Dilemma in Food Prices

ENNY SRI HARTATI

· 5 minutes read

In early March 2019, Statistics Indonesia (BPS) announced 0.08 percent month-to- month (mtm) deflation in February 2019. The deflation was caused by a fall in food prices, which declined 1.11 percent mtm.

In fact, the foodstuff group contributed 0.24 percent to deflation, while other expenditure groups experienced inflation, such as processed food (0.31 percent), housing (0.25 percent), clothing (0.27 percent), health (0.36 percent), education (0.11 percent) and transportation (0.05 percent). The processed food and housing groups contributed 0.06 percent to overall inflation in February, while clothing, health, education and transportation contributed 0.01 percent.

Foodstuff that experienced the greatest deflation were spices, which reached 5.50 percent. While chicken and red chili recorded deflation of 0.06 percent, chicken eggs (0.05 percent), shallots (0.04 percent), cayenne pepper (0.02 percent), fresh fish, carrots and oranges (0.01 percent) respectively.

In general, deflation of prices of foodstuff in February 2019 was caused by a fall in prices at the farmer level. The farm gate price of unhusked rice grain (GKP) fell to Rp 5,114 per kilogram (kg), a 4.46 percent decline mtm or a 1.79 percent decline year-on-year (yoy).

Meanwhile, the factory price of milled rice grain (GKG) and the unhusked rice grain (GKP) fell by 2.23 percent and 1.56 percent YoY, respectively. As a result, the price of the rice with a medium quality fell to Rp 9,800 per kg, down 1.04 percent mtm or 4.6 yoy.

The decrease in GKG and GKP rice grains directly affected the price received by farmers. The farmer exchange rate (NTP) fell by 0.37 in February compared to the level recorded in January. The NTP for food crops was only 106.72 or down 0.80 percent. In fact, horticultural NTPs were only 99.51, down 1.47 percent. Ideally the NTP should reach a minimum of 125.

In February 2019, the average index paid by farmers also declined. The decline in NTP (minus 0.53 percent) indicates that the price received by farmers was greater than the costs incurred.

Ironically, even though the farm gate prices of GKP and GKG rice grains fell quite large, the retail prices of grain group still recorded inflation of 0.40 percent, and rice at 0.01 percent. The high rice price absorbed a large share of the expenditure of the poor for rice, which reached 19.54 percent in urban areas and 25.51 percent in rural areas.

The large decrease in prices received by farmers confirms that the main contributor to food deflation is the drop in farm gate prices, not because of the increase in food production or an improvement in the distribution.

A survey conducted by BPS on the pattern of the distribution of strategic commodities in 2018 indicates that the distribution is still not efficient. The trade and transportation margin (MPP) for red chili s reached 47.10 percent, while the MPP for rice was 25.35 percent, shallots 49.06 percent, beef 34.11 percent, chicken meat 24.68 percent, race chicken eggs 26.80 percent, sugar 32.67 percent, and cooking oil 18.70 percent.

Historically, food prices have been the main determinant of price stability (inflation). However, it is unfair to control food prices at the expense of the farmers. The absence of economic incentives for farmers has actually caused the decline in food productivity. The limited supply of food has caused a vicious cycle of high food prices.

In fact, the stabilization of food prices should not be taken at the expense of the farmers. The basic law of price stability is the interaction between the demand and supply. Unfortunately, this relationship is often considered like chicken and eggs.

It seems that in stabilizing the food prices, the food prices must be cheaper and the farm gate price must be pushed down.

With a population of more than 260 million, Indonesia\'s food needs are certainly fairly large. This means that food price stability cannot be achieved without increasing the productivity. Thus, it becomes clear that the focus of food policy should be on the efforts to increase food supply.

The farmers must be the subject and in the forefront. Farmers must get adequate incentives so as not to leave the agricultural sector. Therefore, controlling food prices should be aimed more at maintaining the purchasing power of low-income people.

The government only needs to establish and control the retail price of the rice with the medium quality without having to set too rigidly through the Food Task Force.

Furthermore, the food policy should be focused on facilitating and providing incentives to stimulate food productivity. Serious efforts should be taken to improve farmer institutions and to increase the use of appropriate technologies. All programs must be carried out with clear and measurable targets, such as the target of rice field productivity of at least 10 tons per hectare and increase the yield rate of the grain to milled rice from now on, as well as improvements in supply chain and trade system to make distribution more efficient.

No less important is that the accuracy data as a reference for food policies that are appropriate, effective and efficient. The synchronization of the date of production and demand is a crucial point amid the emergence of the chicken and egg polemics in the stability of food prices.

Hopefully, with consistency in food policies, cheap food prices will no longer be a dilemma.

ENNY SRI HARTATI

Executive Director of the Institute for Development on Economics and Finance

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