8 April 1999

Mission Highlights

  • Economic problems continue to severely affect the livelihoods of the poorest.

  • Food supplies and movement also threatened by poor security and civil unrest.

  • Of particular concern are families of the jobless in cities and landless migrants in rural areas.

  • Urgent food intervention needed to ensure basic nutritional needs of young children and expectant mothers.

  • Early indications of favourable rice output in 1999, with good rainfall forecast, favourable prices and increased supplies of farm credit and inputs.

  • Following record rice imports last year, an appreciably lower volume expected in 1999.


The effect of the economic turmoil in Indonesia has eroded the livelihood of large sections of the population, greatly increasing their vulnerability to food insecurity. Food prices have risen sharply, whilst purchasing power has fallen dramatically due to rising unemployment and falling real wages. Moreover, amongst the poorest sectors of the population there are now growing concerns that savings and assets are being depleted rapidly, significantly compromising their ability to cope in future.

In view of these food problems and uncertainties, an FAO/WFP Crop and Food Supply Assessment Mission visited Indonesia from 15-24 March to assess current food production prospects and evaluate the overall food supply situation. The mission was relatively brief and based its assessment on discussions with key Government, bilateral and international food and development agencies in the country and on field visits to main rice producing areas in Java.

The mission found that, in addition to generalised economic problems, the food supply situation continues to be affected by poor security and an escalation in civil unrest in parts of the country. Consequently, there are indications that markets are failing, as traders are reluctant to hold stocks or transport large consignments due to security concerns. Such failures, together with the diminished role of the National Logistics Planning Agency, BULOG, have led to considerable variation in supplies and price across the country, further restricting the access of the poorest to markets. In general, while there are expectations of some recovery in agriculture and the economy this year, the longer-term prospects for employment and growth remain uncertain.

The prospects for rice production in 1999 appear promising. Aided by favourable rainfall and attractive producer prices, the main harvest is likely to be good. In addition, due to the continuation of La Niña, above normal rainfall is expected during the dry season, for which planting begins in May. It is also envisaged that Government efforts in supplying subsidised credit and ensuring greater availability of inputs, through support to the private sector, will stimulate food production in 1999.

Based on official estimates from the Central Bureau of Statistics (CBS), 1999 paddy production is projected at 48.6 million tonnes, similar to the Bureau’s final estimate of 48.5 million tonnes for 1998. Based on the level of this forecast, the rice import requirement for the 1999/2000 marketing year (April-March), is estimated at around 3.1 million tonnes, of which approximately 1.3 million is covered by pipeline commercial and soft loan imports and food aid. This leaves a deficit of about 1.8 million tonnes of rice to be covered by commercial/concessional imports, loans, grants and targeted food aid. In addition to rice, some 3.3 million tonnes of wheat will be required in the current marketing year. The level of wheat utilisation is estimated to be lower than in recent years due to the financial crisis, which has reduced incomes and consequently demand for expensive wheat based foods, especially in the fast-food sector. There are large wheat stocks in the country, amounting to 500 000 tonnes, due to this reduced demand. Taking these stocks into account and including bilateral wheat assistance in the pipeline, the uncovered import requirement for wheat in 1999/2000 is estimated at 2.2 million tonnes.

Although the economic crisis mainly affected food security in urban areas, through job losses and the consequent decline in household incomes and access to food, the problem is spreading to rural areas, with increasing migration. In some rural areas, the population has risen substantially, putting severe pressure on services, increasing competition for jobs and depressing wages. Moreover, as most migrants are landless and have few savings or assets, their susceptibility to food shortages is becoming more pronounced. Notwithstanding the rise in rural poverty, the nutritional situation of the unemployed urban poor still gives most cause for concern. In these areas, despite prospects of modest recovery this year, large segments of the population remain severely exposed to food insecurity, as their ability to cope has been heavily eroded. Studies indicate growing nutritional deficiencies, particularly amongst at-risk groups such as children and expectant and lactating mothers.

