Poverty and the price of rice

Down to Earth No. 76-77 May 2008

Concerns about food security worldwide are growing as rice prices have more than doubled in many countries over the last year and global rice stocks are the lowest for decades. Meanwhile the Indonesian government needs to consider how to increase rice production and to protect the food supplies of the poor.

The United Nations Food and Agriculture Organization voiced concern when international rice prices rocketed to a 20-year high in late March with the global benchmark price at over US$500 per tonne. By early April, the export price of Thai rice was over US$1,000 per tonne. Rice is the staple food for over half the world's population, including the majority of Indonesia's 240 million people.

Why are world rice prices so high?

Supplies of rice on the world market have tightened due to a combination of factors. These include poor weather in some rice-producing areas; use of agricultural land for housing, industry and to meet booming demand for agrofuels; changing food preferences in China; and price speculation. Vietnam, traditionally a producer of surplus rice, has imposed a rice export ban. Meanwhile, Bangladesh - usually a big rice importer - had bad harvests and faces food shortages.

Governments worry if rice prices remain high or continue to increase as this carries a risk of serious economic and political problems. Food is the major item in household budgets for families living on the brink of poverty. If the price of staple foods like rice increases, poor people have few choices: reduce food consumption; eat cheaper, less nutritious food; or economise by not sending children to school. Any of these actions has knock-on effects for the next generation. High food prices also increase political instability. Furthermore, rice is an integral part of Asian culture - particularly in the western part of the Indonesian archipelago.

Robert Zeigler, head of the International Rice Research Institution (IRRI) based in the Philippines stated that the key problem was that "There is just not enough land". Although rice is not used to produce ethanol, the use of other grains for agrofuel production can affect the supply of other cereals and cause price increases. "We have some land in Asia that is being redirected toward biofuel¹ - certainly a lot of interest in converting some good land into oil palm plantations for biodiesel. That's a concern [sic]", Zeigler said.

In April, World Bank president, Robert Zoellick called for a 'New Deal for Global Food Policy' to focus not only on hunger, malnutrition and food supply, but also on the interconnections with energy, yields, climate change, investment and the marginalisation of women.

Rice supplies in Indonesia

Earlier this year, Indonesia announced that it would not be buying in rice during 2008 due to bumper harvests. The head of state logistics agency Bulog, Mustofa Abubakar, expected that Indonesia's rice production would increase by 6 per cent from last year to 35 million tonnes in 2008. Director general for food crops, Sutarto Alimuso, set slightly lower estimates at about 33 million tonnes. This was despite serious floods which affected some 70,000ha of paddy fields in late December and early January. Rice consumption in Indonesia was just below 34 million tonnes in 2007, when Indonesia bought in 1.3 million tonnes - mainly from Thailand. President Susilo Bambang Yudhoyono (SBY) called on officials to prevent illegal rice exports to the neighbouring Philippines where rice prices have risen sharply as world supplies tighten.

This is the first time since the mid-1980s that Indonesia can even consider exporting Indonesia any surplus rice. Domestic production has not kept pace with population growth and changing patterns of food consumption. "Shrinking farmland, a lack of good quality seeds and fertiliser coupled with poor irrigation are keeping productivity down", according to agricultural economist Priyarsono of the Bogor Institute of Agriculture. During the Suharto years, official programmes to boost rice production - such as transmigration and the Central Kalimantan megaproject - were costly failures which destroyed large areas of rainforest (see article on Suharto's legacy).

Bulog purchases some 10-15% of Indonesia's rice crop. The rest is sold to local traders. The agency is tasked with importing rice whenever there is a shortage so domestic prices do not soar out of control. Indonesia banned rice imports by private traders since early 2004 to prevent price disruptions from smuggling. Bulog provides emergency supplies during natural disasters and also supplies rice to poor families.

As the price of rice rose to Rp500/kg, the Indonesian government increased the amount of subsidised rice to poor families from10kg to 15kg per month in early 2008. This only costs Rp1,600/kg, but is low quality and the total available under the scheme (beras rakyat miskin) is less than 2 million tonnes. The average annual rice consumption per person is about 130 kg. As there are around 15 million people living below the national poverty line²in urban areas alone, this amount is barely adequate.

Climate change and technofixes

Agriculture in Indonesia is already strongly influenced by periodic variations in rainfall caused by the El Niño-Southern Oscillation (ENSO). It is also likely to be seriously affected by long-term climate change. A study by US-based Stanford University used output from all 20 global climate models provided by the Intergovernmental Panel on Climate Change to look at how climate change could affect rainfall in Indonesia over the next 50 years in the important rice-growing areas of Bali and Java.³

The team found that the probability of delays in monsoon rains of more than 30 days could more than double by 2050, from 9-18 per cent today to 30-40 per cent. They also predicted that Indonesia would experience longer dry seasons with decreased rainfall. "It is incumbent on the research community to develop rice cultivars and associated agricultural practices that will allow farmers to continue to increase rice production to meet projected increases in demand," said Zeigler.

In the past, IRRI has promoted research into genetically modified varieties of rice as the answer to food shortages and rising prices. But GMOs are not a 'silver bullet'. Moreover, there are issues about who controls this research and to what ends. Giant biotech companies could increase dependence on seed varieties and inputs at the expense of the poor. New, higher yielding strains of rice could be produced within the next ten years, but the real problems are not ones which technology can fix (see DTE 43, 49, 50).

The politics of rice

The Indonesian government faces the difficult task of balancing the need to stabilise rice prices with peasant farmers' interests. Much of Indonesia's irrigated rice is produced by farmers in Java who have land holdings of 0.5 ha or less. Small-scale rice farmers are not benefiting from current price increases. They have little bargaining power. Most lack storage facilities, so they have to sell their grain to local traders immediately after harvest. Many sell their crop long before harvest time (under the ijon system) so they have much-needed cash in hand.

If government purchase prices are kept low enough for the poor to be able to afford rice most of the time, farmers cannot make a living and will be forced to give up the little land they have. If prices are high, the government must pay out more in subsidies to the poor or risk food riots. Unless the government (Bulog) maintains adequate rice stocks, the only winners are traders who manipulate market prices by hoarding.

Henry Saragih, head of the Indonesian Farmers' Union, blamed current high food prices on the government's long neglect of the agriculture sector. "Most farmers today are not producers, they are peasants. They have to buy rice, wheat and soybeans themselves. While agricultural products are mainly sold in the cities, when prices increase, these peasants are among the hardest hit," he said.