FOOD SECURITY AND FARMERS’ LIVELIHOOD

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(Photo: Septiawan)

Finding solutions in insecure times 

IO – Early this month, Statistics Indonesia (BPS) updated its data on economic growth for the second quarter of 2020 (Q2 2020), showing that agriculture is growing at 2.19% (YoY), which was far much better than national economic growth of negative 5.32% (YoY). The food crop subsector grew at 9.23%, for the highest growth in the quarter, mostly occasioned by a peak rice harvest season in April. Livestock subsector has experienced the least growth, at negative 1.93% this quarter. 

However, the farmers’ terms of trade (NTP) in August of 2020 show 100.84 which means the price index received by farmers was just barely above the price index paid by the farmers. Population living below the poverty in March of 2020 rose to 26.42 million (9.78% of the total), from 24.79 million (9.22%) in September of 2019. The majority of the impoverished live in rural areas, consisting mostly of farmers and farm laborers. Under this Covid19 pandemic, urban poverty has risen even higher this year because many people are losing their jobs as a major impact of the Covid19 pandemic. 

Interestingly, the share of agricultural labor in the economy fell from 15.3% in 2010 to 13% in 2019. However, in Q2-2020 the agricultural workforce again increased to 15.5%. The shift of employment occurs from agriculture to non-agriculture as a push factor and a pull-factor. The push-factor has a negative connotation, indicating the existence of poverty in the agricultural and rural sectors. The pull-factor usually has a positive connotation, where non-agriculture is more attractive to skilled and educated rural workers. 

This article examines the farmers’ welfare amid an ongoing Covid19 pandemic, where the status of food security of the country is also in question, especially after the Food and Agriculture Organization (FAO) warned about a global food crisis occurring during such a difficult time. First, the article assesses the performance of strategic foods, followed by examination of food and nutritional security. The article also examines declining rice production and productivity and price fluctuation of strategic foods. Some policy recommendations for the future conclude the article. 

Performance of Strategic Foods 

The performance of Indonesian staple and strategic foods this year is actually quite good with rice as a staple food, but not so stable for other strategic foods. The price of some important foods fluctuates significantly, due to problems in food availability and supply issues. Problems in productivity and logistic obstacles due to Covid-19 pandemic further complicate supply side issues of food policy in Indonesia. The threats of food crisis, such as warned by the FAO due to pandemic, are mostly associated with the decline of food access, instead of being directly caused by a surge of food process. A model by the International Food Policy Research Institute (IFPRI) shows that Covid-19 Pandemic will cause a contraction of global growth of minus 5 percent (IFPRI, 2020). 

The global economic recession might lead to about 500 million people in the world falling into poverty, because suddenly they do not have enough income to fulfill their daily needs. Lower-middle-income groups or low-income countries are vulnerable to poverty and food insecurity, because of this food access factor. The signs of food crisis have only become more visible since the implementation of lockdowns in several countries, as a response to the Covid-19 Pandemic. In many developing countries, including Indonesia, many are unable to work and earn a living, so do not have income to buy food. This new poor group, both in developed and developing countries, now depend on food aid from the Government and donors. They are a group now vulnerable to the problem of food access. 

The Government of Indonesia has acknowledged the possibility of a food crisis and has allocated special funds for handling the Covid-19 Pandemic, while at the same time preparing a program for national economic recovery (PEN). The government has to advance staple and strategic food stocks, ensure food access for those affected by Covid-19 and carry out comprehensive food policy reforms for future improvement. Rice is still used as a barometer of food availability, although Indonesia has alternative carbohydrate sources, such as cassava, sweet potatoes, canna, sago and others. The availability of local foods is still very limited, where industrialization of carbohydrate-based ingredients into flour is not yet available on a commercial scale. 

