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The uproar over Indonesia's rice imports

Publication Date : 07-02-2014

 

The uproar in the last few days over alleged rice smuggling merely reinforces the fact that rice is a politically charged commodity, and just how confusing the Indonesian government’s policy is regarding this national food staple.

Many analysts and politicians have accused the Trade Ministry, which issues rice-import licenses, of causing misery to farmers; and the issue became headline news in a number of media outlets when Gita Wirjawan resigned as trade minister amid the debacle.

This furor simply ignored the fact that the issue concerns only about 16,500 tonnes of allegedly smuggled rice, compared to the national output of around 37 million tonnes last year and domestic consumption of 35 million tonnes.

The country has enjoyed a modest rice surplus over the last two years. However, the current political approach to stimulating productivity through a price policy and non-tariff barriers on imports has been fraught with difficulties and corruption.

There is also a great deal of confusion about the real level of rice prices, as many analysts and farmers’ representatives have complained about low prices.

The dilemma is that allowing rice prices to continue to rise to give higher earnings to the farmers, as several politicians and analysts have suggested, goes entirely against common sense and will instead only hurt the majority of people, 80 per cent of whom are net rice consumers.

Data from the Central Statistics Agency (BPS) shows that more than 75 per cent of rice growers are net rice consumers. High prices hit the poorest even harder because almost 30 per cent of their household spending goes toward rice.

Moreover, because of the country’s lengthy and porous coastline, which is close to several major rice-exporting ports in Thailand and Vietnam, it is virtually impossible for Indonesia’s domestic rice price to be maintained at a higher level than border prices without encouraging smuggling.

The present policy of controlling rice prices within an annually reviewed range of floor and ceiling prices, to ensure fairness for both consumers and producers and making rice imports only a contingency measure, is considered adequate.

But this price mechanism must be supported by a financially strong State Logistics Agency (Bulog) to enable it to build up an adequate buffer in rice stocks, through domestic supplies or imports for market operations, to stabilise prices.

The biggest challenge is to ensure that Bulog has enough funds to make purchases whenever needed to defend the floor price, and enough stocks to release to the market whenever prices rise too far above the fixed ceiling.

Bulog’s market interventions, however, should be designed in such a way that price fluctuations still allow for a fair profit margin for wholesalers and retailers. It makes no economic or political sense for Bulog to manage more than 10 per cent of national consumption as buffer stocks. The bulk of national stocks should be held by private traders and farmers.

 

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