BULOG: A good or confused choice?

Rice sacks in a truck, Indonesia (1)

In early August 2012, President Susilo Bambang Yudhoyono decided to revitalize State Logistics Agency (BULOG) in order to stabilize and be self-sufficient in five food commodities including soybeans, corn, sugar and beef in addition to rice which had been controlled by BULOG in the past. The decision was following soybeans’ price hike earlier this year. Whilst this ‘welcoming back BULOG’ program might be seen to be a serious attempt by the Indonesian government to achieve food self-sufficiency, this program is argued to be costly and reflects the government’s confusion to distinguish the difference between food self-sufficiency and food security. To some extent, BULOG’s past reputation lowers our expectation on how effective and efficient this program will be.

The concept of self-sufficiency is closely related to food security. But the two terms differ. According to the Government of Republic of Indonesia Regulation (Peraturan Pemerintah) No. 68 Year 2002, food security is a food-sufficient condition for households indicated by availability of adequate food in terms of quantity, quality, security, equality and affordability. Food supply can come from both/either domestic production and/or other sources. Self-sufficiency, on the other hand, is defined as a condition in which at least 90% of domestic demand for food is met by domestic production. Hence, while food security emphasises the importance of access to food , self sufficiency requires sufficient domestic food production capacity to meet domestic demands. In other words, self sufficiency is an important but not a necessary condition to achieve food security.

It would ideal to be able to produce all food commodities domestically. But in many cases, domestic production is often more costly than importing food from overseas. Indonesia may not have comparative advantage in several food commodities. For example, whilst we tend to believe that our country has vast land, little we know that our livestock industries are struggling to compete with live cattle exporting countries such as Australia and Brazil due to limited land. We might however have potential comparative advantage in some agricultural commodities that require some time before they are ready to compete in the global market. In such conditions, infant infancy arguments meaning temporary protection in order to develop competitiveness of selected industries may be effective although the implementation can be quite complex.

Delegating the distribution role to BULOG may involve some issues. Regardless whether or not they have improved their performance, the stigma attached to BULOG is quite negative due to its past association with the New Order (Orde Baru). Its work efficiency is also being questioned. Taking lessons from the distribution of the RASKIN program that delivers subsidized rice to nearly 9 million households, BULOG’s operational cost is relatively high. The World Bank reported that 30 per cent of the RASKIN budget goes to operating costs and BULOG profit while only 18 per cent of subsidy received by the poor. About a half of subsidy is mistargeted and received by non-poor.

In additon, the ‘cost’ of functioning BULOG to control key agricultural commodities should also take into account its potential impacts on the already established private marketing channels. Furthermore, the government must ensure that BULOG has adequate infrastructure. Having beef as a new addition to the list of commodities being controlled by BULOG, it is unclear whether BULOG would then invest in farms, abattoirs or warehouses by installing refrigerators.

Nevertheless, BULOG remains one of the most important institutions to ensure food security in Indonesia. BULOG’s legal status changed in 2003 from an Agency (Badan) to a State-owned Enterprise (Perum) enabling BULOG to undertake commercial activities. Having said that, it s not clear who holds the supervisory role. According to BULOG’s website, its supervisory board is led by special staff to President SBY. The question is whether BULOG would respond to the government, consumers or farmers’ interests.

The author’s biggest concern is seeing BULOG as a solution to recent food price hike is like jumping into a conclusion that our problem is with distribution instead of production. Is it true? BULOG issue can shift our focus away from how to improve productivity – a message that many researchers have attempted to deliver to the government. Unfortunately, BULOG cannot do much about improvement in productivity. One example is BULOG’s role to buy rice from farmers. Many farmers do not want to sell rice to BULOG because they prefer to sale rice to Ijon before harvest. Here the problem is not with the distribution but limited access to finance that most Indonesian farmers have. Effective solutions are not easy to find. They require good targeting, timing and programs. We can only hope that this government attempt is not simply doing ‘something’ – that is better than doing nothing- to please public opinion in a confused situation of how to improve productivity.

Author: Risti Permani, University of Adelaide

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1 Comment

Filed under Food and agriculture, Indonesia, Infrastructure, Investment

One response to “BULOG: A good or confused choice?

  1. YS Tey (John)

    A strong message from the recent Food Price Crisis was “business-as-usual” models are not sustainable in this challenging environment. While the message did not provide an absolute answer to the model, it did suggest that a total reliance on a SINGLE POLICY is not likely to handle the complexity in food security.

    Risti has debated two policy options: self-sufficiency and self-reliance. The former sounds objectively appealing. However, the latter is indeed more practically appropriate. In simple expression, that is to import food when world prices are cheaper than home production. Doing so will release domestic farmlands for other agricultural activities that have relative comparative advantage.

    The question is what are these “other agricultural activities”? I do not have an answer to that. Indonesian economists obviously have to follow up. That should be done in the spectrum of general equilibrium in order to make justice for food security and relative comparative advantage.

    Researchers should, however, be realistic. Statistical results that show relative comparative advantage could be meaningless if the implications do not match with the reality. E.g., wheat has lower production cost but it can only be grown at high latitudes in Indonesia. Here wheat is used as an example to highlight the extreme of economic analyses that ones may obsess with.

    Careful consideration is indeed required! Pure economic studies always fall short of that. Could we call upon agriculturists and farmers to look at that complex issue? I bet these non-economists have better insights into what agricultural activities are doable and non-doable. By saying so, I do not disregard the importance of economists. Rather, multidisciplinary insights can definitely lead to better and practical policy options. Are economists willing to walk out and talk? Go ahead!

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