HPP and Food Challenge 2023

During the current administration (2015-2022), national rice production decreased by 0.23 percent per year.

Rice production fell from 56.27 million tonnes of dry milled grain (GKG) in 2014 to 54.75 million tonnes of GKG in 2022. Rice production also fell in the 2019-2022 period from 59.20 million tonnes of GKG (2018) to 54.75 million tonnes of GKG (2022), or a total of 2.56 million tonnes. In 2019, rice production decreased sharply by 7.7 percent due to the El Niño phenomenon.

In 2020-2022, Indonesia experienced La Niña that was very favorable for increasing rice production due to rain throughout the year. Unfortunately, we couldn’t take advantage of that. Production increased only slightly in 2020 by 0.09 percent, then decreased by 0.42 percent in 2021 and increased slightly by 0.61 percent in 2022.

During La Niña in 2007-2008 and in 2010, rice production increased at the lowest rate of 4.80 percent (2007). During La Niña in 2016, rice production even jumped 9.67 percent. Why did rice production barely increase in 2020-2022 when the climate was very favorable?

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First is the assumption that the La Niña phenomenon was moderate. In August 2007-July 2008, La Niña was relatively strong (NOAA 2008), but the climate returned to normal in 2009, and then La Niña occurred again in 2010. The highest increase in production, namely 6.59 percent, occurred when the climate returned to normal in 2009. When the wet-dry climate returned again in 2010, there was a production increase of 5.15 percent. Thus, it is not true that different La Niña patterns led to different outcomes in 2007-2010 and 2020-2022.

Second are the reductions in the Agriculture Ministry’s budget and fertilizer subsidy. The Agriculture Ministry’s budget fell sharply from Rp 26.01 trillion/year (2015-2019) to Rp 16.63 trillion/year (2020-2022). The fertilizer subsidy also fell from Rp 34.31 trillion (2019) to Rp 34.24 trillion (2020), Rp 29.06 trillion (2021) and then to Rp 25.28 trillion (2022). This likely contributed significantly, especially considering that since the beginning of 2021 the price of nonsubsidized fertilizer has soared 2-3 times.

Third, and this has not been considered by observers, is the decline in farmers’ welfare. The results of AB2TI's monthly survey in 46 rice-producing regencies in 12 provinces show a downward trend in the prices of dry unhusked rice (GKP) over the last three years (August 2019-June 2022). The fall in GKP prices continued in March 2021 from Rp 5,160 per kilogram to Rp 3,938/kg, although there were certain periods when it increased. GKP prices rose slightly in November 2021 and then plunged in the succeeding months to reach Rp 3,944 in June 2022.

It is not true that different La Niña patterns led to different outcomes in 2007-2010 and 2020-2022.

This was confirmed from the farmer’s exchange rate (NTP) for food crops. Throughout 2021, the NTP averaged only 98.21 and in 2022, only 98.82. This means that in the last two years, the prices of rice and secondary crops sold by farmers were lower than the prices of goods and services that farmers purchased. In simple terms, farmers’ welfare declined.

With reduced income and welfare, the ability of farmers to access production inputs, whether in the form of rental land, labor wages, or fertilizers and pesticides, became limited, thereby reducing production capacity. What's more, all aspects of the agriculture industry increased in costs in the range of 25-35 percent. This was reflected in the sharp increase in farming costs from Rp 4,523/kg of GKP (2019) to Rp 5,667 (2022). The farming cost of rice was calculated using the real area managed by smallholder farmers in 30 rice-producing regencies, not per hectare as done previously.

Rice and data chaos

Reduced production over the last four years finally had a serious impact at the end of 2022, causing rice prices to increase sharply for consumers. Farm-level prices at production centers started to increase from Rp 7,630/kg (May 2022) to Rp 8,294/kg (June 2022). The price increase then became unstoppable, causing the government and people to panic.

In December 2022 it was decided to import 500,000 tonnes of rice using invalid data. Market penetration was then carried out by dumping 100,000 tonnes of rice in January 2023, but it had no effect at all. The farm-level price of rice actually went up from Rp 10,169 to Rp 11,086 (AB2T Monthly Survey).

According to Statistics Indonesia (BPS), the fixed figure of rice production in 2022 (released on 1 March 2023) was 54.75 million tonnes of GKG, equivalent to 31.54 million tonnes of rice, an increase of 0.61 percent, although much lower than the previous forecast of 2.31 percent (BPS 17/10/2022). Production in 2022 still generated an excess of 1.34 million tonnes of rice, so imports were actually unnecessary.

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Before the rice production data came fully under the BPS in 2018, the data for 2017 and earlier were very poor. For 2014, the government’s official data was 70.85 million tonnes of GKG, while from satellite imagery and other sources, it was only 56.27 million tonnes of GKG. When the BPS released the 2018 production data, based on the area sampling framework (KSA) method, of 59.20 million tonnes of GKG, the Agriculture Ministry released production data for the same year of 83.04 million tonnes of GKG, or a difference of 23.84 million tonnes.

