Rice Deflation “Drama”.

Behind rice deflation in April 2024, there are still a number of problems and challenges. What are they?

KOMPAS/AGUS SUSANTO

A buyer inspects the quality of rice at the Cipinang Rice Market in East Jakarta on Thursday (25/4/2024). According to data from the Central Statistics Agency, in April 2024, rice experienced a monthly deflation of 2.72 percent and a yearly inflation of 15.9 percent.

Relieved. The "serial drama" inflation of Indonesian rice is over. After eight episodes telling the story of inflation, the "serial drama" ended with deflation of rice. However, behind that, the "drama" of rice deflation is actually rolling in and after that has the potential to become a "drama" of rice inflation.

On May 1 2024, the Central Statistics Agency (BPS) released that rice experienced deflation of 2.72 percent on a monthly basis in April 2024. After inflation for eight consecutive months, August 2023 -March 2024, these basic food commodities will experience deflation.

Deflation, which reflects a decrease in prices, occurred due to the widespread harvest of rice. Rice production also continues to increase from 3.38 million tons in March 2024 to 5.52 million tons in April 2024.

Behind the monthly rice deflation, volatile price components, including rice, are still experiencing inflation on an annual basis.

Apart from that, The National Food Agency (Bapanas) is intensively implementing a Food Supply and Price Stabilization program. This program is combined with the Food Assistance program in the form of 10 kilograms of rice per month per family for 22 million low-income families.

This is a positive achievement. However, it is important to remember that behind the monthly rice deflation, volatile price components, including rice, are still experiencing inflation on an annual basis. This means that rice prices are still higher than last year and usually will not fall to the value of last year's fair price.

KOMPAS/HENDRIYO WIDI

Screenshot of Acting Head of the Central Statistics Agency, Amalia Adininggar Widyasanti, explaining the annual inflation in April 2024 according to the components in a hybrid press conference held in Jakarta on Thursday (2/5/2024).

The annual inflation rate for the expenditure group of food, beverages, and tobacco and the fluctuating price components in April 2024 did start to decrease. However, the inflation rate is still relatively high. The same goes for rice.

BPS indicates that on an annual basis, the group of expenditures for food, beverages, and tobacco still experiences a 7.04 percent inflation rate. The inflation rate has slightly decreased compared to the annual inflation rate in March 2024, which was 7.34 percent.

As for the annual inflation rate of price components which fluctuated in April 2024, it was at 9.63 percent. This inflation rate decreased quite significantly compared to the annual inflation rate in March 2024 at 10.33 percent.

Also read: Annual Food Inflation Still Relatively High Even though the Pressure is Starting to Ease

The commodities that contributed to the annual inflation component include rice, shallots, chili, as well as chicken meat and eggs. This is where the "drama" of deflation in rice began. Although there is deflation on a monthly basis, rice still experiences inflation annually.

The annual inflation rate of rice in April 2024 was 15.9 percent, a decrease compared to March 2024 which was 20.07 percent. The annual inflation rate of rice was higher than in January 2024 and April 2023, which were 15.65 percent and 12.44 percent, respectively.

SUMBER: BPS

The development of annual inflation in price components is volatile, including rice as of April 2024.

Farmer's exchange rate

The "drama" of deflation in rice continues. Behind the monthly deflation of rice, there is also a decrease in rice prices that is not as sharp as the decrease in prices of harvested dried paddy (GKP) at the farmer level.

On a monthly basis, the national average price of various types of rice at the retail level as of April 2024 decreased by 2.72 percent to IDR 15,109 per kg, while the Paddy Purchasing Price (GKP) at the farmer level plummeted by 15.58 percent to IDR 5,686 per kg. Meanwhile, on an annual basis, the national average price of various types of rice at the retail level increased by 15.9 percent, while the GKP at the farmer level also increased by 15.9 percent.

The decline in the price of KGP has caused a significant monthly decrease of 7.25 percent in the exchange value of food crop farmers (NTP TP) to 108.92. As of April 2024, the average price of various types of rice at the retail level increased by 2.72 percent on a monthly basis and by 15.31 percent on an annual basis.

Also read: Rice Prices Still High, Grain Prices Drop

Quoting the Acting Head of BPS, Amalia Adininggar Widyasanti, on Thursday (5/3/2024), the factor that contributes to the decline in the prices of farmers' GKP is the increasing scale of the rice harvest in March-April 2024. Meanwhile, the price of rice is still high and slow to decrease due to several factors.

Firstly, there are differences in planting, harvesting, consumption, and distribution patterns in each region in Indonesia. The varied patterns of planting and harvesting rice in several regions make the movement chain of rice and paddy from producing regions to consuming regions longer and more time-consuming. This has the potential to cause an increase in transportation or distribution costs, particularly in non-rice producing regions.

Secondly, the formation of rice prices is also influenced by preferences for local rice. For example, the Minang tribe in Riau and surrounding areas are more inclined to choose Solok local rice varieties, so supplies from outside the region cannot immediately suppress the price of local rice.

Thirdly, the price of rice at the milling process is also influenced by production costs. Amid frequent rain and floods that hit several regions, the cost of drying rice will certainly increase. This will also affect labor wages.

Rice traders who have already purchased rice when the price is high will not be able to sell it below their purchase price.

Apart from the version of BPS, there are other factors that also affect the slow decrease in rice prices. These factors are closely related to initial capital and profits. Rice business actors who have already purchased farmers' GKP at high prices before the rice harvest cannot immediately sell rice at a relatively affordable price.

The same goes for rice traders who have already purchased rice when prices were high, it is impossible for them to sell the rice below their purchase price. This condition is one of the reasons why premium rice is scarce in modern retail and why Bapanas has raised the highest retail price (HET) for premium rice.

Also read: HET of Medium Rice and Increased HAP of Corn

Although the "soap opera" of rice inflation has now turned into a "drama" of rice deflation, the government must remain vigilant. The increase in the reference price for medium and premium rice, as well as the government purchasing price (HPP) of unhusked rice at the farmer level, this year has the potential to hinder the decline in rice prices.

Bapanas has raised the HPP of GKP at the farmer level from IDR 5,000 per kg to IDR 6,000 per kg. The premium rice HET was also increased from IDR 13,900-IDR 14,800 per kg to IDR 14,900-IDR 15,800 per kg based on zoning.

The same goes for medium-grade rice, its reference price is relaxed from IDR 10,900-IDR 11,800 per kg to IDR 12,500-IDR 13,500 per kg depending on the zone. This policy also reinforces that the price of rice will not be as cheap as in previous years.

In addition, the peak of rice harvest has ended in April 2024 despite the potential for harvest and surplus rice in May 2024. Nevertheless, BPS, through the Sample Area Framework, estimated that the balance of production and consumption of rice in June 2024 would have a deficit of 0.45 million tons.

BPS also showed that in the first semester (January-June) of 2024, Indonesia experienced three rice surpluses, namely in March, April, and May. Meanwhile, in the second semester of 2023, there were five rice surpluses occurring in February, March, April, May, and June. The rice surplus throughout the first semester of 2024 decreased from 3.36 million tons to 1.03 million tons compared to the first semester of 2023.

Also read: Be careful, Indonesia has the potential to have another rice deficit in June 2024

In addition, under normal weather conditions, rice production in the second semester of the year usually decreases or not as much as the first semester. Without proper planning and anticipation action, the "drama" of deflation in rice could potentially continue as "drama" of inflation in rice, although the inflation rate may not be as high as before.