Rice Supply Chain Too Long, Needs Reform, Says Analyst

Rice Supply Chain Too Long, Needs Reform, Says Analyst

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Rice Supply Chain Too Long, Needs Reform, Says Analyst
The Government also needs to open up opportunities for private sector to be involved in rice imports (Photo: Rayi Gigih)

Jakarta, IO – To maintain rice price stability, the government must ensure that the rice distribution chain in Indonesia is more effective and efficient. “The problem is, the rice supply chain in the country is too long. This, in turn, jacks up the price and is detrimental to farmers and retail traders. It only benefits certain parties,” said Aditya Alta, an analyst with the Center for Indonesian Policy Studies (CIPS).

According to CIPS’ study, rice must go through four to six distribution points before it reaches consumers. First, the farmers will sell their rice to tengkulak (village-level commodity middlemen) who will dry and sell it to the mill owner, who will dehusk the rice and sell it to warehouse-owning large-scale wholesalers.

From these wholesalers, the rice will reach small-scale wholesalers at the provincial level (such as traders in the Cipinang Rice Central Market) or to inter-island wholesalers. They will, in turn, sell it to retail traders before it reaches the consumers. “In each node of the supply chain, the price will go up. The largest profit margin is enjoyed by the middlemen, rice mill owners and wholesalers. In Java, this can range from 60-80% per kilogram. On the other hand, retail traders only make 1.8-1.9% per kilogram,” said Aditya.

“It’s woefully inefficient and ineffective,” he added.

Making matters worse, Aditya said that the Highest Retail Price (HET) policy has forced retail traders to lower their selling price even though they are not the one contributing to the high price of the basic foodstuff.

Meanwhile, Bulog, as the Government agency tasked with buying the farmers’ rice, often finds it difficult to meet its targets due to insufficient budget and inability to compete with market prices. As the sole rice importer, Bulog is also unable to respond quickly to market needs, because it has to wait for authorities’ decisions.

Thus, CIPS recommends that Bulog streamline its management and distribution of rice for natural disasters victims or other emergency situations, to help stabilize its price.

“The Government also needs to open up opportunities for private
sector to be involved in rice imports. This will create healthy
competition between importers, and as natural selection runs its
course, weeding out the inefficient ones, the price of rice will become
more competitive,” he theorized.

The government only needs to focus on its role as a regulator and supervisor, verifying information provided by the private sector and setting criteria for rice importation.

Of course, the domestic agriculture sector must also be upgraded to increase its competitiveness: for example, by increasing farmers’ access to production facilities, land, sources of financing, as well as logistics and infrastructure. (IO-2)