A view from Indonesia of the food crisis

Kevin O’Rourke, Jakarta-based author of the Reformasi Weekly report on Indonesian politics, has generously provided a local perspective on the food situation in Indonesia.

His detail-rich report reminds us of the complex social dynamics of other societies — even things that look so simple in a one-column article in the New York Times. So many of our foreign interventions have foundered on our lack of local knowledge. Economic interventions of the IMF and World Bank. Efforts to promote universal human rights, multi-culturalism, population control, women’s right, and improved techniques of farming. The record is not a happy one, as the nations that have done the best are those that received the least help from the west (e.g. China and the other nations of southeast Asia).

Most impressively (having the largest budgets), are western nations many efforts to either overthrow or support foreign governments — colonial, anti-communist, anti-Jihadist, or purely humanitarian. This record since WWII is one of more failures than successes. To generalize, the successes were either …

• early in this era (e.g., successful CIA efforts to overthrow governments in Iraq, Guatemala, Chile), as success rates declined over time, or
• where we assisted an already strong local government.

Update: “Rush to restrict trade in basic foods“, Financial Times (1 April 2008) — “Governments across the developing world are scrambling to boost farm imports and restrict exports in an attempt to forestall rising food prices and social unrest.”

Here is O’Rourke’s report on the food situation in Indonesia.

Summary: food supplies in Indonesia

I don’t think the situation is too serious yet, but it does deserve attention going forward.

About the riots

Tempe and tofu producers (who use imported soybeans) did indeed conduct a demonstration in front of the presidential palace two months ago, just after soybean prices had doubled, but I doubt that their numbers reached 10,000. From the pictures in the press it looked more like 1,000. I have not heard of food riots per se, or even of significant demonstrations.

In recent days, at least two major daily newspapers have indeed featured front-page pictures of distressed women clamoring for food — but these were pictures of women queuing and bustling for hand-outs of steeply subsidized food items that the government provides to the poor, such rice, soybeans and cooking oil. Like everything in Indonesia, the distribution is poorly organized, so whoever pushes closest to the back of the truck has the best chance of obtaining a valuable hand-out, and so the situation becomes unruly — but I would not call that a ‘food riot’.

Such scenes have been fairly typical for a long time, especially for hand-outs of heavily subsidized kerosene for cooking fuel.

About rice

Rice is the largest component of the food category of the inflation index, and it is the biggest single determinant of the poverty rate. The World Bank analyzed the issue and determined that the poorest twenty percent of society spend approximately 20 percent of their income on rice alone, and therefore rice price fluctuations make major impacts on the poverty rate.

Recent history of food prices

The price of rice rose precipitously as a result of an import ban imposed by President Megawati in 2002. By 2005, rising domestic demand outstripped domestically supply and the domestic price doubled in 2005-06., significantly elevating the poverty rate. However, in Indonesia, the poor are unorganized and the Jakarta elite opinion-makers frequently remain out of touch with reality, so the impact on poverty received remarkably little attention at the time.

I didn’t notice any rice price riots or major demonstrations in 2005-06. In general, the poorest element of society is struggling to survive and therefore they tend to be highly risk averse, and rarely take part in political activities. I know that this is a standard trend across the developing world. A political scientist who refined theories on collective action and free riders is Mancur Olson, in case your interested further.

Eventually, the government began importing small quantities of cheaper rice from Thailand and Vietnam, which stabilized the domestic rice price. But even small quantities of imports engendered controversy because opinion-makers believe that high rice prices are good for farmers — because Indonesia is a farming country, high rice prices are therefore good for Indonesia.

In fact, most rice producers are net consumers of rice — i.e, their plots are so small that they grow less than their own family consumes, so they also purchase additional rice on the market. The high rice price benefits a tiny minority of large-scale landowners, who are well-organized in a farmers association headed by senior figures from the Golkar Party.

The international rice price is only just now catching up to the domestic level. Therefore Indonesians are not noticing any increase in the main commodity that matters to them at present. According to some indicators I’ve seen, the domestic rice price may have actually softened a bit in recent weeks.

However, if the international rice price continues to rise, it will be impossible to stop the smuggled export of Indonesian rice, and the domestic price will surely rise again — at which point there would certainly be unease, and unrest could be a possibility.

A broader perspective

Another explanation is that when rice prices were rising, the rise just so happened to coincide with the aftermath of the fuel price doubling in late 2005. The government devised a strategy for rendering the fuel price hike politically palatable: it allocated part of the subsidy savings for a direct cash transfer to the poor. Every quarter, families whom government surveyors identified as genuinely poor received Rp300,000 in cash. I think the program lasted throughout 2006.

In 2007 the government cancelled the program and replaced it with a pilot project, limited to several provinces, in which the poor families would be able to receive such cash transfers provided that they complied with several social welfare requirements — chiefly, proving that they keep their young children enrolled in elementary school, and proving that they take part in maternal-child health care programs. The theory is that education and maternal-child health are keys to breaking the cycle of poverty. In 2008, the government is rolling this program out on a far wider scale.

Politics and food

I’m not sure what lessons Indonesia provides for other countries. Some anomalies about Indonesia are that there is a deeply engrained belief that high rice prices are good for the country, and there is a disjunct between the needs of the poor and the decisions made by the political elite. Nonetheless, further food price rises do indeed have the potential to generate instability.

Fortunately, Indonesia has erected a sound democratic framework to accommodate interests and demands. Democratic elections have matured considerably over ten years, such that domestic economic concerns are now the dominant topic of the upcoming 2009 election process. Specifically, Yudhoyono is receiving criticism for having allowed poverty to rise. However, he is also under criticism (by the same critics) for having allowed imports of rice.

Because there is so little appreciation of the intrinsic link between poverty and high rice prices, Yudhoyono is suffering criticism on both sides of the same issue. As a directly elected president, he faces a tantalizing opportunity to debunk the conventional wisdom and make clear that importing cheaper foreign rice enables the government to fulfill the needs of the majority of the country — the poor and near-poor — by reducing their living expenses. However, he has not made this argument yet because he tends to be unwilling to challenge the conventional wisdom about Indonesia as a farming nation. In any event, the recent rise in global rice prices will apparently remove the government’s ability to control domestic prices via imports.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about this subject

1. Important news about the global food crisis!   (1 April 2008)
2. Stratfor warns about the global food crisis  (18 April 2008)
3. What you probably do not know about China’s food crisis  (21 April 2008)
4. Higher food prices, riots, shortages – what is going on?    (29 April 2008)
5. A modest proposal for solving the global food crisis  (30 April 2008)
6. Weekend reading about the Food Crisis  (17 May 2008)

This archive shows all posts about the food crisis, plus reports from from major international agencies.