Agriculture Reference
In-Depth Information
BULOG - The national food logistics agency for rice
procurement and distribution
Complementing the network of producer subsidies during the New Order was a pri-
cing policy implemented through the para-statal National Food Logistics Agency
(
Badan Urusan Logistik
, or BULOG). A primary function of BULOG, from the time
of its inception in 1967, was to maintain a floor price for rice (the
Harga Pembelian
Pemerintah
(HPP)) at the farm-gate (or close to it). The HPP was politically stipu-
lated at a level above the estimated costs of production, with BULOG purhasing rice
not otherwise absorbed by the open market in an atempt to build a national buf-
fer stok. Initially, market intervention through the HPP was popularly interpreted
as directed toward improving the welfare of Indonesian rice farmers. In the nation-
al consciousness, rice farmers were considered to constitute the marginalized bak-
bone of a fundamentally agrarian nation and therefore deserving of support. Indeed,
ensuring that agricultural produce (but not only rice) remained competitive in local
and international markets was integral to Indonesia's relative success in ahieving
pro-poor economic growth during the New Order (Timmer, 2004). Significant gov-
ernment resources were allocated to supporting the notion that 'rice was the baro-
meter of the economy', and therefore justified special policy treatment.
In addition, BULOG would intervene to release rice onto the market when con-
sumer prices moved above a predetermined ceiling, purhasing rice on the world
market when required. For many years, BULOG maintained a monopoly on rice im-
ports, until this was dismantled as part of the 1998 IMF-imposed austerity measures.
This ceiling price (enforced through
operasi pasar
or 'market operations') ensured
rice was affordable to low-income households, especially in urban areas. The argu-
ment in support of suh market operations was to avoid price spikes, whih could
trigger social unrest similar to that experienced by the previous regime. However, as
Indonesian economic policy shifted towards a greater degree of openness in the early
1990s, the centralized, bureaucratic and monopolistic management system within
BULOG atracted civil society criticism amidst allegations of ineiciency and cor-
ruption. In this context, price stabilization policy was becoming increasingly expens-
ive and difficult to justify. BULOG was subsequently transformed into a state-owned
enterprise in 2003, and expected to function as a profit maximizing body engaged in
trading activities and warehousing, together with other commercial activities. The
boundary, however, between BULOG's commercial mandate and its traditional so-
