Editorial - January 22, 2008
The way the Indonesian government reacted to the steep soybean price hike last week was similar to the pathetic manner in which it tried to address the sky-high oil price rises.
When international oil prices hit US$100/barrel for several days last month, the government announced after a cabinet session a set of contingency measures to maintain fiscal sustainability.
However, none of the measures were designed to cut wasteful fuel use and slash fuel subsidies. A plan to stop subsidized gasoline sales to private car owners was immediately abandoned as soon as the oil prices were again down to below $100.
Private cars continue to burn billions of dollars in taxpayers' money, in traffic jams in Jakarta and other major cities.
And the country, as a net oil importer, remains highly vulnerable to the wildly volatile oil prices. So fasten your seat belt for another turbulence of tremendous inflationary pressures as most analysts have predicted that oil prices will not likely go down again below $80.
Likewise, when tempeh producers went on strike last week in protest against the doubling of the price of soybean -- -the basic material for the fermented soy-cake and tofu -- the government convened a special cabinet session to address that soybean debacle. But again the measures announced to cope with the problem consisted only an ad hoc measure to lift the 10 percent import duty on soybean and a greatly doubtful plan to expand soybean crop acreage to more than 700,000 hectares this year from around 598,000 ha last year.
These measures would most likely be futile to plug the domestic soybean deficit which now amounts to two thirds of national consumption. Any plan to increase the output of soybean and other food commodities is simply not realistic without any concrete program to ensure fair prices for the farmers.
The problem, though, is it is rather impossible to guarantee fair prices for producers of soybean and other food commodities if they remain entirely at the mercy of global market fluctuation.
The steady decrease in soybean acreage from 1.6 million ha in 1992 to 621,000 ha in 2005 and 456,000 ha in 2005 should be blamed largely on cheap soybeans dumped by American producers on the domestic market.
But when international soybean prices began to rise in early 2007 due mainly to the biofuel craze in the U.S., many Indonesian farmers, traumatized by their previous losses, continued to stay away from soybeans, thereby increasing our dependence on imports.
A similar trend has been taking place in food commodities since 2006, but especially since January 2007 when the U.S. stepped up its energy diversification into biofuel with the support of huge fiscal subsidies.
The most remarkable change in food markets since late 2006 is that sky-high food prices have been taking place amid abundance, not at a time of scarcity caused by crop failure. That means the steep price hikes have been driven mostly by demand.
Wheat, soybean and palm oil prices have doubled last year alone, maize by more than 50 percent and rice by almost 20 percent, while sugar gained the lowest price hike of less than 5 percent. The problem is that we depend on imports for almost 12 percent of our maize need. Our import dependence for soybean is 70 percent, for sugar almost 38 percent and for beef 30 percent.
Indonesia has especially been more vulnerable to food price hikes because almost 50 percent of its population live on less than US$2 a day and poor households, on average, spend more than 75 percent of their income on food alone.
The devastating impact of these food price rises further increase, because more than 70 percent of our animal and poultry feed is derived from corn and soymeal.
One factor behind the surge in the demand for food is the increasing wealth among the 2.5 billion people in India and China which has stoked demand for meat, which, in turn, boosted the demand for cereals to feed livestock.
The biggest factor certainly is the big expansion of ethanol production in the U.S. where farmers, eager to take advantage of the subsidies, converted their crops from soybean and wheat to maize.
Analysts estimate the demand of the U.S. subsidized ethanol program alone accounts for over half the world's unmet need for cereals.
The clearest message of this trend is that, like oil, the era of cheap food has ended.
Saddening though is that we depend heavily on imports for most food commodities and oil fuel.
Food security is impossible without adequate protection of the farmers from the international price fluctuations and this in turn requires a political consensus to allocate adequate funds for the building and management of strategic food reserves by the State Logistics Agency.
It is this such political commitment that has enabled governments in developed countries to allocate huge sums of taxpayers' money to support their farmers. It is also a similar commitment to pro-poor growth that enabled the Soeharto administration to stabilize the prices of main food commodities.
