Boosting farmers' income
Boosting farmers' income
Maintaining a stable supply of basic food and ensuring food
security is the ultimate objective of the government following
last week's decision to raise the producer (floor) price of rice
by 16.67 percent. Farmers will continue to grow rice if their
earnings remain higher than that from other crops. However, the
food crop sector cannot be separated from other sectors of the
economy. Hence, fertilizer prices were increased by 21 percent in
a bid to further reduce government subsidies on that
agrochemical.
Most farmers expect the measure to have little impact on their
real incomes as the rice price increase was introduced
simultaneously with a rise in the price of fertilizer.
Agronomists have estimated that fertilizer alone usually accounts
for up to 30 percent of rice production costs. This means farmers
will have to increase their working capital as well.
The government has been facing a dilemma with regard to the
price of rice, the national staple. Its price cannot be increased
too steeply because it would cause strong inflationary pressures
and the number of landless farmers and farm laborers who depend
on the open market for their staple remains quite large. This
means a high rice price would hit hard not only the fixed low-
income people in urban areas but also millions of others in rural
areas.
It is nonetheless essential to prevent rice farmers' terms of
trade from being eroded by the general price increase (consumer
price index). If it is not, there is the risk farmers will shift
to other crops, thereby threatening food security.
There are at least two other problems besetting the rice
economy. One of them is the declining size of farm land held by
farmers in Java. The latest agricultural census in 1993 concluded
that farmers in Java only held an average 0.47 hectare and the
number of farming households with less than 0.50 hectare of land
totaled 11 million.
The small landholding has been exacerbated by what agronomists
see as the diminishing returns of rice crops. Even though
national rice output has been increasing, larger production has
been generated mostly by rice-crop expansion. In fact, according
to the latest data available from the Central Bureau of
Statistics, the rice yield per hectare declined from 4.38 tons in
1993 to 4.35 tons in 1994. One can easily see how rice growers
survived without an annual increase in the price of the staple.
Many may ask why the government has to increase the price of
fertilizer. It is true the agrochemical is made from natural gas
which is abundant in the country, but the rice economy will never
be more efficient and competitive unless it is gradually freed
from government subsidies. Sound macroeconomic management demands
a gradual, if not abrupt, abolition of such market distortions.
This has become even more imperative in light of Indonesia's
participation in the ASEAN Free Trade Area in 2003 and the larger
Asia-Pacific free trade region in 2020.
The latest increase in the rice price is not insignificant
despite the 21 percent increase in the fertilizer price, and an
inflation rate of only 6.7 percent last year. What is more
important though, is that the producer price should be the
minimum gained by rice farmers during the peak harvest season
when the market demand tends to be depressed.
We have learned from experience that what is mandated by the
government will not automatically materialize in the marketplace.
Farmers may still receive much less than the floor price because
of collusion between cooperative officials and traders or due to
farmers' failure to meet the minimum quality standards. It is the
responsibility of the government to prevent such collusions and
to help farmers fulfill quality standards, otherwise the floor
price policy will not be effective.