W8_AEP_Cow saving for Eid al-Adha


ox year

Problem identification

Performing sacrifice is something that is highly recommended for every wealthy Muslim. Allah has determined camels, oxen, goats and sheep as sacrificial animals. A goat or a sheep slaughtered on Eid al-Adha feast is sufficient for a family. A Camel or a cow can be sacrificed for the seven people in associate. Livestock prices increasing every year, influenced by market supply and demand, import policies, national food security enhancement programs, as well as inflation. According to 2013, a unit price of a live cow was Rp47 000 per kg, while in 2009 price only Rp30 000 per kg. In today’s rupiah, the price in 2009 is equal to Rp36 000. Purchase power of Rupiah to the livestock prices is decreasing.

Development of alternatives

The livestock for sacrificial animals is priced in Rupiah if purchased in Indonesia. But in order to have sufficient Rupiah, we can save some money in foreign currency such as US Dollar, or in Gold Dinar (GD). Gold Dinar is sized at 4,25 grams gold with a purity of 91,7%.

Development of prospective outcomes

From statistical data between 1980 and 2013 we can plot the price of cow per kg both in rupiah and USD. In addition, we also plot the price of cow per kg in GD. Given the fact that inflation affects the purchasing power of money, and then the price is formulated into the purchasing power in 2013.

Selection of the acceptable criteria.

Either saving in USD or GD which is gives the most purchasing power of cow saving for Eid al-Adha.

Analysis and comparison of alternatives.

Picture 1 shows that although the Rupiah purchasing power has been adjusted to 2013 value, the unit price of live cow is tend to increase. The same trending for US Dollar price is shown in Picture 2. I have to prepare that next year unit price is higher than today. With the inflation rate of 6.5%, using FV formulae, at least Rp50 056 will be the 2014 price per kg of live cow. With the US inflation rate at 1,5%, using FV formulae, at least $5,54 will be the 2014 unit price of live cow.

Rp-GD

Picture 1. Live cow unit Price in Rupiah and GD

USD-GD

Picture 2. Live cow unit Price in USD and GD

Exchange rate for USD and GD in Rupiah is shown in Picture 3. Picture 4, the London Fix curve for gold, confirming the exchange rate of GD in Rupiah shown in Picture 3.

exchange

Picture 3. Exchange rate for USD and GD in Rupiah

au75-pres

Picture 4. London Fix Gold Price, www.kitco.com

From Picture 1 and Picture 2, we can see that GD price for livestock had took the stable position along the time with the average of 0,06 GD per kg of live cow. The trend in the late 5 years of 0,04 GD per kg can assure that 2014 price of live cow will be about at the same value.

Selection of the preferred alternative

Saving for cow for the next Eid al-Adha in GD is preferred as it gives the most purchasing power. The second preference is saving in US Dollar or in other stable currency such as Japan Yen or Great Britain Pound sterling, or China Yuan.

Performance monitoring and postevaluation of results

It is the fact that cannot be denied, Rupiah has lost its purchasing power up to 200% in just 30 years. Although the U.S. dollar in the same period is also losing at the same value, saving in USD for short term could be better than saving in Rupiah. However, the condition of world’s politics and the market supply and demand for gold, can also affect its sale price in various currencies.

References

ANALISIS HARGA DAGING SAPI (PART 2) ~ Daging Sapi. (2012, November). Retrieved from http://analisisdagingsapi.blogspot.com/2012/11/analisis-harga-daging-sapi-part-2.html

Bank Sentral Republik Indonesia (n.d.). LAPORAN INFLASI (Indeks Harga Konsumen). Retrieved from http://www.bi.go.id/web/id/Moneter/Inflasi/Data+Inflasi/

Historical exchange rates from 1953 with graph and charts – fxtop.com. (n.d.). Retrieved from http://goo.gl/v6aDFE

Inflation Calculator | Find US Dollar’s Value from 1913-2013. (n.d.). Retrieved from http://www.usinflationcalculator.com/

Iqbal, M. (n.d.). Dinar Calculator. Retrieved from http://geraidinar.com/index.php/dinar-calk

Iqbal, M. (2013, January 7). Harga Emas : Tidak Terlalu Tinggi dan Tidak Terlalu Rendah…. Retrieved from http://goo.gl/WImoHB

