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.