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Revisiting the impact of economic crisison Indonesian agro-food production

Mary M. Young

This article discusses the impact of the ongoing global economic crisis on the Indonesian agro-

food sector. It compares the current situation with the crisis of 1997–98 and examines whether

the liberalisation of the Indonesian economy (and the agro-food sector specifically) in the post-

1999 period has increased the exposure of Indonesian food producers and consumers to the

volatility associated with global financial and commodity markets. During the 1997–98

crisis, the Indonesian state (with the support of the international development community) insti-

tuted structural reforms and increased stabilisation measures to mitigate the effects of the

crisis. The author considers whether those measures are still in place to offset the shocks of

the current crisis, and what effect they have had on Indonesian food producers and consumers.

The question of consumer demand in a recessionary time has particular relevance for those

Indonesian agro-food producers who diversified into high-value-added commodities (such as

organics) in the past decade.

Reexamen de l’impact de la crise economique sur la production agro-alimentaireindonesienneCet article traite de l’impact de la crise economique mondiale actuelle sur le secteur agro-

alimentaire indonesien. Il compare la situation actuelle a la crise de 1997-1998 et examine

la question de savoir si la liberalisation de l’economie indonesienne (et du secteur agro-

alimentaire en particulier) durant la periode post-1999 a accru l’exposition des producteurs

et des consommateurs indonesiens de produits alimentaires a la volatilite associee aux

marches mondiaux financiers et des marchandises. Durant la crise de 1997-1998, l’Etat indo-

nesien (avec le soutien de la communaute internationale du developpement) a institue des

reformes structurelles et des mesures de stabilisation accrues afin d’attenuer les effets de la

crise. L’auteur reflechit a la question de savoir si ces mesures sont encore en place pour

amortir les chocs de la crise actuelle, et aux effets qu’elles ont eus sur les producteurs et les

consommateurs de produits alimentaires indonesiens. La question de la demande des consom-

mateurs durant une periode de recession revet une pertinence particuliere pour les producteurs

agro-alimentaires indonesiens qui se sont diversifies dans des marchandises dotees d’une

importante valeur ajoutee (comme les produits biologiques) durant les dix dernieres annees.

Reexaminando o impacto da crise economica na producao agroalimentar indonesianaEste artigo discute o impacto da crise economica global existente sobre o setor agroalimentar

indonesiano. Ele compara a situacao atual com a crise de 1997–98 e examina se a liberaliza-

cao da economia indonesiana (e do setor agroalimentar especificamente) no perıodo pos -1999

ISSN 0961-4524 Print/ISSN 1364-9213 Online 04&50705-13 # 2011 Taylor & Francis 705

Routledge Publishing DOI: 10.1080/09614524.2011.562878

Development in Practice, Volume 21, Numbers 4–5, June 2011

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tem aumentado a exposicao dos produtores e consumidores de alimentos indonesianos a vola-

tilidade em associacao com os mercados globais financeiros e de commodities. Durante a crise

de 1997–98, a Indonesia (com o apoio da comunidade de desenvolvimento internacional) insti-

tuiu reformas estruturais e aumentou medidas de estabilizacao para mitigar os efeitos da crise.

A autora avalia se estas medidas ainda estao em vigor para contrabalancar os choques da crise

atual e qual efeito elas tem tido sobre produtores e consumidores de alimentos indonesianos. A

questao da demanda do consumidor em um momento de recessao possui relevancia em particu-

lar para aqueles produtores de agroalimentos indonesianos que diversificaram em commodities

de alto valor adicionado (tais como organicos) na decada passada.

Una nueva mirada a los efectos de la crisis economica en la produccion de agroalimentos enIndonesiaEste ensayo explora el impacto de la actual crisis economica mundial sobre el sector de agroa-

limentos en Indonesia. Contrasta la situacion actual con la de la crisis de 1997–1998 y analiza

si la liberalizacion de la economıa en Indonesia (y en particular del sector agroalimentario)

durante el periodo posterior a 1999 ha dejado a los campesinos y consumidores mas vulner-

ables ante la volatilidad asociada con los mercados financieros y de bienes de consumo mun-

diales. Durante la crisis de 1997-1998, el gobierno de Indonesia (apoyado por organismos de

desarrollo internacionales), impulso reformas estructurales y emitio medidas de estabilizacion

para mitigar los efectos de la crisis. La autora se pregunta si esas medidas siguen siendo utiles

para amortiguar los golpes de la crisis actual y que efecto han tenido sobre los productores de

alimentos y los consumidores. En Indonesia, el tema de la demanda de los consumidores en

momentos de recesion economica tiene especial relevancia para los productores de agroali-

mentos que diversificaron su produccion hacia bienes de consumo de alto valor agregado

(como los organicos) en los ultimos 10 anos.

