FOOD SECURITY SITUATION AND POLICY IN INDONESIA

Center for Agrifood Policy and Agribusiness Studies Padjadjaran University

FOOD SECURITY SITUATION AND POLICY IN INDONESIA

Ronnie S. Natawidjaja Irlan A. Rum

Country Report Content

• Current rice production, utilization and food security situation in Indonesia

• Public policies on rice and food security in Indonesia

• Benefit Cost Analysis on different policy to achieve rice self sufficiency

• Conclusions

• Rice is not just only the main staple or a commodity, it is nationally recognized cultural symbol of prosperity which carried into modern-day

• Lumbung which is the traditional rice barn found in every island and among all ethnic groups, is extensively used as a symbol of guarantee for food security

• From the political economic view, the government felt need to demonstrate its ability to control rice market in order to gain public confident.

The Political Economy Context

Self-sufficiency has become the political objectives

• The argument has gained even stronger support from the Parliament and interest groups following the food price crisis in 2008.

• New Food Law 2012 strongly stated that Food Security in Indonesia has to be based on local food availability and food sovereignty

• Indonesian policy of self-sufficiency has been defined as at least 90% self-sufficient in trend and allows BULOG to import about 10%.

• According to the New Food Law No. 18/2012, Food Security has been defined as a situation when “individual” at all times, have physical, social and economic access to sufficient, diversified, safe and nutritious food that meets his/her dietary needs, food preferences and religious believes for an active and healthy life.

• The law also emphasizes that the food security condition should be developed based on primarily domestic production and the ability to define own food preference (food sovereignty) based on local specific need and resources.

The Food Law 18/2012

• Food security is often misunderstood as “securing (protecting) our food need” rice self sufficiency strategy seen as the only solution to the problem.

• These misunderstanding on definition of food security have been exploited for mainly a political gain. With a population of 230 million, fear of not having enough food and depended to other country is a popular issue

• The self sufficiency on rice has becoming a must for every cabinet The Ministry of Agriculture spent most of its budget for program to improve rice production by all mean possible even if only work temporarily for a short period.

The Main Issue of Food Security

• The objective of the paper is to provide background information and political economic view from the country level perspective.

• We conducted key informant interview with the rice market stakeholders and Food Security in general

• Successfully interviewed 13 key informants all together:

the Chamber of Commerce (Food and Agribusiness Section)

Special staffs to the minister and the director of the Agency for Food Security

The management of BULOG

Large rice trader and modern millers

Farmer leaders

Modern retailers, and

The Food Station which manages the largest Rice Wholesale Market in Indonesia, Cipinang Central Market, Jakarta.

Objective and Research Method

Rice Production in Indonesia

Sources: BPS

8

Year

Area Harvested (000 Ha) Yield (Ton/Ha) Production (000 Ton)

Java Outside

Java National Java

Outside

Java National Java

Outside

Java National

2000 5,754 6,040 11,794 4.09 2.95 3.52 29,120 22,779 51,899

2001 5,701 5,789 11,490 4.86 3.29 4.08 28,312 22,148 50,461

2002 5,608 5,913 11,521 4.92 3.32 4.12 28,608 22,882 51,490

2003 5,376 6,112 11,488 5.01 3.56 4.28 28,167 23,970 52,138

2004 5,714 6,209 11,923 5.08 3.60 4.34 29,636 24,453 54,088

2005 5,708 6,131 11,839 5.08 3.60 4.34 29,764 24,387 54,151

2006 5,704 6,083 11,786 5.25 3.86 4.56 29,961 24,494 54,455

2007 5,671 6,477 12,148 5.37 4.12 4.75 30,466 26,691 57,157

2008 5,742 6,585 12,327 5.63 4.25 4.94 32,347 27,979 60,326

2009 6,066 6,777 12,843 5.68 4.33 5.01 34,483 29,358 63,840

2010 6,358 6,895 13,253 5.58 4.13 5.01 36,374 30,095 66,469

Rice Utilization in Indonesia

Sources: BPS, MOA

9

Year Household Consumption (000 Ton) Feed & Waste Seed Processing

Java Outside Java National (000 Ton) (000 Ton) (000 Ton)

