Agriculture needs market-oriented policy

Agriculture needs market-oriented policy

Indonesia is facing a rice-supply shortage and Bungaran
Saragih, head of the Center for Development Studies at the Bogor
Agricultural Institute, suggests that the government adjusts its
agricultural policy.

Question: Do you consider rice supply in the domestic market
as being at an alarming level?

Saragih: Yes. The rice supply has been decreasing due to the
absence of financial assistance during the economic crisis, the
lack of repairs to tertiary irrigation networks, disruption to
the distribution networks and the recently worsening weather. We
have no exact figure for the current level of rice supply but we
must beware until at least the end of this year.

Q: What is wrong with the government's policy on agricultural
development, in that the country's rice production has remained
stagnant?

S: The country's failure to increase rice production has been
caused by two government policies -- one on the exchange rate of
the rupiah and the other on the pricing of rice.

Before the start of the monetary crisis last July the
government was always trying to maintain the rupiah's value at an
artificially high level, so that rice prices on the world market
were lower than the domestic price.

Since 1985, the government has also imposed a policy of
setting a low floor price for rice with the aim of keeping food
prices low, so that wages for industrial laborers can be kept
low. Thus, the rice-price policy could support the government's
policy of supporting the country's industrialization.

This rice-pricing policy is unfair because it will
consequently result in the providing of subsidies for foreign
farmers and local consumers at the cost of domestic farmers. The
low pricing of rice will also cause inefficiencies in the economy
due to the misallocation of resources.

So, at the macroeconomic level, domestic farmers are affected
by the government's exchange-rate policy, and at the
microeconomic level by its rice floor-pricing policy.

Q: Do you think that this year's rice production can meet the
consumption level?

S: Of course not. The gap between production and consumption will
get even wider because the production level will remain stagnant
while the consumption level will continue increasing in line with
the increase in the population -- by about 3.6 million people per
annum -- and as an impact of the imposition of low rice prices.

Q: We frequently find the rice production figures issued by the
Ministry of Agriculture at odds from those distributed by the
State Logistics Agency (Bulog). How can such a difference occur?

S: That is because they use different methods to calculate and
different sources of data. Furthermore, each of the two
institutions has different interests. The ministry, which is
assigned to supervise food production in the country, will surely
tend to use data that can support their claim of having made a
success of agricultural development. Meanwhile, Bulog, a
bufferstocking agency, uses different indicators because it does
not want to be blamed for any mistakes.

If you want to judge whether the figures issued by the two
institutions are correct, you can consult with the market, which
can never tell lies. If you find that prices in marketplaces are
high, for example, you may conclude that the rice supply is in
shortage even though the Ministry of Agriculture claims that the
country's rice production is in surplus.

Q: Have you seen any examples of corruption, collusion or
nepotism in the procurement, including importing, and
distribution of rice?

S: I heard some allegations about abuses in rice procurement and
distribution but I cannot confirm or deny them. I, for example,
heard that Indonesia's rice imports were procured by certain
companies and shipped by the Salim Group and that Bulog was a
source of funds for social foundations chaired by former
president Soeharto but we need evidence.

Q: How should the government set its policy to guarantee adequate
supplies of rice?

S: The government should improve its services and inter-
departmental cooperation for agricultural and agribusiness
development. This should involve the Ministry of Agriculture, the
Office of the State Minister of Food, Drugs and Horticulture,
Bulog and the Ministry of Trade and Industry.

Different information and policies issued by those
institutions, which are frequently confusing, may cause business
failures on the side of related companies. Those institutions,
therefore, should be coordinated by a special assistant to a
coordinating minister in the current cabinet or by a special
coordinating minister in the next cabinet.

The government must also end its cheap rice policy and,
instead, allow farmers to sell their rice at prices similar to
those on the international market. The current floor price of Rp
1,660 per kilo (15 US cents) is too low, as compared to the
international price of 28 U.S. cents. Such a proposed policy will
discourage increases in rice consumption and encourage
diversification of food consumption. If the government is forced
to import rice to fill the supply shortfall, it must sell the
imported rice at the import price level, not at an artificially
low level.

The government must also reduce intervention in agricultural
production and avoid market distortion for agricultural products.
Let farmers, in consultation with their own associations, decide
what they want to plant and what technology they will use. If the
government has no resources to help farmers, then it should
simply leave them alone. (riz)