The solution to long term food insecurity in Indonesia lies in economic recovery. Although national and international measures are being taken to stimulate such recovery, the benefits are unlikely to be felt in the short term. In the interim, therefore, the Government faces a tremendous challenge in ensuring greater food security to its population, especially for growing numbers of vulnerable poor people. The primary target for food assistance to the country should be children under five and expectant and lactating mothers in urban areas. In view of food aid availability and cost considerations, it is recommended that international assistance be provided in support of local manufacture of wheat based products such as noodles and blended foods. Proposals should also be considered to provide additional support to the Government’s on-going OPK Program, which aims to provide subsidised rice to approximately 19 million families in 1999/2000



The economic crisis in Indonesia in the last year and half has greatly increased the vulnerability of large sections of the population to food insecurity. The crisis began in mid 1997, with the collapse of the rupiah against the US dollar and with deepening liquidity problems in the economy as confidence in the financial sector declined.

Consequently, from a position of favourable economic growth in 1996 when the GDP grew at 8 percent, the economy contracted by 15 percent in 1998. Although economic prospects in 1999 are more encouraging, with some recovery in the rupiah against the dollar (chart 1), lower rates of inflation and some improvement in growth forecast, the effects of the economic crisis on food security in the country still remain deeply entrenched.

Although the impact of the country’s economic crisis has been more severe in urban than in rural areas, a significant proportion of the rural population has also been severely affected, especially those that are net purchasers of food. The escalation in food prices, therefore, has been of particular concern. Prices rose rapidly last year (chart 2), whilst nominal wages have not kept pace with consumer prices, resulting in a decrease in real wages. In the agriculture sector, it is estimated that whereas nominal wages grew by between 20 and 40 percent between December 1997 and August 1998, the national consumer price index increased by 81 percent in the same period.

Exchange Rate Trends (US$ to Rupiah)

Food Price Index (March 1997 to February 1999)

The population at large has been deeply affected by the economic crisis, though the consequences on poorer sectors has been most dramatic, as demand for labour has fallen, transfers from wealthier groups declined and purchasing power eroded. Although various agencies are now engaged in estimating more precisely the extent of poverty in the country, to date the number of people involved is not known with any degree of certainty. It appears, however, that earlier estimates of between 80-100 million people may be high.


The pattern of monsoon rainfall is an important determinant of agricultural production during the main wet season, which extends from October to March, and the two dry seasons from May to August and from September to October. Approximately 60 percent of the annual rice crop is produced during the wet season and 40 percent in the second and third seasons together. In general weather patterns during the 1990’s have been unfavourable for crop production. A serious drought in 1994 significantly reduced rice production, whilst El Niño related weather disruptions since late 1997 have also had a bearing on food output, principally in reducing 1997/98 wet season rice production through widespread drought.

3.1 Rainfall

Rainfall during the early stages of the wet season crop cycle was higher than in recent years and generally favourable for crop development. Other things being equal, therefore, increased water availability is likely to signal a recovery in the first 1999-rice crop, compared to last year’s drought reduced harvest. See chart 3 below for rainfall patterns in the main rice producing regions of Indonesia.

In addition to improved rainfall over the last season, the department of meteorology projects an optimistic rainfall scenario for the first half of 1999, which will benefit planting and development of the dry season crop commencing in May.

3.2 Inputs

Higher paddy prices and an anticipated increase in the availability and use of fertilisers is also likely to improve rice productivity this year. Higher paddy prices also helped cushion the effect on farmers of the removal of fertilizer subsidies in December 1998. Before then, fertilizer prices were heavily subsidised, which led to some subsidised fertilizer being diverted to non-food crops and to some being exported. This in turn has led to domestic shortages of fertilizer. To ensure adequate supplies, therefore, the Government has undertaken a number of measures, including opening trade to the private sector, providing guarantees to private letters of credit for fertilizer imports and directing the state fertilizer company, PT Pusri, to purchase imported fertilisers directly at the port for direct marketing.

Other measures taken by the Government to stimulate production and reduce the impact on farmers of the abolition of fertilizer subsidies include an expansion in the provision of subsidized credit. Credit is now being provided to farmers at an annual rate of interest of 10.5 percent, reduced from 14 percent, whilst the ceiling on loans per hectare has been raised to 2 million rupiah. The annual aggregate value of subsidized loans has also been increased to a maximum of 6.9 trillion rupiah.

