‘Quo Vadis’, Rice Imports?

Kompas/Priyombodo

Activists check imported rice from Vietnam on a Singapore bulk freighter docked at Tanjung Priok Port, North Jakarta, on Wednesday (14/2). The imported rice, labeled with State Logistics Agency (Bulog) stickers, is being taken to Bulog’s Jakarta-Banten storehouse in Kelapa Gading, North Jakarta. Several ports across the country have seen the arrival of 281,000 tons of imported rice.

The effectiveness of the government\'s decision to import rice in January 2018 in curbing the price surge remains uncertain. The decision has caused controversy and a drawn-out polemic. In fact, imports are common. The Food Law also allows the option to import. If production is unable to meet demand, the import policy is "lawful".

However, it becomes a problem when decision to import rice is based on price fluctuations.

Such decision-making removes the juridical, rational reasons and the urgency of the policy, because the fluctuations in rice price in Indonesia are caused by a number of factors. Fundamentally, the key variable of price stability is the balance in demand and supply. However, the problem is complex, as rice has become the staple food for all Indonesians, whereas rice production remains uneven across the country.

Although imported rice began to enter the country in February, the rice prices are still unstable. Indeed, about 281,000 tons of the imported rice that will arrive this month will not be distributed to the market, but will be stored at the warehouses of the National Logistics Agency (Bulog). At least, the government\'s commitment to increase Bulog\'s reserves can be realized. However, why is the market condition unaffected?

In fact, the government, through Bulog, has an instrument in the reserves to conduct market operations. Moreover, imported rice will enter through ports in nine provinces.

Beginning in the second week of February, the prices of medium-quality rice (IR 64, IR 42 and Muncul) began to fall at the Cipinang Rice Market, East Jakarta, and the Johar Rice Market in Karawang, West Java. Unfortunately, the fall in prices was temporary.

Over the weekend, the rice prices fluctuated again. This indicates that the rice supply remains below demand. This is understandable, as the harvest is limited in some areas. The peak harvest is projected to occur in mid-March through April.

Ironically, the prices of unhusked rice and milled rice in areas that have started their harvests and are not suffering a production deficit are on a declining trend, such as in Surakarta. In contrast, in Indramayu and several other areas, the prices remain relatively high, although they have also started their harvests.

Again, this shows that the rice price is relatively stiff, or inflexible, in areas suffering a supply deficit. This proves that stabilizing prices as the reason for the rice import has lost its meaning. Entering February in some areas, whether rice was imported or not, the rice prices began to drop gradually. The justification of the government’s rice import decision was then changed: The import was instead aimed at raising the government’s rice reserves through Bulog. If so, the imported rice should be of medium quality, not premium quality.

Effectiveness of imports

The inconsistency in the prognosis of the government\'s import policy shows that the import policy has begun to lose its direction. Here are the five reasons and facts used to reach that conclusion.

First, the reason of price stabilization is weak. If prices fluctuate in some deficit areas, Bulog should absorb rice from surplus areas. Thus, the government should immediately carry out a market operation to stabilize prices.

The problem is that even though the government has claimed adequate production, the rice supply remains under the control of private companies, while the government’s reserves are extremely limited.

Second, Bulog’s rice reserves are low because the government’s purchasing reference price (HPP) is always below market price and farmers’ production costs, even though the government has allowed the flexibility to sell at 20 percent above the HPP. Another problem it that most farmers are small farmers. They have difficulties in selling directly to Bulog, while traders come directly to the farmers and without a strict requirement in water content.

However, if the HPP is used in order to halt the fall of farm-level prices during the peak of the harvest season, raising the HPP by 20 percent to 30 percent would be quite effective.

Third, if Bulog uses imported rice to increase its rice reserves, it is to be expected that farmers would grow worried about a drop in grain prices when the peak harvest begins in March and April.

Moreover, if the government uses the state budget to pay the difference between the HPP and the purchasing price, this goes against Bulog\'s appointment as a food buffer and stabilization agency. The compensation should be made after the purchase reports are audited. Bulog must use the money it earns from its commercial activities to cover the price difference.

Amid the various limitations of Bulog’s infrastructure, it is natural that Bulog\'s absorption from farmers is never optimal and that it would instead choose the import option to increase its reserves.

Fourth, according to the BPS-related Rice Trading Distribution Pattern survey in 2017, the role of middlemen in the rice distribution chain from producer to end consumer no longer exists. Previously, the producers distributed rice through middlemen before the commodity reached distributors and retailers.

With a shorter and more efficient the distribution channel, the trade margin should decline. Ironically, the margin for the trade and transportation costs of rice instead rose from 21.19 percent in 2016 to 26.12 percent in 2017.

However, the loss of the middlemen’s role has also had a negative impact, because without the middlemen, small players can be controlled by big players. If this is the case, a handful of big players are dominating supply.

TOK

Enny Sri Hartati

Fifth, the price increases have no impact on farmers’ welfare. The farmer exchange rate (NTP) in January 2018, had in fact decreased compared to December 2017. If the rice import policy has no impact on the stability of prices or farmers’ welfare, who will benefit from the import?

The politicization of the rice import issyud must be stopped immediately. If food imports cannot be avoided, the reasons behind the measure must be clear and concrete in order to protect the public interest. To prevent the politicization of the food import policy, the plan to establish an interregional commodity balance sheet should be realized soon.

ENNY SRI HARTATI

Executive Director, Institute for Development of Economics and Finance