High food prices teach that we reap as we sow

Taco Bottema , Bogor | Sat, 04/19/2008 12:24 PM | Opinion

Food security is back as a hot international issue, not just in Indonesia. Consumers are facing high prices of food. But the rising prices can only create rewards for producers.

Prices of foodstuffs have risen 80 percent over the last two years, rice prices are at a 19-year high, wheat is at a 28-year high and global food stocks are low. With this happening one would expect farmers to have taken some benefits of these high prices already. But paradoxically poverty continues to prevail in rural areas in Asia, with some 70 percent of the poor deriving their living from agriculture one way or the other.

The World Bank has recently warned that 33 countries run the risk of social unrest. China, Vietnam and India have cut exports, while Indonesia has lowered its tariff on imports. Kazachstan, a major wheat-exporting country, has increased its export tariffs.

In Indonesia, as in many other countries, high food prices are the main contributing factor to high current inflation, spreading its effect in the wider economy. The wider global economy, though fed by high growth in China and India, is not free from shocks. The United States is in a recession, while many banks worldwide are still trying to count their losses from the U.S. mortgage bubble.

We are witnessing a truly unique event in the global economy. The long decline of prices for agriculture seems to have come to an end. Apparently the global food economy is now supply-constrained.

What can countries do? Very simple. In theory. Invest in agriculture, rural infrastructure, including irrigation, education and health and harmonize trade policies and tariffs applying to foodstuffs. And design and conduct research and development programs, and use the results. But the effects of these intervention areas will only be felt after a while, and in the meantime policymakers have to deal with the here and now of food scarcity. By necessity short-term supply adjustment policies are needed.

One thing is certain: It is in the interests of rice-producing and rice-consuming countries to get together and set short-term policy agendas. Regional and subregional consultations are necessary; bilateral negotiations only will not provide the answers.

It is very important that in these talks the starting points are well-defined. To contribute some information to this, it is worthwhile to know how Indonesia solved food security questions in previous years because the future policies will by necessity be based on interventions that have worked.

In the years 1970-1990, when the rural economy in Java was primarily driven by expansion of rice production and yield growth, the government of Indonesia operated an intricate system whereby locally buffer stocks of rice were stored while in times of shortage the government purchased and imported rice for distribution.

A bottom purchasing price was established but quite rarely used. This system was in operation for decades and most development economists still consider it the flagship of Indonesia's agriculture and rural development policies. The system was never truly abandoned and the organizations involved are still in operation.

However, the unity of the system and its impact have been diluted heavily in recent years. It is essential to appreciate that this system could only work with consistent investment in agriculture. This is where Indonesia -- as so many other countries -- has missed out on a window of opportunity.

One thing is very important to factor into policymaking and this is the competition for land by the many different crops and changing land use. Irrigated land is primarily decreasing due to the conversion of land to housing and manufacturing purposes, while farmers may earn more cash from using irrigated land for horticulture crops.

In the rain-fed areas, where virtually all the secondary crops are cultivated, the expansion of land under palm oil and rubber competes with the cultivation of maize and cassava, the main sources of fall-back food security.

Current world market prices are still a bit lower than wholesale prices in Indonesia, which means there is at this very time little sustained incentive for Indonesian traders to export. This may change depending on location and season.

As in all developed and developing countries, the Indonesia government faces pressure from producers to keep prices high while it also faces pressure from consumers who benefit from lower prices.

In view of the millions of small-scale rice producers, producer support would seem to make real sense, but with the prospect of an increase of poor urban consumers, the horns of the dilemma will become more pointed in the near future.

Steady policymaking and implementation is the main requirement and such policy should not only cover rice but also the secondary crops as sources of food security. The current high prices offer a golden opportunity to use market-driven price development to stabilize prices with one long term goal -- reducing poverty in rural areas -- and two short term goals: stabilizing rice prices for producers as well as steadying rice prices for consumers at acceptable levels.

The writer is director of the UNESCAP Centre for the Alleviation of Poverty through Secondary Crops (CAPSA) in Bogor.

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