The Food and Agriculture Organization’s (FAO) food price index averaged at 125.8 points last year, 28.24 percent higher than in 2020. In January this year, the monthly index hit an all-time high of 135.7 points.

Vegetable oils led with the greatest surge, rising 65.9 percent in 2021, followed by sugar at 37.48 percent and cereals – which include wheat and soybean – at 27.26 percent, while meat rose by 12.88 percent.

The food price rise has been triggered by multiple factors, namely climate change, rising global demand, higher freight costs, the use of food crops for energy production and geopolitical tensions.

Indonesian Food and Beverage Industry Association (Gapmmi) chairman Adhi Lukman said the rise had deeply impacted local businesses as prices of sugar, soybeans, vegetable oil and many other ingredients had risen tremendously.

For the last two years, firms in the industry had sacrificed margins to keep prices stable for consumers, but now, Adhi said, was different.

Read also: Pertamina ups LPG price, mulls raising gasoline price

“Now, like it or not, food and beverage industries I checked on in 2022 have chosen to raise the prices [of their products],” Adhi told The Jakarta Post on Feb. 24.

He said businesses were trying to cut costs by finding substitutes for certain ingredients and driving efficiency, but he added that they were also hoping the government would intervene.

Indonesia relies heavily on imports for some key commodities. Almost all domestic demand for wheat and soybean and around half of the country's meat and sugar needs are met through imports.

Experts and government officials are aware that this makes the country susceptible to imported inflation, when global price hikes are pass through to domestic consumers.

Indonesian Wheat and Flour Producers Association (Aptindo) executive director Ratna Sari Loppies said on Tuesday that producers had increased their prices gradually to prevent market shocks and allow customers to adjust.

“We inform our customers that we are going to raise the price, so that they can prepare themselves,” Ratna said.

According to Aptindo data, Ukraine is the second-largest wheat supplier to Indonesia, accounting for more than a quarter of total imports. Producers were aware that the ongoing conflict could disrupt supplies but also confident they could source from elsewhere should the need arise, Ratna said.

With soybeans, vegetable oil and meat, however, price hikes have already severely disrupted the Indonesian market.

Vegetable oil has been scarce for weeks across the country, and the government has set a price ceiling and ordered exporters to direct at least 20 percent of their CPO output to the domestic market. The Indonesian Vegetable Oil Refiners Association (GIMNI) has blamed the so-called domestic market obligation (DMO) for worsening the palm oil shortage and causing a price hike in the global market.

Meanwhile, the rise in soybean prices has cut deep into the margins of tofu and tempeh makers, prompting many to suspend production. The resulting scarcity of the two staples of Indonesian cuisine have affected supply chains.

Read also: Soybean price hike hurts entire supply chains

Meat vendors at traditional markets have complained about having to pay close to Rp 140,000 per kg in many parts of Indonesia, including Jakarta, while their customers could only afford as much as Rp 120,000 per kg before turning to substitutes.

Traders noted that the hike was rather unusual, as it occurred long before Ramadan, suggesting further price rises may lie ahead in the fasting month.

Rochadi Tawa, a former breeder and now an expert with the Indonesian Animal Science Society (ISAS), said on Tuesday that the hike was caused by the aftermath of an Australian livestock crunch due to natural disasters in recent years.

Currently, Australia could meet only 40 percent of Indonesia’s import needs, Rochadi said, adding that the situation could worsen, as Vietnam was increasing purchases of Australian beef.

Indonesian Restaurant and Café Association (Apkrindo) chairman Eddy Susanto said on Tuesday that the surge in food prices had hurt businesses along with higher energy prices.

The government recently increased the price of nonsubsidized liquefied petroleum gas in response to higher global prices. The price was raised to Rp 15,500 per kg on Feb. 27 in a move that came just months after a December hike from Rp 11,500 to Rp 13,500 per kg.

All price hikes combined, according to Eddy, increased operational costs by 5 to 10 percent, but restaurant owners had been reluctant to raise prices as sales had yet to fully recover.

“Now, it’s like a sandwich. The costs are surging, but restaurants are not as crowded as before,” Eddy said.

Micro, small and medium enterprises (MSME) have voiced similar concerns regarding the surge in food and energy prices.

Josua Pardede, chief economist with private lender Bank Permata, said on Tuesday that inflation had yet to reflect in consumer prices, as producers and wholesalers had so far absorbed most of the surge, a sign of reluctance to pass the cost hikes on to consumers.

He noted that producers were concerned as consumer spending had yet to recover from the pandemic-induced crisis after rising only 2 percent in 2021.

An increase in value-added tax to 11 percent from 10 percent this year, as well as the upcoming seasonal Ramadan effect, complicated the situation.

The Finance Ministry’s Fiscal Policy Agency head, Febrio Kacaribu, said on Feb. 22 that food prices remained under control overall and that the government would keep a watchful eye on imported inflation caused by surging prices of some commodities.

“This must be managed properly, so that it does not cause unnecessary turmoil,” Febrio told reporters during an online press conference.

Popular

Policymakers to rethink single-day general election format

Authorities raises Halmahera volcano alert level to highest

Indosat showcasing Indonesia's Digital Literacy Initiative at the Global DTC Workshop