Interesting Story from Indonesia

[jshepherd]

I think Josh would appreciate this article as well as the Pearl Professor's take on it.

http://www.thejakartaglobe.com/business/article/6744.html

Pearl Farmers Say They?re Getting Shelled By Lack Of Pricing Standards
Local pearl farmers are calling for a national standard price for the precious stones, saying that a lack of transparency between buyers and sellers has caused the price local farmers could command for pearls to drop dramatically over the past few years, especially with foreign competitors entering the local market.

Is Sjafruddin, chairman of the Indonesian Cultured Pearl Association, or Asbumi, said on Monday that poor price transparency and standards between pearl farmers and traders led to the price of pearls falling from $20 a gram two years ago to between $5 and $8 a gram presently.

?There is no price transparency and no price standards in pearl trading in Indonesia, so a farmer in one area will not know how high the price for pearls is in another area,? Is said after a newsconference at the Ministry of Maritime Affairs and Fisheries in Jakarta.

As a result, he said, pearl farmers had little choice but trust traders, who often told them that farmers in another area were selling pearls at a lower price.

?Because of this situation, pearl farmers? incomes are going down and this is forcing many farmers to leave the pearl business,? he said. Is could not say exactly how many farmers were leaving the trade.

All pearl farmers, but especially larger foreign companies involved in the trade, needed to be more open about the prices they commanded for pearls so that a national standard could be set, Is said.

The government, he continued, could also encourage transparency by setting guidelines for farmers on how to deal with pearl traders. Yet another option would be for government agents to buy pearls from local farmers at a set price, he said.

Made L. Nurdjana, director general of aquaculture at the Ministry of Fisheries and Maritime Affairs, acknowledged that there were no pricing guidelines for the pearl industry.

?Trust between farmers and buyers is a very important factor in determining pearl prices,? Made was quoted by state news agency Antara as saying last week.

?Aside from that, the price also depends on how skilled the buyer is in negotiating with farmers.?

Made also noted that most buyers believed the roughly 50 foreign pearl firms operating in Indonesia were producing higher quality pearls than smaller, local farmers. He said that about
80 percent of Indonesian pearl farming and trading was bankrolled by foreign investors, most from Australia and Japan.

He also said many local communities were displeased that foreign pearl companies in their areas were not involving them in pearl production, in spite of the government?s requirement that they do so.

?We already asked the companies to involve local residents in pearl production by, for example, buying spat, or baby oysters, from locals instead of cultivating them themselves,? Made said.

From 2002 to 2004, Indonesia exported 21.4 kilograms of pearls a year on average, according to ministry data.

 

[MWP]

Interesting article. When I heard this story I thought of Ocean Spray for some reason, which formed as a cranberry cooperative in Massachusetts back in 1930. This cooperative started with just three cranberry bog farmers and is now the self proclaimed number one brand of juice in the United States.

In general, foreign investment, as mentioned as a problem for the local farmers, helps economies by creating jobs, however, unfortunately in countries like Indonesia the locals don't always reap benefits from these broader macro level economic benefits.

Although I hesitate to compare the cranberry bogs of Massachusetts to the pearl farms of Indonesia, all it took was one leader to rally the farmers and look what Ocean Spray has become. Supply in numbers certainly gives the farmers more control over pricing.

 

[Mikeyy]

Interesting that the current price of gold finds its way to the most remote places on earth within minutes.

 

[CortezPearls]

Its interesting for ALL pearl farmers and for customers as well! Most people forget that it is the pearl farmer who grows these beauties (with the help of the oysters of course!) and these are the very people that usually end up "shelled".

Thank you for sharing Jeremy!

 

[est190]

Why do the pearl farmers think that government intervention is he answer? It's an awful idea. They have a trade association for goodness sake. Why not let them come up with a solution--like forming a central market and agree to allow auction prices set the market price. How about an Internet forum to exchange pricing information. Heck, the rapaport list has been around for decades in the diamond industry. Oh wait, that might create a fair price and they want an artificially inflated price. Hmmmm... Nice.

 

[pearlescence]

Some arrangements might be anti-competative (anti trust) if, instead of competing on price in an open market, several farmers or a group decided to ring their prices. It would certainly be a breach of UK and EU law.