KEY WORDS: Governance and public policy; South-East Asia

Introduction

This study examines how the Indonesian agro-food systems have fared throughout the recent

periods of crises, both the general and ongoing global financial crisis and the global food

crisis that occurred in 2007–08. Indonesia’s economy has performed better in the recent

round of crises than it did during the Asian financial crisis (AFC) of 1997–98. However,

Indonesia’s experiences with the global financial crisis and more specifically the global food

crisis have significantly influenced the current debates over agro-food policy. This article

provides a discussion of the key themes and issues that have emerged in recent debates, and

illustrates that the question of government support in agriculture for rice relative to other

forms of cultivation (including high-value crops such as organically produced foods) remains

a major issue of contention.

A comparison of crises

The Indonesian economy has seemingly weathered the recent global financial crisis relatively

well, compared with other countries, and also in comparison with its experience in the

AFC (1997–98). While there has been anecdotal evidence of hardship among the poor, this

is unsurprising, given that any increase in food and fuel prices affects the poorest and most

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vulnerable groups the hardest. However, the recent financial crisis has not (at the time of

writing) manifested itself in the country to the same degree as the AFC. There were sporadic

media reports of protests over price increases in key commodities such as soybeans and

cooking oil (Suharmoko 2008; Wisanggeni 2008), but there was little coverage which claimed

a dramatic shortage of essential foodstuffs, or that poverty had widely spread beyond the

classes that had experienced hardship prior to the onset of price increases.

The Indonesian economy’s performance in aggregate was also much better in the recent crisis

than in the AFC. For example, GDP showed a positive growth rate of 4.4 per cent at the begin-

ning of 2009, compared with 218 per cent during the height of the AFC (Kuncoro, Widido, and

McLeod 2009: 154, 160). Two brief qualifications must be mentioned at this point. First, in

terms of the agro-food sector, there is always significant variability among different crops. In

this study, basic food crops, particularly rice, are the most pertinent with regard to the recent

crisis, because their price movements have a greater effect on the general population and

hence are most politically sensitive. Second, there is also always variation within any

country; and, as a UN report notes, ‘Even in countries which are seemingly doing well, national

averages may mask disparities between different population groups’ (UN 2009). However,

for the objective of understanding the current debates on national agro-food regulation and

policy, a broad overview of the agro-food system and economy can suffice.

With regard to the Indonesian experience, there are two key differences between Indonesia’s

experiences since late 2007 and those that began with the 1997 AFC. Firstly, with respect to the

global food crisis, Indonesia was better positioned at the start of the recent crisis than it was

almost a decade earlier, especially in terms of rice supply. In 1997–98 the rice harvests on

Java were hard hit in the aftermath of the El Nino effect. In contrast, while global rice prices

reportedly increased by 76 per cent in Asia and many parts of the world from December

2007 to May 2008, Indonesia had record rice harvests (Montero 2008). In fact, by June 2008

the government reported a surplus of one million tons (GOI 2008). This is significant, given

Indonesia’s long history of importing rice. In the four years after the 1997 AFC began

(1998–2001), Indonesia was the world’s largest importer of rice, with imports of 9 per cent

of Indonesia’s total consumption of rice and 18 per cent of the world’s total imports (Fane

and Warr 2008: 136).

For Asian countries, rice is arguably the most politically sensitive of all food commodities,

and the government of Indonesia has historically engaged in policies to ensure adequate supply

at prices affordable for the general population. According to Neil McCulloch, food constitutes

between 67 per cent and 72 per cent of total household expenditures for half the population of

Indonesia. Rice, as the most important food item, constitutes more than 25 per cent of total

food costs for the poorest 20 per cent of the population (McCulloch 2008: 49). In addition,

McCulloch notes that while agricultural employment remains dominant in rural areas, with

58 per cent of the non-poor and three-quarters of the poor working in agriculture, 75 per

cent of the poor in Indonesia are net consumers of rice. This is because, while 70 per cent

of the households in rural areas are engaged in agriculture, only a little over half of these

households actually plant rice (McCulloch 2008: 50).

