Saturday, January 03, 2009

SBY's new decree on rice

Reported by The Jakarta Post (2/1/2009), SBY has issued a new decree on rice, effective January 1 (Inpres 8/2008). The decree stipulates the following: GOI will pay rice at Rp 4,600/kg from farmers; ie a 7% increase; unhusked paddy (GKP) at Rp 2,400/kg (a 9% up); and husked paddy (GKG) at Rp 3,000/kg (a 7% increase).

Economists Bustanul Arifin and M Maksum said the increases in government buying prices were now merely for administrative purposes, not for protecting the farmers (Kompas, 2/1/2009). That means the prices are set only to help ease the management in Bulog, the state logistics agency with a monopoly on controlling the national rice stockpile. Bustanul Arifin argued that the government should provide compensation when the market prices fall below the administered price. Maksum on the other hand calculated that the it needed 1.54 kgs of GKG paddy to produce 1 kg rice, suggesting a conversion ratio of 54%. The set prices could only hold if the ratio were 65.5%, argued Maksum. In short, the two economists are for higher administered prices and an effective compensation should the price fall below them. In other word, headache. That's what you should deal with when playing around with prices against the market forces.

The Jakarta Post also reported that the rice output might jump to 40 million tons in 2009 (from 38.6 million tons in 2008, which was said to exceed the domestic consumption of 37 million tons; hence the much proud 'self-sufficiency'). What is the implication of supply exceeding demand? Yes, a drop in price (and hence compensation as asked by Bustanul), unless you can effectively export the difference (and yes, another headache, as other countries are just like Indonesia: import hater).

All in all, expect more 'good news' and wishful thinking regarding rice in the coming months. Rice is all the more important as we're entering general election.

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