2000 18,153 12,652 30,805 3,218 329 0

2001 17,070 11,975 29,045 3,105 307 15

2002 17,387 12,278 29,665 2,673 290 203

2003 17,607 12,516 30,123 2,709 291 206

2004 17,643 12,625 30,268 2,783 315 207

2005 18,235 13,135 31,370 2,864 408 214

2006 18,283 13,255 31,538 2,876 358 23

2007 19,294 14,080 33,374 3,027 445 65

2008 20,297 14,910 35,207 3,195 427 65

2009 20,277 14,994 35,271 3,408 454 69

2010 21,376 16,034 37,410 3,399 513 60

Rice Production and Consumption in Indonesia (Milled Rice)

MilionTonnes

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumption Production

Averages Food Expenditures per Capita by Food Items (percent of total expenditure)

Sources: BPS,

11

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1999 2002 2003 2004 2005 2006 2007 2008 2009 2010

Rice

Prepared food

Miscellaneous food items

Spices

Oil and Fats

Oil and Fats

Fruits

Vegetables

Eggs & Milk

Meat

Fish

Tubers

Tobacco and betel

Monthly Rice Production in Indonesia 2004-2008 (Thousand Tons)

Sources: BPS,

Peak of the 1st Harvest

Peak of the 2nd Harvest

Rice Import and Export

Sources: BPS, Bulog, MOA

13

Year Rice Imports

(000 Ton)

Rice Export

(000 Ton)

Net

(000 Ton)

2000 1,354 1 -1,353

2001 637 4 -633

2002 1,786 4 -1,782

2003 1,425 1 -1,424

2004 236 2 -234

2005 189 43 -146

2006 438 1 -437

2007 1,405 2 -1,403

2008 286 1 -285

2009 450 0 -450

2010 686 0 -868

Indonesia Rice Import Million Tones

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Rice Value Chain in Indonesia

15

Source: Natawidjaja et.al, 2009

Rice Value Chain: Cost, Value Add, and Margin

Source: The rice value chain analysis was calculated based on primary data collected in October 2010 directly from farmers and various actors on the chain starting from Subang District, the main production center of West Java North Coastal area to the market center of Jakarta area.

16

No. Chain Actor and Activities Traditional Channel Modern Chanel

Medium Premium Premium

IDR Share IDR Share IDR Share

I FARMER 62.9% 55.0% 45.9%

Total Cost 1,451 61.5% 1,467 60.7% 1,467 55.3%

Profit Margin (Value Add) 2,200 64.0% 2,660 52.3% 2,660 41.9%

Selling Price 3,651 4,127 4,127

II LOCAL COLLECTOR 2.7% 2.1% 1.8%

Total Cost 142 6.0% 142 5.9% 142 5.3%

Profit Margin (Value Add) 17 0.5% 17 0.3% 17 0.3%

Selling Price 3,810 4,286 4,286

III LARGE RICE MILLER 20.5% 29.5% 27.9%

Total Cost 436 18.5% 475 19.7% 523 19.7%

Profit Margin (Value Add) 754 21.9% 1,739 34.2% 1,991 31.4%

Selling Price 5,000 6,500 6,800

IV RICE WHOLESALER/DISTRIBUTOR 1.7% 2.7%

Total Cost 26 1.1% 26 1.1%

Profit Margin (Value Add) 74 2.1% 174 3.4%

Selling Price 5,100 6,700

V RICE AGENT AT CONSUMER AREA 5.2% 4.0%

Total Cost 67 2.8% 67 2.8%



VI RETAIL KIOSK/TRAD. RETAIL MARKET 6.9% 6.7%

Total Cost 240 10.2% 240 9.9%



VII SUPERMARKET/MODERN RETAILER 24.4%

Total Cost 520 19.6%

Profit Margin (Value Add) 1,680 26.5%

Selling Price 9,000

FINAL CONSUMER PRICE 5,800 7,500 9,000

TOTAL COST 2,362 100.0% 2,416 100.0% 2,651 100.0%

TOTAL VALUE ADD 3,438 100.0% 5,084 100.0% 6,349 100.0%

Province with Highest Poverty Level in Indonesia 2009

Source: BPS

17

Province

Absolute Number of Poor

(000)