Secondly, the temporal dimensions of the processes that constitute the global food crisis and

the global financial crisis were distinct, and this made recent experiences very different from the

crisis confronting Indonesia in 1997–98. The AFC was a currency crisis that originated in

Thailand. When it spread regionally, it caused severe and rapid devaluation of the Indonesian

rupiah, and a correspondingly dramatic increase in import costs. In turn, this caused widespread

panic among the Indonesian population about the health of the national economy. In contrast,

the recent economic crises consisted of two distinct processes. The food crisis in the early spring

of 2008, characterised by a spike in global agricultural-commodity prices, occurred earlier than

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the general onset of the global financial crisis, which affected financial markets dramatically in

September 2008. Admittedly, the two processes are related, and were arguably different phases

in a broader crisis of global capitalism.1 However, it is important to note that, notwithstanding

the press coverage, and the point when the general public became initially aware of the scope of

the problems, the events occurred over a longer period of time.

So it is significant that the processes associated with the recent global food crisis and the global

financial crisis took place over a longer spread of time, compared with the processes of the AFC,

which had caused the dramatic currency devaluation in Indonesia by the end of 1997 and quickly

affected all sectors of the economy. The more gradual phasing of the recent round of crises was

important in the Indonesian case for several reasons. First, the Indonesian government was able to

tackle the problem associated with rising prices and more easily reassure the public, when they

had yet to deal with the broader repercussions of the financial crash that happened later in that

October. For the Indonesian government, the spacing of events between the global food crisis

and the global financial crisis was crucial. By May 2008, there were media reports that Indonesia’s

rice harvest was going to produce a significant supply. Additional reports of other countries

(Cambodia, Vietnam, and Pakistan) producing enough for export also assuaged public concern

(Montero 2008). Furthermore, the state-owned enterprise in charge of rice procurement,

BULOG, was able to stockpile rice, and the government could thus promise consumers that

the domestic prices would be kept down for the year.

However, despite Indonesia’s relatively ‘mild’ experience throughout the food crisis of early

2008 (as compared with the shortages experienced in 1997–98) and the argument that Indonesian

agro-food systems have fared relatively well so far with the global financial crisis, these recent

experiences have permeated discussions about the government’s handling of economic crises

and, more significantly, the ongoing debates over the future directions of Indonesian agro-food

policy. In particular, the recent food crisis has brought under scrutiny the government’s handling

of economic issues during a crisis, and raised questions about the scenarios that Indonesia might

face in the event of future global shortages or price increases. As a result, it has injected new dyna-

mism into the debates about food policy. These debates are extremely important – and not only

among policy makers and academics: the issues of food and agriculture are also a topic of general

public interest, reflected in constant coverage and discussion in the mass media. The debates can

be distinguished by two sets of issues: those that bring up recurring themes that have long

persisted in Indonesia, and those that have emerged in national agro-food debates over the past

decade and have become more pressing in the light of recent events.

Recurring themes in debates over Indonesian agro-food policy

A number of themes in the debates about agro-food policy are recurring, in that they have persist-

ently been a source of tension and points of disagreement among policy makers, academic commen-

tators, and the general public. The three key themes identified here are (1) the question of public

investment in national agricultural development; (2) the prioritisation of both producer and consu-

mer needs with regard to basic food-crop production, especially rice; and (3) the merits of pursuing

food security through an approach that emphasises national self-sufficiency in rice.

Public investment in agricultural development

This issue of government spending in agriculture is particularly important in Indonesia, because

successive governments have long struggled with the task of ensuring sufficient food supply

for the large and growing population (currently estimated at 220 million people). In addition,

Indonesia experienced tremendous productivity gains with ‘green revolution’ technology in

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the 1960s and 1970s, which resulted from heavy public investment in agricultural infrastructure,

extension services, and technology. Funding for green-revolution programmes came from both

the international donor community and from the Indonesian state in the 1970s, when the country

profited from its former position as an oil exporter in a period of high oil prices.

In the 1990s public investment in agriculture began to decline, both globally and in Indonesia.