The threat of a food crisis is mostly associated with weakening food access, as the econ omy is experiencing a contraction and purchasing power has declined dramatically. At the time of this writing, global food prices have not suffered any significant increase, because global food stocks are good, crops are not bad, weather is friendly and global oil prices have reached historically record lows. Some global food commodities have seen a surge – especially grain-based foods, such as rice. Vegetable oil-based food prices have even declined, due to the relatively high association with global oil prices. Global rice prices have crept up, even having reached US$ 500/ ton, because the volume of rice trade has declined. As major rice producers, Thailand, Vietnam and Myanmar will prioritize their domestic rice needs, leaving the rest to deal with the global market. Despite high rice production, Chinese rice demand is very high due to its great population. India and Pakistan could serve as an alternative source of rice supply, if rice-producing countries are reluctant to export rice. 

Once the problem of food access (or demand side) is compounded by the problem of food availability (supply side), then a food crisis will most likely occur. On the one hand, access of the lower-middle-class to food has decreased dramatically, because many people are suddenly unable to work and/or lose their jobs. Food prices in real terms have risen, due to declining purchasing power, although nominal prices do not change much. On the other hand, the availability of domestic food stock has begun to be problematic, especially imported-based food, because excessive dependence is a risk factor in itself. The government must avoid the two sources of food crisis transmission, so that the demand side does not occur simultaneously with the supply side. Failure or delay in anticipating this crisis will have more devastating socio-economic and political impacts, because the level of food sensitivity is very high. 

The Government of Indonesia has actually made projections on the impact of Covid-19 on the economy, an increase in unemployment due to termination of employment (PHK) and an increase in poverty, due to declining purchasing power. Before the pandemic, the Government was quite optimistic with a targeted economic growth in 2020 to reach 5.3 percent, as stated in the 2020 State Budget. However, as the Pandemic hit, economic growth was projected to fall to 2.3 percent (severe scenario) or even minus 0.4 percent (worst case scenario). Before the Covid-19 Pandemic, unemployment in 2020 (based on the National Labor Survey-Sakernas as of February 2020) recorded 6.88 million people (4.99 percent of the total workforce). This number actually increased from 6.82 million people in February 2019. 

After the Pandemic, unemployment is expected to rise to 2.92 million people (severe scenario) or 5.23 million people (worst case scenario). The poverty rate in 2020 (based on the National Socio-Economic Survey-Susenas September 2019) was recorded at 24.79 million people (9.22 percent of the total population), a decrease of 25.67 million people (9.66 percent) in September 2018. However, now into the Covid-19 Pandemic, the poverty rate is estimated to have increased by 1.89 million people (severe scenario) or increased by 4.86 million people (worst case scenario). In other words, the Covid-19 Pandemic has caused the effort on poverty alleviation for a decade to act as if it simply disappeared. The Government needs to be very serious in anticipating the macroeconomic and socio-economic conditions of the community, because it will ditermine the steps and strategies to anticipate the potential food crisis. 

Rice has been and remains as a staple food in Indonesia, although the level of rice consumption has changed significantly in the last decades, especially for the middle-class group. Carbohydrate sources have shifted to flour-based foodstuffs, although wheat is not grown in Indonesia. This downward trend in rice consumption will continue, especially after the consumption of fast food and the tendency for food consumption outside the home, especially among millennial youth and those living in urban areas. These groups of consumers demand high quality, hygienic and attractive products in accordance with changes in active and productive lifestyles. The composition of the urban and rural population also changed very significantly, with a ratio of 55 per cent of the population living in urban areas and 45 per cent living in rural areas. By 2030 the composition of urban and rural populations will change to 60:40 per cent. In 2045, the composition will change again, to 65:35 per cent, which is a challenge for Indonesia’s food security. 

Food Security Dimensions 

Food security issues in Indonesia are complex, not only because of cross boundaries from individual, household, and national up to global levels, but also because they range widely from food availability, to access, to price stability and food utilization. If one is lacking, a country might suffer serious episodes of food insecurity. Adequate food availability means on average, sufficient food supplies are available to meet consumption needs. However, food security can be jeopardized even when food is plentiful in the country, if high food prices make food unaffordable for a majority of the population. Stability refers to minimizing the probability that, in difficult years or seasons, food consumption might fall below requirements. 