Based on current CBS area and yield projections, paddy production in 1999 is forecast at 48.66 million tonnes, which would represent a marginal increase over the Bureau’s final estimate for 1998, but would be over three million tonnes short of the Government target of 52 million tonnes.

In contrast, due to the significant reduction in demand for feed from the poultry sector, the area and production of maize is projected to decrease appreciably by 16.6 percent and 13.9 percent respectively compared to 1998. The area under cultivation and production of sweet potatoes and groundnuts as forecast by the Central Bureau of Statistics (CBS) is also expected to decline by between 3 and 5 percent. See tables 1-3 and chart 4 below.

3.3 Forecast production 1998/99

At this early stage in the year any forecast of food production is tentative as only the first (wet) season crop of rice is being harvested. The harvest prospects for the remainder of the season will crucially depend on weather conditions and input availabilities.

Tables 2 and 3 show the Central Bureau of Statistics forecast food production in 1999 compared to previous years. Total paddy production is forecast at 48.66 million tonnes, close to the revised estimate of 48.47 million tonnes in 1998.

Chart 3: Monthly Rainfall

Monthly rainfall in Java

Monthly rainfall in Sumatra

Monthly rainfall in south Sulawesi

Table 1: Indonesia: Food Crop Area by Region, CBS First Forecast for 1999.

Region Rice (CBS) Maize Soybean Cassava S. Potatoes Groundnut Total (CBS)
(000 ha) (percent) (000 ha) (percent) (000 ha) (percent) (000 ha) (percent) (000 ha) (percent) (000 ha) (percent) (000 ha) (percent)
Sumatra 3 002 26.1 644 19.1 195 16.6 268 22.2 46 23.6 80 13.1 4 236 23.7
Java 5 643 49.1 1 796 53.2 669 56.9 685 56.6 71 36.6 392 64.2 9 258 51.8
Bali, NT 626 5.4 342 10.1 145 12.3 125 10.4 25 12.8 54 8.8 1 319 7.4
Kalimantan 1 003 8.7 50 1.5 86 7.3 40 3.3 8 4.4 24 3.9 1 134 6.3
Sulawesi 1 178 10.3 443 13.1 55 4.7 73 6.0 16 8.5 51 8.3 1 818 10.2
Maluku/Irian 37 0.3 99 3.0 25 2.1 18 1.5 27 14.1 10 1.6 106 0.6
Total 1999 11 491 100.0 3 374 100.0 1 175 100.0 1 210 100.0 195 100.0 611 100.0 17 870 100.0
Total 1998 11 613
3 833
1 090
1 205
201   650   18 593  
Change 99 Over 98 (%) -1.1   -12.0
+7.8   0.4   -2.9   -6.3   -4.0  


Table 2: Indonesia: Forecast of 1999 Food Production Compared to Previous years (000 tonnes)

Crops 1999 Forecast 1998 (Prelim.) 1997 1996 Percent 99/98 Percent 99/97 Percent 99/96
Paddy 48 663 48 472 49 377 51 101 0.39 -1.45 -4.77
Maize 8 682 10 058 8 770 9 307 -13.68 -1.01 -6.71
Soybean 1 296 1 306 1 356 1 517 -0.75 -4.45 -14.55
Cassava 14 740 14 728 15 134 17 002 0.08 -2.60 -13.31
Sweet Potatoes 1 867 1 927 1 847 2 017 -3.14 1.06 -7.45
Groundnut 658 691 688 737 -4.76 -4.34 -10.72


Table 3. Indonesia: 1999 Forecast of Food Crop Production by Region and Province (000 tonnes)