This was due to many factors, among them a trend away from government spending as agro-food

research became led by private-sector corporations, and, in Indonesia, a growing criticism of

green-revolution technology in the 1980s when environmental problems (for example, pest out-

breaks, overuse of chemical inputs, and declining soil fertility) began to appear. With the recent

food crisis, there have been renewed calls globally for increasing public spending on agriculture,

and for a revision of government policies towards genetically modified crops. This general call for

a review of government spending can also be found in the Indonesian context, because although

Indonesia’s experience in the 2008 food crisis was fortunate, it is also unlikely to be repeated,

given its agricultural history. The attainment of record harvests and a rice surplus rarely

occurs, as the last time Indonesia experienced a surplus and did not have to import rice was in

1984. Therefore it cannot be regarded as a sustainable solution. Within the literature on food

and agriculture, scholars have stated the need for a review of state investment in agriculture, in

particular revisiting the achievements of the green revolution in increasing productivity. For

example, authors such as Simatupang and Timmer point out that rice production has stagnated

as a result of technical inefficiency, caused precisely by the fall in government investment in tech-

nologies and systems aimed at agricultural growth. In Indonesia, the bulk of government support

for agricultural production is still in the form of subsidies to make inputs cheaper for farmers

(Simatupang and Timmer 2008). Arguing for a major structural shift in agro-food policy

towards a focus on technology, knowledge, and infrastructure, Simatupang and Timmer (2008)

present a persuasive argument, pointing out that land conversion into non-agricultural uses on

the island of Java is threatening to create a shortage of arable land on the very island that

grows most of Indonesia’s food supply. This issue of land shortage, coupled with the global

demand for biofuel crops, appears to strengthen arguments favouring technology-based solutions

to food supply. These arguments have also included recommendations that the Indonesian

government should reconsider supporting genetically modified crops, which could become part

of a new revolutionary wave of increased agricultural productivity.

However, the argument for technological solutions to problems that stem from both econ-

omic and environmental causes must be carefully evaluated. Noah Zerbe (2009) points out

that the promise of agricultural technology has to be cautiously assessed, as experience of

the green revolution has demonstrated that there were unforeseen consequences in terms of

environmental impact and distributional inequality resulting from the implementation of suppo-

sedly neutral technologies. As Zerbe warns, although public intervention may offset some of the

impact of a profit-driven biotechnological research and development agenda that dominates

globally, the resources of countries in the global South – including those of Indonesia – are

no match for those of global capital. Private-sector interests in agro-food technology are also

not likely to target the most vulnerable groups, including poor peasant farmers. Hence,

Zerbe’s arguments for a more careful approach to embracing new technological solutions

underscore the limits of market-based approaches to food security (Zerbe 2009: 168–71).

The need to balance consumer and producer needs

This is a long-standing objective of agro-food policy in Indonesia, where cheap food for

consumers has always been politically necessary. Starting in the late 1960s, national

agricultural policies to meet the needs of Indonesia’s many smallholder farmers led to a

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series of government programmes to generate a green revolution in Indonesia. Key components

of these programmes included input subsidies, government procurement of rice, the mainten-

ance of buffer stocks, and control over imports and exports through BULOG (formerly the

National Logistics Agency).

These specific programmes reflected the government’s priorities in Suharto’s ‘New Order’

period (1966–1998), which was to provide consumers with cheap foodstuffs, especially rice,

while still supporting the farming constituency in order to ensure a significant amount of dom-

estic food production. A definition of food security as national self-sufficiency became even

more popular among Asian governments in the aftermath of the 1972–73 food shortages,

which were precipitated by factors including the US grain sales to the Soviet Union. This

experience of global shortages coincided with a period during which the Indonesian government

(flushed with oil gains) was able to fund cheap rice and subsidise farmers’ input needs.

However, with the end of the high oil revenues and a global shift towards neo-liberal economic

ideals, the Indonesian government began to face difficulties in balancing these two needs. The

provision of food to consumers has always been essential to political stability in Indonesia;

satisfying the basic needs of the masses has helped the government to compensate for the

lack of democracy during this period.

