Improving rice distribution

Improving rice distribution

The government may risk taking a misguided measure if it
considers the current steep rice prices simply a result of
supply-demand disequilibrium. Even under the most pessimistic
assumption of up to a 10 percent decline in output last year to
29 million metric tons, due to the severe drought caused by the
El Nio weather pattern, the resulting shortage should not have
triggered so sharp a rise in rice prices, given the huge subsidy
spendings already allocated for this staple.

Based on a per capita consumption of about 135 kilograms,
domestic demand is estimated at only 27.7 million tons for our
203 million citizens, while imports in the first seven months
have exceeded 3.6 million tons. That is if official figures are
to be accepted as reliable.

The problem of rice prices should be seen from a wider
perspective, taking into account the many dimensions of the 70
percent fall in the rupiah's value against the American dollar. A
viable, lasting solution to the problem should therefore address
all the economic, social, and security aspects of the rice sector
that have been affected by the economic crisis.

The currency meltdown has more than quadrupled the prices of
imported staple foods at a time when the purchasing power of most
people has eroded and unemployment increases every day. The mass
rioting and looting in May extensively damaged the distribution
network as rice millers and distributors, afraid of renewed
looting, are wary of building up stocks. Bankers, already
distressed with huge bad debts, virtually stopped new lending to
the distribution sector, forcing it to work entirely on a cash
basis. Consumers, worried about perceived supply shortages, are
buying more than what they normally need.

Even though the weather has been much friendlier since early
this year, farmers, burdened by a steep rise in prices of farm
necessities such as fertilizer and pesticide, have been forced to
economize, resulting in lower yields. Rice growers are either
holding on to their stocks to make a killing on the market or
have chosen to sell to the open market rather than to the State
Logistics Agency (Bulog), which is responsible for managing
national stocks as a price stabilization measure.

The gap between subsidized rice prices on the local market and
prices overseas has been so great that even officials have
started to suspect that smuggling rice out of the country may
have become rife, given the difficulty in guarding our vast
coastline.

Hence the realignment and streamlining of the distribution
network should be the core of any effort to make rice readily
available at affordable prices across this vast archipelago.

The reform of Bulog, which was started last week with the
firing of its chief, Beddu Amang, and the realignment of the
agency, formerly directly under the President's Office, into a
joint coordination of the ministries of trade and industry,
cooperatives and food and horticulture could go a long way to
improving the management of national rice stocks.

Besides its resources being overtaxed with the task of
handling so many commodities, Bulog, like the giant Pertamina oil
company, has long been perceived as a cash cow for high officials
and politically connected businesspeople. Its import procurement
system was tightly closed and its network of distributors
operates like a close-knit family headed by the Bulog chief
himself. The tender system Beddu recently adopted for the
importing of commodities was merely a cosmetic measure to present
a token of transparency in the agency's operations.

Minister of Industry and Trade Rahardi Ramelan, as Bulog's
acting chief, made the first, right move when he immediately
decided to arrange an open competitive bidding system for the
agency's import procurements. But even this move could cause
complete chaos if bidders are not tightly selected, given the
special characteristics of the international rice market.

Rahardi should realize that Bulog is responsible only for
managing national buffer stocks for market operations. More than
90 percent of the rice trade is done by the private sector. The
agency only buys whenever prices tend to fall below the mandated
floor price to ensure reasonable earnings for farmers, and sells
at times of steep price rises. Bulog usually holds only between 8
percent and 10 percent of the national output in its stockpiles.

Rahardi, in his capacity as the minister of trade and
industry, should zero in his attention on removing distribution
bottlenecks by dismantling the old mafia-like distribution
organization, facilitating smooth land and inter-island
transportation of food staples and improving his ministry's
market information system. Concerted efforts also are still
needed to protect distributors from mass looting.