Too Low Rice Reserves Indonesia Cause Risky Situation

19.10.2016

Rice reserves in Indonesia need to be pushed to higher minimum levels. Currently the nation's rice stocks are estimated to range between 300,000 - 400,000 tons (per year). Given that Indonesia's agricultural output is being plagued by weather phenomenons, the existing low level of rice reserves can cause major problems. Rice, the favorite staple food crop of the Indonesian people, can cause accelerated inflation in times of shortages and push the millions of people living just above the poverty line into full poverty.

Indonesia, Southeast Asia's largest economy, has not seen conducive weather over the past one and a half years. After a prolonged drought (caused by El Nino), Indonesia is now plagued by wetter-than-usual weather conditions due to La Nina (these conditions also give rise to more insect plagues). As a result rice production in Indonesia is affected negatively. Obviously, it also has a big impact on the lives of the Indonesian rice farmers who will see lower earnings but see production costs rising (if they decide to combat insects).

China, India and Japan offer good examples. Japan, for example, has a population that numbers only about half of that of Indonesia - while the Japanese consume much less rice compared to Indonesians - and yet authorities in the land of the rising sun maintain the nation's rice reserves at about 1.1 million tons.

A sufficient level of rice reserves is required (1) in times of natural disasters (Indonesia being located on the Pacific Ring of Fire implies that natural disasters occur frequently), (2) for market operations in time of high rice price volatility, and (3) international support (when a regional peer experiences a disaster and is in need of rice supplies).

In Indonesia state procurement agency Bulog (National Logistics Agency) holds the monopoly on imports and exports of rice. This agency is also tasked to monitor the distribution process and to safeguard rice price stability in the country. Indonesia has persistent troubles to achieve rice self-sufficiency, one of the nation's biggest ambitions. Often, authorities need to import rice from Thailand or Vietnam (both blessed by a huge rice surplus) to keep the rice reserves at a safe level.

Dr Husein Sawit, Chairman of the Indonesian Agency for Agriculture Research and Development (IAARD) within the Ministry of Agriculture, informed that it is often stated that Bulog has 1.8 million tons of rice reserves (reportedly sufficient to meet Indonesians' rice demand for seven months). However, these reserves also include the rice supplies for Indonesia's Raskin program (the program that offers subsidized rice for the poor, a program that will end in January 2017) and therefore total reserves need to be lifted in order to avoid problems. A desired level would be 1.3 million tons of rice reserves. However, this will require a much higher budget allocation (perhaps up to IDR 7 trillion) from the central government. Sawit emphasizes that the government can let the rice reserves rise gradually.

Earlier, Indonesian Minister for Agriculture Amran Sulaiman said Indonesia will see a rice surplus this year with an expected production figure of 76 millions of unmilled tons of rice, supported by the government's efforts to increase the size of rice fields and improve infrastructure (irrigation and long storage). If Indonesia will indeed see a rice surplus it would be wise if the government purchases the surplus and uses it to strengthen its rice reserves that are stored at Bulog.


indonesia-investments

Readers choice: TOP-5 articles of the month by UkrAgroConsult