The key question with respect to food and agriculture is whether the existing model of rice

production and procurement in Indonesia remains the best way to support consumers and pro-

ducers. To a large extent, the arguments in this specific debate reflect a broader ideological con-

testation over the degree of state intervention in the Indonesian economy. In general terms, two

camps dominated policy making in the post-war period. Different scholars have various ways of

identifying these two policy orientations, but here I borrow the terms ‘technocrats’ and ‘inter-

ventionists’ used by Kuncoro et al. (2009). The ‘technocrats’ usually advocated a more open

economy and supported the liberalisation measures that were implemented in the late 1980s

and throughout the 1990s. The ‘interventionists’ were more economically nationalist and

pushed for a higher degree of government support of national development goals. The main

issue at present is whether nationally based agriculture is the most effective means to ensure

national food security. For those in the technocrats’ camp, market-based solutions, including

a heavier reliance on international trade, are more effective and economical in an age of

global market exchange. However, for the interventionists, the reliance of Indonesian consu-

mers on rice, combined with the vulnerability of being import-dependent on such an important

crop, along with the political, cultural, and environmental values embedded in the concept and

practice of national agricultural production, particularly in the ideal of the Indonesian peasant

farmers, makes market-dependent solutions untenable because of their high political risks.

If consumer needs for inexpensive foodstuffs are the main priority for the Indonesian govern-

ment, then a strong economic argument can be made for moving towards a greater reliance on

food imports for the general population. However, if producer needs are taken into account, then

more government intervention in national food production is required, namely, programmes

that provide support for farmer production (i.e. including input subsidies) and the mechanisms

for matching national production output to consumer demand. Hence, those parties that advo-

cate a higher degree of government intervention frequently advance arguments that these pro-

grammes will raise producer incomes and increase national food self-sufficiency, which leads to

greater food security because it decreases Indonesia’s exposure to the volatility that is often

associated with global market forces.

Fane and Warr argue that in the past decade (since the end of the Suharto period), farmer

lobbies have become politically more powerful, and despite an initial period of deregulation

and liberalisation from 1999 onwards, the Indonesia state has had to continuously intervene

and support food producers. In fact, since 1999 presidential authority has declined, and

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economic policy determination is no longer the result of technocrats and interventionists

campaigning to influence the president (Fane and Warr 2008: 147). However, the impact of

democratisation on economic policy making appears to have strengthened the ideology of

economic nationalism, indicating the continuation of rice self-sufficiency and farmer protection

in the near future. Also, the related decentralisation of the Indonesian political system since

1999, marked by the shift of economic policy making from the national centre in the capital

of Jakarta to regency district governments that are highly responsive to their electorates, will

make it even more difficult to eliminate government support for food and agriculture. As

Fane and Warr write, ‘the movement towards rice self-sufficiency and protection of farmers

are both politically attractive in Indonesia, and in the public imagination both are strongly

associated with the national interest and with concern for the poor’ (Fane and Warr 2008:

147). Moreover, it is important to consider the possibility that the relatively benign impact of

the global food crisis on Indonesia in 2007–08 could arguably be attributed to the many

years of programmes of rice self-sufficiency that created the conditions for a surplus harvest

in 2008.

Hence, given the strength of this public interest in national rice production and the decades of

government support that have established this as a national priority, it is unlikely to be

dislodged, even with the growing strength of neo-liberal market advocates in Indonesia since

1999. As a result of this challenge, critics of the national self-sufficiency programme

have sought to present alternative policy directions for Indonesian agriculture by arguing for

diversified commodity development, which will be discussed next.

Rice self-sufficiency versus diversification into agribusiness-oriented commoditydevelopment

The national rice programme in Indonesia has undergone numerous changes from its early

inception in the 1960s to the present. However, consistent throughout this period have been

the twin objectives of striving for national self-sufficiency in rice by government support of

farmers, and the provision of inexpensive rice for the masses. The cost of this programme

became a topic of serious contention in the mid-1980s, when the decline of oil revenues under-

mined the long-term financial sustainability of this strategy. By the late 1980s and early 1990s,

academic commentators and policy makers began to put forward alternative proposals for the

direction of agro-food policy. Among them was the idea of crop diversification, away from

rice, into other food crops (Timmer 1990, for example).

Historically, Indonesian agriculture has been divided into the sub-sectors of plantation cash

crops and basic food-staple crops, with the former being a source of foreign-exchange earnings

since the colonial period, and hence a form of diversified agricultural production. However, with

the diversification strategy touted in the 1980s and 1990s, the concept was to diversify the food

crop sub-sector beyond the production of staple foods and expand the quantity and variety of

food crops into high-value-added production such as horticulture and specialised niche

vegetables and fruits. Ideally, the income generated from specialised production should cover

the costs of purchasing rice, from either domestic producers or from importers, and would

result in enough of a surplus to raise farmer incomes, thus further increasing food security.

