Agriculture Reference
In-Depth Information
ment reference price of dry unhusked paddy. The floor price announced by the
government was probably too high to be enforced, given the quality of the rice
harvest, or too different from the international price parity. Since January 1,
2003, the new floor price was announced formally (Presidential Decree 9/2003),
using criteria similar to those of the past three decades (Table 6.5). Requirement
for dry paddy to qualify for the procurement price policy was also similar (14
percent water content, 5 percent broken and unripe, 3 percent bad grain). Also
included in the decree is the reference purchase price of rice at the consumer
level, and notification that BULOG is the primary responsible party in domes-
tic procurement—supported by other line agencies, such as the Ministry of Agri-
culture, Ministry of Trade and Industry, Ministry of Finance, Ministry of Co-
operatives, State-Owned Bank, the Central Bank, and provincial and district or
city governments across Indonesia. The perennial problems remain and reap-
pear in every harvest season. 12 Since 2003, Indonesia has updated its rice pol-
icy two times. The first update was published in Presidential Instruction 2/2005,
the second in Presidential Instruction 3/2007. The difference is mostly in the
procurement price announced by the government. The farmgate prices fall be-
low floor prices, yet farmers do not deliver to procurement purchasers, as they
find it more convenient to sell through private channels than to go through all
the trouble of fulfilling the government requirements. At the same time, rice
procurement makes headlines whenever BULOG puts a high priority on im-
ported rice to fulfill the national buffer stocks instead of employing domestic
procurement with its high transaction cost. A further complication arises from
the declining world price of rice. In November 2003, the world price of medium-
quality rice (Thai 25 percent broken) was US$180 per ton, equivalent to about
Rp 1,600 per kilogram. As mentioned previously, regardless of the import tar-
iff of Rp 430 per kilogram (about 30 percent of retail price), imported rice seems
more profitable for rice traders, including BULOG. As anybody can apply for
an official permit to become a rice importer, the import of rice could take place
in any Indonesian port.
Wider Gap between Farmgate and Retail Prices
Since the fall of Suharto in May 1998, the price gap between farmgate and re-
tail has become as large as Rp 1,000 per kilogram or US$0.85 per kilogram
(Figure 6.3). This gap implies that the marketing margin of rice distribution has
12. Official data from the Monitoring Team of Rice Price ( Tim Monitoring Harga Gabah )
show the average farmgate price of rice was about Rp 1,422 per kilogram (or US$164.8 per ton)
and the millgate price of rice was Rp 1,582 per kilogram (or US$181.9 per ton), almost equivalent
to world free-on-board price of rice (Table 6.5). Both the farmgate and millgate prices of rice were
well below the government-announced floor price of unhusked dry paddy after harvest of Rp 1,230
per kilogram and Rp 1,500 per kilogram for unhusked dry paddy for storage.These numbers imply
that the retail price of rice in Indonesia in 2003 was above the world price of rice, providing op-
portunities for private traders to procure domestic needs of rice from the international market.
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