Even though there have been signs of recovery, the Indonesian economy still suffered a 2.19 percent contraction in the fourth quarter of 2020.
ENNY SRI HARTATI
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Even though there have been signs of recovery, the Indonesian economy still suffered a 2.19 percent contraction in the fourth quarter of 2020. The main cause of the contraction was a decline in purchasing power, which had contributed to the fall in household spending by 3.61 percent.
Almost all household expenditures were still in decline, except two expenditure groups that recorded positive growth. The first was spending on housing and home appliances, which grew by 0.71 percent. The second was spending on health and education, which grew by 0.64 percent. Ironically, spending on food and beverage, other than restaurants, shrank by 1.39 percent. In fact, in the midst of a pandemic, adequate food intake is needed to increase immunity.
Demand for food has declined in line with the fall in people’s income. The affordability weakens due to the decrease in purchasing power. In addition, in the last three months, there was a significant increase in prices of several staple foods. The monthly inflation of 0.26 percent in January 2021 was mainly due to the increase in prices of foodstuff , which contributed 0. 21 percent.
A further increase in food prices must be anticipated and mitigated. Based on data from the Food and Agriculture Organization (FAO), in 2020, the food price index increased dramatically to 97.9 points. In fact, in December 2020, the index reached its highest level of 107.5 points. Moreover, Indonesia still relies on imports to fulfill the needs of certain food items such as soybeans, sugar, wheat and meat.
The complexity of the problem
In Indonesia, food price stability has always been a crucial issue, even long before the pandemic. On the one hand, the fluctuation in food prices is very sensitive, not only due to its impact on the inflation rate, but also due to its impact on the people’s purchasing power, especially for low-income groups in which 80 percent of their expenditure is for foods. On the other hand, in order to control food prices, farmers or breeders are often sacrificed. It affects the purchasing power of the labor in the agricultural sector, which reaches 38.23 million people.
In 2020, the agricultural sector grew by .75 percent, and in the fourth quarter of the year, the growth even reached 2.59 percent. Unfortunately, the labor wage in the agricultural sector is only Rp 1.91 million per month in August 2020, below the average national labor wage of Rp 2.76 million (about US$186) per month.
Meanwhile, due to layoffs, many people switched to the agricultural sector. It may lead to an increase in the burden of the agricultural sector and the decline in the productivity. As the consequence, the selling price of agricultural products during the harvest season fall to below the production costs, which has become the classic problem in the country’s agricultural sector.
The surplus in the production has instead caused the decline in income rather getting more profits. In the midst of problems and limited resources, the condition may further worsen due to competition from imported products.
Road map needed
An example of the ironic case can be seen in the poultry sector. In general, Indonesia is self-sufficient in poultry production and can be even in an excess supply. Ideally, when there is excess production, breeders should be happy. Indonesia does not need to import, and it should even have the opportunity to export.
In reality, the domestic poultry industry feels “under threat” from foreign chicken meat imported from Brazil, Argentina and the United States. This condition occurs as domestic poultry industry is still not efficient due to high feed prices and the complexity of the breeding industry.
The fall in the demand amid the pandemic has led to overproduction. As a result, breeders receive a price below the cost of production (HPP) which causes them to suffer losses and it even forces them to close their farms.
As a short-term solution to balance supply and demand, the government has decided to reduce the production of the day old chicken (DOC) through the reduction of the number of the eggs being hatched and parent stocks. This policy serves only as an emergency exit, not as the right long term solution. Later, to avoid miss information, a special web portal should be established to provide transparent and real-time information.
At least, the government can start with the supply chain modernization. For example, providing the required facilities for the construction of refrigerated warehouses which are needed to cope with the excess production.
In addition, the downstream poultry industry should be further pushed through a further development in the processing industry and an improvement in the business efficiency by shortening the distribution lines through the opening of e-commerce. State owned enterprises (BUMNs) and regional government owned enterprises (BUMDs) can be assigned as direct off takers of the livestock production. It is also needed to increase the demand through a promotional campaign to increase the consumption of chicken meat and eggs.
It will be more ideal if the government is serious about making a road map to develop the agricultural products, which have a great potential. One of them is the establishment of a holistic or comprehensive road map for the poultry industry, which covers both upstream to downstream sectors. The government should not only solve crucial problems in the agricultural sector, but also develop a poultry industry that is competitive, efficient, resilient, and inclusive as well as a solution in the midst of a pandemic.
ENNY SRI HARTATI, Senior researcher at the Institute for Development of Economics and Finance (INDEF).
This article was translated by Hendarsyah Tarmizi.