COVID-19 and Artisanal Miners in Indonesia’s Kalimantan Province

By Erza Winanto - May 26, 2020

Posted in: Categories COVID-19 Tagged as: Tags Gold Prices, Indonesia

Repercussions from the COVID-19 pandemic have reached even the most isolated regions of the globe, among them the Artisanal Gold Council’s project in the Pudu Jaya WPR area in Central Kalimantan, Indonesia. The AGC project lies surrounded by palm forest about an hour’s journey from the nearest gold buying centre of Paranggean, which itself lies some 120km from the district capital of Sampit. From Sampit, it’s a three hour flight to the Indonesian export points in Surabaya and Jakarta.

The first effects of the pandemic reached Kalimantan in mid-March, in the form of rising prices for food and other staples. The outbreak of COVID-19 cases in the capital, Jakarta, had lead to panic-buying and caused a spike in food prices that rippled out through the rest of the country. At the same time the Rupiah fell some 20% in value compared to the US dollar (see Figure 1), making fuel and transportation more expensive, with ripple-on effects throughout the economy.

Figure 1. US Dollar exchange rate to the Indonesian Rupiah (IDR)

.Paranggean’s remote location meant prices were already elevated there compared with the rest of the country. The price shocks coming out of the capital only accentuated this problem.At the same time, the price paid for artisanal gold in Paranggean began to separate from the international price of gold. As shown in Figure 2, the international price for gold soared nearly 23% between January and April, from 700,000 IDR/g to 860,000 IDR/g. The local price paid in Paranggean, on the other hand, remained essentially unchanged over that same period, rising from 650,000 IDR/g to 712,500 IDR/g before falling back to 650,000 IDR/g in April. The net result is that gold in Paranggean, which had sold at 93% of world spot price in January was by late April selling at a mere 76% of world price.

Figure 2. The price of gold in the international market and the gold in local gold shops in Paranggean (assuming all the gold in Paranggean have 80% of purity and then extrapolate it into 100%).

In Paranggean, artisanal miners from the Pudu Jaya Lestari Cooperative rely on two gold shops to sell their gold. These two shops in turn sell their gold in the market hubs of Sampit or Banjarmasin. Miners who sell to these shops are never informed of the purity of their gold. Bargaining is discouraged, and miners are in any case largely uninformed of the price of gold in the international international market. The COVD-19 pandemic has only accentuated what was already a buyer’s market, providing the gold shops with the opportunity to further increase their profit margins.

Figure 3 show this increasing margin between the local price and international price, from 50,000 IDR in January to 210,000 IDR in April. There could of course be many factors aside from purely profit. Gold shops, like miners, are affected by the increases in the prices of food and other goods, particularly transportation. Uncertainty is another factor. With transportation links subject to closure, and the status of the markets in Jakarta unclear, local shop owners might simply be unsure of when and for how much they can sell the gold they’ve acquired, and might be building a margin of error into their prices.

Figure 3. Margins of Local Gold shops at Paranggean

Unfortunately, local shop owners have been quite secretive about their motives and the basis of their gold pricing. This has generated some local resentment, and could eventually become a liability. More openness would be one way for local gold shops to avoid charges of hoarding gold and profiteering. In the longer term, miners or others including the AGC may need to develop more robust and more transparent gold supply chains that better serve the interest of Kalimantan’s artisanal gold producers, the local gold market, and the government.

Editing by Shawn Blore

References:
https://www.indogold.id/harga-emas-hari-ini
https://www.xe.com/currencycharts/?from=USD&to=IDR&view=1Y
Prices of gold in Paranggean from local miners.