There is a flawed logic behind the latest policy to stabilize food prices. In an attempt to intervene in the market, the government decided to give state-owned enterprises (SOEs) control over the strategic food commodity supply chain. As opposed to providing solutions, the approach could actually create critical problems for the economy.

In the beef import trade system, problems have already begun to arise. The government has capped this year's beef import quota at 297,000 tons. Of this total, 250,000 or around 84 percent were allocated to two state-owned companies: Berdikari and Perusahaan Perdagangan Indonesia. Meanwhile, the quota for 108 private importers was slashed to only 30,000, a drastic 83-percent drop from last year's allocation.

The hundreds of beef processing and distribution companies are now in distress. That low quotas can only sustain their businesses for five months at most. A wave of layoffs now looms over the industry. Meanwhile, consumers in the hotel and restaurant industries are also starting to notice the shortage in supply.

In addition to the disproportionate import quota, the government has also assigned Berdikari and Perkebunan Nusantara III to establish dozens of integrated broiler and layer chicken farms. The project will be funded by the Daya Anagata Nusantara Investment Management Agency (Danantara), totaling Rp20 trillion. According to the government, this "investment" will curb the fluctuation of beef and egg prices in the long run, as well as securing supplies for the free nutritious meal program.

At first glance, there does not seem to be anything wrong with the policy. Each year, beef and poultry prices fluctuate for brief periods of time, exhibiting extremely steep price differences. Transforming SOEs into major players in the strategic food commodity business is expected to provide the government with the tools needed to control prices at market levels. However, this logic is flawed, and the policy will likely not generate the expected outcome.

The policy fails to address the root of the problem with the strategic food supply, which is poor management by the government. In the beef supply sector, for example, the government enforces an import quota system, supposedly to encourage growth in the domestic livestock industry. In reality, however, the self-sufficiency program first promoted over a decade ago has never been truly successful due to the scarcity of high-quality local breeding stock.

Complicating matters further, the government continues to implement the import quota system despite the administrative obstacles it creates in the food supply chain. The system has also been proven to encourage profit-seeking practices. Designating state-owned enterprises as the new rulers of a corrupt business system could further expand the scope of fraudulent practices.

The same problem could potentially happen with integrated chicken farm development projects. The poultry industry already suffers from chronically poor conditions due to its oligopolistic market structure, in which a handful of business groups control everything from upstream to downstream. Forcing SOEs to serve as a means of stimulating market competition within such a complex industrial structure is clearly high-risk.

The government must end policies that sound nationalistic but are poorly calculated. Indiscriminate market intervention through state-owned enterprises not only risks creating food supply disruptions and jeopardizing the industry's sustainability, it could also burden the companies' finances. Ultimately, the state budget will likely have to shoulder the burden.

– Read the complete story in Tempo English Magazine

Source: https://en.tempo.co/read/2089383/wrong-strategy-to-stabilize-food-price