Indonesia’s Food Situation in 2018
Indonesian Farmers\' Seed Bank Association (AB2TI) research in 23 regencies found that the price of unhusked rice at the farmers’ level remains relatively high. This affects the price of rice at the consumers’ level.
Huge challenges lie ahead of Indonesia this year in terms of food production. Indonesian Farmers\' Seed Bank Association (AB2TI) research in 23 regencies found that the price of unhusked rice at the farmers’ level remains relatively high. This affects the price of rice at the consumers’ level.
The price of dried paddy (GKP) reached a high of Rp 5,667 (US$0.41) per kilogram in January 2018. As harvesting began, the price decreased to Rp 4,853 in February, Rp 4,472 in March and Rp 4,319 in mid-April. The price of unhusked rice in the first trimester this year was far higher than in the same period last year. In the period of February-March 2017, the price of unhusked rice in several regions dropped to Rp 2,000 – Rp 3,000 per kg due to its poor (wet) quality. It rebounded in April 2017 to an average of Rp 3,800.
The same research showed that the import of 500,000 tons of rice had no significant impact on the price of unhusked rice at the farmers’ level and on rice prices at the consumers’ level. There are several reasons for the relatively good price of unhusked rice for farmers and high price of rice (despite it having decreased) in April.
First, national rice stocks were truly depleted at the start of 2018. The harvests in January and February could not cover the rice deficit. A surplus of production over consumption might only occur during the March-April 2018 harvest. International data confirms this. The ending stock of rice in 2016/2017, which contributes to the early stock in 2017/2018, was the lowest in four years. The ending stock of rice has been in steady decline from 5.501 million tons in 2013/2014 to 4.111 million tons (2014/2015), 3.509 million tons (2015/2016), and 3.165 million tons (2016/2017). The ending stock of rice in 2017/2018 is estimated to increase to 4.063 million tons due to imports (Foreign Agricultural Service/FAS/USDA, April 2018).
The second factor is the non-simultaneous harvesting. This prevented the significant decrease in the price of unhusked rice seen in previous years. Up to April, harvests are still ongoing in many places. This serves as a good lesson for us in terms of planning a national planting pattern that prioritizes farmers’ interests. This year’s harvests are also better, both in terms of production and unhusked rice quality, due to reduced pest infestations compared to previous years.
Third, small rice mills cannot store unhusked rice this year due to high demand of rice from consumption centers. Fourth, strong signals across farms on rice scarcity in 2018, especially in West Java, are leading to far higher prices of unhusked rice compared to other regions. The average price of GKP in West Java was Rp 4,573 per kg in April 2018. This phenomenon is caused by the fact that farmers are storing 70 percent of their unhusked rice and will only sell it when the price is high. This is the opposite of the conditions in previous years, when farmers sold 90 percent of the unhusked rice of the first harvest season.
Price stabilization during religious holiday
The rice situation in 2018 will affect price stability ahead of and during the Idul Fitri holiday at the end of Ramadhan. This is among the government’s main goals right now. The government was successful in maintaining food price stability during Idul Fitri last year. The price of medium-quality rice was Rp 10,596 per kg during the fasting month and Idul Fitri last year (calculated as the average price from seven days before until seven days after Idul Fitri), lower than the yearly average of Rp 10,665 per kg. The prices of import-dominant food ingredients, such as soy and wheat, were also lower during Ramadhan and Idul Fitri.
Beef prices were very high at the time, namely Rp 116,108 per kg. This was far higher than President Joko “Jokowi” Widodo’s target of Rp 80,000 per kg, despite numerous efforts, including importing frozen beef and buffalo meat from India. However, prices were relatively stable compared to the previous years. The beef price ratio between Ramadhan-Idul Fitri and the annual average was higher in the years 2014-2016, namely at 13.1 percent, 13.5 percent and 13.4 percent respectively. In Ramadhan and Idul Fitri of 2017, the price was only 0.5 percent higher.
The prices of broiler chicken and eggs also rose a little bit, namely to 1.32 percent and 0.84 percent, respectively, above their annual average. Sugar was only 0.71 percent higher. Prices of horticulture products, such as shallots and chili peppers, also increased by a small percentage during Ramadhan and Idul Fitri last year.
The food management strategy for Ramadhan and Idul Fitri this year must not prioritize sharp price declines, such as setting a beef price ceiling at Rp 80,000 per kg, as this has always been impossible. Apart from that, this will only harm farmers. The price stabilization strategy implemented last year was the way to go.
