Agriculture Reference
In-Depth Information
agreed to export agricultural products, such as crude palm oil, rubber, and pep-
per, in return for four Sukhoi jetfighters and helicopters from Russia.
10
Thus, to achieve its goals, BULOG's biggest challenge is to transform its
former paternalistic and bureaucratic culture into a corporate culture. BULOG
inherited a huge amount of assets in the country, approximately Rp 840 billion
(US$100 million), which were later converted into initial capital from the gov-
ernment. To supply the down payment for the jetfighters, BULOG had to apply
for commercial credit of US$26 million from the Bank Bukopin, which has only
accumulated an initial capital of US$32 million. Not surprisingly, the public is
questioning whether borrowing so much money threatens BULOG's public re-
sponsibility of food procurement to maintain price stabilization in domestic
markets.
As a state-owned enterprise, BULOG must be prepared to compete with
upstream and downstream businesses. BULOG's competitors vary from regu-
lar farmers in rural areas to the well-established domestic and foreign corpora-
tions.
11
Private trade businesses require fair and open management, good busi-
ness ethics, and the ability to uphold social corporate responsibilities. Former
business cultures, which rely on political patronage from elite circles, would
not survive in the more open world of business. At the same time, BULOG also
has to maintain its public responsibility as a stabilizing agent of food and other
strategic commodities in domestic markets. This role obviously requires a clear
job description for the management of BULOG, business priority in the first
few years, and a reasonable time frame to complete its transformation into a pri-
vate entity. Otherwise, BULOG will not achieve any of its objectives for priva-
tization nor its social obligations.
The Falling Farmgate Price of Rice
The first test for the reformed BULOG, and national food policy in general, was
the drop in farmgate prices of rice in 2003, which were far below the govern-
10. The public debates regarding the Sukhoi scandal mostly concerned the following issues:
(1) nonstandard procedures of using the state budget, given that the purchase was neither proposed
nor approved in the process of budget formulation; (2) decisions of military officials, which sig-
nificantly bypassed the authority of the Ministry of Finance; and (3) the scope of BULOG's activ-
ities, which (presumably) should be limited to handling foodstuffs, not military equipment. Public
criticism directed at BULOG included its negligence in performing domestic procurement of rice
by purchasing the excess supply of rice at farm level, the priority given to rice and sugar imports
over domestic sources, and the old way of doing business (which is generally associated with al-
leged monopoly and nontransparency in appointing third parties and contracts related to food dis-
tribution). The Sukhoi scandal provided a clear example of the fact that BULOG's operation ap-
pears to be dictated by the same old political and business elites, and that it has drifted far away
from the mandates given to it when it was transformed into a state-owned enterprise.
11. Such as Indofood (food industries), Matahari, Hero, Carrefour, Giants (supermarket),
Pertamina, Shell, Beyond Petroleum (oil, liquefied gas), Sudarpo Corporations (cargo forwarding),
Sahid Hotel, Inna Hotel, Holiday Inn, and other chain hotels.