The second dataset that is very important in deciding the import policy is on rice reserves. Every year, the surplus or deficit production in the current year will become the initial reserve stock for the following year. Unfortunately, we don't have stock data that can be a common reference. Each institution has different stock data and all are invalid, even though the data is used to determine the rice import policy. The author recommends that the National Food Agency and/or the BPS survey the stock data with adequate facilities, infrastructure and budget.

HPP and Food 2023

The view that farmers do not enjoy the increase in consumer prices is wrong. In the July 2022-February 2023 period, the price of rice according to the PIHPS website increased from Rp 11,755 to Rp 12,900 (9.7 percent). Farm-level GKP prices showed a higher increase, from Rp 4,783 to Rp 5,956 (24.5 percent). Even farm-level price of rice increased from Rp 8,521 to Rp 11,086 (30.1 percent), according to the 2022-2023 AB2TI Survey). Thus, the prices at the consumer level were transmitted very well to the farm level.

When the farm-level GKP price jumped significantly in July 2022 and then reached an all-time high in January 2023, smallholder farmers were very happy, as reflected in conversations in various communities and farmers’ networks. The joy was only momentary, as the arrival of the harvest season caused farm-level grain prices to fall again. The government setting lower and upper limits to the reference price (HPP) for unhusked rice and rice only exacerbated the situation.

It turns out that traders also use the HPP instrument as a reference for purchases when the product is abundant. In this regard, all farmers’ networks asked the government to immediately decide on an HPP to help the farm-level prices of grain and rice.

Farmers’ groups that have large networks in Indonesia, namely the AB2TI, the Indonesian Farmers Harmony Association (HKTI), the Mainstay Farmers and Fishers Group (KTNA), the Indonesian Farmers’ Union (SPI), and the Indonesian Farmers’ Alliance (API), were united in proposing an increase of Rp 5,400-Rp 5,800 to the HPP.

Some are of the opinion that a higher HPP for grain will trigger an increase in rice prices at the consumer level, which will then impact smallholder farmers because they are also rice consumers, so it will increase rural poverty. This view is very biased and hurts fellow farmers who have incurred losses due to the very low prices of grain and rice.

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This view also ignores the sociology of rural communities, which is different from urban areas. The social system in village communities is bound by mutual cooperation and strong solidarity. As long as there is economic contraction in urban areas, the resilience of rural people grows much stronger. Farmers also always save some of their grain and rice for their own needs, so that a price increase at the consumer level does not impact their lives. According to the AB2TI survey, 20-40 percent of the grain and rice produced is stored for household use, and the rest is sold.

Urban communities and unions constantly demand a wage increase each year. On the other hand, rice farmers only suffer in silence, never demonstrating to demand an increase in the prices of their products. Efforts by various parties, including the government, the private sector, and urban communities, to reduce grain and rice prices have far worse impacts: increasing poverty in rural areas, shifting land tenure from rural communities to investors, and destroying the food sovereignty that we have built together.

Another discourse that often appears is that consumer-level prices of rice in Indonesia are among the highest in the world (based on purchasing power parity). This discourse is also wrong and full of certain agendas. According to nominal value, rice prices in Indonesia are the ninth lowest out of 107 countries (Numbeo, 2023). Rice prices in Indonesia average Rp 12,750/kg, lower than in the Philippines (Rp 13,960), Vietnam (Rp 14,720), China (Rp 16,010), Malaysia (Rp 17,760) and Thailand (Rp 18,360).

"Let's make farmers prosperous" is not merely empty jargon.

This year, our staple foods sector is experiencing a serious threat because the planting season and the first harvest are actually threatened by high rainfall, flooding and pests in some areas. The BPS’s provisional figures state that higher rice production in January-April 2023, at 23.94 million tonnes of GKG compared to 23.82 million tonnes of GKG in 2022, will not be achieved and is likely to be even lower. From late March to mid-August, the weather will be normal, but will enter El Niño, or a prolonged dry season, at the end of August. With weather like this, the author believes that 2023 rice production will decrease around 5 percent.

There is only one answer to overcome this: The government must take immediate and extraordinary measures to save our food and strive to fulfill the farmers' wishes. Hopefully the slogan, "Let's make farmers prosperous" is not merely empty jargon.

KOMPAS/WISNU WIDIANTORO

Dwi Andreas Santosa

Dwi Andreas Santosa, Head of the IPB University Biotech Center, general chair of the Association of Indonesian Seed Banks and Farming Technology (AB2TI) and CORE Indonesia

This article was translated by Kurnia Siswo.