Kementerian Perdagangan (2011). Tinjauan Pasar Daging Sapi (04/SAP/TKSPP/2011). Retrieved from http://ews.kemendag.go.id/ews2/Sangkuriang/Publikasi/dokumen/sapi2011050101.pdf

Kementerian Pertanian (2012). Statistik Harga Komoditas Pertanian Tahun 2012. Retrieved from Pusdatin Pertanian website: http://pusdatin.deptan.go.id/admin/satlak/Statistik_Harga_2012.pdf

London Fix Historical gold – result. (n.d.). Retrieved from http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

Setiawan, N. (2006, March). Perkembangan Harga Daging dan Telur Ayam 1980 – 2004.Majalah Poultry Indonesia1(2006).

Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2012). Chapter 8 / Price Changes And Exchange Rates. In Engineering economy (15th ed., pp. 344-369). Boston: Prentice Hall.

The World Bank (2013, March). PERKEMBANGAN TRIWULANAN PEREKONOMIAN INDONESIA. Retrieved from http://www.worldbank.org/content/dam/Worldbank/document/EAP/Indonesia/IEQ-MARCH-2013-BHS.pdf

US Inflation Calculator | US Inflation. (n.d.). Retrieved from http://usinflation.org/cpi-inflation-calculator/

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4 Comments

Filed under Afriandi EP, Week 08

4 responses to “W8_AEP_Cow saving for Eid al-Adha

  1. Hi Pak Afriandi, First, I really LOVED your case study….. Very unusual and it made me really look hard to fully understand it.

    BUT, what you did doesn’t make any sense to me…..

    Here is what I am suggesting you do for your W8.1 blog……

    FIRST read over Chapter 8 in your Engineering Economy to fully understand the terminology and the concepts.

    THEN convert the price per kg sapi of in grams of gold…….. Go back 10 years and divide the cost/kg in rupiah and in dollars and divide each of those numbers by the average cost of gold per gram (in dollars and in rupiah) for that same time period. This will give you grams of gold per kg of sapi for BOTH dollars and rupiah.

    Then using grams of gold per kg, as the basis for your cost estimate,, extrapolate your data forward until 2020…..

    Once you have created those two graphs (one in grams per kg using the dollar cost of gold and the second grams per kg using the rupiah cost of gold), then plot the cost of a gram of gold just like Pak Hari did and extrapolate that forward also to 2020, Ideally you will generate three curves- a best case, worst case and most likely grams per kg.

    Based on the shape of those two curves, then you can decide whether you would be better off to use today’s dollars to buy gold or use rupiah today to buy gold but because gold is the only currency which is stable right now, the only safe decision would be to buy enough grams of gold TODAY to protect your purchasing power enough to be sure you have enough to gold to convert back to either rupiah or dollars, to pay for the sapi in 2014. Explained another way, GOLD is the “safe haven”….. The only real question is whether you convert the gold you buy today into dollars or into rupiah in another year to pay for next year’s sapi……

    As a side note, NONE of the global currencies is stable right now- not the Yen, not the British Pound, not the Euro and certainly not the US dollar. The Remimbi is also not stable as it is being manipulated by China to remain grossly under-valued to keep the Chinese products cheap. But sooner or later, China will be forced to let the Remimbi float.

    Another point- ALL governments manipulate or lie about their inflation rates as well. The US being one of the worst. http://goo.gl/IHgipa This paper will explain it all…..

    Bottom line- GREAT case study and for your W8.1 blog, use grams of gold per kg of sapi as your BASE CASE extrapolated to 2020 and the rest should be very easy to understand and calculate. And if you get stuck, both Pak Arif and Pak Hari are now subject matter experts who can help guide you.

    BR,
    Dr. PDG, Jakarta

    • thank you very much for the comments, doc. actually a gold dinar has already set its own currency to measure 4,25 grams of pure gold just as an Oz of gold equals to 28,35 grams.

      But to make you easy to fully understand, i will follow your suggestions.

      • Good……. Even though the Dinar is 4.25 grams of gold, it still would be better to convert to the same basis (grams of gold equivalence) rather than trying to compare dollars and rupiah and dinar….

        As you will find from Chapter 8, what you need is that common denominator and grams (or ounces) of gold is the best, simply because the purchasing power parity of gold is MUCH more stable than any paper currency.

        Looking forward to your corrected version…

        BR,
        Dr. PDG

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