Global Crop Price Rises Prompt Food Security Fears in Indonesia

By webadmin on 10:15 am Jul 17, 2012
Category Archive

Tito Summa Siahaan & Muhamad Al Azhari

Recent warm weather in the United States has sent prices for wheat and soybeans soaring, and that might cause a ripple effect on global food markets and threaten Indonesia’s food security.

Earlier-than-normal warm weather across many parts of the United Sates, particularly in such Midwestern states as Illinois and Indiana, has caused crops such as wheat, soybeans and corn to whither, sending prices for the commodities soaring.

US wheat for September delivery has climbed 35 percent to $8.73 a bushel in the past month, while soybean soared 17 percent to $16.07 a bushel, according to Bloomberg data.

The United States is a main supplier of wheat and soybeans, which Indonesian food companies use to make food items such as bread and tempe. From January to May, Indonesia imported 1.21 million tons of soybeans, making the Southeast Asian nation the United States’ fourth-biggest export market, and taking in 465,519 tons of wheat, according to US Department of Agriculture data.

Bustanul Arifin, a professor of agricultural economics at the University of Lampung (Unila), said the impact of the drought in the United States will be felt in Indonesia within weeks, potentially sending local prices of food dependent on wheat and soybeans higher.

“The transmission time depends on how strong Indonesia’s domestic supply is, and in the case of soybeans, I think the price will go up a week after the word goes out, simply because 89 percent of Indonesia’s demand is fulfilled by US farmers,” he said.

Bustanul, who is also a senior economist at the Institute for Development of Economics and Finance (Indef), said that the Ramadan Muslim fasting month, lasting from late July to late August, will aggravate the situation as expectations of higher prices will accelerate inflation.

Typically after breaking the fast, Indonesians engage in large feasts, causing food prices to rise, which in turn drives up economy-wide inflation.

Purbaya Yudhi Sadewa, the chief economist at Danareksa Research Institute, said bread and tofu products were price sensitive, and manufacturers were unlikely to raise prices because of concerns buyers would reduce their consumption.

“Tofu or tempe producers, which use soybeans as their raw material, are willing to chop their margins,” he said.

“For wheat, as you know, it is not being treated as a staple. Bread makers would not even dare to raise the price because of the increase in the wheat price. People will not buy it.”

Still, “the impact to inflation would not be that much. Soybeans and wheat are not like chili, or even rice,” he said.

Purbaya said the share of soybeans and wheat in the basket of goods used to calculate the consumer price index was smaller than that of chili and rice. In 2010, unusually high rainfall caused chili prices to triple, sending the inflation rate higher.

Indonesia has had difficulty maintaining stocks of rice, potentially threatening the nation’s food security.

Titi Sekar Endah, a medical nutritionist from Persahabatan Hospital in North Jakarta, said that wheat could easily be replaced with cassava, taro, rice or corn.

She said that the steep increase in wheat and soybean prices would not have a significant impact on Indonesians’ nutrition.

“Only middle and upper class people consume wheat, because it’s obviously more expensive than the other carbohydrate sources,” Titi said.

If the soybean price increases sharply, Indonesia should not worry because the country has an abundance of substitutes, she said.

“I know that the soybean price is subsidized by the government, but if the price skyrocketed and the government could no longer afford it, we could easily replace it with many substitutes,” Titi said.

She said eggs have higher protein than soybeans and were relatively cheap. “We can always eat fish, chicken, or drink milk, getting protein from animals that is actually more complete than plants.”

Should prices of wheat and soybean-based food products increase, Indonesians might turn to rice, which the nation has had to import in recent years in order to meet domestic demand.

State logistic company Bulog, which manages the country’s rice stockpile of 2.4 million tons, would tap into the reserves to stabilize the price.

“We have prepared 450,000 tons for market operations this month. We have already seen an increase in the rice price, but it’s a seasonal trend because rice consumption usually increases ahead of the fasting month,” Bulog spokesman Nugroho said on Monday.

Additional reporting by Aloysius Unditu, Faisal Maliki Baskoro, Dessy Sagita and Francezka Nangoy