Accessibility draws attention to the fact that, even with adequate supplies, many people still go hungry because they do not have the resources to produce or purchase the food they need. Food security concerns the individual or family unit, and its principal determinant is purchasing power; that is, income adjusted for the cost of living. Food security is not only a question of poverty, but also the proportion of income that households devote to food. Purchasing power at the national level—that is, the amount of foreign exchange available to pay for necessary food imports—is a key determinant of national food security. Utilization refers to how the proper biological use of food, requiring a diet providing sufficient energy and essential nutrients, potable water, and adequate sanitation. Food utilization is generally associated with the principles of food safety, from farms, trading and distribution, processing, retailing and food consumption. [ Table-1] 

On a global level, Indonesia ranks 62nd among 113 countries in the Global Food Security Index (GFSI) published by the Economist Intelligence Unit in October of 2019, far behind Singapore and the United States, which rank first and second, respectively. Indonesia is even below its ASEAN peers such as Malaysia (28th), Thailand (52nd) and Vietnam (54th). In 2017 and 2018 Indonesia ranked 69th and 65th, respectively. The first five highest ranks have not changed much, except the United Kingdom (UK) which just recently slipped beyond the big five of Singapore, Ireland, United States, Switzerland and Finland. Within an ASEAN context, Indonesia is below its ASEAN peers, such as Malaysia (ranked 41st and 40th in 2017 and 2018, respectively), followed by Thailand (rank 55th and 53rd) and Vietnam (64th and 65th). The low rank of Indonesia in the GFSI is mostly because food access is quite low, compared to its peers. Table 1 presents the score of food security index of selected countries, particularly the top five, the middle score and the five lowest. The lowest score is generally associated with perceived political instability of the country. 

The hunger level in Indonesia has also decreased significantly, from 44.1 million in 2004-2006 to 22.0 million in 2016-2018. Interestingly, the hunger level in urban areas is 8.2 per cent of total population, whereas that of rural areas is 7.57 per cent. The level of stunting among children has also decreased, from 32.9 per cent in 2013 to 29.9 per cent in 2018, whereas the level of anaemia among pregnant women has increased from 37.1 per cent in 2013 to 48.9 per cent in 2018 (Ministry of Health, 2019). 

A study by the Asian Development Bank (ADB, 2019) suggests that increased investment in agriculture to modernize food systems and markets and make them more efficient will contribute to reduced hunger and malnutrition of the country. Such an investment will not only help improve the country’s food production but will also enable households to engage in more productive sectors and earn better income. Given the significant influence of the country’s food policy on the domestic market, this effort needs innovative government support. Synergies between investment and policy goals must be attained to create more opportunities and efficiencies in achieving food security for society as a whole. Indonesia can virtually end hunger by 2030 and fully eradicate hunger by 2045 with a combination of higher investments in agricultural research and development (R&D), irrigation expansion and water use efficiency (WUE), and rural infrastructure, including roads, electricity, and railways. 

Declining Rice Production and Productivity 

Declining rice production performance in 2018-2019 is quite alarming, and for that matter production performance in 2020 might not be easy to recover, with such a significant decline. Using the new area sample frame (KSA) method, the Statistics Indonesia (BPS) reported that the rice harvest area fell by 6.15 percent, from 11.28 million hectares to 10.68 million hectares. The massive conversion of paddy fields, especially in rice production centers such as on the North Coast of Java, has significantly reduced the area available for paddies. Rice production dropped dramatically, by 7.76 percent, from 59.18 million tons of dry non-husked rice (GKG) (equivalent to 33.94 million tons of rice) in 2018 to 51.33 million tons of GKG (equivalent to 31.29 million tons of rice) in 2019. Therefore, rice productivity decreased by 7.50 percent, from 5.20 tons per hectare to only 4.81 tons per hectare, a serious phenomenon that needs adequate attention. By the time of this writing, the harvested area and rice production up to June 2020 is calculated at 5.89 million hectares and 17.06 million tons, respectively. Rice productivity in 2020 is figured at 5.06 tons per hectare; in fact, it is quite difficult to achieve productivity of 5.20 tons per hectare such as seen in 2018. [ Table-2 ] 

Rice productivity here is measured using the ratio of production or output to input units. For example, land productivity is agricultural production divided by land area, using the size of tons per hectare. Labor productivity is agricultural production divided by labor units, using the number of tons per workforce. Successful agricultural development could contribute to poverty alleviation, increasing income, labor productivity and the competitiveness of the sector. The ratio of land to labor (or land-labor ratio) is getting smaller and smaller, because labor continues to grow, while the land area is almost constant, if not declining. Efforts to increase land productivity must continue to be greater than the reduction of land-labor ratio. 

