Rice Surplus, Adequacy and Reserves
Taking into account the production prospects, the global rice market and economy as well as geopolitics, the rice adequacy calculation will be very helpful.
There has been a polemic lately over “surplus of rice” versus “the adequacy of rice.” Discussing the issue of a rice surplus, adequacy and management of the national rice stock, questions arise whether the national stock of 6.6 million tonnes is sufficient.
The assessment uses an empirical experience-based approach, taking into account two perennial problems. First, we still argue over the understanding of “the adequacy of rice.” Is it production minus consumption or availability (market demand)? Second, the mechanism to determine the adequacy of the national stock has yet to be agreed upon.
According to the General Indonesian Dictionary (Badudu and Zain, 1994), cadangan (stock) is something reserved for future use. Thus, rice stock is the provisions of rice in the community and those under the government’s control for tomorrow, the day after tomorrow’s use and so on. These provisions of rice stock should be made a parameter to determine the adequacy of rice for the national stock.
Rice surplus vs rice adequacy
There are several factors regarding rice surplus that are considered insufficient. First, if the amount of the rice surplus on 31 December 2022 suffices only for the following one or two months, it will be quite risky in the face of the prospects that the harvests in the following January and February might not give enough yields to fill the market.
Second, if the location of the surplus rice is far from where the consumers are, the surplus cannot cover the shortage of supply, especially if the transportation is posing a constraint.
Thus, the calculation of surplus rice based on production minus consumption does not necessarily provide assurance about the adequacy of rice. Looking back on the 1972 experience, we were caught off guard because we had believed that the parameter to determine the rice adequacy was the production minus consumption. Back then, we had been confident about rice self-sufficiency and the State Logistics Agency (Bulog) had been instructed to be prepared to deal with it by improving quality requirements and control procedures.
The government eased the rice production target and invited a consultant from the United States to deal with the expected surplus in rice production. It later turned out against expectations. The dry season with prolonged drought hit beginning May 1972. Bulog's procurement failed while the prompted rice imports were hampered by limited foreign exchange sources. The situation caused a rice crisis.
Based on this experience, president Soeharto no longer used the mechanism of production minus consumption to determine rice adequacy. The government relied on the basis of "market demand" by strengthening the rice stock under Bulog’s supervision.
Beginning in 1974, president Soeharto decided to build new rice warehouses with the capacity of 3.5 million tonnes storage. Bulog-supervised rice stock was crucial because domestic production did not suffice the national needs.
Starting with the administration of Susilo Bambang Yudhoyono, the concept of food adequacy based on production minus consumption has been in use again.
The reliability of Bulog's rice stock was tested in the wake of massive student demonstrations on 15 Jan. 1974, which was later known as the Malari incident. Pests destroyed harvests in 1975 and 1976, followed by a long drought in 1977. Bulog's rice stock management system proved to be able to overcome these crises.
The following challenge was that the rice production experienced an increase by millions of tonnes almost every year beginning in 1978. In the later stages, thanks to inter-institutional cooperation and Bulog’s organizing capacity, the severe rice crisis in 1997 and 1998 could also be overcome. However, after the Reform era, or starting with the administration of Susilo Bambang Yudhoyono, the concept of food adequacy based on production minus consumption has been in use again.
National rice stock
The food stock is regulated in Law No. 18/2012, which states that the national food stock (CBN) is made up of community food stock (CBM) and central and regional government food stocks (CBP). Meanwhile, the government food stock refers to reserved food under the control and management of Bulog.
The CBM consists of line 1 of rice stock in the form of ready-for-consumption rice availability in the households; line 2 at retailers and wholesalers, who are ready to deliver to meet consumer demand; line 3 at milling centers, which are ready to serve traders' orders. Rice stock at farmers and pooling agents in the form of unhusked rice grains fall into the line 3 category.
No less important is line 4 stock, which is paddy plants being harvested or to be harvested within one or two months. The CBM and CBP make a chain of logistics systems connecting millions of farmers to millions of consuming households. It is a continuous flow of food chain with rice being consumed on a daily basis. Rice is served on the dining table in the morning, afternoon and evening.
Azwar Rashid formula
Indonesia achieved rice self-sufficiency in 1984. Bulog even struggled to distribute stocks in warehouses. With market operations also stalling, Bulog was left with an overtime pile-up of rice in warehouses. The following policy in 1985 allowed Bulog to channel the stock out through exports.
In the face of El Nino in 1987, it turned out that we were forced to fall back on imported rice. President Soeharto instructed the BPS to draw up a measurement of appropriate rice adequacy, bearing in mind that domestic supplies from domestic production were quite dominant.
