A new rice policy

The way some experts and officials have been blaming imports for the current plunge in rice prices is a manifestation of a disturbing but familiar pattern of deep-seated xenophobia among our people. We seem to have developed a tendency to single out, without fail, external forces as scapegoats for every thing that has gone wrong in this country. The last time we did this was six months ago, when almost the entire nation joined in a chorus, directed by the military, in faulting the West, Australia in particular, for the violent separation of East Timor from Indonesia.

Now, once again we are exhibiting that xenophobic trait by blaming Thai and Vietnamese rice for the steep fall in prices, and therefore, for the hardship millions of farmers must now endure. The International Monetary Fund (IMF) has also come under attack for preventing the government from hiking the rice import tariff above the current 30 percent. This habit of blaming foreigners may have conveniently absolved us from feeling guilty, but it is not solving the problem, which in all probability, lies within our own shores. Our neglect and inaction may have even compounded the problem.

The current decline in rice prices has been caused chiefly by the arrival of the latest harvest, period. An abundant supply of rice at harvest time is not all that unusual. Rice harvesting time in Indonesia is rarely an occasion for joy for farmers because it is also a time of falling prices. Since the majority of our farmers work on small plots, or till other people's farms, even a small price decline means a significant loss of income to them.

In the past, prices were often shored up during harvest times thanks to the government's open market operations conducted by Bulog, the national logistic agency. If prices have gone on a free fall this year, it is because Bulog's finances have been reduced, and therefore, its ability to intervene and stabilize prices is much more limited. Bulog is now financing operations with loans made available at commercial rather than government- subsidized rates. But even if money is made available to Bulog, as the government now claims, it is too late to prevent the plunge in prices to levels far below the floor price set by the government.

Imports may have played a role in causing the price fall, but they are not the prime factor. It is highly doubtful that curbing imports, or raising the import tariff rate, would have prevented the slide. In any case, the current low domestic price should be enough disincentive for new imports without the government having to resort to import bans or hiking tariffs. The bottom line remains that Indonesia has production shortfalls and needs to import rice, to the tune of some three million tons a year.

Instead of endlessly attacking imports as cause for our rice predicament, it would be far more productive if we directed our energy and thoughts towards finding a new national rice policy, including how best to manage the national stocks. The current policy, which has probably remained unchanged since the days of president Soeharto's administration, is clearly wanting. The policy, with a dual goal of protecting urban consumers and rural farmers, may have led to Indonesia becoming self-sufficient in rice production for a few years in the 1980s, but it was not without its costs.

For example, the presence of Bulog's warehouse facility in most villages has removed any incentive for farmers to store their surplus rice. Gone are the days when every village had its own rice barn to help stabilize prices in good and bad times. But, perhaps now, with Bulog's effectiveness reduced because of financial limitations, farmers should be encouraged to build their own storage facilities once again.

Simply put, the policy has severely distorted the market, leading to gross production inefficiencies and irrational consumer behavior.

Far from protecting farmers, the national rice policy has led to declining terms of trade for rural agricultural sectors vis-a- vis urban-industrial sectors. The policy, intended to protect consumers by keeping prices low, has also led people in eastern Indonesia to change their staple diet from corn or cassava to rice.

Given the strategic role that the crop plays in the economy -- in providing the main caloric intake, in inflation calculations, in job opportunities to name a few -- the government still needs to formulate a rice policy. The current slide in rice prices is all the more reason to think of a fresh approach to the problem.

A new rice policy must strive to ensure a fair price to both farmers and consumers. The best, and probably the only way of achieving this is to reduce market distortions to a minimum, including government intervention, and let the forces of supply and demand determine the most efficient allocation of resources and the most rational consumer behavior.