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.