Where should Indonesian agricultural policy go?<\/p>\n
A debate has been raging on the course that Indonesian
\nagricultural policy under the new government should be taking.
\nThe Jakarta Post talked to H.S. Dillon, executive director of the
\nCenter for Agricultural Policy Studies about the issue.<\/p>\n
Question: There seems to be an ample supply of rice in the
\nmarkets -- are our food problems finally over?<\/p>\n
Answer: Only for the very rich. Our national food security has
\nbeen badly compromised. For the second year running we are the
\nworld's largest rice importer; paddy farmer incomes are well
\nbelow the poverty line, real wages for unskilled labor are still
\nonly half of what they were some three years ago, under-nutrition
\nis crippling and nearly a quarter of the population can only
\nafford adequate supplies of rice thanks to the government's low-
\ncost rice program.<\/p>\n
Q: Will free trade solve our problems in rice?<\/p>\n
A: World market rice prices are below US$200 per ton CIF (cost,
\ninsurance and freight) -- the lowest levels in real terms for
\nnearly three decades. Free trade would mean that the rich will
\nhave access to cheaper rice, farm incomes will collapse and rural
\npoverty will deepen. Java is already reeling from El Nino and the
\nfinancial crisis -- this would certainly put rural Java into the
\nintensive care ward.<\/p>\n
Regardless of whether world prices are abnormally low, free
\nrice trade simply doesn't make sense for Indonesia. When rice is
\nproduced here, we enjoy many social benefits -- food security,
\npolitical stability, rural employment generation, environmental
\nand cultural preservation -- that aren't reflected in the price
\nof the crop.<\/p>\n
The real value to society of domestic rice production is
\nprobably two to three times the market price. To embrace free
\ntrade is equivalent to ignoring the much higher social
\nopportunity cost of domestic rice production -- this is simply
\nbad economics.<\/p>\n
Q: Will a tariff help?<\/p>\n
A: A little bit. We could levy a tariff of 30-40 percent on rice
\nimports without massive smuggling or collusion. If we set a
\ntariff any higher than this, it simply wouldn't be enforceable.
\nConsumers won't suffer too much, since a 35 percent tariff is
\nabout equivalent to the current protection rate afforded by the
\npartial BULOG (National Logistic Agency) monopoly.<\/p>\n
But if we put a tariff on rice, we should do the same on wheat
\nand wheat products. Otherwise, we'd be encouraging consumers to
\nswitch to wheat-based imports. We cannot produce wheat
\ndomestically and its processing is still in the hands of the
\nconglomerates.<\/p>\n
Remember, a rice import tariff only helps us to modestly
\ncorrect the distortion between market prices and the shadow-price
\nof rice -- it certainly is not a protective measure.<\/p>\n
Q: Should we, then, abandon the rice floor price program?<\/p>\n
A: Not at all. The rice floor price program is the \"price of last
\nresort\". It is designed to inject competition into the markets
\nand ensure that prices don't collapse at harvest time. Without
\nit, small farmers could easily become indentured servants,
\nworking to pay off credit from large traders and the mills.<\/p>\n
Under a tariff based regime, we will have to make sure that
\nthe floor price isn't set above comparable import parity prices.
