Fixing the Rice Economy
A rice trade at Palmerah Market, Central Jakarta, Monday (4/9). Despite the enactment of the highest retail price policy since September 1, 2017, not all traders in the market sell rice in line with the government-set prices.
After almost three years, the working Cabinet’s rice economy policies have yet to move forward in any significant way. The strategies for boosting production and stabilizing prices have yet to improve farmers’ and public welfare.
The 2014-2019 Mid-Term Development Plan (RPJM) and President Joko Widodo’s instructions in the limited cabinet meeting on food affairs on Jan. 26, 2017, are yet to be properly implemented. The Agriculture Ministry was given a mandate “to determine long-term production strategy and agriculture (development) strategy, to produce agricultural products with high economic value, to protect farmers and to provide a variety (of crops) to improve their earnings”. The Trade Ministry was ordered “to produce a (policy) design that can ensure proper and normal prices for consumers”, while the Office of the Coordinating Economic Minister was asked “to ensure a singular vision related to productivity, competitiveness and welfare improvement.”
The increased rice production has yet to make any significant impact, as farmers’ welfare is declining instead. The oft-boasted efforts to stabilize prices during Ramadhan and Idul Fitri did not have an effect on improving people’s welfare. Central Statistics Agency (BPS) data published in August 2017 showed that the population of poor people increased by 6,900 individuals. The delays in distributing rice to disadvantaged families in early 2017 had a significant impact, as the poor consume 23 percent of the nationwide rice supply. Efforts to enforce the rice economy policy in cases involving big companies only created much unproductive noise.
This article analyzes the journey of the rice economy from the angle of production and price stabilization during the Jokowi-Kalla era. In the time remaining for the current administration, the government still has a chance to improve the substance of rice policies in order to expand welfare.
Super-intensive production
The special efforts to improve rice, corn and soybean production (Upsus Pajale) have yet to improve farmers’ terms of trade (FTT), which has dropped by 2.3 percent, from 102.87 in October 2014 to 100.65 in July 2017, during the first three years of the Jokowi-Kalla administration. The FTT does not comprehensively illustrate farmers’ welfare, as it merely reflects the ratio of the price index the farmers receive compared to the prices they pay.
However, with a budget of Rp 27.6 trillion (US$2.1 billion) in 2016 and Rp 22.1 trillion in 2017 allocated to the Agriculture Ministry, the decrease in the FTT and workers’ actual wages cannot be taken lightly. The Upsus Pajale is implemented through the development and rehabilitation of tertiary irrigation channels (RJIT), land optimization, integrated crop management (GP-PTT), the provision of seeds, fertilizers and agricultural equipment, as well as supervision and guidance from universities and the military.
The fertilizer subsidy is the government’s mainstay in increasing production. The subsidy budget was increased from Rp 30.1 trillion in 2016 to Rp 31.2 trillion in 2017. Studies have shown that the fertilizer subsidy is no longer effective in increasing rice production. There are even cases of excessive fertilization and a worrying scarcity of subsidized fertilizers (Arifin, 2014). The fertilizer cost is only 10.4 percent of the total production cost for rice, 12 percent for corn and 4.8 percent for soybeans (BPS, 2016).
The largest contributor to the rice production cost is farmworkers’ wages, which makes Indonesia’s rice production cost 2.5 times higher than Vietnam’s (IRRI, 2016). As a result, rice in Indonesia is more expensive than the international average price. The average price of medium-quality IR-64 rice was Rp 8,141 per kilogram in October 2014 and Rp 9,014 per kilogram in June 2017. The latter is 1.7 times higher than the international average price for 15 percent Thai broken rice. The international price for rice was only Rp 5,221 per kilogram in June 2017, a slight increase from Rp 4,445 per kilogram in October 2014.
At the retail level, the average price of Indonesian rice was Rp 11,522 per kilogram in October 2014, which has since jumped 14 percent to Rp 13,125 per kilogram. Throughout 2017, the retail price for rice has not increased significantly, maintaining the inflation rate at 4.37 percent. This already includes the impact from the food price volatility of only 2.17 percent.
However, the already spiking price of rice hit farmworkers and tenant farmers the hardest. Workers’ real wages declined from Rp 38,955 per day in October 2014 to Rp 37,396 per day in June 2017. Many agricultural development programs have yet to reach farmworkers and tenant farmers. These are the people who do not receive fertilizer and seed subsidies, tractors and other farming equipment.
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Currently, there are 14.4 million smallholder farmers’ households (RTP) with land less than 0.5 hectare (56 percent of all RTPs), 4.5 million RTPs (17.4 percent) with land between 0.5 hectare and 1 hectare, 3.7 million RTPs (14.3 percent) with land between 1 hectare and two hectares and 3.1 million RTPs (12.4 percent) with land more than 2 hectares (BPS, 2014). With this structure and profile of our farming community, the government’s numerous agriculture programs are mostly enjoyed by farmers with vast landholdings and remain out of reach for smallholder farmers.
