Agriculture Reference
In-Depth Information
6
From Remarkable Success Stories to Troubling
Present: The Case of BULOG in Indonesia
BUSTANUL ARIFIN
The initial success and subsequent failure of Indonesia's Food Logistics Agency
BULOG parallels the rise and fall of the Indonesian agricultural sector and
economy as a whole. After more than 20 years of “revolution” in the country's
economic and political systems, reflected in years of instability under President
Sukarno, President Suharto introduced an entirely new approach of the econ-
omy in the late 1960s, marking the New Order regime. A key element of this
approach was the government's heavy investment in the rural economy to in-
crease production of rice, the country's most important food staple, supported
by an effective policy to stabilize the price of rice.
BULOG was established in 1967 to implement the rice price-stabilization
policy, which was credible, transparent, and effectively enforced:
1. A floor price kept the farmgate price of rice well above production costs.
BULOG bought rice production not absorbed by the market, especially dur-
ing harvest season. The procured rice was used to build a national buffer
stock. The economic rationales behind maintaining the floor price above the
market-clearing level were to protect against market failure, ensure prof-
itability of the farmers, and procure enough rice for BULOG's operation.
2. A ceiling price made rice affordable to low-income households, especially
in the urban areas. Whenever prices went above the ceiling because of
drought and other natural calamities, BULOG would sell cheap rice to tar-
geted consumers. The argument in support of such market operations was
to avoid price spikes, which could trigger social unrest similar to that ex-
perienced by the previous regime.
This pricing policy was successful in the first 30 years of the Suharto ad-
ministration, in large part because the economic policy strategy was smoothly
translated into organizational and implementation policies down to the local level.
BULOG was highly credited as a successful government institution in achiev-
ing price stability and effectively contributing to achieving and sustaining self-
sufficiency in rice. The success of BULOG was characterized by a centralized
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