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Prolonged drought threatens food supply, inflation
Experts have urged the government to boost efforts in managing food supplies following warnings that this year’s prolonged dry season may impact the availability of certain commodities and ultimately, consumer prices
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span>Experts have urged the government to boost efforts in managing food supplies following warnings that this year’s prolonged dry season may impact the availability of certain commodities and ultimately, consumer prices.
Food commodities have consistently been the largest contributor to increases in consumer prices in Indonesia, given that a large portion of household spending accounts for more than half of the country’s GDP.
In July, food prices rose 0.8 percent month-on-month (mom) and contributed 0.17 percent to inflation, Statistics Indonesia (BPS) revealed on Thursday. The commodities recorded a 4.85 percent annual inflation, higher than the headline inflation of 3.32 percent year-on-year (yoy).
Overall consumer prices rose 0.31 percent mom in July due to soaring volatile food products. The figure is lower than the 0.55 percent registered in June, the month of the Idul Fitri holidays this year.
“Last year’s dry season was manageable, because the government kept tight supervision on volatile food stocks,” Institute for Development of Economics and Finance (Indef) economist Nailul Huda told The Jakarta Post. “But this year, the government estimates that the dry season will affect 28 provinces, so there will be a significant depletion of supplies.”
Huda was referring to data from the Office of the Coordinating Human Development and Culture Minister on Monday that further said this year’s dry season would affect over 11 million hectares of land and 48.5 million people.
The drought is estimated to reach its peak this August before ending in October, posing a serious threat to harvesting seasons and thus, food supplies.
Earlier last month, the Agriculture Ministry reported that the weather had dried paddy fields across Java, the main growing region, with harvest failures reported in more than 20,000 ha, Bloomberg reported.
“The drought-impacted areas are increasing and may reach 200,000 ha, while failed harvests could double to 40,000 ha by the end of the dry season in October,” said Edy Purnawan, the ministry’s crop protection director.
Huda urged the government to closely watch the supplies of rice and bird’s eye chili, in particular, because the drought would hamper rice paddy harvests while many bird’s eye chili plants might not even survive the season.
In July itself, spices recorded a price increase of 7.5 percent, the highest among other commodity subgroups. Red chili and bird’s eye chili contributed 0.2 percent and 0.06 percent, respectively, to inflation.
The headline consumer price index of 3.32 percent yoy in July is getting closer to the government’s goal of 3.5 percent, and higher than in the same month last year, when annual inflation was 3.18 percent.
Core inflation is still at a healthy figure of 3.18 percent yoy, while administered prices and volatile food prices were up 2.22 percent and 4.9 percent yoy, respectively.
“The government might have loosened up on its supervision this year [...] Most likely, it was distracted by the jump in airline ticket prices, which had also pushed up inflation,” Huda added.
Separately, Samuel Asset Management economist Lana Soelistianingsih said that effects from the dry season might drive this year’s inflation higher than the government’s estimate of 3.5 percent to even a figure closer to 4 percent.
