22 October 2008

Indonesian seaweed bubble bursts

There is a $14 billion global market for seaweed!
A few months ago, the price for a key type of Indonesian seaweed suddenly more than tripled. Then, just as quickly, the seaweed bubble burst.

The seaweed from Indonesia and other tropical nations is more often a yellowish variety that yields an extract called carrageenan that is used widely by manufacturers as a thickening agent. It's also useful for holding processed meats together and maintaining moisture.

First alert from mongabay.com.

Indonesia Got Soaked When The Seaweed Bubble Burst
Prices Soared as Traders Dived In; Farmers Cancel Pilgrimages to Mecca
The Wall Street Journal 21 Oct 08;
BANTAENG, Indonesia -- Something fishy happened to seaweed last summer on this tropical island.

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.

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. By early September, prices skidded to 12,000 rupiah. By October, they were down to 10,000, and they may be headed lower.

"Nothing like this has ever happened before," says Asu Hasna, a 42-year-old seaweed farmer in this coastal community on the island of Sulawesi, which, along with parts of the Philippines, is a tropical seaweed hot spot. Before, she says, seaweed prices never fell. "These are bad times."

Despite recent declines, prices are still higher than they were a year ago. But the recriminations over what went wrong have begun, complete with calls for more government involvement, efforts to make the industry more transparent and reforms to restore market confidence.

The Indonesian Seaweed Association called a news conference at which its chairman urged farmers to stay calm and focused on growing high-quality weed.

"Seaweed is out of control," says H. Djusdil Akrim, director of a factory in Makassar, Sulawesi's biggest city, that buys seaweed and processes it into a powder and other forms that buyers in Asia, Europe and Latin America can use to thicken foods. "It's a wild, wild market -- and no one is running it," he says. "I think we need more regulation."

What little is known amounts to this: Around the middle of the year, hordes of new traders from across Indonesia and Hong Kong began washing ashore in Sulawesi and elsewhere, cozying up to seaweed farmers and offering extraordinarily high prices.

The seaweed in question is different from the well-known green nori used to make sushi. The seaweed from Indonesia and other tropical nations is more often a yellowish variety that yields an extract called carrageenan that is used widely by manufacturers as a thickening agent. It's also useful for holding processed meats together and maintaining moisture.

Suddenly, traders couldn't get enough of the stuff.

"There were hundreds of them flocking," says Hasan Basri, who works with the chairman of the Indonesian Seaweed Association. But a month or two later, the traders were gone, and the fat profits for farmers and traders went with them.
Responding to Demand

One explanation for the jump in prices is that traders were simply responding to demand from China, with its boost from the Olympics, while supplies from some sources -- notably the Philippines -- weren't available because of bad weather.

Another theory is that Chinese food-ingredient companies were engaged in a vicious turf war, with some colluding to drive up the cost of seaweed in order to knock competitors out of the business. Yet another view is that speculators and traders saw the midyear surge in crude oil and other commodity prices and figured seaweed would follow, so they filled their warehouses in hopes prices would keep climbing.

Whatever the reason, high prices emboldened farmers to rush immature or low-quality seaweed to market, flooding buyers with too much supply.

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.

Whatever happens, the latest volatility is a wake-up call for the seaweed industry, which has been growing steadily for years. Although the plant has been used for centuries in some foods, it took off in the 1960s, when big food companies started using it more widely to add texture to ice cream and other products.

By the 1970s, demand was growing faster than supply. Traders enlisted small farmers, especially in Indonesia and the Philippines, which have warm weather, cheap labor and lots of underdeveloped coastline.

To grow the seaweed, farmers stretch out lines of cord in the shallow waters along the shore. Then they tie small pieces of seaweed -- often collected from local coral -- to the rope. The plant then just grows on its own. After 45 days or so, farmers haul in their lines and untie the bigger pieces, which they then leave out to dry.

Thus the traders came to Bantaeng, a quiet coastal town of pastel-colored houses. Its Muslim seafaring residents had long lived off fishing. But in recent decades, the catch has declined. Locals were more than happy to switch to seaweed, which takes little start-up capital and yields steady profits, year after year.

"We were excited" by seaweed, says Ms. Hasna, the Bantaeng farmer. If it isn't storming, she says, some farmers could earn as much as $2,000 a month, and prices never went down.

One farmer says he bought a $1,300 Yamaha motorbike when seaweed prices spiked this year. Others planned new additions to their houses, or signed up to go to Saudi Arabia for pilgrimages to Mecca.

"I simply took it as a blessing," says 43-year-old Jamaluddin, who, like many Indonesians, uses only one name. He was found one recent evening wearing a blue plastic helmet as he hauled in a seaweed harvest and untied it on the beach at Bantaeng. "I thought it would go even higher."

But as prices started to retreat, bad feelings spread. Some people had to cancel their pilgrimages and curtail their spending.

Sauk den Rate, a 36-year-old trader who lives in Bantaeng, says his own neighbors accused him of adulterating seaweed to bulk up his profits when prices soared.

He doesn't deny some traders have done that -- but says he hasn't. He says he merely takes orders from a Chinese buyer in Makassar.

Just Taking Orders

Contacted by phone, that buyer, a man named Bago, said he wasn't to blame either. He said he takes his orders from buyers in Jakarta, whom he refused to name. He then asked a reporter if the reporter was interested in buying any seaweed; Bago has 20 tons sitting in a warehouse.

As with the U.S. financial meltdown, there's no shortage of ideas floating around to restore confidence to the market. Safari Azis, chairman of the Indonesian Seaweed Association, says he has been pressing to create a certificate-of-origin program designed to force farmers to maintain minimum quality standards.

Many others believe the industry needs to do what Wall Street is doing: Consolidate. Iain Neish, an Indonesian-based seaweed consultant, says that process is already under way, with international aid agencies, nongovernmental groups and consultants such as himself advising farmers on how to organize and make a more transparent industry.

"This boom-and-bust type of thing happens," Mr. Neish says. But in the long run, he says, don't worry: Seaweed is "as good as gold."

—Yayu Yuniar contributed to this article.

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