Controversy over rice imports

Controversy over rice imports

Importing rice, like raising fuel prices, is always
politically controversial. However, the heightened political
emotions set off by the importation earlier this month of 70,000
metric tons of rice from Vietnam seems to be inordinate.

Those analysts who sharply criticized the imports as being
inimical to the interests of rice growers and the leaders of the
Indonesian Farmers Association who encouraged protest
demonstrations are not so ignorant as not to know that the amount
of the imports is too small to cause any disruption in the
domestic rice market.

The imported rice will only amount to about 0.002 percent of
national consumption, which is estimated at 32.85 million tons
this year, against national production of 33 million tons. The
government also had explained as early as August, when the debate
over the rice import plan started to rage, that imported rice
would not be released onto the market unless local prices rose
far in excess of the set ceiling, and would be used only to
replenish the National Logistics Agency (Bulog)'s buffer stock.

Minister of Agriculture Anton Apriyantono said in September
that importation would only be resorted to if Bulog's stocks fell
below one million tons and retail prices rose above Rp 3,500 (US$
0.30) per kilogram. But Bulog's stocks always change as it
has to sell at least 150,000 tons of rice monthly under the rice-
for-the-poor program. Latest estimates by the trade ministry,
which oversees Bulog, show that as of early this month the
agency's stocks had dwindled to around 800,000 tons -- below the
threshold set by the ministry.

The basic issue here is that the government should always have
a buffer stock of at least one million tons of rice to meet
urgent need in emergencies, such as natural disasters or crop
failures. As the fourth most populous country in the world with
more than 220 million people to feed, the government must also
see to it that the country has reliable suppliers in times of
urgent need.

Experience has shown that food security is vital to political
stability, and the challenge in Indonesia is particularly
formidable as food security essentially means the availability of
rice, the main staple, at affordable prices, while there are only
two major rice exporters in Asia (Thailand and Vietnam).

Hence, the importation of 70,000 tons earlier this month was a
contingency measure to preempt any shortages that might be caused
by unexpected factors like crop failures or natural disasters --
particularly important given that the next harvest will only
start in February and that it will take a few weeks before the
imported rice actually arrives in Indonesian ports.

To start thinking about importing rice only after a major
shortage has arisen would be calamitous -- what starts as an
isolated shortage could soon escalate into a crisis given the
time lag between the decision to import and the actual arrival of
shipments. Moreover, a shortage, or even just a perceived
shortage, could very quickly prompt speculators to join the fray,
thereby resulting in spiraling inflation as rice weighs heavily
in the basket of goods used for calculating the consumer price
index.

It is also worth remembering that most rural farm households
are net consumers of rice, and steep rises in rice prices could
trigger a social and political crisis as food usually accounts
for the bulk of the spending of poor families.

The government certainly does not want to repeat the mistakes
made during the rice crisis of 1998 when imports came very late
amid an acute rice shortage arising from a national crop failure
caused by the El Nino phenomenon.

Some analysts have suggested that the government buy the rice
it needs on the domestic market in order to improve the incomes
of farmers. The problem with this argument is that most farmers
normally sell their surplus output within days of the harvest so
that most stocks are now already in the hands of wholesalers or
retailers. Hence, buying such a large quantity of rice in one
transaction could disrupt the market and trigger excessive price
rises.

In fact, past experience has shown that farm-gate rice prices
always remain stagnant even when retail prices are rising
sharply, meaning that the farmers rarely benefit from rice price
increases, except those mandated by the government.

We therefore believe that the fundamental issue that the government
must immediately address is the public's lack of trust in the
government's rice policy and the perceived lack of transparency
in the process of making decisions on resuming rice imports,
which were totally banned in 2004.