Bulog: A good or
confused choice?
|
Risti Permani ; A Post-Doctoral Fellow at the School of Economics,
University
of Adelaide
|
JAKARTA
POST , 04 September 2012
In early August 2012, President
Susilo Bambang Yudhoyono decided to revitalize the state logistics agency
(Bulog) in order to stabilize prices and enable the country to be
self-sufficient in five food commodities: soybeans, corn, sugar and beef, in
addition to rice, which is already controlled by Bulog.
The decision followed the soybean price hike earlier this year.
Whilst this “welcoming back Bulog” program might be seen as a serious attempt by the Indonesian government to achieve food self-sufficiency, the program is costly and reflects the government’s inability to distinguish between food self-sufficiency and food security.
To some extent, Bulog’s past reputation lowers our expectations 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 Government Regulation (Peraturan Pemerintah) No. 68/2002, 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 percent of domestic demand for food is met by domestic production.
Hence, while food security emphasizes 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.
The decision followed the soybean price hike earlier this year.
Whilst this “welcoming back Bulog” program might be seen as a serious attempt by the Indonesian government to achieve food self-sufficiency, the program is costly and reflects the government’s inability to distinguish between food self-sufficiency and food security.
To some extent, Bulog’s past reputation lowers our expectations 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 Government Regulation (Peraturan Pemerintah) No. 68/2002, 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 percent of domestic demand for food is met by domestic production.
Hence, while food security emphasizes 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 be 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 does not have a comparative advantage in several food commodities. For example, whilst we tend to believe that our country has vast land, our livestock industry struggles to compete with live cattle exporting countries such as Australia and Brazil due to limited land. We might however have a potential comparative advantage in some agricultural commodities that will require some time to develop before we compete in the global market.
In such conditions, temporary protection to develop the competitiveness of selected industries may be effective, although implementation can be quite complex.
Regardless of whether or not they have improved their performance, the image of Bulog is quite negative due to its association with the New Order government. Its efficiency is also questionable.
Taking lessons from the distribution of the raskin (rice for the poor) program that delivers subsidized rice to nearly 9 million households, Bulog’s operational cost is relatively high.
The World Bank reports that 30 percent of the raskin budget goes to operating costs and Bulog’s profit, while only 18 percent of the subsidy is received by the poor. About half of the subsidy is mistargeted and received by non-poor.
In addition, the “cost” of Bulog controlling key agricultural commodities should take into account the potential impact on 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.
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 to a State-owned enterprise enabling Bulog to undertake commercial activities.
Having said that, it is not clear who holds the supervisory role. Will Bulog serve the government’s, consumers’ or farmers’ interests?
My biggest concern is that seeing Bulog as a solution to recent price rises equates to a belief that the problem is with distribution instead of production. Is this true?
The Bulog issue shifts our focus, again, away from improving productivity — a message that many researchers have attempted to deliver to the government. Bulog cannot do much about productivity.
In Bulog’s role of buying rice from farmers, many farmers do not want to sell rice to Bulog because they prefer to sell rice to ijon before harvest. Here the problem is not with distribution, but the 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 attempt is not simply the government doing “something” — rather than nothing — to appease the public opinion in a confused situation of how to improve productivity. ●
Indonesia does not have a comparative advantage in several food commodities. For example, whilst we tend to believe that our country has vast land, our livestock industry struggles to compete with live cattle exporting countries such as Australia and Brazil due to limited land. We might however have a potential comparative advantage in some agricultural commodities that will require some time to develop before we compete in the global market.
In such conditions, temporary protection to develop the competitiveness of selected industries may be effective, although implementation can be quite complex.
Regardless of whether or not they have improved their performance, the image of Bulog is quite negative due to its association with the New Order government. Its efficiency is also questionable.
Taking lessons from the distribution of the raskin (rice for the poor) program that delivers subsidized rice to nearly 9 million households, Bulog’s operational cost is relatively high.
The World Bank reports that 30 percent of the raskin budget goes to operating costs and Bulog’s profit, while only 18 percent of the subsidy is received by the poor. About half of the subsidy is mistargeted and received by non-poor.
In addition, the “cost” of Bulog controlling key agricultural commodities should take into account the potential impact on 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.
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 to a State-owned enterprise enabling Bulog to undertake commercial activities.
Having said that, it is not clear who holds the supervisory role. Will Bulog serve the government’s, consumers’ or farmers’ interests?
My biggest concern is that seeing Bulog as a solution to recent price rises equates to a belief that the problem is with distribution instead of production. Is this true?
The Bulog issue shifts our focus, again, away from improving productivity — a message that many researchers have attempted to deliver to the government. Bulog cannot do much about productivity.
In Bulog’s role of buying rice from farmers, many farmers do not want to sell rice to Bulog because they prefer to sell rice to ijon before harvest. Here the problem is not with distribution, but the 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 attempt is not simply the government doing “something” — rather than nothing — to appease the public opinion in a confused situation of how to improve productivity. ●
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