Rice is staple food for Asians and many other people in this planet. Therefore, its price increase recently could be categorized as global phenomenon. Thus, a further investigation of policies concerning this commodity is worthwhile for Indonesia. Prof. Neil McCulloch from The Asia Foundation has a study on “Rice Policy in Indonesia – Evidence and Options”, presented in the Launch of Bulletin of Indonesia Economic Studies’ Special Issue, on CSIS Jakarta, April 24 2008.

He presents four sub themes: the importance of rice for the poor, volume of rice import needed, few options to stabilize rice prices, and the world rice market related to Indonesia.

Data shows that rice is the most important commodity for the poor. The poor spend almost a quarter of their budget just on rice whereas the rich spend only 9.4%. His study also finds that most farmers are net consumers of rice, which means that their consumption of rice is more than their production. Furthermore, if rice prices increase, household with large areas of sawah will gain the most. The reason is that only top fifth of padi farmers who account for more than half of the harvested area.

The country’s data cannot tell us volume of import needed but it is clear that Indonesia historically has been a rice importer. Data of production from “Eye estimate” overestimates data from Household Survey while national data of consumption is underestimated.

In stabilizing rice prices, Indonesia can learn from the experiences of China, Bangladesh, and Madagascar. China succeeded stabilizing its rice prices by employing method of buffer stocks but it bore large fiscal cost. Bangladesh also succeeded by importing great amount of rice when the local price was equal to the world price. After that, local price was stable although world price went upward. Madagascar’s experience teaches to be careful with what the government says since its government unintentionally exacerbated price instability by destroying incentives for private trade.

The world rice market was actually stable in 1980-90s but prices are now increasing due to supply shocks in Vietnam and Australia, Indian politics, sky-scraping oil prices, falling of US dollar, and unfortunate signaling from the Philippines and India. Therefore, countries are now attempting to secure their supplies. However, there is no fundamental need for a crisis because rice supply has similar volume to expected consumption.

Lastly, four implications for rice policy could be taken. First, it is a choice between self-sufficiency and poverty reduction because they require quite different policies. Second, revitalizing agriculture is essential, but should be done in a ‘crop neutral’ way which allows farmers to decide the most profitable way of using their land. Third, rice price stabilization should be automatic and based on prices. When world prices are more stable than domestic prices, private sector should be allowed a larger role in stabilizing prices. Fourth, coordinated action among nations should be taken to solve the current crisis.

Pantjar Simatupang from USAid also carries out a research on “Problems Facing the Rice Industry and the Ways to Help”. Here it is his findings from the research.

Paddy production has been decelerating in the 1982-2005 period. The phenomenal increase of paddy production in 2007 should be accepted with caution and would probably not sustain in the near future. The reason is that Indonesian rice industry has reached its maturity stage and may have been entering the stage of declining production capacity and efficiency at every key segment: farming, harvesting, threshing, drying, and milling.

Given the high volatility of the world rice market, rather than debating rice exportation, this country’s energy should be focused on how to increase domestic rice (paddy) production. Since the basic problem is capacity and efficiency of the core production facilities, price incentives for paddy farming would not be sufficient to reserves the decelerating rice production trend.

Two recommendations are given for those problems. First, reliable and update data is needed. Therefore, BPS should be autonomy in budget support and do the consistent periodical survey for estimation of key production parameters. Second, present policies should be reconstructed in terms of direction, location, strategy, and framework. In terms of direction, from paddy production growth to rice production growth and efficiency. In terms of location, from developed (Java, Sumatra, Sulawesi) to newly developed (Kalimantan, Papua) production centers. In terms of strategy, from provision of paddy farming incentives to facilitation for production capacity and efficiency enhancement of key industry segments. In terms of framework, from piece meal, reactionary, short-term to integrated, large scale, and long-term blue print. (PK)