A Behind the scenes look at Indonesia’s plywood cartel


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That is what you will get when you read Christopher Barr’s paper ’Bob Hasan, The Rise of Apkindo, and the Shifting Dynamics of Control in Indonesia’s Timber Sector’, published recently in the journal ’Indonesia’.

During the 1980s, Indonesia went from being a minor player in the world plywood business to controlling over 70% of global tropical plywood exports. It achieved that by subsidizing plywood companies, restricting log exports, and aggressively marketing its plywood (often selling plywood for less than it cost to produce).

At the same time, Indonesia’s forest sector became more concentrated. By 1990, fifteen business groups controlled 54% of the industry’s plywood production capacity and about 1/3 of all the forest area in logging concessions (18 million hectares).

Bob Hasan and the Indonesian Wood Panel Producers Association (APKINDO) largely orchestrated both these processes. Barr’s paper explains how and why.

Hasan built his empire through close political ties to the Soeharto regime, shrewd business deals, and pressure tactics. The Indonesian government gave APKINDO the power to fix the amount of plywood each producer could export and set prices for what they sold. Hasan and APKINDO designed strategies for each major plywood market. They also established companies in importing countries to control plywood distribution there. This allowed APKINDO to act as a cartel in the plywood market, similar to OPEC in the oil market.

Many previous studies failed to fully recognize the degree of monopoly power Indonesia obtained in global plywood markets and to adequately explain government and corporate behavior. Monopolies frequently sell their products for low prices during prolonged periods to obtain market share, even if they have to lose money for a while to do it.

Hasan and APKINDO had a particular desire to increase market share because a large portion of their income came from activities that earned them a fixed sum of money for each unit of plywood exported. Barr cites one estimate that Indonesian plywood producers paid APKINDO over US$700 million in promotional and market development fees between 1983 and 1993. According to Barr, Hasan earned much of his money by shipping, insuring, and marketing plywood that other companies produced.

In January 1998, the Indonesian government agreed to dismantle the plywood cartel in return for International Monetary Fund (IMF) support. Since that time some steps have been taken in that direction. Barr’s paper makes one wonder, however, who is likely to be ’quicker on their feet’.

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Further reading

If you would like to request an electronic copy of Barr’s paper or send comments about the topic of this message to the author, you can write Christopher Barr at: mailto:ChrisMBarr@aol.com