Agriculture Reference
In-Depth Information
TABLE 6.6
Effectiveness of floor price and procurement price of rice, 1997-2003
1997
1998
1999
2000
2001
2002
2003
Floor price policy
(Rp per kilogram)
525
1,000
a
1,400
1,400
1,500
1,500
1,725
Farmers selling below
floor price
b
(percent)
0.8
3.8
8.3
48.3
17.13
9.61
50.3
Number of observation
6,297
6,811
6,683
5,455
4,914
4,851
6,367
World price free-on-board
(US$ per ton)
281.0
276.0
216.2
173.6
152.7
171.8
180.0
SOURCES
: Calculated from BPS (various months; most recent: February 2004),
Tim Monitoring Harga Gabah.
a
In 1998, the floor price was revised four times: Rp 525 (January), Rp 600 (April), Rp 1,000 (June), and Rp
1,400 per kilogram (December).
b
The percentage is the number of observed farmers receiving farmgate prices below the referenced price an-
nounced by the government.
was far above the required water content of 14 percent, and possibly affected
other requirements of broken and immature grain and the like.
There are two possible explanations for this policy failure: first, the policy
is poorly designed and implemented, and second, the present institutions are
not really compatible with the norms, values, and unwritten requirements in-
herent in the policy. In short, food policy should not be based on a price policy
only, but should be supported by a set of related policies, such as tariff and trade
policies, which are credibly enforced. Indonesia should take to heart the seri-
ous lessons from the case of half-hearted liberalization policy, undertaken to
comply with the IMF's letter of intent, where the institutional development nec-
essary to implement such policies was neglected.
Summary and Conclusions
This chapter has examined the successes and failures of BULOG in imple-
menting rice price stabilization in Indonesia, emphasizing the past perfor-
mance, recent experiences of reforms, and future directions. The process of
change from marketing parastatal to private trader in food obviously requires
major improvements in efficiency, transparency, and public accountability. Af-
ter being praised as an effective and successful government institution in food
price stabilization and contributing to the progress of the Indonesian economy,
BULOG has been put on public call since the 1990s. Its extensive involvement
in food and agricultural trading activities evolved into centralized decision-
making with high potentials for rent seeking.
The initial reforms of BULOG's organization started in the economic
crisis, during which the binding letter of intent to the IMF in 1998 reduced
BULOG's mandate to handle only rice, instead of wheat flour, sugar, cooking