Province T. Paddy Maize Soybean Cassava S. Potato Groundnut
SUMATRA 11 255 1 647 219 3 028 407 84
Banda Aceh 1 343 48 87 81 34 12
North Sumatra 3 174 400 34 448 120 26
West Sumatra 1 802 50 9 94 36 9
Riau 391 36 8 65 13 4
Jambi 530 15 13 70 19 2
South Sumatra 1 690 94 17 478 42 12
Bengkulu 378 55 7 103 94 8
Lampung 1 944 948 44 1 690 49 9
JAVA 27 591 5 113 839 9 082 794 425
DKI Jakarta 12 -
West Java 10 090 336 73 1 666 386 98
Central Java 8 141 1 450 184 3 183 192 134
DI Yogyakarta 628 177 72 633 10 42
East Java 8 719 3 149 511 3 600 205 152
BALI, E. TIMOR & N TENGGARA 2 618 699 157 1 157 215 56
Bali 834 104 28 218 86 17
West Nusa Tenggara 1 340 69 124 112 25 23
East Nusa Tenggara 410 429 3 786 88 13
East Timor 34 98 1 41 16 4
KALIMANTAN 2 445 75 10 473 70 26
West Kalimantan 803 31 1 183 18 2
Middle Kalimantan 319 9 2 67 10 1
South Kalimantan 1 030 26 3 139 19 20
East Kalimantan 293 10 3 84 22 3
SULAWESI 4 661 1 134 69 798 134 55
North Sulawesi 351 141 54 53 31 7
Middle Sulawesi 504 36 4 57 15 4
South Sulawesi 3 535 862 4 499 73 39
South East Sulawesi 271 95 7 189 14 4
MALUKU & IRIAN 93 14 3 202 248 12
Maluku 32 11 1 165 42 9
Irian Jaya 61 3 2 37 206 3
TOTAL 48 663 8 682 1 296 14 740 1 867 658


Foodcrops production 1990-1999


4.1 Rice Prices and Access to Food

Poverty alleviation and food security in Indonesia depends heavily on economic recovery. Although, national and international measures are being taken to stimulate such recovery, the benefits are unlikely to be felt in the short term. There is, therefore, an immediate need to assist sectors of the population who are at most risk of developing long term and irreversible nutritional problems.

Food insecurity in Indonesia is primarily a problem of reduced incomes and erosion of purchasing power than aggregate production and supply. In other words food is available (notwithstanding the imort requirements estimated by the Mission), but at a cost that increasing numbers of poor people find difficult to afford.

Improved prospects for rice production this year, due to a combination of favourable weather and increased government efforts to support agriculture are expected to stimulate some recovery in the rural economy and increase access of households to food. Notwithstanding such improvement, the food situation amongst particular vulnerable groups in rural areas, such as fishermen who have seen their source of livelihood decline, remains a matter of concern. Such groups, therefore, will need some form of external assistance.

Moreover, although the economic crisis in Indonesia mainly affected urban areas, through job losses and the consequent decline in household incomes and access to food, the problem appears to be spreading to rural areas. There is now evidence, for example, of increasing migration from urban to rural areas, which has led to an increase in population of 30 percent in some rural communities. In addition, most migrants are landless and in a dire economic situation having exhausted savings and assets. The impact of such migration is still being assessed, though there are signs that it has put increased pressure on rural services and increased competition for work. This in turn has further depressed wages, which are estimated to have declined significantly compared to pre-crisis levels. Rural women appear to be particularly affected. Whilst lower wage bills may benefit producers and production, the economic fortunes of landless households, estimated at over 50 percent of the rural population, are expected to see a sharp decline. The food situation in rural areas, therefore, needs careful monitoring. In this regard, however, the initiative of the Government to extend the duration of the OPK programme throughout the country with improved targeting will be most useful.

In addition to generalised economic problems the food supply situation continues to be affected by poor security and the escalation in civil unrest in parts of the country. As a result of these, there are indications that traders are reluctant to hold stocks or transport large consignments over long distances. This, and the diminished role of BULOG, as indicated earlier, has led to considerable price variation across the country as markets become increasingly localized.

Approximately 70 percent of rice produced in Indonesia is traded. Functioning markets are therefore essential for food security in both rural and urban areas. Market prices rose rapidly from mid 1998 and remain high and above world market prices despite record rice imports in 1998/99 (see chart 5) and good prospects for the first season crop this year. In addition there is a high price variation among the various regions, which is principally attributed to political uncertainty, market failures as traders are reluctant to buy, stock and transport rice and the declining role of BULOG. See chart 6.