Food management in 2018
Looking at the production and price development trends, rice will still hold an important place in food management this year, both in terms of preparing for Ramadhan and Idul Fitri and anticipating for price fluctuations in this year of political events. The rice price is estimated to reach its lowest in May. It is almost certain that the price will go up in June, as the harvest will have been finished. Therefore, efforts by the government and State Logistics Agency (Bulog) to increase stocks using domestic sources is only doable up to May, provided that a presidential instruction for increasing the government’s purchase price (HPP) is not issued immediately. Despite price increases starting in June, I can safely say that rice stocks are enough for Ramadhan and Idul Fitri this year.
Another thing to be wary of is post-Idul Fitri conditions. Climate conditions in 2018 will be normal, with the dry season in a majority of regions starting in May. A majority of regions (52.6 percent) will experience a delayed start of the dry season compared to the average dry season start in the past 30 years (1981-2010) (BMKG, March 2018). Therefore, a horse-saddle production pattern for rice will apply.
In August, the second planting season’s harvest will begin with an estimated harvest volume 14 percent lower than in March. The planting season will peak in September with an estimated harvest volume also 14 percent lower than in April. Afterwards, rice production will be fall between October 2018 and February 2019. Harvests between January and June and planting area between April and June will be enough to calculate whether we will have a surplus or deficit in 2018 rice production, provided the data is accurate. With accurate data, rice management in 2018 will be far better than in previous years.
The thing we must watch out for this year is pest infestation in the second planting season. Farmers and AB2TI members reported pest infestations in Central Java and East Java, especially in the southern regions. Brown planthoppers and stemborers are spreading again in West Java, especially in northern regions.
As stock in early 2017 was critical, the government may need to import 1.5 million tons of rice to reach a safe level of rice reserves of 1 million tons in early 2019. If adding to rice reserves is a must, it can only be done by the government and a decision will have to be made in September at the latest.
Beef has remained a huge problem over the last four years. There has not been a year where beef prices have not increased. The beef price was only Rp 97,928 per kg in April 2014. It crept up to Rp 101,471 per kg in 2015, Rp 112,494 per kg in 2016, Rp 114,838 per kg in 2017 and Ro 117,641 per kg in April 2018 (Trade Ministry, 2014-2018). The government must listen to and carry out suggestions made by numerous parties.
The government must also watch out for several other commodities due to their recent significant price hikes, including broiler chicken, garlic and chili pepper. The price of broiler chicken has been decreasing in the past few months, but it may increase starting in May. As for shallots, the government should not do any market intervention, despite its relatively sharp price hike since March. Shallot farmers have suffered from extraordinary losses due to price drops from November 2017 to January this year. I estimate the total losses to reach Rp 2 trillion. Let them enjoy a little profit in the wake of the gigantic losses they have sustained.
Special attention must be given to wheat. In 2017/2018, Indonesia is estimated to be the world’s largest wheat importer at an estimated volume of 12.5 million tons (FAS-USDA, February 2018). Wheat imports have increased sharply since 2016 due to the use of wheat for cattle food to replace curbed corn imports. The proportion of wheat as a staple food is increasing. Currently, wheat makes up 25.4 percent of Indonesians’ staple food. Hopefully, the food diversification program will be much more than just a wonderful yet unrealistic dream.
Government intervention in food markets must be measurable and based on accurate information. The case of rice in 2017 teaches us all that good intention may lead to terrible outcomes. Raids on small and large-scale rice mills to reduce rice prices at the consumers’ level ended up having the opposite effect. The rice price continues to rise, and – ironically – the trade and transport margin (MPP) for rice increased from 10.47 to 26.12 in the past three years (BPS, 2018).
The same thing also occurred in garlic. Talk of self-sufficiency in garlic production has resulted in a sharp average price increase from Rp 24,000 in October 2017 and early February 2018 to Ro 35,000 right now. In some regions, the garlic price even exceeded Rp 50,000 per kg (Information Center for Strategic Food Prices/PIHPS, April 2018).
With an MPP of only 10.43 (2014), 10.42 (2015) and 10.57 (2016), the market structure for rice in Indonesia is good. Unfortunately, that good structure is undermined, resulting in good profits for (big) traders and continued suffering for farmers. Improvements should have been done for food commodities with less-than-good market structure.
An effort to “look inside” is necessary to see whether all regulations, policies and interventions in the system have worked as intended, instead of blaming others. Wrongheaded policies will harm everyone, including consumers, businesspeople and farmers.
Second, perhaps the farm and food budget that essentially “belongs to farmers” must be returned in its entirety to farmers. Let them decide and choose what is best for them. The welfare of farmers is the key to achieving food sovereignty in Indonesia.
Dwi Andreas Santosa, Professor at the School of Agriculture, Bogor Agriculture Institute; Chairman of the Indonesian Farmers\' Seed Bank Association (AB2TI)