The price of rice, even more than the fuel price, is the key political barometer in Indonesia. As its primary staple food, rice is eaten twice, often three, times a day. Any significant increase in the rice price in the coming election year can have major consequences for political incumbents, both nationally and locally.
Intermittent, soaking rains in the past two months should insure a bumper rice crop for Indonesia this year. In the high production areas of Java, the first season's crop has now been harvested and the prospects for the second crop, especially in West Java, look promising.
Indonesia's Central Statistics Agency has forecast a rice harvest of about 58million tonnes. If this optimistic forecast were achieved, it would be a 2 per cent increase on last year's harvest. How this production increase will translate into food for the poor is critical, especially following the Government's 28.7 per cent reduction, in May of this year, of its subsidy for fuel.
Under President Suharto, the National Logistics Agency (BULOG) had monopolistic powers on food imports. Its central task, however, was to stabilise rice prices. In the first half of each year as the harvest came in, it would acquire a large stock of rice, thus maintaining a floor price for farmers selling their crop. With this stock, it could later intervene in the market to insure acceptable rice prices for consumers. It built a network of warehouses in the country and could ship rice from the productive areas on Java to other parts of the country.
BULOG has now been stripped of its monopoly powers but in the process has been given a new role in providing rice for the poor. Its principal task is still price stabilisation but it does this primarily by purchasing and distributing rice as food security for the poor.
This year's ambitious purchasing target is 3.8million tonnes. A good harvest should make this target achievable. Rice imports will be at a minimum since BULOG has already purchased half its target within Indonesia and is confident of obtaining the rest of its needs for this year locally.
The Central Statistics Agency conducts regular surveys to identify Indonesia's poor. It has identified 19.1million households living in poverty. Under Indonesia's Rice for the Poor Program, these households are entitled to buy a ration of rice 10-15kg a month at about a quarter of the market price. BULOG's distribution network now functions to move rice throughout the islands to the districts where it is then made available locally.
Since community consultation is a factor in determining who obtains this cheaper rice, local distribution has varied greatly from district to district. Despite national guidelines, there is no longer any uniformity of implementation among the patchwork of hundreds of districts that constitute Indonesia's system of decentralised government. Despite numerous irregularities at the village and district level, the Rice for the Poor Program has been a success in providing, for the first time in Indonesia's history, a basic national safety net for the poorest in the society.
The program was begun as a special operation in 1998 and has continued to evolve since then. A new poverty survey is about to be conducted and it is expected that the number of identified poor will increase. The net will certainly continue to widen. Five provinces are experimenting with a village kiosk system for local allocations.
Although rice may be available for the poor, it has been recognised that they may not have the purchasing power to buy it. Hence after the fuel price increases in May, the Government has begun providing a monthly cash payment equivalent to about $A11.50 to the same families for whom the cheap rice is available. As it slowly and painfully weans itself from its general subsidy of fuel, Indonesia has in effect instituted the beginnings of a welfare system.
Huge problems remain. For many, rice prices, even for the cheapest rice, are felt to be too high. The chief cause of these rising prices is the increased cost of fertiliser. Although Indonesia is a major producer of nitrogen fertiliser, the cost of the natural gas used to produce it has increased and thus there has been a steady rise in the price of urea. As a consequence, for reasons of food security, Indonesia must maintain a subsidy on fertiliser.
Indonesia's continuing reduction of its massive fuel subsidy has meant a restructuring of other subsidies. In an election year, keeping these subsidies in place and setting their strategic levels will be a major concern of government policy.
Professor Fox is at the Australian National University's Research School of Pacific and Asian Studies.
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