Jakarta, IO – In a world grappling with an unexpected surge in rice prices, propelled by India’s rice export ban and adverse weather conditions affecting production in many locations, the global economy finds itself at a critical crossroads.
The United Nations’ food agency has issued a warning, noting that these developments have propelled the Food and Agriculture Organization (FAO) All Rice Price Index upward by 2.8% to 129.7 points in July, marking a staggering 19.7% increase from the previous year and the highest nominal value since September 2011. This unsettling trend is further aggravated by the sharpest price hikes observed in Thailand.
The Thai Rice Exporters Association reports that the price of Thai Jasmine Rice has shown a significant surge. Starting at 662 US dollars per metric ton on July 5, 2023, it has climbed to a remarkable 796 US dollars per metric ton as of August 16, 2023, marking its highest level in the past 15 years.
It is crucial to recognize that rice constitutes the fundamental sustenance for approximately 3.5 billion people globally, accounting for nearly half of the world’s population. Astonishingly, in countries like Indonesia, this reliance on rice reaches a wobbling more than 90% of the population, underscoring the nation’s acute dependence on this single staple grain.
At its core, food security, as defined by the FAO, means “…when all people, at all times, have physical and economic access to sufficient, safe, and nutritious food that meets their dietary needs and food preferences for an active and healthy life.”
For Indonesia, the management of food prices to ensure food security holds significant importance, for several reasons. Drawing from Engel’s pioneering work in 1857, societal well-being can be gauged by the fact that as income increases, the percentage of a household budget expenditure on food decreases.
Nevertheless, based on National Socio-Economic Survey (SUSENAS) data spanning 2011-2021, the spending patterns of the Indonesian population have not seen any significant transformation, given the substantial portion allocated to food. In 2011, food accounted for 49.45% of monthly expenditures, while non-food items constituted 50.55%.
Putri Aaqilah Della, a recent graduate of Faculty of Economics and Business, Universitas Indonesia
By 2020, food expenditure slightly decreased, to 49.22%, with non-food rising to 50.78%. This trend persisted in 2021, with 49.25% allocated to food consumption and 50.75% to non-food. In short, food consumption is still quite dominant in the entire bundle of consumption.
As a result, while core inflation rate has remained low, volatile goods and administered prices, including rice, have consistently made a significant contributions to inflation. In August 2023, core inflation stood at a mere 2.18%, whereas volatile goods and administered prices reached 2.42% and 8.05%, respectively.
Responding to this dire situation, President Joko Widodo took decisive steps, by allocating over IDR 108 trillion for economic transformation, in the realm of food security. During his state address of August 16, 2023, President Jokowi outlined his commitment to these initiatives, emphasizing the allocation of the budget for various programs. These encompass strengthening the availability and accessibility of food, stabilizing food prices, boosting domestic food production, fortifying farmer institutions and providing financial support to farming businesses.
While this policy is viewed as a responsive and well-timed measure, it is crucial that its scope extends to addressing those regional disparities in commodity distribution which frequently emerge in Indonesia. In the eastern regions of the country, rice prices are 7% higher, sugar costs 9% more, eggs see a 27% increase, chili suffers a 50% surge, and shallot prices jump by 41%. In this regards, logistics and transportation play a pivotal role in achieving the government’s goal.
Indonesia’s distribution of essential goods relies heavily on transportation. An efficient, secure, and reliable transportation network can facilitate the equitable distribution of goods and products, stimulate regional income, improve access to isolated areas, and enhance the nation’s overall economic prosperity.
In this context, port development emerges as a strategic imperative, fostering connectivity and reducing price disparities between the western and eastern regions of Indonesia. Ports serve as pivotal hubs for shipping and can significantly affect the cost of transporting goods, consequently suppressing the prices of essential commodities.
Observations of 117 ports in Indonesia across 34 provinces from 2017-2021, with a focus on rice, have concluded that better connectivity will reduce both prices and price disparities between provinces. A 1% increase in port capacity will lead to approximately a 0.03% reduction in price disparities across provinces in Indonesia.
This study aligns with previous research, as highlighted by Xu et al. in 2021, emphasizing the role of ports in mitigating internal price disparities, particularly in terms of the Consumer Price Index (CPI). By addressing one component of pricing—shipping costs (freight costs)— ports hold the potential to drive down prices, as corroborated by the findings of Munim and Schram in 2018 in 91 observed countries.
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Similarly, Chang et al. in 2014 revealed that a shortage in port activities could result in economic losses of up to 17% for South Africa. These findings reaffirm the crucial role of ports in economic activities, particularly in the context of food consumption.
In conclusion, the current surge in global rice prices serves as a stark reminder of the fragility of food security. While immediate measures are necessary to address supply disruptions and price fluctuations, we must not overlook the enduring importance of infrastructure. For Indonesia, investments in transportation and port development can bridge regional disparities, ensuring that all citizens have equitable access to essential commodities. By addressing these structural challenges, we can fortify food security and pave the way for a more resilient and prosperous future for all. (Ibrahim Kholilul Rohman & Putri Aaqilah Della)