Rice prices in Indonesia have increased significantly recently. At the end of February 2024, the increase reached Rp18,000 per kg, marking the highest record in the country’s history of rice trading. This increase surpassed the highest retail price (HET) set by the government.
In response to this phenomenon, the Center for Poverty and Inequality Alleviation Studies (EQUITAS) at the UGM Faculty of Economics and Business (FEB UGM) presented research results related to national rice production.
Dr. Wisnu Setiadi Nugroho, the coordinator of EQUITAS FEB UGM, stated that the increase in rice prices would hinder economic progress. The significant number of intermediaries between farmers and consumers contributes significantly to Indonesia’s substantial increase in rice prices.
“This has led to the highest rice prices in history,” said Dr. Nugroho on Wednesday (Apr. 24) at the FEB UGM Campus.
Data from Katadata 2023 noted that in 2022/2023, Indonesia consumed 35.3 million metric tons of rice. Meanwhile, CNBC 2023 data shows that 98.35% of Indonesians are driving this sustained increase, including rice in their dietary patterns.
However, the recent spike in rice prices has significantly impacted many individuals, especially those from poor households.
Statistics Indonesia (BPS) reported in February 2024 that premium rice prices in Indonesia fluctuated to Rp14,525 per kilogram. This indicates an 8.82% increase compared to December 2023 and a substantial spike of about 22.91% compared to February 2023 prices.
“Rice prices have increased by 19.38% in urban areas and 23.04% in rural areas. This gap emphasizes the impact of complex supply chains on rice affordability in Indonesia compared to other developing countries,” explained a lecturer at the Department of Economics, FEB UGM.
Exploring the Influence of Rice Price Increases
Dr. Nugroho explained that various factors influence the rise in rice prices, including supply shortages and increased demand. In Indonesia, volatility is also a contributing factor to price increases. Instability in availability often stems from logistical challenges and insufficient production.
Logistically, Indonesia, as a developing country, grapples with continuous challenges. Research by Reardon and Timmer (2012) revealed that in developing countries, supply chains are characterized by geographical length and relatively short intermediaries.
Dr. Nugroho reiterated that the significant number of intermediaries between farmers and consumers contributes significantly to Indonesia’s substantial increase in rice prices. This phenomenon has led to higher rice prices in Indonesia than in other developing countries.
For example, rice prices in India range from Rp10,140 to Rp32,136 per kilogram, and in China, they range from Rp12,012 to Rp23,868 per kilogram.
Dr. Nugroho said this gap demonstrates the impact of complex supply chains on rice affordability in Indonesia compared to other developing countries. Indonesia’s logistical complexity includes 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, ultimately increasing rice prices. The lack of available profits for rice farmers is another significant factor contributing to price spikes.
Furthermore, Dr. Nugroho explained that this condition can be seen in research by Ceballos, Hernandez, Minot, and Robles, which emphasized that the world rice market is characterized by unstable and unreliable supplies (Krisnamurthi & Utami, 2022). The research highlights two main factors contributing to low rice production in Indonesia: slow mechanization processes and limited investment in research and development.
Meanwhile, Dawe, Timmer, and Warr (2014) emphasized the inaccuracies in rice production data issued by the Ministry of Agriculture, linking it to estimation issues. Both BPS and the Ministry of Agriculture use crop surveys and eye estimate approaches to assess cultivated land areas, leading to excessively high estimates.
Some studies show significant overestimation with an excess estimate of 17% for rice production and harvested land areas in 1996-1997. Other findings show an excess estimate of 13% for total rice production in 2000-2001, as identified by the Japan International Cooperation Agency (JICA).
Dr. Nugroho also mentioned that seasonal pattern changes exacerbate production level fluctuations. Studies by Ansari et al. (2023) indicate Indonesia’s vulnerability to climate change, which is evident from prolonged droughts in 2024, which caused harvest delays.
These disruptions and increased rice demand driven by political cycles add pressure to already tight supply chains. Legislative candidates buy rice in large quantities to distribute to voters to enhance their electoral appeal, further burdening supply chains and worsening demand pressures.
Strategies to Reduce the Impact of Rice Price Increases
Meanwhile, Jamilatuzzahro, a researcher at EQUITAS FEB UGM, stated that the Indonesian government has adopted various approaches to maintaining rice affordability and accessibility. Four main strategies address rice price increases: market operations, rice programs for low-income families (Raskin), domestic procurement, and imports.
The Raskin program stands out from other initiatives because it does not directly affect market dynamics. Instead, this program is exclusively dedicated to improving rice accessibility for low-income families by providing subsidized rice to low-income households, ensuring their food security.
Conversely, through market operations, the government aims to stabilize rice prices by releasing a certain amount at predetermined prices. This strategic intervention aims to achieve price stability and ensure that rice remains within the financial reach of the public.
Next, domestic procurement to address rice supply issues is used only in specific conditions, mainly when challenges lie only on demand. For this to work, domestic procurement requires at least one or several provinces with rice surpluses that can be allocated to provinces experiencing deficits.
“This approach is generally more suitable for addressing demand fluctuations rather than production shortages,” he explained.
Furthermore, the last option to address rice price increases is importing rice from neighboring countries such as Thailand and Vietnam. Imports aim to moderate domestic market prices by leveraging lower historical import rice prices than local rice to stabilize prices.
However, imports can be politically sensitive, potentially impacting domestic agriculture and farmers’ competition from cheaper imported rice. Therefore, import regulations are often designed to protect domestic agriculture and maintain food security by reducing reliance on external sources.
Efforts to Address Price Fluctuations
Jamilatuzzahro mentioned that failure to recognize the complexity can lead to ineffective policies that increase volatility instead of reducing it. In the short term, planned imports and controlled market operations are needed.
These two steps are essential strategies that can be implemented. Additionally, improving market information systems to reduce price volatility will help the government manage and respond to risks associated with prices, weather, or other hazards.
“Planned or scheduled imports and market operations can also minimize speculative actions by irresponsible market players,” he said.
Meanwhile, in the long term, small farmers will be empowered through access to technology. Data from McKinsey (2020) estimates that using modern technology in the agricultural sector can increase economic output by up to US$6.6 billion per year.
Modern harvesting technology is considered beneficial. It can more accurately and quickly do the work of many people in a short time than traditional harvesting methods.
Moreover, enhancing logistics routes by cutting intermediaries can improve efficiency and equalize rice distribution in Indonesia. Technology platforms or farmer cooperatives can facilitate direct relationships between farmers and milling.
By establishing direct channels, farmers can negotiate fair prices for their crops while ensuring mills obtain rice at competitive prices, thus reducing dependence on intermediaries.
Additionally, Jamilatuzzahro emphasized the crucial role of infrastructure development in addressing rice price fluctuations in the country.
The construction of roads, transportation networks, and storage facilities can reduce transportation costs and enhance rice distribution efficiency. Improving infrastructure can lessen the need for intermediaries, who often charge high fees for transportation and storage services.
“In doing so, it can facilitate the distribution of rice from farmlands to markets more quickly and cost-effectively,” he concluded.
Authors: Dr. Wisnu Setiadi Nugroho and Jamilatuzzahro
Image: freepik.com