 

[est190]

Wendy, what you're describing certainly would be a violation of state and federal antitrust laws in the US, which have traditionally been tougher than in the UK and EU (just ask De Beers). Indonesia may be a different story, however, I don't think they are suggesting that pearl farmers get together and set prices (they want the government to do this for them). In my view, this is entirely unnecessary. As an economically conservative leaning American (not to get too much into politics), but I just don't understand why so many people in my country (and even more so in the rest of the world) expect government to be the first choice to solve their problems. This is an industry issue and if it needs a solution, it should be an industry solution.

A private company can easily step in and solve this issue--there's plenty of precedent. For example, Rapaport started distributing its pricing list in 1978 in a successful attempt to commoditize diamonds. The reports (old school paper version) is basically a grid which allows anyone in the industry to determine the current wholesale price for diamonds based on the 4c's. If you're negotiating the purchase of a a 1.75ct round diamond, with VS1 clarity, E color, you go through the grid for each these 3c's for you get a number like $30,000, which is a baseline value. Then you mark the stone up or down based on quality of the cut or some other unique quality (florescence, unusual size (e.g., 1.92ct) etc). This sets the wholesale value . Then it's up to the dealer to negotiate a better deal with a premium or discount off the baseline wholesale price.

Rapaport is a private company, but it created a new industry standard and revolutionized the way diamonds are traded and priced. Another example would be the used car industry, which has a number of sources (Edmunds, NADA, Kelley BB)--although the one the professionals use is Galves, and that's what dealers use for valuing trade ins and for determining bid/asks at auction. My point is that there's opportunity f(probably a very profitable opportunity) for someone to solve this problem and level the playing field.

 

[Caitlin]

wow. est190. You sound like such a jewelry professional!

 

[Amanda]

Another example would be the used car industry, which has a number of sources (Edmunds, NADA, Kelley BB)--although the one the professionals use is Galves, and that's what dealers use for valuing trade ins and for determining bid/asks at auction. My point is that there's opportunity f(probably a very profitable opportunity) for someone to solve this problem and level the playing field.

You get that here in the UK, too - the Glass guide gives average prices for different makes and models of cars, and that gives a starting point. Details such as very high or low mileage, or extras, then come into play.

 

[est190]

wow. est190. You sound like such a jewelry professional!

I am a pearl newbie, but not a jewelry newbie. We had three generations of diamond traders in my family--my grandpa was the last in the line. The diamond trade is a pretty tough business and my grandpa made a few bad business decisions in the late 70's and early 80's and the business died. He was great grandpa, but not a savvy businessman. My dad tried to help out and would have stepped in, but my dad was losing his sight (he's now blind), which is obviously a huge barrier to being in the diamond business. My dad and grandpa got me into collecting rough cut gems and minerals as a kid I was really into it for a while and I certainly heard all the conversations growing up. I kind of lost interest in my 20's--my rock collection didn't impress the ladies. Now that I am married and it's ok to be a nerd again, I have started getting back to my roots (although pearls are sort of sidetracking me now--this one is entirely my wife's fault!!) hehe

 

[est190]

You get that here in the UK, too - the Glass guide gives average prices for different makes and models of cars, and that gives a starting point. Details such as very high or low mileage, or extras, then come into play.

Most industries that deal in commodities have some sort of guide or index that they work from. Pearls are a bit funky though. The lack of a grading standard does make it hard to create a "Rapaport" style sheet for pearls, but it seems like it would make sense for all involved to move in that direction (not that I can see any signs of such progress). I actually wouldn't be surprise me to learn that there are local version of this kind of report available in Kobe, Papeete and Hong Kong--but I am not that "up" on these things. At least I would think there is some kind of report on auction results and winning bids on lots etc, which can give traders and farmers some direction on pricing. Maybe one of our real resident experts can shed some light on this for us.

 

[Caitlin]

Qwinkydinky! My stepfather came from a diamond cutting/trading family, though his dad was the black sheep of the family who deserted diamonds to make a living writing plays for the Yiddish theater in NYC- then married an Irish girl. Quite the Bohemian!

At least I would think there is some kind of report on auction results and winning bids on lots etc, which can give traders and farmers some direction on pricing. Maybe one of our real resident experts can shed some light on this for us.