Hence in the 1990s the Indonesian government embarked on an agribusiness strategy which

promoted specialised high-value agricultural production. However, given the reasons listed

above regarding the political centrality of rice and its symbolic role in economic nationalism,

the agribusiness policies of the 1990s were designed to complement, but not replace or under-

mine, government support for national rice production.

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The two streams of policy continue in tension with each other, as the implementation of each

type of policy competes for limited government resources. Moreover, the two streams of policy

make different, and competing, assumptions about the best approach to poverty alleviation,

raising farmer incomes and government support for consumer food needs. Authors such as

McCulloch have analysed and calculated the needs of the majority of rice consumers and the

minority of rice producers in Indonesia, concluding that government support for high rice

prices actually constitutes a transfer from consumers to a minority of producers (McCulloch

2008). This is an important line of inquiry, because it draws attention to the question about

the extent to which the majority of agricultural producers themselves continue to benefit

from government support of rice, versus government support for other forms of commodity

production.

In fact, since the 1990s what has been witnessed is continued government support of agribu-

siness development alongside that of rice production. New forms of this include the promotion

of organic foods to capture the growing markets for ‘natural’ products in Indonesia and abroad.

While most forms of newly designed agribusiness production since 2000 are relatively small in

output, compared with the dominant food-crop production and traditional plantation crops,

these new forms of production still must be acknowledged, as they signify the new directions

of government promotion and support.

Recent measures to expand agribusiness development beyond crop diversification are signifi-

cant in the context of the global food crisis. For example, in the past two years the Indonesian

government has courted investment from companies in Saudi Arabia in the creation of ‘food

estates’ in Java, Sulewesi, and Papua. In this business plan, companies would lease land in

Indonesia for production and be able to export the food they produce in Indonesia back to

their countries. This is seen as attractive to investors, especially in the case of global food

shortages and price increases. The recent negotiations between the Indonesian government

and Saudi companies have faltered as a result of the global financial crisis, but the notion of

the Indonesian government exporting its land use has sparked concern from farmers and

other citizens concerned about the foreign control over land and its use, especially if domestic

supply happens to be in jeopardy (Wright et al. 2008).

Finally, new forms of food production may challenge the official conception of food security,

as currently defined in terms of national self-sufficiency in rice, by presenting alternative rede-

finitions of food security. For example, organic foods have become popular due to their higher

market value, but also because organics are part of a redefinition of food security that has been

promoted by environmentalists within Indonesia and globally. This redefinition prioritises the

ecological sustainability of farming practices and presents an alternative vision for Indonesian

agro-food policy. However, this alternative is unable to alter the majority of food production in

Indonesia because the influence of the non-government organisations supporting this cause, and

the sympathetic government institutions (such as Ministry of Environment) remain limited.

Nevertheless, the growing environmental movement and widespread awareness of the environ-

mental damage caused by green-revolution technologies has contributed to a growth in public

awareness of the limits of the rice self-sufficiency approach to food security.

New issues emerging in the debates

The following issues have injected new matters of contention into the debates about the regu-

lation and governance of Indonesian agro-food systems, and Indonesian political economy in

general. The first is the issue of regulation and speculation. The second is the changing role

of state institutions in a decentralised Indonesia. The third is the revision of discourses in a

long-standing ideological battle over policy direction.

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Regulation and speculation

The role of speculation as a cause of the 1997 AFC has been a subject of vigorous debate, and

this issue has been raised again with respect to the recent global food and financial crises. With

respect to the sharp spike in food prices in early 2008, scholars such as Jennifer Clapp have

argued this was caused in part by capital-markets movement of money out of riskier invest-

ments (such as those causing the sub-prime mortgage crisis in the USA) to safer investments

in food commodities (Clapp 2009b). Other reasons, such as increased demand for grain due

to biofuel production, and increased world demand in an ongoing period of declining grain

stocks, have also been cited as contributing factors (Charkrabortty 2008).

Speculation also appeared to affect the rice markets, albeit in a specific way. The inter-

national rice market is considered a ‘thin’ market, which means that it represents a relatively

small proportion of global production. According to a FAO report presented at the World

Rice Research Conference in 2004, the international rice market represented only 3 to 5 per

cent of global production in the 1980s, but expanded in the 1990s and reach approximately 7

per cent in the early 2000s. Despite this recent expansion, the rice market remains ‘thin’

compared with wheat or maize, whose international trade accounts for 18 per cent and

13 per cent of global production, respectively (FAO 2004: 3).