Percentage of People

Below Poverty Line

Urban Rural Total Urban Rural Total

Papua 28.2 732.2 760.3 6.10 46.81 37.53

Papua Barat 8.6 248.3 256.8 5.22 44.71 35.71

Maluku 38.8 341.2 380.0 11.03 34.30 28.23

Gorontalo 22.2 202.4 224.6 7.89 32.82 25.01

Nusa Tenggara Timur 109.4 903.7 1,013.1 14.01 25.35 23.31

Nusa Tenggara Barat 557.5 493.4 1,050.9 28.84 18.40 22.78

Aceh 182.2 710.7 892.9 15.44 24.37 21.80

Lampung 349.3 1,209.0 1,558.3 16.78 21.49 20.22

Sulawesi Tengah 54.7 435.2 489.8 10.09 21.35 18.98

Sulawesi Tenggara 26.2 408.2 434.3 4.96 23.11 18.93

Bengkulu 117.6 206.5 324.1 19.16 18.28 18.59

Jawa Tengah 2,420.9 3,304.8 5,725.7 15.41 19.89 17.72

DI Yogyakarta 311.5 274.3 585.8 14.25 22.60 17.23

Jawa Timur 2,148.5 3,874.1 8,022.6 12.17 21.00 16.68

INDONESIA 11,910.5 20,619.4 32,530.0 10.72 17.35 14.15

Correlation between Poverty Level and Food Expenditure by Province

Source: BPS

18

Vulnerability to Food Insecurity Map of Indonesia

Source: : Indonesian Food Security Council and WFP, 2009.

19

Priority I (Dark Red)

Priority II (Red)

Priority III (Light Red)

http://www.foodsecurityatlas.org/idn/country/fsva-2009/vulnerability-to-food-insecurity-map-of-indonesia/image_view_fullscreen

Thirty Most Vulnerable Districts to Food Insecurity by Provinces

Source: : Indonesian Food Security Council and WFP, 2009.

20

Policy instrument support the Food Security Policy :

Rice trade policy (border control)

Input and food subsidies

Price stabilization policy

Government procurement and reserve stock policy, and

Rice for the poor policy (Raskin)

Policy Instrument Supporting Food Security Policy

Current Rice Self Sufficiency Policy

• Rice is 90% self-sufficient in trend, allows BULOG to import about 10%.

• There is no clear rule about what determines the need for rice imports, how much imports are necessary, and when to import.

• Multiple authorities on rice import decision generated heated debates and greater uncertainty in the rice market, further increasing rice prices during critical times to the disadvantage of the poor.

Current Rice Self Sufficiency Policy

• Domestic market is isolated, no direct link to international rice market and import is facilitated by BULOG

• The current rice policy has resulted in more stable but much higher rice prices than the international rice price levels

• At the time of the lowest stock (Nov-Jan), domestic market is vulnerable to issue, gossip and speculation.