The super-intensive farming business strategy of growing rice three times a year (Crop Index, IP 300) has been proven ineffective in increasing production and has instead spread a new kind of brown plant hopper (wereng) and rats that have attacked many rice production centers. Super-intensive farming does not increase the production capacity and has not led to the development of the kind farming technology that is highly needed to increase productivity. Farmers understand that super-intensive farming, including the uncontrolled application of chemical fertilizers and pesticides, can disrupt the ecological balance.
Farmers need guidance from reliable agriculture instructors to resolve the problem of poor production capacity. These instructors must see themselves as friends to farmers, and with whom farmers can discuss their problems, instead of individuals who prioritize the targets of farmland expansion. The agricultural production capacity will only increase with the adoption of innovation and the adaptation to new technologies that enable improved productivity, including the implementation of ways to recover soil health, improve soil organic content and support the sustainability of agriculture businesses.
Price stabilization
The mandate of a “proper and normal” rice price needs to be implemented wisely with room for business players to make a good profit. The government needs to improve the governance of the rice trade’s supply chain instead of scaring farmers with a ceiling price (HET), which has counterproductive results. A two-day meeting between business players and the government on the basis for calculating rice production costs and the retail reference price at consumers’ level have yet to find a middle ground.
The government is proposing an HET of Rp 9,000 per kilogram for medium-quality rice and Rp 11,500 per kilogram for premium rice. However, traders, industry players and rice mill owners have yet to agree to this proposal. Many worry about market raids for rice sold over the reference price.
Indonesia still uses the Presidential Instruction (Inpres) No. 5/2015 on State-Run Rice Procurement and Distribution. The regulation stipulates the government’s purchase price (HPP) for dried unhusked rice (GKP) at Rp 3,700 per kilogram, for milled unhusked rice (GKG) at Rp 4,600 per kilogram and for rice at Rp 7,300 per kilogram, as long as certain requirements are met.
These requirements include a maximum water content of 14 percent, a maximum 20 percent of broken grain, a maximum of broken rice (menir) of2 percent and a minimum 95 percent of clean rice. However, throughout 2017 and most of 2016, the GKP and GKG prices have never been below the HPP. In June 2017, the average GKP was Rp 4,570 per kilogram and the GKG was Rp 5,549 per kilogram, much higher than the reference price in Inpres No. 5/2015. The retail price for rice in July 2017 was Rp 13,125 per kilogram, much higher than the HPP of Rp 7,300 per kilogram at the farmers’ end and the Rp 9,500 reference selling price at the consumers’ end as stipulated in the Trade Minister’s Regulation No. 27/2017.
The price of rice in international markets has also tended to increase due to delayed supply. Domestically, the government has a low amount of rice reserves for price stabilization and other emergency needs. The State Logistics Agency (Bulog) is mandated to provide 850,000 tons of rice until the end of 2017. The figure is equivalent to procuring 10,000 tons of rice every day, much higher than the daily availability of 3,000 tons of domestic rice due to limited supplies. Bulog increased the rice purchasing price to Rp 8,030 per kilogram on the hope that the above targets can be achieved. Perhaps the rice procurement target can be achieved by imports, considering that rice assistance for disadvantaged people will be gradually transformed into non-cash food assistance (BPNT).
In the almost three years of the working Cabinet, Indonesia has imported 2.78 million tons of rice at US$1.19 billion or Rp 15.88 trillion (BPS Socio-Economic Monthly Report, August 2017). The largest rice import of 1.28 million tons at $532 million or Rp 7.1 trillion occurred in 2016asa consequence of the El Nino drought in 2015. In 2017, Indonesia’s rice import has reached 131,000 tons as of June at $65.6 million or Rp 876 billion. The people need to be mentally prepared if Indonesia continues to import rice.
Agriculture development needs an accelerator of human capital growth and transformation along with an accelerator of technological and institutional transformation. The government needs to facilitate the growth of entrepreneurship among farmers, an integrated rice business model that empowers smallholder farmers to consolidate rice management and adopt community land management. The government also needs to facilitate new investment for large- and medium-scale rice mills and for the consolidation of small-scale mills in line with the availability of raw materials and supporting infrastructure.
The credibility of the price stabilization strategy must be supported with a new rice policy that improves upon Inpres No. 5/2015. Its vision should focus not only on stabilizing the rice price, but also on a better and more credible value chain. If the government insists on stipulating a multi-quality rice reference price for at least two or three levels of premium and medium-quality rice, the government needs to insure that the law enforcement structure is conducive to the rice business and to welfare improvement in general.
BUSTANUL ARIFIN
Professor at Lampung University and Senior Economist at Indef
