Agriculture Reference
In-Depth Information
oil, soybean, and other commodities. The Government of Indonesia maintained
a certain amount of national buffer stocks of rice in BULOG storage facilities,
which could be injected at appropriate times into urban markets to ease the ef-
fects of short-term price surges. BULOG was then appointed to focus also on
targeted market operations (OPK) and RASKIN to partially insulate the poor
from changes in consumer rice prices. By raising or lowering the co-payment
amount for subsidized rice, the government could inject a greater or lesser
measure of price stability into rice prices for the most vulnerable groups.
BULOG lost its power in price stabilization when the government adopted
trade liberalization in rice trade for about 2 years (1998-2000). Adoption of trade
liberalization policy in rice was generally considered to be a mistake by the gov-
ernment. After some surges of sharp criticism, the Government of Indonesia
revised the components of floor price in dry paddy and rice and announced a
protection policy by setting an import tariff at about 30 percent of retail price
in 2000. Because of declining world prices, these price levels were set too high,
so that the actual farmgate prices fell below the floor price for an extended time.
The wide gap between free-on-board and cost-insurance-and-freight prices and
the high capital costs and risks arising from storing rice domestically con-
tributed to a high degree of price volatility at the peak-harvest period. There-
fore, the combination of global rice price volatility and exchange-rate volatil-
ity made it difficult for Indonesia's policymakers to effectively forecast an
appropriate rice floor price. The dilemma appears to be that, once such a price
is set, it becomes politically impossible to lower it. If the floor price is set above
import-parity price levels, then government will be unable to defend it. This
problem is the real challenge for reforms in food price policy.
Reform options for a new organizational format of the state-owned enter-
prises of BULOG should provide important answers to good governance, cor-
porate efficiency, and public accountability, as well as the feasibility of provid-
ing price stabilization during the anticipated fall in rice prices during the main
harvesting season. As the policy on rural development has been poorly defined
since the economic crisis, farmers have relatively little ability to hedge this risk,
other than by pre-selling the crop prior to planting (
ijon
system). The main
thrust of macrofood policy in Indonesia, therefore, should focus on how to pro-
vide linkages between macroeconomic policy, rural development, and poverty-
alleviation policy in the country.
Problems in internal BULOG management, limited access to the state
budget, and decreased direct liquidity credit from the central bank have pre-
vented BULOG from maintaining its function as a buyer of last resort in order
to discourage excessive drops in farmgate prices. These problems have all con-
tributed to BULOG's inability to defend floor price in the past 4 years, partly
because the price was set well above the prevailing import-parity price. Simi-
larly, the new approach for the Government of Indonesia and for BULOG to
implement a domestic procurement price and procurement target is not ex-
