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Globalization drives a bubble in Indonesia’s seaweed market

Globalization drives a bubble in Indonesia’s seaweed market

Globalization drives a bubble in Indonesia’s seaweed market
October 21, 2008

International demand and rampant speculation drove excess in Indonesia’s emergent seaweed market, reports The Wall Street Journal.

Patrick Barta reports that the market for a yellowish seaweed used to produce carrageenan, a widely-used thickening agent, has fallen sharply after roughly tripling over the past few months. The price for the seaweed on the island of Sulawesi has fallen from a peak of 18,000 rupiah ($1.80) to less than 10,000 rupiah between early September and October. The culprit? Speculation.

“Easy to grow and prized for an ingredient used in making toothpaste, cosmetics and chicken patties, tropical seaweed has helped poor fishermen to offset the waning fishing industry,” writes Barta. “But a few months ago, parts of the $14 billion global seaweed market started soaring. The price for a key type of Indonesian seaweed suddenly more than tripled, to as much as 18,000 rupiah (or $1.80) per kilogram, from about 5,000 rupiah.”

“Then, just as quickly, the seaweed bubble burst, adding the spindly plant to the long list of the world’s assets — including oil, stocks and houses — that have tumbled in value.”

“Seaweed is out of control,” Barta quotes seaweed processor H. Djusdil Akrim as saying. “It’s a wild, wild market — and no one is running it. I think we need more regulation.”

Barta writes that over the past year the market for the seaweed saw a mad rush rush of traders which bid up prices of extraordinary levels. Explantations for the run-up vary, but invariably suggest that rising demand from China gave way to speculation that got the best of the market.

“Whatever the reason, high prices emboldened farmers to rush immature or low-quality seaweed to market, flooding buyers with too much supply,” writes Barta. “Many farmers say greedy traders made matters worse by mixing raw seaweed with sand or cement to increase the product’s weight, and hence its selling price, upsetting buyers in China and sending prices into a death spiral. Sand, dirt and other contaminants add no value to the seaweed and must be removed to get the carrageenan.”

“No one knows when the market will hit bottom. Some traders are sitting on stockpiles they bought when the market was hot, and if global growth slows further, as expected, demand could weaken,” he continues. Whatever happens, the latest volatility is a wake-up call for the seaweed industry, which has been growing steadily for years.”

Still seaweed farmers are hopeful.

“This boom-and-bust type of thing happens,” Barta quotes seaweed consultant Iain Neish as saying. “But in the long run, he says, don’t worry: Seaweed is ‘as good as gold.'”

PATRICK BARTA. Indonesia Got Soaked When The Seaweed Bubble Burst. The Wall Street Journal Oct 21, 2008

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