Azwar Rasyid, then-chairman of Statistics Indonesia (BPS), on 23 July, 1988, came up with a formula concerning the balance between rice production and consumption. The previous 1987 gave out “the figure of the need for rice supply to meet consumption," which was 146.83 kilograms/capita/year. This figure was drawn by taking into account the consumption of rice inside and outside the households.
Using the calculation based on per capita production as in 1987, Azwar Rasyid's formula turned out to give 164.53 kg. Using the subtraction by 11 percent to allow for seeds, shrinkage/damage, portions for livestock feed and others, the formula gave a figure of 146.43 kg/capita/year.
The formula was then developed to measure the rice adequacy. A longer year period of 5-10 years was chosen, in consideration that the government may have time to make an intervention effort in the event of minimum production, which were the 1984-1993 rice self-sufficiency period and 2000-2004 period of free rice imports.
For the 1984-1993 period, using the method of gross production divided by the population, the figure of rice adequacy was 163.83 kg per capita of rice production. After calculating the net production, incorporating it with imports addition and exports deduction, the figure was 163.56 kg per capita. The subtraction by 11 percent being applied, the figure of rice adequacy became 145.45 kg/capita.
For the 2000-2004 period, the calculated rice adequacy was 165.10 kg/year and 146.94 kg/per capita/year (after 11 percent subtraction).
The calculating method above can be used to determine the required national adequacy rice, with the standard of 144 kg. The rice adequacy is the sum of the stock at the beginning of the year, production and imports deducted by rice exports. Deducted further by consumption, the adequacy figure represents the remaining stock of rice. Being made quarterly, the calculation will be very helpful.
2018-2022 rice adequacy
We will analyze the national rice adequacy for 2018-2022. First, rice production growth still experienced a fluctuation with an average rate of minus 1 percent. That did not support stability in meeting stock needs. Second, the available supplies in 2018 and 2019 reached 39.62 million tonnes and 41.59 million tonnes or 150.02 kg/capita and 156.41 kg/capita of rice adequacy respectively. It's 104 and 109 percent over the standard 144 kg, which meant the supplies were sufficient.
However, by the end of 2020 it dropped to 143.97 kg or 99 percent of the standard, which prompted the yellow light level of alertness. By the end of 2021 and 2022 it further dropped to 134.81 and 128.48 kg or 93 and 89 percent of the adequacy standard, which meant the red light alert level. This was also indicated in Bulog's several market operations (OP), which, starting August 2022, reached 200,000 tonnes/month to date. Before August 2022, the community's stock was still being sufficiently supplied by the rice harvests.
The national stock calculation was based on the situation by the end of December 2022. However, the national stock situation was not necessarily linear throughout the year. Our rice harvest pattern is seasonal with production being concentrated in the main rice producing areas, while consumers spreading throughout Indonesia. It makes a dynamic CBN.
Also read: ‘Fix and Repair’ Rice Policy
Based on experience, CBN's position was expected to reach a minimum amount on 31 March ahead of the major harvests. The CBN was in the highest position on 30 June, after the major harvests. As for 30 September, the CBN should be supposedly in optimal condition to face the lean seasons in December 2022, January and February 2023. To provide a sense of security to the public, the CBN position on December 31 should ideally be in maximum condition.
As a comparison, the BPS survey on the 2015 Rice Reserve Study, with the Indonesian population being 255.6 million, showed the stock was 7.97 million tonnes on 31 March 2015, 10.02 million tonnes on 30 June 2015 and 8.85 million tonnes on 30 September. What about the stock on 31 December?
Then if we compare it with the results of the 2022 BPS survey with the population of 275.7 millions (a difference of over 20 million), the figure of rice stock on 31 March 2022 was 9.11 million tonnes, on 30 April 2022 at 10.15 million tonnes and 30 June 2022 at 9.71 million tonnes. Then what about the national rice stock figure on 1 November 2022, which was only 6.6 million tonnes?
In order to avoid further polemics regarding the rice adequacy, it is necessary for the BPS to expand the Rice Reserve Study survey for several other periods of years.
Looking at the June 2015 figure of 10.02 million tonnes compared to June 2022, which was 9.71 million tonnes, we deserve to raise a question. The figures on 30 September 2015 (8.85 million tonnes) and 1 November 2022 (6.6 million tonnes) also drew our concerns.
In order to avoid further polemics regarding the rice adequacy, it is necessary for the BPS to expand the Rice Reserve Study survey for several other periods of years, for example for those marked with wet dry, drought dry, normal dry and rainy seasons. Taking into account the production prospects, the global rice market and economy as well as geopolitics, the rice adequacy calculation will be very helpful.
Former deputy head of the State Logistics Agency (Bulog) 1999-2000
This article was translated by Musthofid.