Tuesday, January 24, 2006

The Politics of Rice 13

The Jakarta Post's editorial today. It is sensible. While I can't agree more that "[a]rguing that the [rice] import would hurt Indonesian farners is an insult to common sense", there are some points I don't agree with completely. First, that the government requires import at the situation where the quantity of rice falls below 1m tons and the price rises above Rp 3,500. I think when that happens, foreign rice will automatically come in; provided that everybody is free to import. Second, and this always troubles me, the claim that rice is a "strategic and vital" commodity, so that the government should always have some buffer stock. If market can handle that, why bother the stocking?

Barking up the wrong tree (©The Jakarta Post, Jan 24, 2006)

The House of Representatives, already facing a very tight legislative agenda, will simply be wasting its resources if it pushes ahead with its demand to exercise its right of inquiry and investigation into the government's decision to import 110,000 metric tons of rice.

Arguing that the import would hurt Indonesian farmers is an insult to common sense. How could the import, which accounts for a mere 0.003 percent of national consumption, disrupt domestic market prices? Therefore, we cannot help but smell a hidden political subterfuge behind the stubborn opposition to the rice import.

It is indeed the right and duty of the House to oversee government policy. However, in so far as the rice import is concerned the dogged opposition by the majority of the House members is utterly irrational, an insensible subterfuge that would only stupefy the general public.

It would be much better for the House, if it is really concerned about the farmers' income, to scrutinize the implementation of the integrated program to revitalize the agriculture sector, which the government launched last year. There is also an even more important legislative agenda of almost 30 bills that have to be completed by the House during the current session period, which will end in March.

The rationale of the rice import is quite obvious. The government has explained that it would be required if the State Logistics Agency's (Bulog) stocks fall below one million tons and domestic prices rise above the Rp 3,500 (US$0.30) ceiling retail price per kilogram. The government also has assured that imported rice will not be released to the domestic market unless local prices rise far in excess of the ceiling. It would then be in the best interests of the farmers if the House helps the government to install a control mechanism to ensure that the imported rice achieves its objective.

It is strategic and even vital for both political and economic stability that as the world's fourth most populous country with more than 230 million people, the government should always have a buffer stock of at least one million tons to meet urgent needs in emergency situations such as natural disasters or crop failures. It is also worth emphasizing that most rural households are net consumers of rice, and steep rises in rice prices could trigger a social and political crisis because food usually accounts for the bulk of the spending of poor families and weighs heavily in the consumer price index.

It is also a fact, despite the government campaign over the past three decades to diversify the national staple, that food security still means the availability of rice, the main staple, at affordable prices.

The government has not changed its rice policy. It remains the same -- controlling rice prices within a periodically reviewed range of floor and ceiling prices to ensure fairness for both consumers and producers and totally banning rice import to protect the farmers from unfair import competition.

Hence, the import is not a permanent policy, but only a contingency measure, aimed at preempting any shortage before the start of the next harvest in February. Starting preparations for imports only after a major shortage takes place would be calamitous because what may start as an isolated shortage could soon escalate into a crisis as speculators join the fray.

Building the stocks from the domestic market now when most rice farmers have sold their surplus output would benefit only traders. Procuring such a big volume in one transaction within such a short period of time also could disrupt the market and trigger excessive price rises.

The government, nevertheless, should also be blamed for the unnecessary furor over the rice import. It does not seem to have taken a lesson from the controversy over the fuel price increases last March and October.

The rice import, like fuel price hikes, is quite rational, making a lot of economic and political sense and is for the good of the people. However, both measures will always be politically controversial if the public opinion environment is not conducive.

The government cannot simply launch a policy and sit back and relax, hoping that all things will run smoothly. The government should still go all out to sell its policies to the public.

However, the policy cannot be sold in a vacuum, meaning that the environment should be made favorable to the policy. The government needs to change Bulog's notorious reputation. The logistics agency has been known as a corruption-infested institution, a cash cow for rent-seekers and vested interest groups, who profited the most from the trading of such controlled commodities as fuel, rice and sugar.

A high degree of transparency early on regarding the real condition of the national rice stock, the process of imports, which parties are involved and how the imported rice will be controlled could have helped precondition the public opinion climate for the contingency measure.

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