View point: Strengthening Bulog's role in achieving food security
The Jakarta Post
The government's plan to extend the oversight authority of the State Logistics Agency (Bulog) from only over rice to over 10 other food commodities, including sugar, cooking oil, beef, chicken, eggs, onions, chili and flour, should be seen as part of the broader program to achieve food security for the country's 250 million people.
Bulog remains one of the most important institutions for ensuring food security and food price stability in Indonesia, but a stronger and effective internal control system is needed for it because this company has since 2003, been assigned to undertake both commercial activities and public service obligations ' maintaining national security stocks, public procurement in support of farmgate prices and emergency food response.
The challenge here is that national food consumption occurs throughout the year and increases steadily because of population growth while food crop harvests take place mostly three to four times times a year, even only twice for rice in Java and just once in most areas outside Java where irrigation networks are inadequate.
Yet the most challenging thing is that farm production tends to fluctuate mainly because of weather factors that are beyond the control of producers or the government.
The internal control of Bulog should be exercised through the approval of its annual business plan and budget. The government also should enhance alternative delivery mechanisms and contracts with different providers of the public service obligations to establish measures of unit costs for comparison with Bulog's costs.
Bulog's market intervention, however, should be designed in such a way that the food price movements still allow for a fair profit margin for wholesalers and traders. Since it doesn't make any economic sense for Bulog to manage more than 8 percent of national consumption as buffer stocks, the bulk of national stocks should be held by private traders across the vast archipelago.
An effective internal control mechanism is a prerequisite to gaining a political consensus for the allocation of a much greater portion of the state budget to Bulog, to enable it to manage adequate national stocks of the food commodities.
Certainly Bulog will never be able to properly execute its tasks if it relies mainly on commercial bank loans. The bulk of its operational funding should be derived from the state budget and any bank loans that are still needed to support its working capital should be obtained at very low, or even subsidized interest rates.
During the authoritarian administration of Soeharto and even until 2007, Bulog had been notorious for being a bastion of corruption and a cash cow for politicians.
Indonesia generally does not suffer from a problem of food availability. It produces around 34 to 35 million tons of rice each year and consumes only slightly more, 36 to 37 million tons. Moreover private distribution networks appear to operate reasonably efficiently ensuring access to food throughout Indonesia. Secondary food crops and horticulture also are plentiful.
The most important element of food security is ensuring that the poor can afford to obtain food. This is best achieved through a broad-based strategy for growth ' particularly growth that benefits the poorest.
Certainly the main responsibility for securing dequate food supplies ' rice, secondary food commodities and horticuture produce ' falls on the shoulder of the Agriculture Ministry, but the ministry's programs should focus on productivity improvements across a wider array of agricultural produce as food consumption is shifting across all income groups toward higher quality foods.
For example, at their current growth rates, household consumption of fruits and vegetables and other horticulture produce may surpass the value of rice consumption within the next decade. The production of high value fruits, horticulture and livestock where domestic demand growth is highest should be enhanced.
Agricultural programs need to move aggressively toward a research and extension-service agenda focused on this high value and high growth produce and on assisting the broad base of small producers to meet quality standards for these emerging markets and to gain access to procurement chains that are increasingly defined by supermarkets.
I think as long as the government continues to depend on ad hoc policies as import measures to check food commodity prices, we remain vulnerable to bouts of wild food price gyration.
The government should implement integrated efforts to increase domestic supplies of the various food commodities as the number of middle-class consumers with strong purchasing power is projected to increase to more than 135 million within the next decade.
What I mean by integrated efforts here are continuous integrated programs to empower the farmers with extension services and farm input provided through cooperatives and other grassroots economic cooperation and to improve rural infrastructure.
Certainly, traditional retail markets need improved hygiene and sanitary standards, infrastructure (pavement, roads, buildings and stalls) and cold chain systems. This will create an efficient system linking producers, processors and packers to the modern procurement system.
The success stories of countries in developing a strong agricultural sector, such as South Korea, Taiwan and Thailand, show the important role of contract-farming schemes between farmers' associations or farmer cooperatives and large supermarket chains under government supervision.
Under such contract-farming schemes supermarket chains can act as the development agent for horticulture farmers, providing them with extension services, farm input, credit financing and market outlets.
At the end of the day, though, food security involves many complex issues ranging from trade and economic development to health and environment. Pursuing food self-sufficiency would not guarantee food security.
Food security should be made part of a broad-based agriculture development program with the ultimate objective of increasing rural household incomes both from farm and off-farm activities.
The concept thus aims at empowering the farmers' economy and the rural community through the development of rural and farm infrastructure. After all, more than 55 percent of the total population still lives off farming in rural areas.
Of most importance is to make the integrated agricultural development an ongoing process ' irrespective of the volatility in food commodity prices ' by pouring more investments into such basic rural and farm infrastructure as roads, marketplaces, transportation, research stations and farm technical extension services designed to meet area-specific conditions.
The writer is a senior editor at The Jakarta Post.
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