To soften the price of rice and dampen rice inflation, which has been rising since August, the market has been flooded with rice, through market operations. Since prices have not declined, this phenomenon continues to this day. From August to November, the volume of rice for market operation reached 780,377 tons. Bulog’s rice stockpile was depleted. It had only 427,000 tons left as of December 16, which is far from the ideal volume of 1-1.2 million tons. In fact, it will continue to be depleted and the quantity need for market operations might not sufficient until the main harvest season arrives, by the end of February 2023.
Importation is the only remaining option effective in the effort to hold prices down. The government needs to ensure that it has enough reserves on hand to intervene in the market. With an adequate CBP, the government not only has an instrument at its disposal, it can also send a signal to the market that no players, either large-scale traders or rice mills owners, can “fish in troubled waters.” Rice mill owners and large traders tend to release their stocks in line with price expectations. If the price of rice continues to increase, they will withhold their inventory, releasing new stock ahead of the main harvest season. If the CBP is inadequate, it will be difficult for the government to intervene in the rice market.
Conversely, with an adequate CBP, rice mill owners and traders will think twice before acting. If Bulog’s CBP is sufficient, especially of the premium quality, the private sector will take heed and stop speculating. If Bulog’s stock is robust, it will have enough “ammunition” to conduct massive market intervention to bring down the price. The public and the private sector will immediately release their rice stocks. If they withhold when prices decline and the main harvest season is coming, they will suffer a loss.
Through this measure, the government has at least sent a message to the public that rice supplies and stocks are safe. The hope is that price will stabilize. This is crucial as rice makes up the bulk of public expenditure structure, especially for low-income households (averaging 24 percent of total expenditure). When the price of rice goes up, it can have a cascading effect: there will be turmoil in the market and panic buying will ensue. Only the well-off can buy rice in the market. We can only imagine how heated the sociopolitical climate would become if that happens. It is not beyond the realm of possibility that the 1997-98 crisis situation would repeat itself. The ruling regime could collapse.
Other than the amount (which has to be calculated carefully as per need), it is equally important to ensure that the imported rice arrives at the right time. According to Bulog director Budi Waseso, 200,000 tons of rice will arrive in Indonesia by the end of December. Last week, 10,000 started unloading at several ports in Indonesia. Budi Waseso could not confirm whether the remaining 300,000 tons will appear. If the rice can only arrive at the end of February or even March 2023, the import should be cancelled because it will do more harm than good – reducing the price of unhusked rice at farmers’ level.
To detractors of the import policy, the government can claim that in the context of supply and price stabilization, imports are not forbidden. When domestic procurement is not possible, imports should be taken as an option. Even the constitution does not forbid imports. This does not mean that imports are preferred over domestic production. To import, in this context, is a last resort when other options are not available. In addition, the import of 500,000 tons of rice (if it can be realized) only makes up 1.6 percent of total national consumption. This would not tarnish the achievement of rice self-sufficiency, as domestic production is able to meet up to 90 percent of demand.
The rice import is much smaller than that of soybeans, which hit 91 percent. Domestic soybean production in 2022 is estimated to be only 288,635 tons (9.8 percent of the national demand of 2,940,132 tons). It is also smaller than beef (38 percent) and sugar (63 percent). Topping the import chart? Garlic (almost 98 percent is imported).
Does that mean the rice import conundrum is over? No! For 34 consecutive months – April to November 2022 – price of dry unhusked rice (GKP) at farmers’ level and rice mills continued to be below the government’s reference price (HPP). Usually, price of GKP would fall below HPP during the main harvest season (February-May). But the percentage is small. Between 2015- 19, the steepest drop (23.24 percent) was only seen once – in April 2015. The price only fell for 3-5 months per year. That means that since April 2020 the price of GKP has fallen regardless of the season.
This happened because the rice market was sluggish and saturated, compounded by the Covid-19 pandemic and the many social assistance programs conceived since 2020. The ceiling price (HET) policy for rice enforced since September 2017 has hit farmers and rice mills hard. With the HET instrument and Food Task Force, the government has succeeded in reducing the price of milled and unhusked rice. The HET policy has in fact stabilized the price of rice more in the past five years. This can be seen from the low coefficient of variation (CV) of unhusked and milled rice prices. Stable rice prices have hurt farmers and rice mills, leading to price contraction between 2016-20, with an even deeper depreciation in 2019-21. Only the price of quality three (IR-3) rice rose positively despite insignificantly (0.01 percent). (TABLE-3) ; (TABLE-4).