\nWe can also bring the floor price closer to the producers by
\nensuring that BULOG buys part of the harvest in the form of
\nrough, rather than milled, rice.<\/p>\n
Q: Should we eliminate the subsidy on low-priced rice for the
\npoor?<\/p>\n
A: No. The current \"market operations\" (subsidized sale) programs
\nhave been one of the lifelines that has actually worked far
\nbetter than expected. Lets face it, we have many very poor and
\ndesperate people. Food security is not an abstract notion for
\nthem. The targeted rice subsidy program provides the poor a
\nminimal amount of rice at a price they can afford. The fiscal
\ncosts are trivial compared, for example, to energy subsidies. The
\nnutrition, economic and rural development benefits are positive
\nand significant. One of the lessons of the financial crisis is
\nthat we must have in place instruments aimed at ensuring that the
\npoor can survive. This means that a targeted rice subsidy program
\nshould continue as the backbone of our national food security
\neffort.<\/p>\n
Q: We used to be self-sufficient in rice. What went wrong?<\/p>\n
A: Productivity has been falling since the late 1980s. After the
\ninitial burst of green revolution success, our 1990s rice
\nbreeding efforts have been a failure. We've invested heavily in
\nirrigation, but gross rice area harvested has only increased at
\nabout 0.5 percent per annum, and this is not enough to offset the
\nloss of rice lands to urbanization in Java.<\/p>\n
We tinkered with decentralizing our agricultural extension and
\nresearch services and have practically decimated both in the
\nprocess. Our agro-input and credit services were more interesting
\nin chasing government subsidies than in serving the farmers, and
\nthe cooperatives were anything but proper vehicles for advancing
\nfarmer business interests.<\/p>\n
Milling yields have been falling since the 1950s and our
\nlevels of waste, pest and disease loss are two to three times
\nthose of other Asian states.<\/p>\n
The \"low-price\" rice policy meant that returns to paddy
\nproduction were very low indeed. The best of the rural labor
\nforce left rice production and farmers had very little
\ndiscretionary income to invest in raising their own productivity.<\/p>\n
Rice production can become an engine for sustained, rural
\ndevelopment. But quick fixes, like establishing rice plantations,
\nare not the solution. We must, very quickly, improve the rice
\ntechnology effort, and as this is now the biotech era,
\ncooperation with the IRRI (International Rice Research Institute)
\nbecomes very important. We must complete the existing irrigation
\nsystems, turn over irrigation organization and management to farm
\nwater user associations, and strengthen watershed basin
\nmanagement. Off Java, we should be able to roughly double rice
\nyields through much better extension.<\/p>\n
Fertilizer and credit subsidies are not the solution. What is
\nneeded are commercially viable and competitive rural agro-input
\nand capital markets. Rather than subsidize banks and public
\nenterprises, it makes more sense to simply support a minimal farm
\nincome. Producer income supports, crop insurance and public
\nsupport for rural financial markets will help.<\/p>\n
Q: Will closing BULOG help?<\/p>\n
A: Don't be silly. BULOG is still needed to manage a targeted
\nrice subsidy program, implement the floor price program, maintain
\na national strategic rice stock; and to provide rice to the
\nIndonesian Military (TNI), to selected groups of civil servants
\nand to the victims of natural and man-made emergencies.<\/p>\n
An archipelago nation needs an organization that can ensure
\nthat the main staple food is available and affordable at all
\ntimes. The main problem is that BULOG financed its operations
\nfrom market-distorting, or what economist's call rent-seeking
\npractices. This must change. BULOG's public rice services should
\nbe financed from the budget, and the agency should be transformed
\ninto a well-governed, accountable and commercial state companies.
\nThis institutional transformation can be made, but it will take
\ncourage, conviction and strong leadership.<\/p>\n
Q: Couldn't decentralization solve the country's food problems?<\/p>\n
A: Maybe yes, and maybe no. Decentralization will bring
\ngovernment closer to the people, and this should mean much better
\nreturns on public outlays. But food security must be a national
\nobjective, and strong national measures must be taken to see that
\nit is not further compromised.<\/p>\n
If the decentralization process isn't managed correctly, we
\ncould easily return to the situation prevailing in the 1960s when
\nfood markets were restricted at regency borders and when water
\nuse conflicts were common.<\/p>\n
Decentralization can produce a race to the bottom, in which
\nlocal governments prefer to neglect the poor -- largely in the
\nhope that some other jurisdiction will handle their poor and
\ngenerate national food security for them. We certainly need to
\nreap the gains from decentralization, but let us do this in a way
\nthat ensures poverty will be reduced and that food security will
\nbe safeguarded.<\/p>",
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