Indonesia Learns A Lesson About Rice
December 7, 1998
by Dennis T. Avery
CHURCHVILLE, Va.—Indonesia is undergoing its worst food crisis in decades, but the millions of acres of tropical forest cleared and wetlands drained for low-yield crops and pasture done little to improve its food security.
This spring's rice harvest was the worst in six years, as a result of an El Nino drought and a dramatic rise in the cost of imported fertilizer and pesticides. The value of the Indonesian currency has fallen by three-fourths while rice prices have gone up sharply, about 75 percent in local currency during 1998 alone.
Despite the problems, it now looks as though Indonesia will have no real rice shortage. The country has been able to import about 3 million tons commercially. Japan has donated 600,000 tons of its rice surplus, while the Philippines will "lend" several hundred thousand tons of rice.
The two countries have been lending each other rice for years. The Philippines often has a short rice crop in years when Indonesia's harvest is big, and vice versa.
NEXT YEAR'S Indonesian rice crop looks normal. The consumers' biggest enemies, it turns out, were political unrest and the government policy of rice self-sufficiency.
When Indonesians heard about the drought and the short rice crop, they assumed there would be a rice shortage. Rice hoarding became a major problem, and riots followed the panic.
Many of the nation's rice wholesalers are of Chinese extraction and found their warehouses easy targets for torch-wielding rioters looking for someone to blame. That, of course, severely discouraged the flow of rice to food shops.
Meanwhile, there were rumors that corrupt government officials, for their own profit, were re-exporting rice sent as aid.
INDONESIA had been one of the most successful of the "Asian Tigers," raising per capita income from $50 in 1967 to $650 by 1997, cutting poverty from 60 percent of the population to 15 percent, cutting illiteracy by two-thirds and extending life expectancy by nearly 50 percent.
By 1996, Japan alone had invested nearly $20 billion in the country, and the United States about $10 billion. Unfortunately, Indonesian's septuagenarian President Suharto had lapsed heavily into "crony capitalism," giving his children and allies billions of dollars in economic favors.
Foreign investors were profoundly discouraged when Suharto moved to give one of his sons the control of the Indonesian car industry and another son control over the cigarette industry.
POST-SUHARTO, things are looking more optimistic. Indonesia's recovery is likely to take several years, but it's likely to be vigorous, now that the economy is free of the weight of Suharto family corruption.
Indonesia is off to a good start. It has eliminated its corrupt and counterproductive government food-import monopoly along with the subsidized rice sales that proved totally ineffective at holding down rice prices in a serious emergency.
The government is now giving 10 kilograms of rice per month directly to 9 million families to help alleviate the immediate crisis.
THE REAL CONCERN should now be putting in place more-competitive economic policies to protect the country's purchasing power. Fortunately, Indonesia's factories and skilled workers are still in place (though the original investors have lost their capital).
Fortunately, too, the World Trade Organization is still ensuring low tariffs for Indonesia's exports and prodding the country toward imports when those are cost effective.
Also fortunately, world wheat prices are down 40 percent from last year. These levels mean a 25 percent cut in Indonesian family noodle prices if they are passed through to the consumers.
UNFORTUNATELY, to try to preserve rice self-sufficiency, the government has been trying to drain one of the world's largest wetlands. But the peat soils may not be suitable and the loss of wild habitat would be irreplaceable.
Indonesia's rice farmers should produce all they cost-effectively can, but the country's good land is mostly on Java, where the population and industries are still expanding.
Indonesia will also face rising demand for wheat, sugar, beef, tobacco, poultry, cooking oil and many other food and feedstuffs.
For the future, it looks as though Indonesians should worry less about rice self-sufficiency and feel secure that they can rely on being able to import rice when needed.
Dennis T. Avery is based in Churchville, VA, and is director of the Hudson Institute's Center for Global Food Issues.