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Indonesia's double-whammy food
crisis
By Bill Guerin
JAKARTA
- As the dogs of war were unleashed in far-off Aceh,
back in Java, farm policies and market distortions
contrived to create the makings of a mini-food crisis.
Sugar and rice are the commodities causing the
grief and despondency with some 35,000 sugar cane
farmers, who supply sugar for the domestic market across
West Java demanding the sugar mills buy their cane for
at least Rp3,500 (about 41 US cents) a kilogram.
Indonesia consumes well over 3 million tons of
sugar a year and the domestic producers can supply, at
best, 1.7 tons annually. Matters are coming to a head
with the farmers planning to strike over policies that
are driving them into poverty.
The four official
distributors have also been accused of hoarding in a bid
to prop up the price.
Earlier import tariffs of
up to 25 percent caused the domestic sugar price to rise
to a record high of around Rp6,000 (about 60 cents) per
kilogram, compared to the government-set price of
Rp4,000 per kilogram. This, in turn, provided more
incentive for the hundreds of illegal traders to build
up stocks.
The price of rice, a political tinder
box at any time, has plummeted as cheap imports are on
the market at Rp2,200 per kilogram, compared with the
price that domestic producers offer, between Rp2,700 and
Rp3,000 per kilo.
The price of unhusked rice at
the farm level plunged as low as Rp800 per kilo as the
current harvest season got under way this
month.
Sector analysts say farmers get a low
price for the unhusked rice partly because of the flood
of cheaper imports and the lower quality of the product
due to delays in the planting season. Manipulation by
contractors assigned to buy the farmers' unhusked rice
has added to the distortions.
The government-run
monopoly Badan Urusan Logistik Nasional, better known as
Bulog, is the state logistics agency for basic
foodstuffs.
Bulog chairman Widjanarko Puspoyo
became the new wave agency's first president this month
when its status changed from a non-profit state
institution into a profit-oriented state-owned company,
and thus a full-fledged professional commercial
enterprise.
Sources say the aim is to emulate
Bulog's counterpart agency in Malaysia, Bernas, which
had a similar role to Bulog but is now a publicly listed
company in Kuala Lumpur.
The terminology is
ironic. While Bulog has always made profits, not all of
those have gone to the state. During the Suharto era its
reputation for enriching the elite and distorting market
prices put it atop the International Monetary Fund (IMF)
hit list of monopolies to be dismantled. This followed
an Arthur Anderson disclosure that the agency lost Rp6.7
trillion (US$788 million) between April 1993 and March
1998, because of unfavorable business contracts,
irregularities and weak supervision.
Minister of
Defense Matori Abdul Djalil has called Bulog a cemetery
for politicians. Wahid's masseur, Alip Agung Suwondo,
brought down Abdurrahman "Gus Dur" Wahid because of
"Bulogate", an unproven scandal in which, a
parliamentary commission decided, $3.9 million was
stolen from Bulog. Current Speaker of the House of
Representatives and Golkar Party chairman Akbar Tanjung
awaits a Supreme Court decision on his appeal against a
three-year conviction for siphoning off funds from Bulog
meant for the poor.
The politically charged
scandal centered on the misuse of Rp40 billion from
Bulog, alleged to have gone into Golkar coffers to
finance its campaign in the 1999 general election. Wahid
later alleged that 10 political parties received Rp109
billion from Bulog.
Former Bulog chairman Beddu
Amang's appeal to the Jakarta High Court over his
conviction for embezzling Bulog funds resulted in a
surprise last August when his sentence was doubled to
four years.
Prosecutors had demanded life
imprisonment for Amang, accusing him of losing $95
million in state funds in a fraudulent land deal with
ex-president Suharto's youngest son Hutomo "Tommy"
Mandala Putra.
These and other backroom deals
allowed the elite and politically connected to grow rich
off the pickings from an agency set up on May 11, 1967,
in line with Article 33 of the constitution that obliges
the state to control the supply of basic commodities.
Bulog's primary function was to purchase basic
commodities for public servants and the military. From
1970 it was required to control the price and
distribution of basic staples, especially rice and
flour, seen as important to social stability.
Suharto's "New Order" era brought
industrialization to a backward nation and the
government set out to increase rice production while
keeping prices low for consumers so they would not
demand higher wages.
As a state firm, the new
Bulog will be allowed to be involved in commercial
activities, and its gains from such enterprises could be
used to partly cover the government's rice subsidies,
Puspoyo said. Bulog will also expand its operations into
other strategic commodities such as sugar, soybeans and
corn. The agency held a monopoly in the import and
distribution of wheat, sugar, soybean and cooking oil
before it had its wings clipped in 1999 and the
exclusive rights were scrapped.