Rice imports (1970-97), 1998/99 and 1999/2000

Rice price Index

Being the national staple of Indonesia, the production and supply of rice plays a central role in food policy. Historically the National Logistics Agency (BULOG) had overall responsibility for regulating food markets and for being the sole importer of certain commodities such as rice. Recent reforms and liberalisation of trade and imports, however, have meant that BULOG now exercises less control over imports and is now only responsible for rice, with trade in sugar, wheat and maize being privatised. Although international rice trade has also been opened to the private sector, it is unlikely that the private sector will play a significant role in marketing to vulnerable groups. They have little incentive to transport rice to remote and distant areas, where purchasing power is low and infrastructure poor.

In the past, observers have credited BULOG with achieving two main objectives, namely in keeping rice prices relatively stable compared to international prices and ensuring adequate supplies to consumers throughout the country irrespective of distance and location. The agency was able to achieve this through its extensive network of go-downs and stores located even in the remotest of islands. The second of these has been of considerable importance in food security especially in areas that would otherwise have been neglected due to inadequate infrastructure and poorly developed markets. Partly due to the reduced role of BULOG and partly to growing insecurity, there are signs that the rice market is becoming increasingly localised, leading to much greater variation in rice prices throughout the country over the past year.

4.2 Food Supply/Demand Balance

The cereal supply/demand balance sheet for 1999/2000 is summarised in table 4. Although the balance sheet provides an indicative national picture, based on available information, it is important to note that issues related to purchasing power, food access and regional differences in consumption and consequent levels of food insecurity and vulnerability cannot be reflected in such a derivation. Such issues are, therefore, discussed in more depth in subsequent sections on nutrition and the need for food assistance. The balance sheet is based on the following assumptions

A mid-year population of 206.55 million people in 1999/2000, based on estimated population last year and an official growth rate of 1.6 percent per annum.

Opening rice stocks of 4.3 million tonnes of which 1.2 million tonnes are estimated to be held by BULOG and the remainder with the private sector and households.

Per caput consumption of rice assumed at last year’s reduced level of 141.6 kg/annum, compared to a status quo level of 149 kg for Indonesia. Maize per caput consumption is estimated at the status quo level of 26 kg. Wheat consumption is projected to decline by 30 percent (to 14 kg/caput) due to removal of subsidies and lower purchasing power of the population.

Feed use for maize is estimated to have declined by 30 percent due to the depressed poultry sector.

In rice, other uses and losses are assumed at 15 percent of production.

Closing rice stocks are assumed at the same level as opening stocks, which assumes no stock draw down.

Table 4: Indonesia: Cereal Supply/Demand Balance April 1999-March 2000 (000 tonnes)

Milled Rice Maize Wheat
Domestic Availability 35 055 8 882 500
Opening Stocks 4 300 200 500
Production1 30 755 8 682 0
Utilization 38 156 8 882 3 306
Consumption 29 247 5 370 2 891
Other uses/losses 4 609 2 800 115
Closing Stocks 4 300 300 300
Exportable Surplus   412  
Import requirement 3 101
2 806
Pipeline imports (inc. soft loans)2 1 190    
Pipeline aid 138
Uncovered import requirement 1 773
2 226

1 Rice milling rate of 63.2 percent
2 Rice commercial imports = 990 000 tonnes and soft loans 200 000 tonnes form the Government of Japan.

4.3 Nutritional Situation

Despite the modest recovery in the economy and agriculture expected this year, large segments of the urban population will remain severely exposed to food insecurity. The consequence of the economic crisis on food supplies of vulnerable people in urban areas has been most manifest. Amongst these groups, recent studies indicate growing nutritional deficiencies, particularly in at-risk groups like small children and expectant and lactating mothers. Although part of the nutritional problem is due to reduced intake of calories, it is the reduced quality of diet that has had the most adverse effect. This has meant that whilst poor households still consume normal quantities of rice, they have reduced consumption of more expensive but nutritionally valuable foods like meat, fish and eggs. Studies by Helen Keller International suggest alarming food related problems emerging in urban areas, where the incidence of micro-nutrient deficiencies particularly amongst mothers and young children (under five year olds) has risen sharply and the prevalence of wasting has increased. The studies have also shown higher levels of maternal malnutrition, maternal night blindness and anaemia. These are serious trends and solid indicators of declining access to adequate food. In addition to reduced intake for a healthy diet, the capacity of people in urban areas to cope with food shortages is highly constrained, as many have already exhausted savings. Recent studies indicate that the proportion of households without savings has increased from 10 to 18 percent in all socio-economic groups throughout the country. These studies conclude that the crisis is far from over, particularly for the urban poor, many of whom appear to be significantly under-served by the various support mechanisms and food assistance programmes.