Agricultural development requires technological change to increase production, as well as land productivity and labor productivity. Innovation in technological changes in seeds, fertilizers, pesticides, agricultural machinery, cultivation techniques, precision agriculture, intelligent agriculture, the use of drones, water-saving techniques, whether modification and so on can increase productivity. Agricultural change also requires an increase in the capacity of agricultural human resources, as the entire capacity of agricultural production also increases. 

The decline in Indonesia’s rice productivity may be due to the decline in Indonesia’s agricultural production capacity. Increased rice productivity began leveling-off, at the present condition of production capacity. Rice productivity at 5.2 tons per hectare is actually higher than that of Thailand (3.1 tons/ha), Myanmar (3.8 tons/ha), the Philippines (4 tons/ha), and Malaysia (4.1 tons/ha), but lower than rice productivity in Vietnam (5.8 tons/ha), Japan (6.6 tons/ha) and China (7.0 tons/ha) (FAOSTAT, 2020). In theory, Indonesia still has the opportunity to increase rice productivity and domestic production capacity in general, if technological change is consistently pursued in the course of agricultural development. 

Meanwhile, rice consumption also saw a significant change, after per capita volume decreased significantly, especially for the middle-class group. Carbohydrate sources have shifted by-and-large to flour-based, although wheat is not grown in Indonesia. This downward trend in rice consumption will continue, especially after the consumption of fast foods and the tendency for food consumption outside the home, especially among millennial youth and those living in urban areas. These groups of consumers demand high quality, hygienic and attractive products, in accordance with changes in active and productive lifestyles. Farmers have the opportunity to produce higher quality rice, to meet demand from special market segments of middle-class consumers with high purchasing power. Once the trend of rice consumption continues to decrease, the whole rice industry should aim at producing rice more efficiently, hence improving its competitiveness, at least at the regional Southeast Asia level. This might be a future roadmap for the Indonesian rice economy, as the price fluctuation of rice in Indonesia is far better and stabler than that in neighboring countries. 

In short, the performance of rice production in 2020 will be good, better compared to that in 2019, but will not be as good as in that of 2018. Rice productivity in 2020 might bounce back to above 5.0 tons per hectare, but improving the intensification practices and adopting sustainability principles of rice practices in Java and other existing rice producing centers would increase the productivity more significantly. The technological innovation in a rice production system could exert a higher impact on productivity compared to land expansion or food estate development in Central Kalimantan. Compared to other strategic foods, the logistic system of rice is relatively better, as the flow of rice from production centers or rice-surplus regions to consumption centers or rice-deficit regions has not been disturbed significantly. 

Price Fluctuation of Strategic Foods 

In general, the price of rice has been the stablest this year, compared to other strategic foods, mostly because the management of rice stock this year is competent. The price of cooking oil has declined slightly, after reaching its highest level in January 2020, due to the increasing price of palm oil as the main feedstock of cooking oil. The retail price of sugar and beef, items that might represent imported foods, has declined recently, compared to the price in April or during Ramadhan and Idul Fitri. The delay in the approval of import permits of sugar and beef has contributed to the price surges of these commodities that generally experience a high demand during certain periods. 

Unfortunately, the price of chickens and eggs has suffered a significant decline during such feast days, because of the problems in logistic system associated with Covid-19 pandemic. The price of chicken increased after Idul Fitri at the end of April, which was quite unusual and totally the opposite of usual annual patterns. The price of horticulture products, such as shallots, red and hot chilies vegetables, has fluctuated very sharply, especially during the transition of rainy and dry seasons. Similar to the price of sugar and beef, the price of garlic was very high when the approval of import permits was delayed. [ Figure-1 ] 

A simple analysis of the coefficient of variation (CV), by dividing the standard deviation with the mean of the prices of staple and strategic foods in domestic market, shows some interesting results. Figure 2 shows that the smallest CV of prices in 2017 was found in cooking oil (0.72) and beef (0.79), while the highest was found in hot chili (47.32) and red chili (19.41). At that time, the prices of red and hot chilies became major contributors to the inflation rate and widely discussed in public and in Cabinet Meetings led by President Joko Widodo. As explained previously, price fluctuation of red and hot chilies and other horticulture products is mostly due to seasonal factors. The retail prices are generally very high during dry season and very low during rainy season or after the harvest season. 

