Author: Wisnu Setiadi Nugroho, Ph.D. & Jamilatuzzahro, M.Si.
Rice, a fundamental dietary staple for millions worldwide, ensures global food security (Fan & Rue, 2020). Therefore, an increase in rice prices will hamper economic progress. The multitude of intermediaries between farmers and consumers significantly contributes to the substantial increase in rice prices in Indonesia, which leads to the highest rice prices in history. In 2022/23, Indonesia consumed a staggering 35.3 million metric tons of rice (Katadata, 2023). A remarkable 98.35% of Indonesians drive this continual increase, including rice in their diet (CNBC, 2023). Nevertheless, the recent surge in rice prices has had a profound impact on a substantial number of individuals, particularly those from impoverished households. As reported by Indonesia’s National Statistics (BPS), as of February 2024, the price of premium rice in Indonesia fluctuates from Rp. 14,525 per kilogram. This represents an 8.82% rise compared to December 2023 and a substantial surge of approximately 22.91% compared to prices in February 2023; the price of rice has risen by 19.38% in urban areas and 23.04% in rural areas relative to the poverty line (CNBC, 2023).
This disparity underscores the impact of the complex supply chain on rice affordability in Indonesia relative to its developing countries’ counterparts. These complexities include inadequate transportation infrastructure, lack of storage facilities, and difficulties in coordination among various actors in the supply chain. These challenges result in delays, inefficiencies, and increased costs, increasing rice prices. The lack of advantages available to rice farmers is another significant factor contributing to the surge in rice prices. Ceballos, Hernandez, Minot, and Robles (2017) highlighted the volatility of world rice prices in many developing countries, indicating that the rice market is particularly sensitive to fluctuations in international markets. Consequently, the implementation of price policies in the Indonesian rice industry has yielded diverse effects on price dynamics (Krisnamurthi & Utami, 2022).
From Fields to Markets: Tracing the Influence of Rising Rice Prices
The escalation in rice prices can be attributed to various factors, such as scarcity in supply and heightened demand. In the case of Indonesia, volatility is also a contributing factor to the elevated prices. The volatility in availability often stems from logistical challenges and insufficient production. Logistically, Indonesia, as a developing nation, grapples with persistent challenges. Research by Reardon and Timmer (2012) reveals that in developing countries, the supply chain is characterized by extensive geographical length and relatively short intermediaries. Graph 1 vividly illustrates the considerable size of the supply chain from rice production to consumer, highlighting the logistical complexities faced by the country.
Graph 1. Rice Supply Chain in Indonesia
Source: author
The multitude of intermediaries between farmers and consumers contributes significantly to Indonesia’s substantial increase in rice prices. This phenomenon results in higher rice prices compared to other developing countries. In India, the price range is approximately Rp.10,140 – Rp.32,136 per kilogram, and in China, it spans roughly from Rp.12,012 – Rp.23,868 per kilogram. This disparity underscores the impact of the complex supply chain on rice affordability in Indonesia relative to its developing counterparts (CNBC, 2023). These complexities include inadequate transportation infrastructure, lack of storage facilities, and difficulties in coordination among various actors in the supply chain. These challenges result in delays, inefficiencies, and increased costs, increasing rice prices.
The lack of advantages available to rice farmers is another significant factor contributing to the surge in rice prices. This can be seen in the research conducted by Ceballos, Hernandez, Minot, and Robles, who emphasize that the world rice market is characterized by an unstable and unreliable supply (Krisnamurthi & Utami, 2022). Research highlights two primary factors contributing to low rice production in Indonesia: a sluggish mechanization process and limited investment in research and development (R&D) spending. Dawe, Timmer, and Warr (2014) emphasize the Ministry of Agriculture’s inaccurate release of rice production data, attributing it to estimation issues. Both the BPS (Statistics Indonesia) and the Ministry of Agriculture utilize crop-cutting surveys (‘ubinan’) and the ‘eye estimate’ approach to assess cultivated areas, leading to overestimations. Studies reveal significant overestimations, with a 17% overestimation of rice production and harvest area during 1996-1997 and a 13% overall overestimation in total rice production during 2000-2001, as identified by JICA (Japan International Cooperation Agency). Changes in seasonal patterns exacerbate the fluctuation in production levels. Ansari et al. (2023) point out Indonesia’s vulnerability to climate change, evident in the prolonged drought experienced in 2024, causing delays in the harvesting period. This disruption and increased rice demand driven by the political cycle intensified pressure on an already strained supply chain. Senatorial candidates, aiming to enhance their electoral appeal, purchased rice in bulk for distribution among the electorate, further straining the supply chain and exacerbating demand pressures.
