[nasional_list] [ppiindia] Importing rice: It's pro-poor
- From: "Ambon" <sea@xxxxxxxxxx>
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- Date: Mon, 23 Jan 2006 23:08:51 +0100
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**http://www.thejakartapost.com/detaileditorial.asp?fileid=20060123.E03&irec=2
Importing rice: It's pro-poor
Peter Milne, Jakarta
Just as with last year's arguments over the cuts in fuel subsidies, so we have
a new furor in parliament over the government's decision to import modest
quantities of Vietnamese rice. Both decisions were in response to emergencies.
The fuel subsidy cut was aimed at stabilizing the government's finances
following surging international oil prices.
The decision to import rice is aimed at stabilizing domestic prices and
protecting consumers as domestic stocks fall below the safe level of one
million tonnes. What complicates the decision to import rice is that it also
has the potential to reduce the price of this staple product to Indonesian
consumers -- the prospect of which has parliamentarians, governors and local
elites up in arms.
In both cases the government's policies have been sound: The fuel subsidy cuts
stabilized state finances and reversed the rupiah's precipitous fall by
staunching the haemorrhaging of state funds required to keep fuel prices
artificially low. In the case of rice, the government's move is aimed at
stabilizing prices -- a laudable goal given that rice is a staple of the most
fundamental importance to average Indonesians.
However, one major difference between the two polices is that the rationale
behind the fuel price rises was well articulated over a period of months by the
government. In contrast, the government has made little attempt to persuade
Indonesians of the justifications for rice imports.
This has played into the hands of special interest groups. Consequently, the
government now faces even fiercer parliamentary resistance than it incurred
prior to the increase in fuel prices in March and October 2005, and provincial
governors have threatened to ban the imports.
This demonstrates a lack of political savvy by members of the new economics
team. The government is also missing a golden opportunity to demonstrate its
pro-poor credentials. Instead of silence it should be explaining just how much
ordinary Indonesian rice consumers would suffer should rice prices start to
surge.
There are several fallacies being used to argue that rice imports "hurt
farmers".
First, we are told by various parliamentarians that the majority of Indonesians
are rice farmers and therefore the majority of the population would suffer if
rice prices fell.
In fact, rice farmers constitute only 25 percent of the population, and the
majority of these are small-holders who grow less rice than they consume.
Therefore, the vast majority of Indonesians are rice consumers vulnerable to
price instability.
Second, an argument advanced by former president Megawati Soekarnoputri, is the
claim that higher rice prices will somehow boost productivity. In fact, there
is no correlation between higher prices and higher levels of productivity; if
anything, competition from cheaper (foreign) sources is more likely to create
incentives for Indonesian rice farmers to become more productive, not higher
prices.
A third argument is that higher rice prices increase total output and thereby
boost employment. This too is a fallacy if one considers that the additional
land cultivated for rice might be used for other more labor-intensive crops.
Based on this logic across-the-board price rises of staples would increase
employment.
Given these fallacies, allowing rice stocks to fall to dangerously low levels,
thereby risking sharp price increases aggravated by the hording of Indonesians'
staple food, is not in the interests of the majority, and especially not poorer
Indonesians. This is especially true at the present time of relatively high
inflation.
Conversely, artificially high rice prices and price surges mainly benefit
wealthy farmers, large-scale agro-businessmen or traders. The best interests of
consumers would be served by ensuring that State Logistics Agency (Bulog)
stocks remain adequate through importing sufficient buffer stocks, maintaining
price stability.
Another argument employed by parliamentarians, especially from the Prosperous
Justice Party (PKS), is that cheap rice imports will be abused by Bulog
officials. But this is an entirely separate issue -- one that should be not
confused with the issue of rice imports per se. If this is a problem (as it may
well be) then it should be addressed by the relevant institutions such as the
Supreme Audit Agency (BPK) and the Corruption Eradication Commission (KPK).
Unfortunately, the pro-poor case has not been made vigorously enough by the
government, allowing parliament to be swayed by special interests and the
attractions of popular nationalism. The government should demonstrate that in
arguing for the pro-poor case it is the honest servant of ordinary Indonesians,
not the protector of powerful special interests.
Winning this argument is perhaps more crucial than it might at first appear. A
failure to implement policies to stabilize domestic rice prices will show the
government to be weak in pushing through a much needed reform. This would bode
ill as, without much more daring reforms this year, the economy will fail to
grow at a pace strong enough to spur job creation before the 2009 general
election.
A separate question is: Should rice imports be used to benefit rice consumers
by actually reducing prices? Unrelated to price stability, in the longer term
rice farmers should be encouraged to improve productivity (and produce rice
more cheaply) through a gradually opening of the domestic market.
Gradually, this would help to achieve rice prices on a par with international
levels, providing a considerable reduction in the cost of living to the vast
majority of rice consuming Indonesians. Such a controlled policy of
liberalization would also give rice farmers time to adjust and protect
themselves from foreign competition.
The economics team, and if needs be President Susilo Bambang Yudhoyono himself,
should be moving fast to regain the initiative by explaining how the majority
of Indonesians stand to benefit from stable rice prices. Maybe later the
arguments for lower rice prices can be addressed, also from a pro-poor
perspective. Poorer Indonesian families are only too well aware of how much of
their family budget goes towards rice. Parliamentarians are once again out of
touch with ordinary Indonesians and just how many of them are rice consumers.
The government could gain significant standing by advertising the pro-poor
rationale behind the rice-importation policy: The government is absolutely
right to stabilize domestic prices and in the longer term even lower rice
costs, as rice consumers far outnumber commercial farmers. Not only would this
serve to deflect parliamentary criticism stemming, but it would also ensure
that the economics team kept on track in the first of hopefully many more
much-needed policy reforms.
The writer is a political observer and former editor of the Van Zorge Report on
Indonesia
[Non-text portions of this message have been removed]
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