Bulog urged to streamline its operations

Bulog urged to streamline its operations

By Hidayat Jati

JAKARTA (JP): Amid a current crisis concerning the nation's
rice supply, leading analysts are calling for redefinition of the
role of the National Logistics Agency (Bulog) to anticipate trade
liberalization and to increase efficiency.

"Bulog must soon streamline its size and operations and
release control of the trade of various commodities to increase
efficiency in the country's economy and meet future challenges,
particularly trade liberalization," H.S. Dillon, a U.S.-trained
agriculture economist, told The Jakarta Post here Saturday.

The agency fell under media scrutiny recently after last
year's harsh drought slashed Indonesia's rice production by four
percent from 1993's production level, to 46.40 million tons of
unhusked rice.

Indonesia, formerly the biggest rice importer in the world,
became self sufficient in 1984. Rice is the main staple diet of
the Indonesian population, currently about 189 million.

State Minister of Food/Chairman of Bulog Ibrahim Hasan
conceded last week that the drought had diminished Bulog's rice
reserve to the lowest level in 15 years.

Although the government has assured adequate food supply for
the Moslem Idul Fitri holiday early next month, recent press
reports state that retail prices of rice are on the rise despite
Bulog's market intervention.

The Pos Kota daily reported Saturday that in Jakarta's markets
the price of husked Cisadane I rice had increased from Rp 1,000
(about 45 U.S. cents) per kg to Rp 1,115, while the price of
husked Cianjur rice rose to Rp 1,350 last week from Rp 1,200 in
the previous week.

The Kompas daily also reported similar developments in other
cities on Java.

The government announced last October that the floor price of
husked rice paid by Bulog to village cooperatives was increased
by 11 percent to Rp 657 per kilogram beginning in January.

Analysts say that the gap between Bulog's floor price and
retail prices should not be higher than 30 percent.

Dillon, who is a senior official at the Ministry of
Agriculture, conceded yesterday that the government did not
expect such a severe drought last year.

"This shows that we must coordinate our efforts better in the
future. This might force us to redefine the roles of Bulog soon,"
he said.

Control

Bulog was set up in 1967 by the Soeharto government to control
the distribution of several commodities in order to assure food
security.

The government designated the agency as the sole authority of
the importation and distribution of rice and other agricultural
products such as sugar, wheat, corn and soybean.

Many analysts, although frequently questioning Bulog's closed
financial management, agree that these policies were very
fruitful through the 1980s, evidenced by the creation of rice
self sufficiency.

In terms of assets, Bulog is now believed to be one of the
richest state enterprises, although precise figures are
unavailable.

Hadi Soesastro, a senior economist based at the Centre of
Strategic and International Studies, told the Post on Saturday
that Bulog must become an ordinary commercial enterprise, without
access to monopoly and one which practices transparent
management, to adapt with future trends.

"Bulog must change because we must increase the economy's
efficiency and fulfill our free trade commitments," he said.

Indonesia is a signatory of the Marrakesh Treaty which marks
the completion of the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT).

The country, as a member of the Association of Southeast Asian
Nations (ASEAN), also signed the Asean Free Trade Agreement in
1992 and implementation of the agreement started in 1993.

Monopoly

Bulog's monopoly on commodities, including sugar, soybeans and
wheat, has frequently increased domestic prices far higher than
international prices, creating serious distortions of resource
allocation in the economy.

Analysts say the burden of monopolization tends to fall on the
consumers, while the monopolization benefits a small group of
producers, including sugar mills, mostly state-owned, PT Sarpindo
-- the one and only privately-owned soybean-crusher plant -- and
PT Bogasari Flour Mills, Indonesia's only operating flour plant,
which buys wheat at a price well below the import price.

The World Bank, in its country report last year, was unabashed
in its criticism on Bulog policies on sugar, soybean and wheat.

The report said: "Trade restrictions have contributed to the
high costs and inward orientation of the Indonesian food
processing industry, although the sector is large, it exports
trivial amounts of processed food products."

The industry accounts for about 10 percent of domestic
production, but exports in 1992 were only worth US$430 million,
the World Bank said.

Dillon voiced his agreement with the bank's argument.

"Bulog must release its control on soybean, sugar and even
wheat because it is debatable whether these commodities are
crucial parts of the food-security strategy," he said.

Rice

Dillon said, however, there is still a continuing need, at
least for the next five years, to maintain an agency to stabilize
the nation's rice supply.

Indonesia has imposed a tariff of 180 percent (expected to
decline to 160 percent by 2003) on rice imports and given access
to 70,000 tons with a tariff of 90 percent.

"In a big rice-consuming country like Indonesia, every time
you try to stabilize the rice supply, the market forces will be
against you," he explained.

He added that this phenomenon is caused by a domestic "thin"
rice market which means there is only a small portion of rice
being traded on the world market.

Dillon said that as long as the market remains "thin", which
he thinks will not last more than five years, Bulog can still
control the rice trade in Indonesia.

He warned, however, that to ensure maximum policy coordination
in pursuing food security goals, Bulog should be controlled by
the Ministry of Agriculture.

"If necessary, perhaps the office of the state minister of
food should also be relinquished to the agriculture ministry,"
Dillon said, adding that, in return, his office will intervene
less on the production side.

"Farmers are smarter these days anyway," he said.

Hadi Soesastro also said that Indonesia should wait for other
countries in the region before liberalizing the rice market.

"It's wise to wait for the Japanese and South Koreans to open
up their markets," he said.

In the meantime, there is a rumor spreading that Bulog will be
separated from the office of the state minister of food to
anticipate free trade, as reported by Republika Saturday.

Minister of Agriculture Sjarifudin Baharsjah -- besides
promising to simultaneously abolish non-tariff protections and
cut tariff rates on over 1,000 commodities -- also said that the
government will redefine Bulog as a "state trading enterprise" to
avoid violating rules of GATT.

Aside from these somewhat vague signals, the government has
given no concrete indication of its plans regarding the role of
Bulog.

The era of free trade, however, is approaching.