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)