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.