The “Time Bomb” of Food Aid

KOMPAS/ABDULLAH FIKRI ASHRI

A worker packages rice at a rice mill run by Sri Jaya Makmur Farmers Group in Panguragan, Cirebon, on Thursday (6/2/2020). The farmers group stored around 90 tons of dried unhusked rice and more than 50 tons of rice. Each month the group supplies rice to around 2,500 non-cash food aid recipients.

Change in the food aid model has transformed the national landscape of rice. Upstream and downstream sectors are no longer integrated, while instruments of stabilization are becoming increasingly ineffective.

JAKARTA, KOMPAS— Since late August 2019, the State Logistics Agency (Bulog) has no longer supplied rice for the welfare rice program (Rastra), as the rice assistance program was replaced by a non-cash food assistance (BPNT) scheme. Many are warning over problems emerging from this shift.

This year, the BPNT scheme will reach 15.6 million families as beneficiaries. They were previously targeted households in the Rastra program and a captive market for Bulog.

The shift has had serious impacts on price stabilization instruments, at the levels of consumers, producers and farmers. In the downstream, rice channels are becoming narrower while the government’s role through Bulog at the upstream has been weaker. This is reflected in the declining realization of domestic procurement of rice and unhusked rice.

As the channels in the downstream are becoming narrower, rice stock at Bulog warehouses is piling up. As of last week, rice stock at Bulog’s warehouses nationwide reached 1.84 million tons or 60 percent of total capacity, comprising 1.72 million tons of the government’s reserve rice and 121,161 tons of commercial rice.

Bulog president director Budi Waseso said in Jakarta on Wednesday last week that 900,000 tons of the 1.84 million tons of rice in the warehouses was part of the 1.72 million tons of rice imported in 2018.

KOMPAS/ABDULLAH FIKRI ASHRI

Farmers Group chairman H. Amrin shows bags of unhusked rice at a warehouse in Panguragan, Cirebon, on Thursday (6/2/2020). The farmers group stored around 90 tons of dried unhusked rice and more than 50 tons of rice. Each month the group supplies rice to around 2,500 non-cash food aid recipients.

The piling up of rice stock at the warehouses will surely be a problem. Apart from requiring efforts in storing, this piling-up of rice obstruct absorption. “Without any chance of distribution, Bulog’s [ability] to absorb is limited,” he said.

Rice stocks in Bulog’s warehouses at rice-producing regions remain relatively large ahead of the great harvest in the rainy planting season (rendeng) of 2019/2020. In Cirebon, West Java, rice stock in the local Bulog warehouse reached 88,000 tons or around 78 percent of total capacity. In Karawang, rice stock in the local Bulog warehouse reached 49,234 tons or 48 percent of the warehouse’s total capacity of 104,000 tons.

As of Thursday (6/2/2020), South Sulawesi and West Sulawesi regional Bulog still stored 83,000 tons of rice of the 214,000 tons absorbed last year. “We still have plenty of rice stocks and we must absorb again right now. We will have difficulties if the distribution [channels] are limited,” South Sulawesi and West Sulawesi regional Bulog head Attar Rizal said.

Unsold

Apart from in Bulog warehouses, rice stocks at mills and traders are also relatively huge. “Much rice harvested in the rainy planting season [rendeng] and dry planting season [gadu] of 2019 was unsold and we still have plenty of stocks,” said Tulus Budiono, the Central Java branch head of the Indonesian Rice Millers and Entrepreneurs Association (Perpadi), last week.

There are also huge rice stocks in farmers’ warehouses. The Sri Jaya Makmur farmers group in Panguragan, Cirebon regency, West Java, still stores 90 tons of dried milled unhusked rice (GKG) and more than 50 tons of rice harvested by 212 local farmers.

Purchase price at the central markets in Karawang and Cipinang, for instance, is Rp 9,400 (US$0.69) per kg.

The farmers group’s head, Amrin, said that the group was finding it difficult to sell rice due to low market price. Purchase price at the central markets in Karawang and Cipinang, for instance, is Rp 9,400 (US$0.69) per kg. This is despite the price of unhusked rice reaching Rp 6,300-Rp 6,500 per kg. With that level of price for unhusked rice, production cost for rice is at least Rp 9,840 per kg. This still excludes milling, sacking and transporting fees.

Arif, 40, a rice trader at the Martoloyo rice market in Tegal, Central Java, said that rice sales had declined in the past year. Now, around 2 tons of rice from purchases in late 2019 is still stored in his warehouse. “Last year, I can sold at least 300 kg per week. Now, it’s only 150 kg per week,” he said.

Purchase price

Other than distribution, domestic rice absorption by Bulog has continued to decline, from 2.96 million tons in 2016, 2.05 million tons in 2017 and 1.49 million tons in 2018. Budi Waseso said that, other than narrower distribution channels, lower government purchase price (HPP) for rice and unhusked rice also led to low absorption.

As of now, Bulog still refers to Presidential Instruction No. 5/2015 on government’s rice/unhusked rice procurement and distribution. However, the HPP lags behind market price. Consequently, Bulog has narrow latitude to purchase rice and unhusked rice from farmers, even when the government allows Bulog to purchase rice at 10 percent above the HPP.

Furthermore, the HPP is an important instrument to ensure that farmers obtain selling price above production cost.

Budi said that he hoped the HPP would be adjusted to optimize absorption of domestic rice and unhusked rice. Furthermore, the HPP is an important instrument to ensure that farmers obtain selling price above production cost.

Deputy of rice and agriculture coordination at the Office of Coordinating Economy Minister, Musdhalifah Machmud, said that the government planned to adjust the HPP ahead of the great harvest of the current rendeng season, namely in March 2020. Furthermore, the government also prepares alternative upstream-downstream rice policies. However, she does not elaborate on these plans.

Indonesian Agriculture Economy Association’s advisory board head Bayu Krisnamurthi said that the 40-year-old national rice management became chaotic when the rastra policy was replaced by the BPNT scheme. He proposed a renewed business model at Bulog to support its role as a long-term and sustainable rice price stabilizer from upstream to downstream.

Among the alternatives for renewal is establishing an e-trade system specifically for rice. This requires infrastructure and a logistics system that can connects rice millers, retails and consumers nationwide. (MEL/IKI/XTI/HRS/REN/MKN/JUD)