There have been discussions and planned initiatives from Central and Local Governments and private sectors about development of cold storage and cold value chains to improve the price stability of horticulture products. Similarly, there have been discussions to develop downstream industries of these products, in order to add value and agro-industry development, although the realization of such plans has been very low. The price fluctuation of these strategic foods remains very high, especially during extreme low and high seasons. The smallest CV of prices in 2020 (up to July 2020) is found in rice (0.29) and beef (0.60), while the highest is found in red chili (34.14) and hot chili (26.47). The CV of these prices might not change very significantly up until the end of 2020, as the influence of government agencies, Bulog, and private sector initiatives are very limited. [ Figure-2 ] 

Closing Remarks: Policy Recommendation 

Agriculture will remain the basis of the Indonesian economy, but manufacturing and service sectors should serve as the locomotive of the Indonesian development in the future. During the Covid-19 pandemic, farmers must obtain adequate protection. The government has to improve its policies on price stabilization to maintain purchasing power, an essential element of access to food; hence, the status of food security of the country. 

Rice production also requires the support of off-farm policies, such as agricultural financing, increased market access, adequate price incentives, guaranteeing the sale price of farmers’ produce and business certainty. Farmers need to be empowered in terms of socio-institutional engineering to increase the economies of scale, application of mechanical technology, tractors, integrated harvester and post-harvest efficiency. 

During Covid19 pandemic, farmers need concrete policies on agricultural financing, development and relaxation of subsidized credit (KUR), debt restructuring of farmers and small and medium enterprises (SMEs), agricultural insurance. Technological change should be promoted in order to develop a resilient agriculture, climate-smart, modern biotech, precision agriculture, based on evidence or scientific truth, and the principles of sustainability. 

Policies to develop integrated value chains are also needed, for example through an integrator (figure or institution) who is able to provide solutions, create value, and take risks. Downstream, policies on increasing added value of agricultural products need to be formulated properly, from milling to processing and other post-harvest activities. The government and private sectors should promote investments in human capital, including in agriculture and rural areas, to meet rapidly-changing technological changes, including Agriculture 4.0, as well as to avoid the middle-class trap (MIT). 

Finally, efforts to increase farmers’ incomes are not identical to simply increasing food and other crop production. Food and agricultural policies that emphasize the supply side alone are certainly not adequate. Agricultural policies in the future need to include increasing the demand for food, which implies increasing people’s income. Higher farmers’ incomes could contribute to reducing rural poverty. Lower food prices could reduce inflation, so poverty in urban areas (and also in rural areas) will decrease. Combined strategies to increase both food production and the demand for food products could contribute to increasing farmers’ welfare, increasing price stability and poverty reduction in both rural area and urban areas. (Bustanul Arifin)

Bustanul Arifin is Professor of Agricultural Economics in the University of Lampung (UNILA), Senior Economist with the Institute for Development of Economics and Finance (INDEF), and Professorial Fellow at School of Business in IPB University, Indonesia. He has over 30 year-experience on a comprehensive range of research in food and agricultural policy, institutional change, and sustainable development strategy. He earns a Ph.D. in resource economics from the University of Wisconsin-Madison, USA (1995) and Sarjana in agricultural economics from IPB (1985). He contributes his expertise as Food Policy Adviser for Minister of Economic Affairs, Chairman of Statistical Society Forum (FMS), and Vice Chairman of Indonesian Society of Agricultural Economics. He has served as Director of INDEF, Economic Adviser to the House of Representative, Chairman of Expert Group of Food Security Council, and Member of the National Innovation Council.