Rice costs up, most lose<\/p>\n
C. Stuart Callison, Chief of Party, Partnership for Economic Growth
\n(PEG), Jakarta, stu@pegasus.or.id<\/p>\n
The Ministry of Agriculture has proposed a 15 percent increase
\nin the price of rice and, in support of this, a 71 percent
\nincrease in the tariff on rice imports. The Ministry wants to
\nprovide incentives for farmers to produce more rice and help
\nIndonesia achieve food security. These are worthy goals. However,
\nit is questionable whether a further increase in the price of
\nrice is the best way to achieve them, and the impact of this
\nchange on consumers, especially poor consumers, should also be
\nconsidered.<\/p>\n
Since the beginning of the economic crisis in mid-1997, the
\nprice of food in Indonesia has risen more rapidly than any other
\ncomponent of the cost of living -- more rapidly than housing,
\nclothing, transport, education, and health care. Among food
\nitems, the price of rice has risen more than the average cost of
\nfood. The current price of rice is therefore higher, in real
\nterms, than at any time since the world food crisis of the early
\n1970s, and it has been considerably higher than the world market
\nprice for rice since 1999, in contrast to its long-standing
\nparity with the world market price before that.<\/p>\n
Although most rice farmers are not wealthy, due to the small
\nsize of their farms, rice farming itself remains a very
\nprofitable activity, with profits averaging at least 25 percent
\nof production costs in 2001. If this is not enough financial
\nincentive to call forth more rice production, another 15 percent
\nincrease in price is not likely to do so, either. The
\nimprovement and maintenance of rural infrastructure, such as
\nirrigation works, farm-to-market roads and post-harvest
\nfacilities, especially in the more marginal areas of production,
\nis more likely to be successful at raising production.<\/p>\n
With world rice prices low and more stable than in the past,
\nIndonesia's food security can be achieved for much less cost by
\nsimply topping off domestic production with imports, assured by
\nIndonesia's macroeconomic growth and by its own exports of other
\ncommodities, both agricultural and manufactured.<\/p>\n
The vast bulk of Indonesia's domestic rice requirements will
\ncontinue to be met by its main rice producing areas, which can
\neasily compete with foreign producers -- who must after all
\nabsorb the higher costs of moving such a high-bulk, low-value
\ncommodity overseas. But if foreign rice producers can provide
\nrice more cheaply than the marginal rice farmers in Indonesia,
\nthe latter should be encouraged, through relative market prices
\nand agricultural research, to diversify into higher value crops,
\nboth for domestic markets and for export. This will not happen if
\ndomestic rice prices are maintained at artificially high levels.<\/p>\n
Indonesian consumers are already paying a very high price,
\nboth relative to pre-crisis levels and by world standards, for
\ntheir rice. Research has proven that the price of rice plays a
\nsignificant role in the incidence of poverty here, since
\nexpenditures on rice alone comprise 20 percent of total family
\nbudgets of the poor. It has been reliably estimated that a 15
\npercent increase in the retail price of rice would increase the
\ntotal number of Indonesians falling below the poverty line by 3
\nmillion. The rural poverty rate would increase from 18.7 percent
\nto over 20 percent. The proposed increase in rice prices would
\nact like a 3 percent tax on the total income\/expenditures of
\nthese poorest elements of the population (and the same tax on
\nhigher income groups, although a lower percentage of their
\nincomes).<\/p>\n
When poor families have to spend more money on their basic
\nstaple, rice, they have less to spend on other important family
\nneeds like health care and education, and less to spend on other
\nfood items, like eggs and fish and vegetables, with negative
\nimplications for their own nutrition and health, especially for
\ngrowing children.<\/p>\n
Only one third of rural households in Indonesia own enough
\nland to produce a surplus of rice for the market. They represent
\nless than 20 percent of the total population. Less than 40
\npercent of the income of rice farmers comes from selling rice,
\nmore than 60 percent of their income is from other activities.
\nSome 45 percent of rural households do not own any land and
\nanother 20 percent own less than 0.25 hectare, not enough to
\nproduce a marketable surplus.<\/p>\n
Farm families who produce just enough rice for their own
\nconsumption obviously would not benefit from an increase in rice
\nprices.<\/p>\n
Those who must buy additional rice to get through the year
\nwould suffer the higher price tax like other consumers. Rice
\nfarmers who have enough land to produce a surplus for the market,
\nwhile not rich, are not among the very poorest families living in
\nrural areas. Raising the price of rice would essentially tax all
\nconsumers who do not grow enough rice for themselves for the
\nbenefit of those rice farmers who are generally somewhat better
\noff than many of their landless or land-poor neighbors.<\/p>\n
Finally, every increase in the cost of food, the real "wage
\ngood" in economic terms, ultimately leads to demands for higher
\nwages, making Indonesian workers and the products they produce
\nless competitive on world markets (something Indonesia's
\ncompetitors, like China, are avoiding). This in turn reduces the
\nprofitability of enterprises competing against imports or
\nproducing for export and lowers the attractiveness of Indonesia
\nfor new investment. This leads to higher unemployment in the
\nfuture while more productive employment is the only way to reduce
\npoverty and improve income and welfare for all Indonesians.<\/p>\n
If the price of rice is artificially increased, everyone loses
\nexcept the surplus rice producers.<\/p>\n
The views expressed here are those of the author, C. Stuart
\nCallison, Ph.D. and not necessarily of his affiliated
\ninstitutions, USAID, or the U.S. government.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/rice-costs-up-most-lose-1447893297",
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