Indonesian Government Increases Rice Purchase Price by 10%

By webadmin on 12:07 am Jan 02, 2010
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Dion Bisara & Arti Ekawati

The government has raised the price paid to farmers by the state for the purchase of paddy and unhusked rice this year, which will lift farmers’ fortunes but potentially push the price of the commodity up in the market.

“After considering farming cost analysis, including inflation and the rice price in international market, we decided to raise the purchase price by 10 percent,” Bayu Krisnamurthi, the vice minister of agriculture, said on Thursday. Farmers were expected to be able to gain more profit and be encouraged to continue to plant more rice, which is the nation’s staple food, he said.

The National Logistics Agency (Bulog) began paying the new rate for rice purchases as of Friday. Its purchase price is usually taken as a reference for other rice buyers across the country.

The government last increased the rice purchasing price on Jan. 1 last year by 7 percent to 9.1 percent, depending on whether paddy, unhusked rice or processed rice were being bought.

With the current increase, unprocessed paddy is priced at Rp 2,640 (28 cents) per kilogram from Rp 2,400 per kg, unhusked rice at Rp 3,345 per kg from Rp 3,040 and medium-quality processed rice at Rp 5,060 per kg from Rp 4,600.

Bayu, however, noted that the price in the domestic market was already higher than the government’s purchase price and that he expected farmers would be more encouraged in planting paddy because of the better price.

Rice prices had been on the rise at the end of the year, with medium-quality rice now fetching between Rp 5,400 to 5,500 per kg, from only Rp 4,800 per kg before December.

Winang Budoyo, economist at PT CIMB Niaga, said the 10 percent raise would benefit farmers and improve their purchasing power.

“However, the government should also accord concern to balancing the supply and demand to protect against traders driving the prices,” he said.

Although the purchase price increase will certainly be reflected on the price to be paid by consumers, Winang believed it would not impact on inflation, at least not for the first quarter.

“It is a good timing now to increase the rice purchase price as inflation remains low, currently at 3 percent.”

In 2009, the government set a target for Bulog to buy 3.8 million tons of rice from farmers. Some 3.2 million tons of the rice were allocated to 18.5 million low-income families under the rice for the poor program.