Protecting Food Price

In anticipation of a food price hike leading up to the fasting month, the government has planned to add to stocks of people's basic needs through imports.

The government moves annually toaugment stocks ahead of the fasting month and Idul Fitri. What is different this time is that President Joko "Jokowi" Widodo wants the prices of a number of foodstuffs to not only be stabilized, but also lowered. The price of beef is now down to Rp 80,000 per kilogram from a previous reported price of Rp 120,000 at the consumer level and the price of red onions has decreased to Rp 25,000 from around Rp 40,000.

Control of the price of foodstuffs is important because of the decline in people's purchasing power due to the slow economic growth, which has not reached the government's target. Food is still the main expenditure for most people and so controlling its price would also mean controlling inflation. However, price control alone is not enough. The government must also ensure that the people are able to access the foodstuffs.

Basically, the setting of prices is carried out through a balance between production, demand, supply and food reserves, as well as psychological factors. In a normal situation, the price determined usually reflects the real supply and demand.

However, the situation can experience problems because of psychological factors. It can appear in the form of a huge price difference between those at the producer and consumer levels. We often accuse price setting of being brought about by the actions of speculators and cartels.

Even if there were speculators playing with the prices, this could happen because they know well the amount of government food reserves as a prize stabilizer. We can take lessons from last year's rice price phenomenon. The long dry season because of El Niño caused many people to predict that rice production levels would decrease and so the government quickly imported rice. The market responded to the government's statement claiming that rice production was sufficient and that there was no need to import rice with prices that crept up and remained high.

In Indonesia's modern history, food has become the decider of political stability. Therefore, the prices set between farmers, sellers and urban consumers, especially the working class, become important.

Also, because food is a strategic commodity, the government needs to fulfill its promise to farmers of not importing a number of commodities, including rice and onions. Likewise, the government should not allow cattle breeders to feel as though they have lost the opportunity to get a good price that only comes once a year.

Therefore, the right policy will be important in order to find a balance to ensure that the needs of all parties are met. 

source: Kompas, Saturday, May 28, 2016