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Analysis: Bulog to intervene rice market as prices soar, stocks deplete

Jakarta Post - January 18, 2023

Tenggara Strategics, Jakarta – Rice prices continue to increase in the beginning of the year despite controversial late importation of rice and market intervention by the State Logistics Agency (Bulog).

Learning from the persistent price increase of rice, the National Food Agency (NFA) has tasked Bulog to conduct year-long market intervention to keep prices of this politically sensitive commodity in check.

Medium-grade rice prices increased to Rp 11,300 per kilogram in Jakarta on Jan. 10, 2023, up from Rp 10,000 level per kilo in December 2022 and was even below Rp 10,000 per kilo in November 2022. NFA chairman Arief Prasetyo Adi attributed the price increase to the less optimum market operation by Bulog and lower than expected volume of rice imports.

Importation of rice had been hampered by disagreement between Bulog and NFA that wanted to import rice due to rising prices and depleting stocks on one side and the Agriculture Ministry on the other side that disapproved the importation arguing that Indonesia had abundant stocks of rice held by farmers, rice millers and traders.

For the Agriculture Ministry, the importation could be seen as tarnishing the ministry's efforts in maintaining Indonesia's self-sufficiency in rice. Moreover, President Joko "Jokowi" Widodo was awarded in August 2022 by the Philippines-based International Rice Research Institute (IRRI) in recognition of Indonesia's rice self-sufficiency for 2019-2021.

Despite the disagreement, the Trade Ministry finally approved in early December 2022 the importation of 500,000 tonnes of rice to replenish Bulog's depleting stocks. Bulog then imported 200,000 tonnes of rice in December 2022 from Vietnam, Thailand, Myanmar and Pakistan and plans to import the remaining 300,000 tonnes in January and February. And yet, only 62,000 tonnes out of the 200,000 tonnes of imported rice reached Indonesia in December 2022.

As the arrivals of imported rice had been slow, Bulog used its depleting rice stocks for market operation. As a result, Bulog's rice stocks fell from around 650,000 tonnes in early December 2022, far below the required 1.2 million tonnes in stocks, to only 327,000 tonnes in January.

Learning from the continuing rice price increase and the sharp depletion of Bulog's stock, the NFA has tasked Bulog to conduct a year-long market intervention in 2023 to keep prices of this politically sensitive commodity in check. Bulog is told to restore its rice stock to 1.2 million tonnes, as required by the government, by absorbing a total of 2.4 million tonnes of rice from the domestic market this year. The remaining amount will be used for rice market operation.

During the market operation, Bulog may sell its rice to traders at a price range of Rp 8,300 to Rp 8,900 per kilo, depending on the locations. With the price cap at the Bulog level, the government plans to remove the pricing ceiling of rice sold to end consumers and thus, the Trade Ministry will revoke Trade Ministry Regulation no. 57/2017 on the price ceiling of rice.

What's more

Disagreement over importation of rice between the Agriculture Ministry and the NFA-Bulog stemmed from different data they hold. Data on rice production, stocks and consumption have never been unified for long, although President Jokow has decided that all parties must use single data provided by Statistics Indonesia (BPS).

Despite the decision, the Agriculture Ministry still maintains its own data, especially data on production and rice stocks held by farmers, rice millers and traders. The ministry has argued that the country has more than enough rice stocks and therefore, when Bulog's stock is depleting, this is due to Bulog's inability to source rice from the domestic market.

Following persistent disagreement over rice stocks, the Coordinating Economic Ministry decided in December 2022 to do a national survey of rice across 34 provinces to determine the actual amount of rice stocks held by various parties in the country as well as national rice demand.

The survey will take 32,235 samples from 5,989 rice-producing households, 5,033 rice-consuming households, 3,756 rice millers, 2,970 rice traders, 4,100 micro traders, 1,500 hotels, 6,062 food catering providers, 600 medium and large industries and 2,224 small industries. The results of the survey will be announced by the BPS later this month.

What we've heard

During this year's market operations, a source from Bulog told us that December 2022's import policies may have disproportionately benefited certain parties.

The source said one of the sources of Bulog's rice operations was last month's imports. The headlines last month all said the imports were meant to replenish the government's low rice reserves. However, the source didn't believe the imports were necessary.

"The entire tug of war about import policies was just theatrics. In reality, the goods were ready and they just needed to enter Indonesia," said the source.

The Agriculture Ministry opposed Bulog's plan to import 500,000 tons of rice last month because it believed sufficient amounts of rice were available in the country. However, the Trade Ministry had already greenlit the imports.

In the midst of the conflict between Bulog head Budi Waseso and Agriculture Minister Syahrul Yasin Limpo, apparently Budi Waseso secretly ordered those closest to him to arrange the imports beforehand.

"The one who arranged the imports is someone close to the Bulog head," said the source. This information came from one of the heads of the Bulog procurement division during a closed-door meeting.

"Pak Kadiv accidentally let slip that the rice was already prepared, it just need to enter the country," said the source earlier. "There wasn't any real reason to worry about the government's rice reserves depleting."

In response to the slip, the head of the procurement division was removed from his post.

"Now he is being transferred to Bali," said the source. The dismissal occurred shortly after Bulog was summoned to a hearing at the House of Representatives in December 2022.

Not long after the fuss over the government's supposedly depleting rice reserves, imported rice entered Indonesia. This meant, the source said, a stock of imported rice had already been prepared beforehand.

Another source added that controversies over rice imports and government rice reserves always surfaced ahead of political campaign years. "This is how the pattern always goes," said one of the rice traders.

He said rice reserves were easily depleted because Bulog was conducting intensive market operations to stabilize prices.

However, when it is necessary to increase the government reserves above normal, Bulog always argues that it is difficult to compete with private rice entrepreneurs.

"Bulog does not want to absorb the rice despite the allowance given by the government to buy rice at any price," said the rice trader.

Bulog had stopped procurement in response to the halting of the rice for the poor (Raskin) program. "Bulog's rice is also not selling well at BPNT outlets," added the source.

Source: https://www.thejakartapost.com/opinion/2023/01/18/analysis-bulog-to-intervene-rice-market-as-prices-soar-stocks-deplete.htm