FOOD SECURITY SITUATION AND POLICY IN INDONESIA Ronnie S. Natawidjaja Irlan A. Rum

Center for Agrifood Policy and Agribusiness Studies Padjadjaran University

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

The Political Economy Context • 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.

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%.

The Food Law 18/2012 • 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 Main Issue of Food Security • 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.

Objective and Research Method • 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.

Rice Production in Indonesia Area Harvested (000 Ha) Year

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

6,777

12,843

5.68

4.33

5.01

34,483

29,358

63,840

6,895

13,253

5.58

4.13

5.01

36,374

30,095

66,469

2009 2010

6,066 Sources: BPS 6,358

8

Rice Utilization in Indonesia Household Consumption (000 Ton)

Feed & Waste

Seed

Processing

National

(000 Ton)

(000 Ton)

(000 Ton)

Year Java

Outside Java

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

Sources: BPS, MOA 9

Rice Production and Consumption in Indonesia (Milled Rice) MilionTonnes 50

45

40

35

30

25 2000

2001

2002

2003

2004

2005

Consumption

2006

2007

Production

2008

2009

2010

Averages Food Expenditures per Capita by Food Items (percent of total expenditure) 0.70

Rice

0.60

Prepared food Miscellaneous food items

0.50

Spices Oil and Fats 0.40

Oil and Fats Fruits

0.30

Vegetables Eggs & Milk

0.20

Meat Fish Tubers

0.10

Tobacco and betel 0.00 1999

2002

2003

2004

2005

2006

2007

Sources: BPS, 11

2008

2009

2010

Monthly Rice Production in Indonesia 2004-2008 (Thousand Tons) Peak of the 1st Harvest

Peak of the 2nd Harvest

Sources: BPS,

Rice Import and Export 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

Sources: BPS, Bulog, MOA 13

Indonesia Rice Import Million Tones 2.00 1.80 1.60

1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Rice Value Chain in Indonesia

Source: Natawidjaja et.al, 2009

15

Rice Value Chain: Cost, Value Add, and Margin Traditional Channel No.

Chain Actor and Activities

Medium IDR

I

II

III

IV

V

VI

VII

FARMER Total Cost Profit Margin (Value Add) Selling Price LOCAL COLLECTOR Total Cost Profit Margin (Value Add) Selling Price LARGE RICE MILLER Total Cost Profit Margin (Value Add) Selling Price RICE WHOLESALER/DISTRIBUTOR Total Cost Profit Margin (Value Add) Selling Price RICE AGENT AT CONSUMER AREA Total Cost Profit Margin (Value Add) Selling Price

1,451 2,200 3,651 142 17 3,810 436 754 5,000 26 74 5,100 67 233 5,400

RETAIL KIOSK/TRAD. RETAIL MARKET Total Cost Profit Margin (Value Add) Selling Price

240 160 5,800

Premium Share 62.9% 61.5% 64.0% 2.7% 6.0% 0.5% 20.5% 18.5% 21.9% 1.7% 1.1% 2.1% 5.2% 2.8% 6.8%

6.9% 10.2% 4.7%

IDR 1,467 2,660 4,127 142 17 4,286 475 1,739 6,500 26 174 6,700 67 233 7,000

240 260 7,500

Share 55.0% 60.7% 52.3% 2.1% 5.9% 0.3% 29.5% 19.7% 34.2%

Modern Chanel Premium IDR Share 45.9% 1,467 55.3% 2,660 41.9% 4,127 1.8% 142 5.3% 17 0.3% 4,286 27.9% 523 19.7% 1,991 31.4% 6,800

2.7% 1.1% 3.4% 4.0% 2.8% 4.6%

6.7% 9.9% 5.1%

SUPERMARKET/MODERN RETAILER Total Cost Profit Margin (Value Add) Selling Price

520 1,680 9,000

FINAL CONSUMER PRICE TOTAL COST TOTAL VALUE ADD

5,800 2,362 3,438

100.0% 100.0%

7,500 2,416 5,084

100.0% 100.0%

9,000 2,651 6,349

24.4% 19.6% 26.5%

100.0% 100.0%

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

Province with Highest Poverty Level in Indonesia 2009 Percentage of People Below Poverty Line

Province

Absolute Number of Poor (000)

Papua

Urban 28.2

Rural 732.2

Total 760.3

Urban 6.10

Rural 46.81

Total 37.53

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

117.6

206.5

324.1

19.16

18.28

18.59

2,420.9

3,304.8

5,725.7

15.41

19.89

17.72

311.5

274.3

585.8

14.25

22.60

17.23

2,148.5

3,874.1

8,022.6

12.17

21.00

16.68

11,910.5

20,619.4

32,530.0

10.72

17.35

14.15

Papua Barat

Bengkulu Jawa Tengah DI Yogyakarta Jawa Timur INDONESIA Source: BPS

17

Correlation between Poverty Level and Food Expenditure by Province

Source: BPS

18

Vulnerability to Food Insecurity Map of Indonesia Priority II (Red)

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

19

Priority III

Priority I

(Light Red)

(Dark Red)

Thirty Most Vulnerable Districts to Food Insecurity by Provinces

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

20

Policy Instrument Supporting Food Security Policy 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)

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 Milllion IDR

Source: Coordinating Ministry of Economy

25

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 Year

Rice Distributed (ton)

Number of Recipient (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

Source: BULOG 28

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 1.08 1.06 1.04 1.02

Average Benefit Cost Ratio = 1.00

1.00 0.98 0.96 0.94 0.92 0.90 0.88 0.86 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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  The Benefit Cost Ratio = 0.98

Benefit Cost Ratio of Full Rice Self-Sufficiency Policy • The Total Benefit:  Total value of rice production at domestic price  Total saving from buying rice import • The Total Cost:  Cost of rice production  Cost of seed and fertilizers subsidy  Cost of government rice procurement  Cost of rice land expansion (to keep up with demand)  The Benefit Cost Ratio = 0.96

Benefit Cost Ratio of Full Rice Self-Sufficiency Policy B/C Ratio 1.04 1.02

Average Benefit Cost Ratio = 0.98 1.00 0.98 0.96 0.94 0.92 0.90 0.88 0.86 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 • The Total Benefit:  Total value of rice production at domestic price  Total saving from price adjustment to international market • The Total Cost:  Cost of rice production  Cost of seed and fertilizers subsidy  Cost of government rice procurement  Cost of rice imported  The Benefit Cost Ratio = 1.042

Benefit Cost Ratio of Rice Self-Sufficiency Policy with Quota B/C Ratio 1.40

1.20

1.00

Average Benefit Cost Ratio = 1.042 0.80

0.60

0.40

0.20

0.00 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 • The Total Benefit:  Total value of rice production at domestic price  Total saving from price adjustment to international market  Income from tariff • The Total Cost:  Cost of rice production  Cost of seed and fertilizers subsidy  Cost of government rice procurement  Cost of rice imported  The Benefit Cost Ratio = 1.043

Benefit Cost Ratio of Rice Self-Sufficiency Policy with Tariff B/C Ratio 1.40

1.20

Average Benefit Cost Ratio = 1.043 1.00

0.80

0.60

0.40

0.20

0.00 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.