4.4 International Food Assistance

In view of the increased vulnerability of sectors of the population to food shortages, international food assistance, possibly through local purchase, will be essential to meet the needs of these groups. Specifically the aim of food assistance should be to:

Food aid needs are, therefore, not to cover a supply deficit, but to adequately address the problems above. The estimates of food aid for delivery in 1999 are as follows;

Table 5: Preliminary Estimates of Food aid Pledges and Delivery for 1999 (tonnes)

Source Rice Wheat Blended Food Dried Skim Milk Vegetable Oil
Project Food

WFP 160 000 1500001/ 17 000    
CRS 25 233
World Vision 11 033

USA bilateral-IRD
50 000      
USA bilateral-NGO
180 000   5 000  
Sub total 196 266 380 000 17 277 5 000 143
Programme Food          
USA   200 000      
Soft loan          
Japan through BULOG 400 000        
Total 596 266 580 000 17 277 5 000 143

1/ This wheat will be used to manufacture wheat-based blended food and/or reinforced noodles in the country.

4.5 Target Groups for Food Assistance and Food Aid Interventions

The primary target groups for food assistance should be children under 5 and expectant and lactating women in urban areas most affected by the economic crisis. For these groups, a nutritionally enriched food component will be required to compensate for the deficiency in vitamins and minerals due to reduced intake of high value foods. Due to technical and cost considerations, the most appropriate way would be through wheat based products of the following items produced locally with support of international organizations:

Distribution would be through Posyandu (women self help groups) network and by using local as well as international NGOs. It is estimated that about 1 - 1.5 million children between 6 months to 5 years as well as 400 000 to 700 000 mothers could be covered by this programme, taking into consideration existing management and targeting constraints. The main intervention areas will be Java and Sumatra with priority given to the cities of Jakarta, Surabaya, Bandung, Medan, Yokjakarta, Jabotabek and Semarang. Some poor rural areas, especially in the eastern islands, will also have to be included into this programme. WFP intends to reach 350 000 rural children and mothers through a continuation of its existing programme, which is distributing Wheat Soya Blend (WSB). UNICEF is also increasing its capacity for the distribution of its VITADELE blend based on rice flour, soya and sugar.

International food assistance as income support to poor urban households should also be provided though the following interventions:

The government OPK programme was introduced in July 1998 with an objective of covering 17 million families for a period of 9 months. Each family was entitled to receive 10 kg of rice/month at a subsidised price of 1000 Rp/kg. From December 1998 onwards the entitlement was increased to 20 kg/family. The Government plans to continue the programme in 1999/2000, covering about 19 million families.

Despite some difficulties, according to a recent survey, the programme appears to have been efficiently implemented using BULOG’s extensive marketing network. However, the programme has had little impact on the urban poor due to:

Up to December 1998, the programme distributed 705 000 tonnes of rice to an average of 7.3 million households. However, only 5.1 percent of these households were located in urban areas and received only 4.4 percent of the tonnage distributed.

To redress this problem, therefore, a recommendation was made that coverage in urban areas should be increased and targeting in the rural areas adjusted. This should be possible using only those indicators of the Family Planning statistics (BKKBN) that are relevant for food security (households consuming less than two meals/day, eating protein rich food less than once a week, where the head of the household was victim of mass layoffs, where at least one child has dropped out of school as a consequence of economic hardship, where there is no possibility to have medical treatment in case of illness).

NGOs and community leaders should be involved in the selection of beneficiaries and monitoring, particularly in urban areas. Further refinements in the targeting would be possible through monitoring of the areas where there is a high increase in the inability to pay for water, electricity or telephone expenses. It is estimated that the OPK programme, through distribution of 20 kg of rice/month should cover about 2 million urban households. WFP is presently negotiating ways to cover 10 percent of these needs for particularly disadvantaged groups, i.e. those living in areas where the Government has difficulties to act as they have a high concentration of unregistered residents.