Traders and
agriculture economists say Bulog has a long way to go
before becoming more transparent in its buying
operations. Whenever a gap exists between the
government's officially announced procurement price and
the actual market price, Bulog officials have a clear
incentive to split the difference with privileged
private traders. Substantial evidence from the field
shows how pervasive this practice had become and how
angry it makes farmers and non-privileged traders.
The agency has historically been unable to
handle the multidimensional tasks involved in setting a
ceiling price for the benefit of consumers, and a floor
price for producers.
For consumers needs it was
necessary to have adequate stocks available. This meant
running stocks down when there was a surplus and the
opposite when there was a shortage, usually by
increasing imports. When necessary, the agency purchased
rice from the domestic or the international market.
To encourage farmers to produce more it was
essential to set a price, which would act as an
incentive. Bulog did this by entering the market when
the price fell, and withdrawing as it rose above the
floor. Rice production increased beyond all
expectations, threefold under the New Order.
Rice is cultivated by millions of small-scale
farmers and sustains many more millions of people in its
production, processing and marketing. Bulog's function
is to stabilize the price of rice at home both to
protect farmers and consumers by purchasing or unloading
its reserves to control such price fluctuations.
The Ministry of Agriculture and the Indonesian
Farmers Association (HKTI) are pressing now for a higher
import tariff on rice (from the current Rp430 per kilo)
to inflate prices artificially and thus allow domestic
growers to compete.
Widjanarko, however, wants a
complete ban on imports, arguing that Bulog had
difficulties in buying up local rice due to the limited
space of its warehouses. This is a dubious argument when
weighed against Bulog's massive network of 1,500
warehouses across the country.
Though these were
mostly built without any feasibility studies they were
meant to do just that - provide storage for large
surpluses of rice to keep them off the market.
Prior to the Uruguay Round of the General
Agreement on Tariffs and Trade (GATT) talks and
inclusion of agriculture in the World Trade Organization
(WTO) when Indonesia committed to not subsidizing
exports of rice, the government dumped surplus stocks in
overseas markets several times.
It is not
possible to dump the rice on the local rice market
because that would defeat the whole purpose of procuring
in the first place, to raise the structure of domestic
rice prices.
Widjanarko said the main reason for
the current drop in the market price was the large
quantities of imported rice, which is being sold at
around Rp2,200 per kilo, compared with the price that
domestic producers offer, between Rp2,700 and Rp3,000
per kilo.
The impact of the 1997 economic crisis
on the poor was severe. The government's intervention to
ensure the availability of basic commodities was of
crucial importance and Bulog's role in ensuring supplies
and stabilizing prices was considered vital to prevent
further social unrest.
However, lining the
pockets of Bulog officials and privileged traders has
cost the government budget trillions of rupiah and
wasted scarce resources.
Bulog's primary
function at the start was to purchase basic commodities
for public servants and the military. From 1970 it was
tasked with controlling the price and distribution of
basic staples, especially rice and flour, seen as
important to social stability.
The change in
status will force the new Bulog to operate on a
commercial basis as it will no longer be entitled to
government subsidies. This suggests it will be hard
pressed to ensure a price policy that delivers the
promised level of prices to farmers.
The country
needs a procurement mechanism that will ensure a
"balance between the priorities of consumers and
farmers", as noted agricultural expert H S Dillon has
argued for years. He says the government should focus on
creating an effective distribution system for rice,
which would ensure supplies reaching the very
poor.
Determining the right policies for such
strategic commodities will now, at least, be down to the
Indonesians themselves. During the financial crisis,
despite warnings that drawing the teeth of Bulog would
cause a disruption in the distribution of rice and would
further cause severe suffering for the nation's poor,
the IMF insisted on limiting Bulog's control over rice
and demanded a scaling back of subsidies for food and
other essential goods.
Similarly, with sugar,
protectionism and anti-market policies have failed to
secure the farmers' welfare, brought a high cost to
Indonesia and only benefited the big names behind the
inefficient sugar industry, as well as the selected
related importers and domestic distributors.
Minister of Industry and Trade Rini M S Soewandi
has said she will tackle the sugar distribution problems
and seek alternative ways of "punishing greedy
distributors". Analysts say, however, the government
should go the full mile and free up sugar imports while
sorting out the related issues of illegal imports and
improving distribution channels.
The minister's
own policy last year, meant to protect the interests of
local sugarcane farmers, curtailed the total of sugar
importers to just four state-owned companies from 800
private importers earlier. The well-intended move simply
gave the chosen few an even bigger stranglehold on one
of the country's basic commodities.
Notwithstanding its checkered history, Bulog is
likely to continue to have a pivotal role to play in
securing rice for the consumer, and satisfactory returns
to farmers. Over time it has developed experience and
skill, and has the warehouse capacity throughout to
handle large-scale rice imports. Security of basic
foodstuffs will remain important government concerns for
decades to come.
(Copyright 2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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