOM officials began a targeted effort to reduce the number of unregistered products on retail store shelves and warehouses. The sweepings continued for a few months. Since the number of unregistered product on the shelves has dropped, BPOM officials have secretly visited stores to inspect. In some cases, the company could convince officials to verify that a suspected product was indeed properly registered. However, even when BPOM 
officials cannot find unregistered products, they confiscate legal products that do not require an ML number. Or, they criticize retailers based on unreasonable standards. For example, they complained that halal products were placed next to marshmallows, which can contain small amounts of porcine ingredients. ¶4. BPOM is also limiting the amount of product that can be imported by placing additional burdens before shipments can be cleared at the port. BPOM reportedly reduced the time to register a product from one year to two months. However, officials are dusting off old decrees with requirements that were not previously enforced. Now labels that BPOM officials consider to be "bombastic" such as "premium" must be covered up on the package. Product labels in the shipment must exactly match the sample provided when registering the products. Importers must obtain an import recommendation from BPOM for every shipment. (For more information on all of the specific requirements, please see Global Agriculture Information Network Report ID9004: Import Requirements and Procedures for Processed Food.) ¶5. Over the course of two months, officials confiscated $0.5 million of U.S. products from only three different retailers. BPOM officials and police even confiscated $40,000 of legally registered U.S. packaged products. All of the products are considered safe for purchase in the United States. Two importers and a retailer destroyed another $200,000 worth of product in their warehouse when the expiration date passed and have another $600,000 worth of product sitting in warehouses that they will have to destroy soon. Smaller U.S. Exporters Suffer... -------------- ¶6. In December 2008 and January 2009, U.S. exports of breakfast cereals and snack foods to Indonesian decreased 13 percent when compared to the value during the same period the year before. Indonesia represents a $7 million market for U.S. breakfast cereals and snack foods, attracting smaller U.S. exporters rather than large exporters. Indonesian importers tend to buy from U.S. consolidators who sell in smaller quantities. Indonesia was a growing market for these products. In 2008, exports of U.S. breakfast cereals and snack foods increased 12 percent compared to 2007. The increase occurred despite a 77 percent drop in value during December. In December 2007 to January 2008, U.S. exports of breakfast cereals and snack foods were $1.5 million. In December 2008 to January 2009, exports to Indonesia were US $197,000. ...as do Smaller Local Businesses -------------- ¶7. Some Indonesian retailers and importers expect to go out of business in as soon as six months if imports do not resume. Most importers ceased operations after the sweepings began. Shelves in the stores are bare and retailers receive numerous complaints every day, from expatriates and Indonesians alike. Retailers and importers have not been able to make up lost sales with domestic products because in many cases appropriate substitutes do not exist. Labor laws make dismissing employees expensive but most report they are keeping employees as long as possible out of loyalty. Businesses at the port are also affected. ¶8. Imported food and beverages account for only an estimated 2.5 percent of total Indonesian food and beverage sales. In most cases, the importers are small, Indonesian family-owned businesses working in a niche market. Large multinational companies corner the market on sales of Indonesian-made packaged products at retail stores. These large hypermarkets have benefited somewhat from the decrease in imported product on the shelves of the specialty retailers but many consumers are purchasing their favorite items in Singapore and Bali, where enforcement is less stringent. Solutions in the Near-term Are Limited -------------- -------------- (SBU) 9. The Chairman of BPOM, Husniah Akib, is the lead GOI authority on this issue and refuses to engage with us as well as other affected trading partners. When Chairman Akib met with importers to discuss the issue, she responded to complaints by questioning the loyalty of importers to Indonesian national interests. The Chairman of BPOM affirmed she is unwilling to consider rewriting the decree covering product registration. Her approval is also required for any agreement to adjust documentation requirements to meet specific country food safety systems. ¶10. FAS efforts to create change center on developing a relationship with BPOM officials to foster understanding and increase awareness of how the U.S. system works. BPOM has agreed to host FAS during their regular internal biweekly discussions. USDA/FAS approved funding for a visit by a representative of the U.S. Food and Drug Administration to Indonesia to discuss the U.S. food safety system. The visit will build relationships at the working level and may offer an opportunity to engage the Chairman. (SBU) 11. A resolution is not likely in the short-term, unless other ministries place pressure on the BPOM Chairman. Talking points could be drawn from the impact on Indonesian small businesses and the employees whose jobs are at risk. GOI identifies food security as a priority and added trade and investment as a component of a potential comprehensive partnership with USG. We could use the prospect of the comprehensive partnership to generate GOI interest to engage on this issue. Another option is to express our concerns in a meeting under the TIFA industrial and agricultural goods working group. We have expressed concerns about Husniah refusing to meet on the registration issue in the biannual TIFA meeting with no success. Hume