Unhusked rice price rise 'wont's affect inflation'

JAKARTA (JP): The government's decision to raise the floor price of unhusked rice would not boost inflation because of lower rice prices in the international market, according to Minister of Agriculture Soleh Solahuddin.

Soleh noted that the recent price increase was to help improve the welfares of local farmers following the removal of fertilizers subsidy.

He also said the government would eventually remove price control on rice to make it less political commodity.

"The rice price increase would not likely boost inflation because the price in the local market has got much higher than the international price," Soleh said on Friday.

The international price of rice ranges from US$230 and $270 per ton, compared to the domestic price of a medium quality rice of around Rp 3.5 million (US$466.6) per ton or Rp 3,500 per kilogram.

Soleh said the move to increase the floor price of unhusked rice by about 50 percent was only fair to the farmers, after the recent removal of subsidies on fertilizers.

"It would specifically benefit farmers who were due to harvest this month after the planting season in August," he told a press briefing.

The government raised the price of unhusked rice on Dec. 1 to between Rp 1,400 (0.18 U.S. cents) and Rp 1,500 per kilogram from Rp 1,000 per kilogram to compensate the removal of the fertilizers subsidies and to encourage farmers to plant rice in a bid to increase the country's rice production.

The State Logistics Agency buys rice from the local farmers in areas like South Sulawesi, East Java and South Sumatra at Rp 2,400 per kilogram. The buffer stock agency also imports rice to supplement the short in rice supply.

Soleh said since restriction on the rice trading was lifted, imported rice had begun to flood the market.

But agriculture analyst H.S. Dillon remains cynical that raising the price of unhusked rice would help boost local rice production, if the country still relies on imports of the commodity.

"When you still import, the prevailing market prices will be dictated by world prices, the floor price is thus irrelevant," he said, adding that domestic price had way exceeded the international price currently.

Soleh reminded that the move to jack up the price of unhusked rice was only temporary before the government eventually removes price control on rice.

"In the future, price of rice would be determined by the market price and the rupiah's exchange rates against the U.S. dollar," Soleh said.

He did not say when the government would remove the pricing control on the unhusked rice.

Dillon, however, warned the government against setting free the price of rice to the market mechanisms, as price control was a crucial protection for local farmers.

"How are you really going to protect your farmers (without setting the floor price) then?" he asked.

The floor price measure is designed to protect farmers, especially in approaching the harvest season, when their commodities tend to be priced at lower values, he said.

Farmers, who plant seasonal commodities such as rice, often face great risks and uncertainty without the floor pricing system, as prices of the commodities often plummet in the market during the harvesting season, he said.

Setting a floor price is one of the measure to contain uncertainty for the farmers, he said, adding: "even the Americans do that."

This helps the farmers calculate their input prices before they start planting, so they can calculate how much profit they can expect when they plants rice, compared to other commodities.

"It is an elements which help farmers decide what he should plant," he said. (gis/das)