Domestic Rice Price in Indonesia and International Prices

Source: BULOG 24

Government Subsidy and Budget to Secure the National Food Security

Source: Coordinating Ministry of Economy 25

Milllion IDR

Government Purchase Price and the Actual Market Price for Rice and Paddy

Source: BULOG 26

Government Rice Stock Holding

Source: BULOG

27

Rice for the Poor Distribution

Source: BULOG

28

Year Rice Distributed Number of Recipient

(ton) (Household)

2000 1,350,000 7,500,000

2001 1,501,274 8,700,000

2002 2,349,600 9,790,000

2003 2,059,276 8,580,313

2004 2,061,793 8,590,804

2005 1,991,897 8,300,000

2006 1,624,500 10,830,000

2007 1,736,007 15,781,884

2008 3,342,500 19,100,000

Benefit Cost Ratio of the Current Policy

• The Total Benefit:

Total value of rice production at domestic price

• The Total Cost:

Cost of rice production

Cost of seed and fertilizers subsidy

Cost of government rice procurement

Cost of rice import by BULOG

The Benefit Cost Ratio = 1.00

Benefit Cost Ratio of the Current Policy

B/C Ratio

0.86

0.88

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

1.06

1.08

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Average Benefit Cost Ratio = 1.00

Full Rice Self-Sufficiency Policy

• Rice is 100% self-sufficient, no trade is allowed. So, domestic rice market is completely isolated

• There is little saving from not importing the rice, since the need for rice import is actually quite small

• To match the growing demand of rice and compensating for rice land conversion, government need to spend additional budget to keep certain amount of land available for rice production


Benefit Cost Ratio of Full Rice Self-Sufficiency Policy



Total saving from buying rice import

• The Total Cost:




Cost of rice land expansion (to keep up with demand)


Benefit Cost Ratio of Full Rice Self-Sufficiency Policy

B/C Ratio


0.86

0.88

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Rice Self-Sufficiency Policy with Quota

• Rice is 90% self-sufficient in trend, allows for import about 10% through quota.

• Fixed rice import quota is set before the end of each year according to production and consumption prediction.

• The National Food Authority is mandated by the Food Law No. 18/2012 can decide on the amount of import quota needed and put into transparent bids to avoid corruption.

• Indonesia will still be able to maintain its self-sufficiency policy but with more efficient, less harmful results and consistent with international market price trends

Benefit Cost Ratio of Rice Self-Sufficiency Policy with Quota



Total saving from price adjustment to international market

• The Total Cost:




Cost of rice imported


Benefit Cost Ratio of Rice Self-Sufficiency Policy with Quota

B/C Ratio


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Rice Self-Sufficiency Policy with Tariff

• Rice is 90% self-sufficient in trend, allows for a controlled import through tariff;

• Tariff barrier is a preferred mechanism from the trade agreement perspective;

• Tariff is set at 32% to achieve an import target similar to the amount controlled by quota;

• However, the challenge with the mechanism is on a border control and high cost of monitoring for the tariff policy to be effective.

Benefit Cost Ratio of Rice Self-Sufficiency Policy with Tariff



Total saving from price adjustment to international market

Income from tariff

• The Total Cost:




Cost of rice imported


Benefit Cost Ratio of Rice Self-Sufficiency Policy with Tariff

B/C Ratio


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Conclusion

• Politically, rice self-sufficiency policy is a must for Indonesia. However, there are better alternatives policies to achieve the objective;

• The best and more pro-trade is self-sufficiency policy with a tariff mechanism. The challenge is on a border control and high cost of monitoring for the tariff policy to be effective;

• The second best is self-sufficiency policy with a quota mechanism. The policy gives the same Benefit Cost ratio with tariff policy. However, this policy is less preferred from the trade agreement perspective;

• The full 100% rice self-sufficiency policy is the most expensive and less effective policy to achieve the policy objective.

Policy Suggestion

• Food Security Policy in Indonesia is still over weighted by the political issue rather than real ground to earth problem of accessibility to food, energy and nutritional issue

• To move forward, there is need of serious effort to fully implement and widely socialized the Food Law 18/2012 to local government and stakeholder members on the perspective of access to food, diversification, local specific food, safety, nutrition aspect, and food preferences

• Need strong policy to slow down conversion of productive agriculture land to non agriculture

• Short term Subsidy Policy should be able to be converted as much as possible to the long term investment in supporting Food Security of the country.

FOOD SECURITY SITUATION AND POLICY IN INDONESIA

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