Is there anything like this? How would it work with uneducated farmers with no computers as out in the Cooks or other isolated islands where the bigger boys go to scarf up the local pearls?

I was under the impression that much of the French Indonesian islands have a lot of small producers without much access to information beyond the end of their noses. I would disagree about govt involvement, thinking the govt should be protecting the little guys from the off island sharks, but I am a pinko socialist according to my conservative friends, so I will drop this here. Se ya later!

 

[est190]

Wow Caitlin, maybe your stepdad knew my grandfather once upon the time. My grandfather was orthodox (but I am pretty sure he ate bacon and cheeseburgers when no one was looking) and he had an office in one of the building 46th between sixth and fifth avenues (don't recall the specific address). He was was on the import side though. He would travel back and forth between antwerp, london and new york. He had to go by ship because he refused to fly--imagine how great that was for business!! He expanded into cutting later on and then added a retail side. It was the retail side that killed him (not literally). The importing and cutting worked ok for him, but it's hard to do that and then run a B&M shop as an absentee owner of what at the time was primarily a cash business. Inventory would sell, but the money didn't make into the register and someone had to pay the bank and try to explain what happened to their collateral that couldn't be accounted for.

Back on topic though, I am not sure how backwards these farmers really are. Tahiti is also a different situation since the government does regulate the pearl industry, there is a centralized market for trade and auction prices and yield numbers are pretty well reported. I would think japanese and chinese akoya farmers are also well aware of what the products will sell for at auction and if they are selling to processors, they have a pretty well established system in place for valuing their harvests. Indonesia may be a bit different, but SS pearls are big business and even the little guy should know how much his crop will sell for at auction (our farmers small and large know how much they will get for their wheat and corn). I think their big complaint is that some of their fellow farmers are willing to sell at a discount which is driving down prices in the market. If there really is a lack of information, these guys have to get a little more proactive. Who actually takes the "trader's" word on what he is paying--it could be total bs. No one is forcing them to sell--they can tell the trader that if he can get a better price for joe shmoe up the block, buy from him because Pete Smith offered to buy his entire harvest for $___--and the negotiations begin.

 

[Amanda]

I kind of assumed that your various ancestors were Jewish, even before you got into Yiddish and Orthodox. I don't think you have to be Jewish to be in diamonds, but it certainly helps!

Shabbat Shalom, if slightly in advance.

I agree with you, if there is a lack of information, there is a solution for that. If the problem is that some people are undercutting others - well, tough. The market's a bit like that.

 

[est190]

Shabbat shalom to you too.

I agree with you, if there is a lack of information, there is a solution for that. If the problem is that some people are undercutting others - well, tough. The market's a bit like that.

Amen! And a kiss on the keppie for Issac.

 

[Amanda]

Keppie? What's that?

Sound Yiddish, and I don't know any of that. We're a bilingual household, but Hebrew and English, not Yiddish. (When I say bilingual household, that's supposed to make me sound clever. Sadly, though, my Hebrew is worse than that of a primary school child - as my primary-school-aged child points out. Often. The bilingual members are dearly beloved and the infant).

 

[est190]

Keppie is short for keppelah, which means head.

 

[R&B]

What a great thread, I can't beleive I missed it.

Thanks Jeremy and contributors. Mr Made in the initial post I think is the typical small farmer that's seen foreign cashed up firms in his territory.

I do feel for him.

His first mistake I think is wanting the Government to regulate price. Don't go there. What does Joe public know about pearls yet alone Governments.

His Governments regulations for foreign companies operating on his turf should be his target.

Some very interesting comments on price regulations or standards have been made. It will not happen. Est 190 made the comment, Let the negotiations begin.

We are dealing with the beginnings of commerce here and aint it grand that after a few millienia so is Pearl trading.

Bron and I will keep growing Pearls and if you don't like the price, see yah.

I personally hate typeing, everyone thats contributed to this thread, PLEASE come to our farm, I'd love to see where this yarn could end up although, probably where it stared.

Cheers

 

[Amanda]

I personally hate typeing, everyone thats contributed to this thread, PLEASE come to our farm, I'd love to see where this yarn could end up although, probably where it stared.

Cheers

I'd absolutely love to see your farm - sadly, London and Queensland are not local to each other!

Your website's fascinating.

 

[est190]

Rusty, I always wanted to visit the land down under. .