Given the limited quantities freely traded on the global market, it would appear that any

speculation, as the result of financial market trades, would have some impact on the inter-

national prices. However, Tom Slayton (2009) recommends that we analyse the jump in inter-

national rice prices separately from the global food crisis. Slayton claims that this is because the

key drivers of rice prices were not biofuels, changes in demand, major weather problems, low

stocks, and futures markets (Slayton 2009: 3). Rather, Slayton argues that government-ordered

export bans among key rice-exporting countries, coupled with media coverage of a ‘rice crisis’,

and problems with the ways in which various governments handled public fears of shortage (for

example, high bidding for rice imports and poorly worded public statements) all contributed to

high world prices (Slayton 2009). It is important to note that Slayton does acknowledge the role

of speculation in fuelling the price increases, because hoarding among traders eventually led to

panic. In addition, he criticises the export bans placed by India and Vietnam, and what he

describes as ‘overly aggressive buying’ by the Philippine government, which influenced

global prices in a manner similar to capital markets speculation.

This experience underlines the challenge of regulation, because agro-food policy is heavily based

on domestic political concerns and national economic considerations. However, Slayton shows that

the culmination of these domestic policy decisions could result in undesirable global effects. The

tension between the regulation of a national economic space that is permeable and infused with

global market transactions raises the issue of finding regulatory mechanisms that can be effectively

implemented across disparate political and economic spaces. One way in which governments have

attempted to mediate between the global market pressures and domestic consumer and/or producer

needs has been through the creation of state institutions such as logistics agencies charged with

maintaining buffer stocks and price supports. However, in the case of Indonesia, the role of state

institutions is in transition, with the transformation of the Indonesian state into a decentralised

institution. This is the next emergent issue affecting Indonesian agro-food systems.

The changing role of state institutions

One of the most pressing challenges for Indonesian policy making at present is dealing with a

decentralised political system. The diffusion of political authority is difficult for consistent

policy making among Indonesia’s regency district governments, as each sub-national

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government has the power to craft and implement its own agro-food policies. A second impact

of decentralisation on state institutions was that national-level institutions, which existed prior

to the decentralisation process that began in 1999, had to be reformed so that they complied with

the new laws. This was the case with BULOG, the state institution that was formerly the

National Logistic Agency in charge of rice procurement and buffer-stock management. In

2002, BULOG was transformed from a state institution into a state-owned enterprise (SOE),

as part of a series of structural reforms of state institutions. The Indonesian government

decided to make BULOG into a SOE because BULOG was still charged with public functions

such as ensuring food security through rice procurement and providing cheap rice to the poor

(Yonekura 2005: 136). However, BULOG also continues to conduct profit-making activities,

and the ongoing challenge of finding a balance between its private and public functions is

likely to be complicated in a decentralised system.

A key part of the debate regarding BULOG’s future role and that of other state institutions

relates back to the earlier discussion of whether the Indonesian government should even be

trying to achieve national self-sufficiency in rice. Other fundamental questions centre on

whether BULOG’s past practices as the state import/export agency should continue, and

what other functions BULOG could perform to ensure food security by other means. For

example, one would have to consider how state institutions such as BULOG could be altered

to conform with a more diversified agribusiness and open-trade approach to Indonesian agro-

food policy. However, given the historical prominence of national rice policy in Indonesia,

what we are more likely to witness is a continual modification of state institutions, such as

BULOG, attempting to balance the political need to supply cheap rice, and at the same time

supporting the Indonesian farming community.

New discursive attacks in an old ideological battle

In writing about the onset of the 2009 presidential campaign, Kuncoro, Widodo, and McLeod

have observed the frequent use of the term ‘neo-liberal’ to attack free-market advocates. This is

an interesting development, as the use of the term has recently emerged among the general

public. These authors take issue with this use of the term, which has implied that those follow-

ing neo-liberal policies favoured the business sector and foreign capital interests over those of

the Indonesian people. In defence of the term, the authors argued that on the spectrum of econ-

omic policy-making positions, neo-liberals leaned toward the free-market end, not necessarily

by being ‘pro-business’, but rather by seeking policies that aimed to maximise economic

growth. These include policies that ‘limit the extent of – but most definitely do not preclude

government intervention’ (Kuncoro et al. 2009: 169). Meanwhile, at the opposite end there

were the group that they classify as ‘interventionists’, who ‘. . .put much less emphasis on

growth, and correspondingly more on direct interventions that they believe will benefit the

poor. . .’ (Kuncoro et al. 2009: 168–9). A large part of the problem, the authors claim, was

that during the Suharto years intervention was often designed to create special privileges for

the President’s family and political allies (Kuncoro et al. 2009: 170).

