Monday, January 21, 2008

The Politics of Soybean (4)

I just had discussion with Dede Basri. I was informed that the big four dominance in the soybean import might be a reflection of natural monopoly (or natural oligopoly, if they do not collude in any form). The reason is because the soybean importation is open to general importer ("importir umum"/IU). That means, soybean import is not subject to quantity restriction. So if the big four enjoys a "privilege", it's very likely to be natural. That is, they are the only importers who can reduce costs so as to still reap the benefits of scale economies -- in the midst of increasing world prices. They should not be punished for that.

Having said that, I still think that more domestic quantity is needed to suppress the price. Dede agreed and we both believed that one way to do that is for the government to ask Bulog to do the additional importation then proceed with some sort of "raskin"-type of subsidy. Another way is to directly subsidize the staple food. The money can come from that allocated to subsidize fuel. This is necessary because the budget is constrained. The government (i.e . the President himself) needs to be very decisive in this case: switching from subsidizing fuel to subsidizing food (do not forget that we have another big problem with oil price increase). It should not be very hard. After all people eat food, not fuel (forgive my sarcasm -- but you get the idea). In addition, spending 200 trillion rupiahs for subsidizing food (or better yet importation via Bulog) is way more sensible than spending it for fuel and electricity (most of which goes to the richer anyway).

Of course, this is for temporary use only. Any kind of subsidy is.

Update: Dede enjoins from Diskusi Ekonomi (with contributing comments from Arya Gaduh, Sonny Mumbunan, and others).


Arya Gaduh said...

I'll ask you the same question I asked Dede: Subsidize the (staple) food, but which ones (or one?)? And what kind of subsidies?

You suggest to do it "raskin-style". But if you plan to subsidize a set of staple foods (not just soybean), wouldn't it make more sense to do direct subsidies to the poor?

Aco said...

Arya, I was referring to soybean. Yes, it could be expanded to other staple food depending on the situation and of course the budget. What kind of subsidy? I should be very honest with you, I don't know yet for sure. Dede and I were thinking about the same procedure as raskin, but we need to be careful and think this through in a more elaborated way. Maybe I'll consult also with Sudarno Sumarto or Vivi Alatas. If you or anybody else has other idea please do let us know. And now that you said that managing a set of staple food via raskin-style subsidy might be less effective that to do direct subsidy to the poor, I think you're right. Maybe conditional cash transfer is more appropriate. But let's keep thinking about this.


Arya Gaduh said...

The natural question, if you think of only soybean, is why soybean? Why not flour? Corn? Other agricultural commodities? Is the importance of soybean to the poor that significant compared to other food commodities? [It might be, I don't know].

I just fear that such a policy line, i.e., subsidizing a particular commodity 'raskin-type', can quickly become a slippery slope. In addition, once implemented, imagine how hard it will be to take off.

Whatever policy line we take, I think we should not focus on a single commodity and instead try to anticipate the overall increase of food products.

Aco said...

I share your points Arya. But still, we're talking urgency now. Let's face it we don't have a comprehensive food policy so far. We need it, but it can't just be coming up immediately. Now the problem is right there in front of us. As Dede said in Diskusi Ekonomi, we're talking second best and maybe third best -- the main cosntraining factor being the time.

Maybe soybean is not as important as rice. But it can as well drag prices up. Now the price of poultry is starting to shoot up as well, even though soybean is responsible only for 20 percent of the cattlefeed, 60 percent coming from corn which in turn is switching more and more towards biofuel industry.

I'd like to say too that hey, this is just a price dynamics. People will adapt soon. Well I sort of believe that. But adaptation takes time and sacrifices. If we can do something to make the landing softer, we probably should do that. And once we do that, the next job is, as you rightly point out, is to release the economy from the temporary ("distorting" if you like) tools that we installed for the emergency surgery. And no one says this is easy. Sending a message that any kind of intervention is temporary and will last soon is another very tough job.

Anonymous said...


Arya Gaduh said...

Why just soybean? Flour prices are also on the up-and-up -- that is a good candidate as well. In fact, given the way food prices are headed, there are others that will come along soon. Should we subsidize them all?

I am not against subsidizing soybean per se. I am against jumping the gun with this line of policy, at the risk of committing the government to similar policy for other food commodities in future.

I guess what I am saying is, we need to be clear why the externalities from high soybean prices justify an urgent subsidy on the commodity. So far, I have yet to see a clear formulation of what these externalities (that are specific to soybean) are.

Aco said...

Arya, OK I got it now. Yes, if we can, we should do it for all commodities. But it's unlikely that the resources to do that is sufficient. So yes, there should be priority -- of which I'm not sure now. Or, two or three commodities (with smaller each, as a consequence). This turns out more and more complicated, I agree. One way to see the relative importance of soybean over, say, flour, is to look at the proportion in household expenditures, linkage to other sectors, etc. I'd be happy to do that later, time permitting; or I hope others have at least started to do that with an eye on the current situation.