Strategies to Mitigate the Impact of Rising Rice Prices on Affordability and Accessibility
To address the escalating rice prices, the Indonesian government has adopted a multifaceted approach to safeguard the affordability and accessibility of this staple food (Sembiring & Sibuea, 2018). Indonesia has deployed four principal strategies to counteract these rising costs: market operations, the Rice for the Poor (Raskin) program, domestic procurement, and imports. Notably, Raskin distinguishes itself from the other initiatives by not directly influencing market dynamics. Instead, it is exclusively dedicated to enhancing the accessibility of rice for impoverished families by providing subsidized rice to low-income households, thereby ensuring their food security. Conversely, through market operations, the government endeavors to stabilize rice prices by releasing specific quantities of rice into the market at predetermined prices. This strategic intervention aims to achieve price stability and guarantees that rice remains within the financial reach of the general population.
Domestic procurement to address rice supply issues is typically invoked only under specific circumstances, primarily when the challenge lies only on the demand side. To function, domestic procurement requires at least one or more provinces to have a surplus of rice that can be reallocated to provinces experiencing deficits. This approach is generally more viable in demand fluctuations rather than production shortfalls. The last resort often involves importing rice from neighboring countries, such as Thailand and Vietnam. Importation aims to moderate domestic market prices, leveraging the historically lower cost of imported rice than domestic produce to stabilize prices. Nonetheless, the importation can be politically sensitive due to its potential impact on domestic agriculture and farmers, who might face competition from cheaper imported rice. Consequently, regulations around rice imports are frequently designed to safeguard domestic agriculture and maintain food security by minimizing reliance on external sources.
Short and Long-Term Action to Combat Price Volatility
Failure to recognize these complexities can lead to ineffective policies that escalate volatility rather than mitigate it. In the short term, planned imports and controlled market operations are essential strategies. Improving market information systems to reduce price volatility will help governments manage and respond to risks related to price, weather, or other hazards. Planned or scheduled imports and market operations can also minimize speculative actions by bad actors in the market. Moreover, in the long term, smallholder farmers will be empowered through access to technology. The data from McKinsey (2020) estimates that using modern technology in the agricultural sector can increase the economic output by up to US$6.6 billion per year. Modern harvesting technologies are regarded as advantageous and profitable technologies that can do the work of many people within a short time more precisely and accurately than traditional manual harvesting.
Moreover, Improving logistic pathways by cutting out middlemen can be a significant step toward enhancing the efficiency and equity of rice distribution in Indonesia. Direct Farmer-Miller Connections can be facilitated through technology platforms or farmer cooperatives. By establishing direct channels, farmers can negotiate fair prices for their produce while ensuring millers procure rice at competitive rates, thus reducing the reliance on middlemen.
Additionally, Infrastructure Development plays a crucial role in this endeavor. Investing in roads, transportation networks, and storage facilities can reduce transportation costs and enhance the efficiency of rice distribution. By improving infrastructure, the need for middlemen who often charge high fees for transportation and storage services can be minimized, allowing for more direct and cost-effective routes from farms to markets.
(versi tulisan populer dapat dilihat di https://www.thejakartapost.com/opinion/2024/03/28/navigating-challenges-strategies-in-indonesias-rice-market.html)