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In an unanticipated move, President Susilo Bambang Yudhoyono recently said the government might reestablish State Logistics Agency (Bulog) as a buffer stock agency to help stabilize the price of rice and other key food commodities such as soybean and cooking oil. Bulog has plans to set up around 1,700 distribution centers, dubbed Bulog Mart, to prepare for this new function.
The Jakarta Post’s Linda Yulisman recently talked to institution chief Soetarto Alimoeso about Bulog’s new role and other issues. Below are the excerpts:
Question: Recently, President Yudhoyono said that the government will ressurrect Bulog’s function as a buffer stock body for key food commodities. How do you feel about that proposal?
Answer: This is mainly a political decision and it will be followed up by the related ministries. So far, the Coordinating Economic Ministry has set up a team to study what Bulog should do to follow up the President’s plan.
Since 2003, Bulog, as a perum [semi-private firm], has only been authorized to manage and control the price of rice. However, whenever prices of other food commodities are particularly volatile, people question whether Bulog should have a moderating presence in the marketplace.
It’s not much of a surprise that consumers are demanding we take a more prominent role in stabilizing prices for basic food staples like sugar, soybeans, cooking oil in the future.
Bulog has three business units. The first deals with farming as related to commodities like corn or sugar; the second deals with distribution; the third, sales. We have set up a network of distribution centers: “Bulog Marts”. We plan to set up Bulog Marts nationwide. These outlets are accessible to cooperatives, kiosks, small shops, etc. and this way we reduce the supply chain and improve efficiency,
resulting in lower prices. For example, we can work more closely with state-owned firm PT Perkebunan Nusantara which produces sugar.
At present, commodity prices float according to market mechanisms. Do you think the return of Bulog as a buffer stock body is a step back?
While our economy expands well, inflation reduces growth. Volatile food prices are one of the main contributors to inflation. Price fluctuations of key food commodities can hamper economic growth.
When prices fluctuate unpredictably, we can say the market “fails”. Is it wrong if the government steps in? Any government would take similar steps, so this is normal and is not a setback. The government has an obligation to secure food prices. The price of staples cannot just be freely determined by the market, particularly because of the effect on people with low incomes.
To intervene in the market, the government needs an instrument. In this case the instrument is Bulog. Our job is to stabilize prices.
What commodities will be tackled by Bulog?
The government should intervene with at least six basic food commodities whenever the market fails: rice, sugar, soybean, corn, cooking oil, beef.
What, technically, will Bulog do when prices fluctuate?
The mechanism is currently under discussion. In the case of rice, the government buys rice from local farmers. The government also has rice reserves, which are also partly sourced from local farmers. When the price surges, we release this reserve at a price set by the government.
I think this mechanism can also be applied to soybeans. The government also needs to set up special trade arrangements for soybeans. We have cooperatives of soybean product producers. Local soybean producers should be connected to the network of products makers. We can also supply imported soybeans.
Do you see if the sharp fluctuation of prices is caused by an involvement of a cartel in the business?
I cannot comment on that. I don’t know if it’s a cartel or not. The fact is that imported soybeans accounts for 60 percent of our needs and there are several big importers who dominate the market. In the end, these players set the price.
So, is it an oligopoly?
Yes, it’s an oligopoly.
And this needs intervention?
Yes, oligopoly creates an unhealthy competition and can lead to a cartel.
When Bulog becomes a buffer stock body, does it mean that other companies are not allowed to import?
I don’t think so. Bulog only needs to play a role so that the government can engage in setting a normal price.
In the past, there have been several corruption scandals in Bulog. What will you do to avoid similar problems?
Bulog has conducted major changes and applied corporate governance as well as clean and clear principles. To improve accountability, we have set rules that we have to comply with and renew.
We are aiming to be more transparent.
When we import through government-to-government arrangements, we engage our embassies in the countries of import origin and a special team, which appraises the price.
For a commercial deal, we make an open tender, and invite bids. We don’t use any brokers.