Rice security a moving target

The Jakarta Post ,  Jakarta   |  Thu, 02/22/2007 8:51 AM  |  Opinion

Every time a bout of price rises hit the market, as they have done over the last few weeks, the basic issue of Indonesia's food security resurfaces, with the question of the need for rice imports setting off endless, fruitless debate.

As during the previous wave of rice price hikes in the first two weeks of last December, the government has again come out with a long list of what it will do to increase rice production. But again, like with its promises last December, the pronounced rice production expansion will remain on paper as soon as prices come down in the next few weeks as the harvest begins in several major rice producing areas.

Food security is always an emotional issue, as local food shortages and sudden hikes in food prices mobilize public sentiment. However defined, economically or politically, food security is clearly a public good the government must provide.

However, the current political approach to stimulating productivity growth through price policies and non-tariff barriers to imports is fraught with difficulties. There is even a great deal of confusion about the level of rice prices as many analysts, private research organizations and farmer representatives complain about low prices.

Even with the incentives provided by high domestic rice prices, farmers have failed to significantly raise productivity because they do not have access to new technologies. In fact, as Peter Timmer, an expert on Indonesian rice production, found in a study in 2004, higher rice prices have produced a zero-sum outcome -- any increase in rice farmers' incomes will be lost as rice consumers must pay higher prices.

Allowing rice prices to continue rising to give higher earnings to farmers, as many politicians and analysts have suggested, is entirely against common sense and will instead only hurt the majority of the people, 80 percent of whom are net rice consumers. In fact, as data at the Central Statistics Agency show, more than 75 percent of rice growers are themselves net rice consumers. And high prices hit the poorest segments of society hardest, because almost 25 percent of their household spending goes to rice.

Moreover, because of the country's long and porous coastline, close to several major rice exporting ports, it is nearly impossible for Indonesia's domestic rice prices to be kept much higher than border prices without resulting in the smuggling of rice into the country.

Policy-makers seem to stubbornly think that rice farmers need higher prices to stimulate production, and hence to improve Indonesia's food security, a policy the Soeharto administration embraced for more than three decades. But the current government seems to forget that the infrastructure that Soeharto built for his rice self-sufficiency strategy is now acutely inadequate.

The support infrastructure involved huge investments in irrigation and subsidized fertilizers, while the powerful State Logistics Agency (Bulog), which held import monopolies for rice, wheat, sugar and several other food commodities, operated rice storage units across the country and had almost unlimited access to subsidized credit financing.

The current Bulog not only is financially weak but also has been converted into a commercial entity that has to finance its own operations without steady revenue streams from lucrative import monopolies.

Hence, if the government decides to continue its present policy of controlling rice prices within a periodically reviewed range of floor and ceiling prices to ensure fairness for both consumers and producers, there should be a new political consensus to strengthen Bulog's resources, to enable it to build up large rice stocks through domestic or import procurements for market operations to stabilize prices.

However, in the long run, and in the absence of new technology breakthroughs and of any significant expansion in rice acreage outside Java due to a lack of irrigation networks, there seems to be no better alternative policies for the government, except to step up food diversification programs.

As we have often argued on this page, it would be virtually impossible to ensure food security based solely on a single commodity -- rice -- for the world's fourth largest nation, with a population of 230 million. Rice self-sufficiency across this vast archipelago is simply a moving target, as the key factors that influence output are completely beyond our control.

The government's agricultural revitalization program should therefore aim at encouraging crop diversification by making it cheaper for farmers, who diversify into higher-value crops such as fruits, to buy rice from the market. In the meantime, rice imports should remain open as a deterrent to the speculative rice trade and to meet domestic deficits in the event of harvest failures as a result of unfavorable climatic conditions.

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