Food security necessitates overhaul of govt rice policy

The Jakarta Post , Jakarta | Mon, 09/11/2006 7:50 AM | Opinion

Winarno Zain, Jakarta

After much haggling between ministers, and after much criticism from many sides the government has decided to import rice, a controversial and sensitive issue. The reason cited for the import was the continuing drop in rice buffer stocks held by the State Logistics Agency (Bulog). It has fallen to below 500,000 tons, well below the standard minimum of 1 million tons. However, Indonesia will have to import more rice in the future, for reasons that are more fundamental.

Although the Indonesian economy has been diversifying and industrializing in the last three decades, rice still exerts a significant influence on the economy. The monthly inflation rate is still largely determined by the movement in rice prices. Setting up floor and ceiling prices -- the cornerstone of the government policy in improving the welfare of rice farmers -- have consumed much government efforts.

However, this policy sometimes was pursued at the expense of the interests of millions of urban workers and urban poor, who have to pay more for the rice they consume. Sometimes it is not realized that rice policy is central to the efforts to alleviate poverty. It is important that the government overhaul its rice policy in the light of two important developments that have been taking place. One is the continuing stagnation in domestic rice production, and the second is the rising cost of imported rice.

In the 25 year period up to 1992, rice production grew at an annual rate of 5.5 percent. This was the period when green revolution technology had its biggest impact on rice production in Indonesia. However, growth began to slow in the late 1980s and stagnated in the 1990s. During 1993-2000, production growth averaged only 0.7 percent per year.

This was the period when Indonesia suffered from a weather-induced decline in food production and macroeconomic shocks during the latter part of 1990s that exacerbated the slow down in output growth. While population grew by an average of 1.8 percent every year, rice production in 2002 was around 52 million tons, about the same as production in 1999.

Reasons for the decline in rice production are not difficult to find. Rice production, like any other agricultural products depend on natural resources and technology. For the last 30 years, industrial development and population growth have claimed substantial chunks of land previously used for rice farms.

During this time, around 1 million hectares of rice fields have been transformed into factories, housing and roads. The availability of land for rice planting will continue to decline, especially in Java, making efforts to achieve sustainability in rice production more difficult.

The use of fertilizer dropped sharply in the 1993-2000 period. During this time, the use of fertilizer grew only 0.1 percent every year compared with growth of 16 percent per annum in the period 1968-1992. The sharp contrast in the use of fertilizer for the two periods could be attributed to the rise in fertilizer prices.

Since the economic crisis hit in 1998, irrigation networks throughout the country have been neglected. The government has been unable to build new irrigation networks and has not maintained the existing ones. The government has no money to expand agricultural research, resulting in a dramatic decline in research expenditure since early 1990s. Real expenditure on public agricultural research in 2001 was no greater than in 1995.

At present, spending for agricultural research is less than 0.1 percent of agricultural GDP, lower than in Bangladesh and ranking near the bottom compared to other Asian countries. As a result, agricultural productivity declined by 0.1 percent per annum from 1993 to 2000. With the decline in productivity, the growth in rice production has relied heavily on traditional resources like land and labor.

Productivity has stopped being a major contributor in rice production in Indonesia. By comparison, in China, productivity growth accounted for 62 percent of its agricultural production growth, while similar figures for India were 70 percent.

The stagnation in productivity growth has serious implications for long-term performance of Indonesian food crops. Indonesia will find it increasingly difficult to expand rice farmland, and without growth in productivity, rice output will continue to grow very slowly.

Therefore, the challenge for Indonesia is to reinvigorate productivity gains among rural farmers as means to improve their income. This means more spending for infrastructure in rural areas, and for new technology in planting. Improving infrastructure in rural areas is also critical as it allows farmers to earn non-farm income. Better infrastructure will induce higher investment in non-farm small industries that could absorb rural labor, allowing them to earn higher income.

Policies to encourage crop diversification have to be pursued so that rice farmers can improve their income by cultivating crops with higher added value such as fruit, vegetables and processed foods. With increasing income of the urban population, demand for this product has increased considerably specially from urban areas. The rice farmers should be given incentives to tap these growing markets.

Even if the government opted for importing rice as a means to stabilize domestic stock and prices, importing rice is no longer cheap. During the past year, rice prices in the world market have gone up by 48 percent surpassing price increases of other commodities. Supply is getting tighter all over the world.

The U.S. Department of Agriculture reported that world rice surplus is now barely half the level in 2000, reaching a 26-year record low. Rice farmers all over the world are feeling the pinch as fertilizer prices rose steeply pushed up by soaring energy prices. They are shifting to grains that are cheaper to grow and fruit and vegetables.

This is happening in the face of rising demand from China, where in the past decades 8 million hectares or 6 percent of its land has been turned into land to build factories, apartments and infrastructures. Commodity traders forecast that rice prices could double by 2008.

With three million additional mouths to feed every year, it will be more costly to feed Indonesians in the years to come. However, because neither the government nor the legislature have realized the consequences, reform in rice policy has not been brought to the fore.

If we want to avoid food shortages in the future, the government should be more serious about reforming its rice policy, and stop treating the rice policy -- especially rice import -- as a political football among politicians.

The writer is an economic analyst.

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