Analysts want govt to ease rice control

JAKARTA (JP): The skyrocketing prices of rice in the past two months should be enough justification for the government to end the State Logistics Agency's (Bulog) active role in rice trading, experts say.

They also called on the government to end its policy of keeping the prices of rice low through subsidies as it discouraged production and spurred on consumption at the expense of food diversification.

Agriculture analyst Bungaran Saragih of the Bogor Institute of Agriculture said Bulog should be returned to its original function as a logistics agency for the government and supply rice only to civil servants and Armed Forces personnel.

"Bulog should quit its role as a player in rice trading and become a referee which only supervises trading and supplies data to market players. If the referee is also a player, we cannot guarantee a fair game," he said yesterday.

The government would not be able to stabilize the rice price in the short term due to a poor harvest this year, inefficient distribution of fertilizer and seeds, and ineffective marketing of imported rice, he said.

"There's no magic solution to lowering prices in the short term other than increasing supply and improving distribution. Replacing Bulog's chief will not lower the prices if the agency is still run the same way," Bungaran told The Jakarta Post.

In a surprise move, President B.J. Habibie removed Beddu Amang, a long-time Bulog insider, from the agency and appointed Minister of Industry and Trade Rahardi Ramelan to run the agency, together with Minister of Cooperatives, Small and Medium Enterprises Adi Sasono and State Minister of Food and Horticulture A.M. Saefuddin.

Market players suspect that Beddu's dismissal was strongly related to Bulog's inability to arrest the increasing prices of basic commodities, especially rice and cooking oil.

Local rice prices rose to as high as Rp 3,000 (4.1 U.S. cents) per kilogram) over the last few days, well above the government's target price (for low quality) of between Rp 1,750 and Rp 2,000 per kilogram. High-quality rice such as Cianjur Kepala and Rojolele sold for almost Rp 5,000 per kilogram.

H.S. Dillon, executive director of the Center for Agriculture Policy Studies, suggested that if Bulog was still mandated to stabilize rice prices, it should streamline the intricate distribution network.

"It should bypass the current distribution system because it causes a vast disparity between the official price and the market price.

"In addition, Bulog's market operation must be guaranteed so that rice goes directly to consumers," Dillon told the Post.

Bulog's market operation has allowed speculators to buy subsidized rice and retail it at higher prices, he said.

Basically, rice distribution should be very simple: farmers sell their rice to cooperatives or distributors who sell it to consumers.

But the current distribution system is very protracted. Farmers sell rice to small traders who resell it to larger traders. The larger traders sell the rice to medium-scale distributors, who then resell it to small-scale distributors, retailers and supermarkets before the rice finally reaches consumers.

"There are too many players in the rice distribution system who take a large profit margin and cause soaring prices," Dillon said.

Dillon noted that rice smuggling to neighboring countries was another way for people to make big profit from the price disparity.

"That's why I don't like the subsidy system because it could encourage people to smuggle and stockpile the subsidized commodity," he said.

The country is projected to consume around 29 million tons of rice this year. However, because of failed harvests in some parts of the country, the government plans to import 4.1 million metric tons of rice, of which about 3.6 million tons have arrived.

Saefuddin estimated that the rice price would begin to decrease in October, but Minister of Agriculture Soleh Solahuddin said it was likely to remain volatile until the next major harvest in April.

Soleh argued that between 50 percent and 60 percent of annual rice production was harvested around April. (gis)