Bulog overextends itself

Bulog overextends itself

The National Logistics Agency (Bulog), prompted by an
overriding concern about inflationary pressures, is setting
itself a formidable task which, we think, is doomed to fail and
will waste scarce resources. At a time when the government has
increasingly opened the economy to market forces, Bulog is
expanding its market intervention from its officially-sanctioned
responsibilities -- rice, wheatflour, sugar, soybean -- to meat,
eggs, cooking oil, chili and popular kinds of vegetables. The
agency even plans to open chili plantations in a joint venture
with PT Indofood, the publicly-listed company which mills over 80
percent of the wheatflour sold in the country.

We appreciate Bulog's role in maintaining the stability of the
price of rice, sugar and salt but we don't see any urgency for
the agency to use the subsidized loans it regularly secures from
the central bank for managing the market of cooking oil, meat,
eggs, chili and other foodstuffs. Besides such intervention being
costly it will never solve the root problems. The market
intervention might curb price rises but only for a short time. In
the meantime the root problems-- inadequate production and
marketing programs and distribution bottlenecks remain unsolved.

Over the past three decades, we have been accustomed to annual
upward trends in the price of several commodities, notably
foodstuffs, during the fasting month and the Idul Fitri
celebrations as the demand in those few weeks is always greater
than normal. Hence, trade offices throughout the country are
supposed to have built up adequate market data to predict the
supply/demand ratio and to take any necessary measures to cope
with seasonal price volatility. The trade offices in turn are
supposed to always keep the agricultural ministry well informed
of the market trends.

The agricultural offices in turn are supposed to disseminate
the market information to the farmers who, thanks to the well-
organized program of agricultural extension services over the
past 25 years, have become more capable of responding correctly
to market signals.

However, experience shows that Bulog has always found itself
responding to individual alarms, acting like a fire squad
responding to a ringing fire alarm bell, during the annual
fasting month and the Idul Fitri celebrations, rather than
preventing these alarms occurring. That, we think, implies that
communications between the trade and industry ministry and the
agricultural ministry have not been as effective as they should
be to allow for effective production and marketing plans. The
consequence is that the farmers often miss the opportunity to
benefit from the seasonal upward market trend.

The inadequate production and marketing programs have been
exacerbated by what traders see as distribution bottlenecks.
Outstanding in the barrier are the problems encountered in the
movement of commodities from one place to another. Trucks
operating from one province to another, sometimes even from one
district to its neighboring district, are often subject to such
frequent checks either by the police or officials of other
departments along the way that they look like international
border checkpoints.

Obviously, the checks add to the costs of the commodities
transported, and for sure, the additional costs are borne by
consumers. So large are the costs incurred in the distribution
chains that the retail prices are often twice as high as the
prices enjoyed by the producers (farmers).

We suggest therefore that Bulog refrains from jumping into the
market whenever food prices tend to fluctuate. The agency should
instead improve communications between the trade and industry and
agriculture ministries to work out effective production and
marketing programs. On the other hand, the Armed Forces and the
ministry of transportation should work together to facilitate the
movement of goods from one area to another.