GLOBAL INFORMATION AND EARLY WARNING SYSTEM ON FOOD AND AGRICULTURE 
 

SPECIAL ALERT NO. 284

COUNTRY: INDONESIA

DATE: 7 July 1998

(Circulated only for countries where foodcrops or supply situation conditions give rise to concern)

 
 

CONCERNS OVER FOOD SUPPLY DIFFICULTIES MOUNT AS THE EFFECT OF DROUGHT AND ECONOMIC PROBLEMS DEEPENS

The food supply situation in Indonesia has deteriorated since the FAO/WFP assessment last March, due to the effect of the prolonged drought and the intensification of the financial and economic crisis. Earlier predictions envisaging the strengthening of exchange rate during the first quarter of 1998/99 and the deceleration of inflation during 1998 as a whole have not materialized so far. Successive depreciation of the rupiah has meant that its value is now about one-sixth of its pre-crisis value of July 1997, close to the lowest level on record. The depreciation, in particular, has led to inflation and put added strain on the country’s commercial import capacity.

The prices of food and other basic necessities have risen sharply, amidst rapidly increasing unemployment, thus seriously eroding the purchasing power of large segments of the population. Since economic and weather related problems began in 1997, it is estimated that the number of people below the poverty line has increased dramatically from their level of 22.5 million in 1996, with an expectation that the situation will worsen further, as fears of further unemployment rise. Official projections indicate that close to one-half of the country’s population may fall below the poverty line by the end of 1998. A cause for serious concern is the large and rapidly growing population groups facing acute food insecurity.

The Government has placed high priority on ensuring that essential food commodities, especially rice, are available at affordable prices and has increased its rice import target from 2.85 million tonnes to 3.1 million tonnes for 1998/99 (April/March). Specific Government measures to ensure food security, especially for the poor, include an increase in food subsidies, a reduction in unemployment through public works projects, including food-for-work in drought stricken areas of the country and raising the minimum wages. Efforts are also underway to revitalize the food distribution system which has been disrupted by the recent social disturbances. Notwithstanding all these positive steps, the food situation over the next year is likely to remain extremely tight and will need intensive monitoring.

Based on extensive surveys of 26 of the country’s 27 provinces, the FAO/WFP Mission in March, provisionally estimated paddy production this year at 47.5 million tonnes, 3.6 percent below reduced production in 1997 and 6 percent below the 1996 harvest. This estimate was based on the expectation that the second rice harvest in August, which accounts for one-third of the total production, would be average. Since April, weather conditions have been generally favourable for the secondary rice crop, but plantings have reportedly been reduced and higher costs of fertilizers, pesticides and other inputs and the distribution problems could affect productivity. Localized locust infestation to crops has also been reported from some areas. As a result, the output of the secondary crop is expected to be reduced. The current official forecast puts total paddy production in 1998 at 46.29 million tonnes, some 6 million tonnes below the original 1998 production target. A re-assessment of the situation in early August will be important for eventual adjustment to the current 1998 crop forecast and the food import and assistance requirements.

 The food situation in the country remains tight. The March FAO/WFP Mission estimated the rice import requirement for 1998/99 (April/March) at 3.5 million tonnes. However, the Mission stressed that this estimate must be treated with caution as it was based on the assumption of a normal secondary rice harvest which is unlikely to be the case now. Although the exact magnitude of the rice deficit can be estimated only after a review of the outcome of the secondary rice harvest in early August, current indications are that total rice production could be lower than the earlier forecast. If this were to occur, the rice deficit for the marketing year 1998/99 would be higher than the earlier estimate of 3.5 million tonnes.

Reflecting reduced output and unremunerative floor prices (even though these have recently been raised by 66 percent to Rp. 1,000/kg), the domestic procurement of rice by BULOG is expected to be seriously reduced with only 250 000 tonnes expected to be procured in 1998, the lowest volume for the last 20 years. An expectation of higher prices and the uncertain outcome of the secondary crop have reportedly led to hoarding of rice by farmers and traders.

International response to the unprecedented food emergency in Indonesia has been generous and about 1.0 million tonnes of rice have been pledged so far, mainly in the form of loans but also as grants. In addition, BULOG has imported some 1.5 million tonnes of rice in the first quarter (until 24 June) of the marketing year 1998/99. However, given preliminary indications of a possible higher rice import deficit and the financial limitations of the country, substantial further international assistance will be required. In addition, there is also an urgent need for rehabilitation of the agriculture sector in the drought-affected areas. In this regard, FAO has recently appealed for US$ 18.6 million for the rehabilitation of drought-stricken areas. Such assistance will lead to a recovery in food production and an improvement of the food supply situation in the affected areas. It must, however, be stressed that notwithstanding the potential positive impact of the above-stated measures, prospects for future food security in the country will depend heavily on the health of the economy which would require large external financing.

 
 

This report is prepared on the responsibility of the FAO Secretariat with information from official and unofficial sources. Since conditions may change rapidly, please contact Mr. Abdur Rashid, Chief, ESCG, FAO, 
(Telex 610181 FAO I; Fax: 0039-6-5705-4495, 
E-Mail (INTERNET): GIEWS1@FAO.ORG) for further information if required.
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