This particular representation of the competing influences in economic policy making illumi-

nates the ways in which the old ideological contestations have adopted new discursive forms.

The framing of the debate over policy in terms of ‘neo-liberal’, to signify pro-market and even

foreign capital-friendly on the one hand, and on the other hand ‘interventionist’ to allude to

economic nationalism but also those specific practices of rent-seeking behaviour so frequently

associated with the Suharto family and cronies, in the minds of the Indonesian public, is worthy

of further study. The proliferation of the term ‘neo-liberal’ in general signals a public awareness

of the impact of neo-liberal policies and their implications for the dismantling of past regulatory

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regimes; hence the criticism that neo-liberalism favours business capital. This awareness has, in

all likelihood, been enhanced by government discourses in the past two decades which have

incorporated the language and justification of Indonesian’s participation in global economy

as the rationale for policy changes (including those demanded by the World Trade Organiz-

ation’s member commitments, specifically the conditions outlined in the Agreement on Agri-

culture). Additionally, Indonesia’s experience in the Asian financial crisis which resulted in

the government’s acquiescence to the International Monetary Fund’s conditions for assistance

(as outlined in various Letters of Intent in 1998 and 1999) made the policy changes associated

with compliance with international financial institutions and the international business commu-

nity a matter of public interest. Finally, public awareness was also enhanced by the processes of

political liberalisation that occurred post-1998, as non-government organisations and political

parties are now able to be more critical of the government and other social agents of power,

including the business community.

Concluding comments

In this article, I have argued that the global food crisis of 2007–08 and the ongoing global finan-

cial crisis have so far appeared to have had a mild effect on Indonesia in comparison with that of

the Asian Financial Crisis in 1997–98. Nevertheless, these two recent crises, particularly the

global food crisis, have had a significant impact on Indonesian policy makers, academics,

and the general public, who saw the dramatic rise in food prices as a possible threat to food

security, especially in the event of the need to import essential foodstuffs such as rice. Therefore

the lessons of the global food crisis of 2007–08 have influenced the current debates over the

future direction of agro-food policy in Indonesia, and have raised questions about the continued

viability and desirability of existing food programmes and supports.

Moreover, despite Indonesia’s rather fortuitous experience throughout the global food

crisis, the longer-term impact of the global financial crisis remains a cause for concern. At

present, the implications of the global financial crisis for Indonesian agriculture remain

difficult to ascertain. Future research should focus on the ways in which the global financial

crisis may shape and alter select aspects of Indonesia’s national agro-food system (for

example, the relative priorities to be accorded to agribusiness commodities vis a vis basic

food-crop production). The recurring and emergent themes in the Indonesian policy

debates reflect the general issues that affect many developing countries in the global South.

In particular, the efforts of the Indonesian government to buffer the impact of global econ-

omic processes on their national economy serves as an informative example of the specific

ways in which governments continue to retain regulatory power and strive to temper the

effects of market forces. Both the successes and the weaknesses of these government

measures can serve as lessons for development planning and provide historically based

empirical evidence for further scholarship.

Note

1. This broader crisis refers to the emergence of contradictions as a result of our current capitalist system,

which permits financial capital mobility with relatively little state regulation. States have encouraged

financial capital to take advantage of temporal and spatial differences in productive activities for the

sake of economic growth. However, scholars have long argued that there is a need for greater international

financial regulation, because the market instability that accompanied the global financial crisis affected

all economic sectors (including food and agriculture), and the political repercussions can be severe

(Helleiner 1994). Jennifer Clapp has argued that the food-price volatility that characterised the global

food crisis stemmed from processes that also contributed to the global financial crisis (Clapp 2009a).

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The author

Mary M. Young is a PhD candidate in the Department of Political Science, York University, Toronto,

Canada. ,marouyou@rogers.com.

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