Agriculture Reference
In-Depth Information
there have been significant improvements in road and irrigation infrastructures;
and the economy is now more diversified. More importantly, competition in
rice trading and marketing has improved in the past 10 years so that market
integration—both the flow of goods and information—has significantly ex-
panded. Therefore, the role of government should now be focused on creating
rules and regulations to encourage local markets to be more contestable and
more integrated with regional and international markets. This task is not going
to be easy, but the government can start by relaxing restrictions and improving
private-sector participation and by finding alternative institutions to ensure food
security, promote agribusiness, and create an enabling environment for agri-
cultural activities that have higher potentials for growth.
Timmer (2004b) argues for a reformulated rice price policy without re-
liance on a parastatal. He cites two major reasons for reform: (1) the very high
expense of the recent programs and (2) the very high rice prices that have pro-
vided a disincentive for farmers to make the transition to growing more prof-
itable high-value commodities, which would be directed if market forces could
prevail. He argues that a long-term decline in the price of rice in world markets
and significantly greater stability in world prices have now sharply lowered the
opportunity cost of rice to the Indonesian economy. He suggests the following:
1. Indonesia should rely much more heavily on rice imports for its food se-
curity, perhaps even taking the lead in forming a free trade zone for rice in
East and Southeast Asia (possibly including Bangladesh and India).
2. Substantial investments in rural infrastructure to improve efficiency of rice
marketing would be needed so that traders and farmers would buy and
store nearly all of the harvest.
3. Continued development of rural capital markets would also be needed to
ensure that the financial liquidity traditionally provided by BULOG pro-
curement in defense of the floor price would be available from the formal
banking system at reasonable rates to farmers and traders.
4. Greater variability in seasonal prices should be permitted so that farmers
and traders could earn adequate returns on their investments. Such vari-
ability would not be a problem for most consumers, because rice has de-
clined to an small and manageable share of their budget expenditures.
5. In the case of large increases in rice prices in world markets (much less likely
with a large Asian free-trade zone) or localized shortages (much less
likely with a strengthened private market), subsidies to poor consumers
could be targeted through special logistical efforts, such as the Special
Market Operation (
Operasi Pasar Khusus,
or OPK) or Rice-for-the-Poor
(
Beras untuk Orang Miskin,
or RASKIN).
6. Variable tariffs on rice imports might also be considered as a mechanism
for stabilizing rice prices without the need for a costly logistical agency.
