D

espite priding itself on being an agricultural country, Indonesia regularly suffers severe price inflation in basic food commodities, such as beef, chicken, garlic and soybeans.

The government has concluded that several reasons lie behind soaring food prices. Seasonal factors such as religious holidays are among the reasons behind food inflation, such as beef in the lead-up to the Islamic holiday of Idul Fitri.

Aside from increasing demand, price hikes are also caused by reduced supply resulting from lower production. Producers have blamed the lack of incentives from the government for the low domestic production of soybeans, garlic and beef.

They also blame the government for a lack of policies to boost domestic production. Low domestic production then leads the government to source commodities from overseas.

Economists Bustanul Arifin from the University of Lampung and Kartini Samon from GRAIN Asia have emphasized that the government needs to outline policies to deal with this issue, saying increased imports are not a long-term solution.

They say the government needs to establish an agency with the authority to supervise food supply. '€œIt is no secret that, in this country, business players have close relations with political figures. So an institution legally mandated to supervise the food supply chain and to intervene when there are problems in the market is essential,'€ Kartini said.

The government has raised import quotas for garlic and beef after price surges and has scrapped import duties on soybeans to stabilize prices. The reliance on imports, however, has been lambasted by local producers, who say that it is counterproductive for local farmers and contravenes the 2012 Food Law, which allows food imports only as a last resort.

'€œMost of the commodities that are subject to price volatility are those with a low domestic supply, such as garlic, 95 percent of which is imported, and soybeans, which have an annual demand of 2.5 million tons but an annual production of only 850,000 this year, according to BPS data [Central Statistics Agency],'€ the Trade Ministry domestic trade director general, Srie Agustina, told The Jakarta Post.

'€œFor other commodities, such as chicken meat and rice, the government adds supply to the market to counter price surges.'€

Even resorting to imports is not always a solution. The weakening rupiah, problems in producing countries and global food price hikes cause additional problems.

The situation is exacerbated by anti-competitive practices among players in the food industry, with the Business Competition Supervisory Commission (KPPU) investigating possible unfair and monopolistic business practices in the sale of beef, garlic and soybeans which may implicate dozens of importers.

The State Logistic Agency'€™s (Bulog) exclusive role of importing essential food commodities was ended by the government in early 1998 at the behest of the International Monetary Fund (IMF), which was organizing a multibillion-dollar bailout for the country. It now operates as a state-owned company.

Bulog director Soetarto Alimoeso, said that the agency would need to import at least 10 percent of national demand to actually affect prices, while the government allows the agency to import only 100,000 tons of soybeans and 3,000 tons of beef, far below the annual beef consumption of 500,000 tons.

Bustanul said that as Bulog was now also a business player in the industry, the government should establish a body to manage the country'€™s food trade and supply, adding that imports were only be a short-term answer to the country'€™s escalating food prices.

'€œPrice policy should run in conjunction with non-price policies, such as increasing production. Imports are only a temporary measure, boosting production is where the government always fails,'€ he said.