As education is given priority by Indonesians, the rate of school drop-outs was not particularly alarming during the first year of the economic crisis. However, with increasing hardship, many poor parents are now unable to sustain children at schools and the rate of drop-out has increased whilst that of new enrolment has fallen. Some reports indicate that as many as 6 million children have dropped out of school. To address this problem, WFP is discussing with the Government the possibility of initiating a programme of take-home rations of 5 kg of enriched dry noodles per student for each month of full school attendance. It is estimated that about 530 000 students in particularly poor urban areas will benefit. The noodles, apart from providing income support to the family, will also enrich the diet for other children living in the household.

Urban Food for Work activities, although usually more complex and costly than Cash-for-Work programmes, have the great advantage of being targeted to the most needy. It is planned therefore to distribute, a part of the food for the urban poverty alleviation programme, in Food for Work activities, through local and international NGOs. Quantities will depend on the capacities of individual NGOs.

4.6 Rural Food for Work

Areas that are agriculturally poor and/or regions faced with a high influx of returnees continue to be vulnerable to food shortages. WFP therefore plans to continue its ongoing Food For Work programme for soil conservation and infrastructure development, through the Ministry of Agriculture. The programme will be for an additional 48 000 tonnes of rice from July 1999 until March 2000.

4.7 Food Security Interventions for Market Stabilisation

A significant proportion of domestic rice is traded. Functioning markets, therefore, are essential for food security not only for the urban population, but also for about 80 percent of all Indonesians. Market prices remain high and considerably above world market levels, despite a good harvest in prospect and large imports last year. Price variation between regions is also high and even close to mills, the mark-up charged by the trading system can reach 70 - 80 US$/ton.

The main reasons for high trade margins are:

There was some evidence of marketing problems. For instance, when the mission revisited Semarang wholesale market (with most of the main season rice crop already harvested), the reported market turnover was about one third that of October 1998 (when same market was visited). Whilst in October most of the rice in the market was imported, this time local rice was prevalent. Traders confirmed their reluctance to purchase rice due to two reasons, namely problems of insecurity and the possibility of markets being flooded by cheaper imported rice in future.

In general farmers considered current paddy prices to be good. However, BULOG’s floor price of 1400 Rp/kg for medium quality paddy cannot always be maintained, especially where cash strapped farmers need to use middlemen (collectors) to sell quickly and pay labour for harvesting and threshing. Richer farmers store paddy and sell to the mills when prices are promising. BULOG itself does not purchase paddy but buys rice mainly from co-operative mills.

Security concerns of traders, the perceived concern with cheaper imports, oligopolistic trade structures and the keeping of larger than usual farm stocks can lead to an artificial shortage of rice on the market and thus lead to high market prices in some regions.

As a precautionary measure, it would therefore be advisable to equip BULOG with sufficient capital and clear policy guidelines for interventions to act as a stabilising factor in the rice trade. Traders too have to be assured of government policies and should be fully integrated into the market stabilisation efforts. Furthermore, depending on the evolution of the rice market, donors should consider purchasing rice locally.

4.8 Issues related to Wheat as Food Assistance

The wheat flour and noodle market in Indonesia is limited to only a few traders, with one especially having a very large share. With excess processing capacity relative to sharply reduced demand and with imports now liberalised, a considerable drop in the price of wheat flour and wheat products would have been expected. However, local market prices still remain considerably above world market prices. This may partly be due to BULOG’s reluctance to sell the considerable stocks that it imported when international prices were high and it had the import monopoly, at below cost.

Unless millers and noodle manufacturers are able to submit competitive price proposals for their processing, the local manufacture and distribution of wheat based supplementary food for women and children will be difficult and unnecessarily costly.


This report is prepared on the responsibility of the FAO and WFP Secretariats with information from official and unofficial sources. Since conditions may change rapidly, please contact the undersigned for further information if required.

Abdur Rashid
Telex 610181 FAO I
Fax: 0039-06-5705-4495
E-mail: [email protected]

Ms. J. Cheng-Hopkins
Regional Director, OAC, WFP
Telex: 626675 WFP 1
Fax: 0039-06-6513-2863
E-Mail: [email protected]

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