Trust is a Terrible Thing to Waste

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The Danareksa Research Institute, in its latest survey unveiled on Tuesday, said that the Consumer Confidence Index (CCI) reached 90 in April, higher than the 85 in March. The score was the highest since September 2009.

The survey was conducted on 1,700 households to identify consumer confidence on Indonesia's current and future economic condition. The Present Situations Index, which measures current confidence, increased to 74.7 in April, compared to 66.87 in March. The Expectations Index, which shows future confidence, increased to 101.5 from 98.5 in March.

The Index increase is due to the public's growing confidence that inflationary pressure will weaken in the next six months. The survey recorded an increase of 31.3 percent of consumers who plan to buy durable goods in April compared to 27.5 percent in March, the highest record since February 2011.

CCI related to the government also increased by 8.32 percent to 92.4 from 85.3 in March. The increase indicated the public's trust in the government's capability to maintain prices, particularly food. Many experts predict that food prices will be a serious problem in the upcoming months, particularly with the very low rice stock in the National Logistics Agency (Bulog).

In April 2011, Bulog procured 750 thousand tons of domestic rice of the targeted 900 thousand tons. Rice stock in Bulog warehouses reached 1.7 million tons, far from the target of 3.5 million tons. The stock is only sufficient for six months of domestic consumption.

The low stock is due to the high rice prices in the market. Trade Ministry data show that average rice price in May is above Rp 7,000 per kilogram or 38 percent above the government purchasing price of Rp 5,060 per kg, which is used as a purchasing price reference by Bulog.

The situation burdened Bulog, as it cannot purchase rice above the regulated price. The Agency’s Board of Directors can be charged with a legal suit if they breach the regulation.

The chance to increase stocks is diminishing with the harvest period coming to an end. Rice price will generally go up again after the harvest period, as supplies will decrease.

The chance to increase stocks through imports is also difficult. Vietnam and Thailand, Indonesia's usual rice suppliers, are expected to tighten their exports in anticipation of prolonged bad weather.

International price is also high. Bloomberg data show that the price for five percent broken rice in Thailand was US$ 489 per ton on May 4. Sermsak Kuonsongtum, Deputy Chief of the Rice Exporters Association from Thailand, projects that rice price will increase to US$ 550 per ton in the third quarter, due to the higher demand from Middle East and Asian countries.

Converted to rupiah, at Rp 8,600 per US dollar, Thailand's rice is priced at Rp 4,200 per kg. The price can increase if the rupiah depreciates again, and it if we will include freight costs from the originating country, transportation to Bulog warehouses, and the profit margin for the company.

Given the conditions, it is time for the government to issue a regulation that will allow Bulog to buy standard quality rice from farmers at a price above Rp 5,060 per kg. This year, the government allocated Rp 16.3 trillion (US$ 1.90 billion) for Bulog's public service obligation function.

Incurring additional costs from purchasing rice from farmers at a higher price is better compared to having additional costs from importing rice at a relatively equal price, as farmers will receive higher revenues. If this is done, then public confidence in the government's capability in maintaining food prices will not be wasted.