Learning from Food Prices

The high prices of foodstuffs, which are still not falling, despite the government’s efforts, induces us to look into the root of the problem.

The government had ordered that the price of sugar, shallots, cooking oil, chicken and eggs, as well as beef, be lowered from their previous price before the fasting month, rather than that they merely be stabilized.

The prices of foodstuff have not shown any decline despite the various efforts carried out by the government. Frozen beef has been imported through direct appointment of importers other than the State Logistics Agency (Bulog). Market operations continue to be held in various places.

A number of local farmers and beef sellers say that if they are forced to lower their prices as demanded by the government, they will suffer losses because the requested price is less than the cost of production.

From this development, we can learn one thing, namely that understanding cost and price structures of every commodity is important for policy-making.

Prices are determined by the cost of production of the commodity, such as the price of seed, fertilizer and pesticides for crops, as well as the price young cattle and chicken. Prices are also formed by prices exterior to the commodity, such as the cost of storage, depreciation, planting season, rupiah exchange rate and government regulation.

Every commodity has its own special cost structure. Shallots, for instance, have a high weight depreciation of around 30 percent, and cannot last for long without low-temperature storage. When transportation costs are added in, the difference between the price at the consumer level and at the farmer’s level is considerable.

The rupiah exchange rate is greatly influenced by the price of beef and eggs, as 70 percent of the production cost is determined by the price of animal feed, half of which is corn and mostly imported. Meanwhile, day old chicks (DOC) are also all imported.

The same applies to beef. The government wants to be self-sufficient, but local farms are managed by the poor who are unable to fulfill many of their needs. The government has decided that the setting of beef import quota will be determined every three months, forcing Indonesia to buy expensively from Australia. The country has chosen to sell cattle to other countries that have long-term agreements because they offer market certainty.

To make sure that next year we don’t face the same issues when the fasting month and Lebaran come back around, long-term planning is imperative.

We hope that the government will exercise wisdom in talking with stakeholders, from farmers and businesses to sellers, so that they can maintain the availability of foodstuffs at prices acceptable to all levels of society.

source Kompas, Friday, June 17, 2016