Launch of the Special Issue of BIES on Rice Policy

The Indonesia Project launched a Special Issue of the Bulletin of Indonesian Economic Studies, focusing on Rice Policy in Indonesia, at the Center for Strategic and International Studies in Jakarta, on Thursday 24 April, 2008. The Guest Editors for this Special Issue were Dr Neil McCulloch and Professor Peter Timmer.

As originally conceived, the Special Issue was motivated by the policy in recent years of restricting rice imports, in order to push rice prices up. The stated rationale for this was to assist in the alleviation of poverty. In reality, the policy is only beneficial to households that are net producers of rice, and very large numbers of poor people in Indonesia are not farmers, or not rice farmers, or produce less rice than they consume. Restricting rice imports therefore appears to be counterproductive as an anti-poverty policy.

As it turned out, however, by the time the Special Issue was about to be launched, the price of rice in world markets had increased dramatically, as a consequence of various factors, including: rising oil prices (affecting transport and fertiliser costs); unanticipated export bans on the part of some major producing countries; increasing world demand for food, especially meat (which compete for agricultural land); natural disasters and droughts in certain producing countries; policies in some countries that create an artificial demand for biofuels; and global speculation in rice and other grains. This had already had an impact in the domestic market, not least because of hoarding activity (driven by the expectation of further price increases) and smuggling (intended to take advantage of the increasingly large differential between world and domestic prices). The new policy issue, therefore, was not whether Indonesia should continue to restrict imports, but whether it should ban exports and devote more effort to reducing the level of smuggling.

The fact that the government is now inclined to prevent exports suggests that it is now aware of the importance of distinguishing between net producers and net consumers of rice, and that manipulating rice prices can only benefit one group at the expense of the other. The perceived political gains from helping relatively large rice farmers now appear to be outweighed by the political cost of resentment at higher prices from consumers.

There were two panel sessions, moderated by Dr Hadi Soesastro (of CSIS) and Dr Ross McLeod (editor of the BIES), respectively. In the first session, McCulloch presented an overview of the six papers in the Special Issue, making a strong plea for policy to be based on firm evidence rather than emotional and political considerations. Perhaps one of the most interesting points made here was the fact that Indonesian data on rice supply and demand are quite inconsistent with data on rice imports, and therefore cannot provide an adequate basis for a central planning approach to rice policy under which the flow of imports (or exports) is decided by bureaucrats rather than by market processes. In the course of discussion it emerged that one of the reasons why rice data are unreliable is that responsibility for its production is split between the Central Statistics Agency (BPS) and the Ministry of Agriculture; it was implied that the Ministry is less than totally objective in its approach to the collection and publication of such data. It was strongly recommended that BPS should have full autonomy and independence in relation to the production of such data.

Another very interesting argument was that, at the margin, Indonesia does not appear to have a comparative advantage in rice production. It can produce sufficient rice to meet most of its consumption requirements, but the last five per cent or so can be imported more cheaply than being produced domestically. Thus the period when Indonesia was self-sufficient in rice was very brief, and lasted only as long as the government was prepared to subsidise rice production quite heavily.

McCulloch was followed by one of Indonesia’s foremost agricultural experts, Dr Pantjar Simatupang, who presented a history of rice production in Indonesia, focusing in particular on factors that prevent the attainment of higher levels of rice production, such as inefficient harvesting techniques, obsolete equipment used in rice milling, degradation of irrigation infrastructure, and low levels of expenditure on both research and extension services.

In the second session, Dr Arianto Patunru (of LPEM-FEUI) discussed the political economy of rice policy. At first glance it seemed surprising that the majority of the population who are net consumers of rice would acquiesce in the face of import restrictions that benefit the minority who are net producers. He suggested that the explanation was to be found in the high cost of coordinating opposition to policies by large numbers of consumers, whose individual losses are small relative to the gains enjoyed by producers. (Recent events suggest that when the costs to consumers become large enough, this generates spontaneous–unorganised–opposition to existing policies, or spontaneous demands that the government should do something to protect consumers from rising prices.)

The last speaker was Dr Bayu Krisnamurthi (from the Coordinating Ministry for Economic Affairs), who canvassed a range of policies that might be implemented in order to assist rice farmers, including a return to the provision of large-scale, subsidised credit similar to the old Bimas program, subsidies to farmers who use land to produce rice rather than using it for other purposes, or straight production subsidies based either on output of rice or annual increments to output of rice.

The various presentations generated lively discussion from the audience at this very well attended event. The Indonesia Project extends its heartfelt thanks to Hadi Soesastro and his colleagues at CSIS for making it such a success. Copies of the Special Issue are available from CSIS in Indonesia, or from Taylor & Francis elsewhere in the world.