PROJECT DEVELOPMENT INSTITUTE

... building self-reliant communities through peoples initiatives

State And Food Stability
In indonesia And Thailand:
Is There A Case For
Reduced State Intervention?
by
Frandsco J. Lara Jr.
MSC Devclopment Studies
44 Gen. Segundo Street, Heroes Hill,
Sta. Cruz, Quezon City, Philippines
State and Food Stability in Indonesia and Thailand:
Is there a case for reduced state intervention?
Various international food summits in the past brought renewed attention to the state of food security in a
number of developing countries. Coming on the heels of regional scarcities and a general increase in world
cereal prices, the world food summit ten years ago highlighted the continuing vulnerability of the worlds poor
to sudden instabilities in supply. The summit affrmed that food supplies have increased substantially, but
constraints on access to food and continuing inadequacy of household and national incomes to purchase food,
instability of supply and demand, as well as natural and man-made disasters, prevent basic food needs from
being fulflled ( FAQ (a) 1996, page 2 ).
Southeast Asia has not escaped the pressures on food supplies arising out of natural and man-made crisis.
1

Tensions rose over the availability and stability of staple cereals such as rice in much of Southeast Asia in the
mid- nineties, caused by unstable trade and drought and accentuated by the scramble for food stocks that could
be imported.
2
In both countries the rice crisis led to infationary problems that threatened to stife growth3
3
The importance of rice production and consumption as a barometer of growth and food security in the region
originates from the historical preference of the regions population to rice as staple food. Rice is nearly
everywhere preferred, wrote Palmer (1 976, page 1) in her analysis of per capita cereal availability in four
countries of Southeast Asia and the variation in their relative dependence on rice. Among the four, Thailand
and Indonesia were recorded as the most specialized rice eaters, while the Philippines consumes large amounts
of maize in contrast to wheat consumption in Malaysia. But preferences change over time and the study also
notes how exogenous factors such as the colonial experience and the history of trade in the region has led to
the introduction of other food products such as wheat and corn. (Ibid, pages 2-3). Twenty years later the region
remains a major rice consuming area, and the traditions and ways of life that are culturally intertwined with rice
production endure. The rice crisis of 1995 shows how the availability of rice, or the absence of it, still plays an
important role in ensuring stability in the region even in the midst of rapid macroeconomic growth.
This growth has been attributed to increased exports and trade, outside and within the larger East and Southeast
Asian region. The World Bank (1993. page 2) notes that real income per capita doubled in the Southeast Asian
newly industrializing economies (NIEs) of Thailand, Malaysia, and Indonesia. The past decade has seen intra-
regional trade accounting for over 20% of all trade between Association of Southeast Asian Nations (ASEAN)
members. Finally this growth has been marked by declines in absolute poverty (Ibid. page 4-5).
The question arises then as to why a region with some of the worlds fastest growing economies, and where
growth has been described as relatively egalitarian, can be so vulnerable to brief instabilities in food supplies.
Pandya-Lorch and Pinstrup-Andersen (1996. page 3) explain how the economic growth itself accounts for the
vulnerability in food supply, as rapid urbanization, population growth, income increases, and dietary changes
1 Mc Beth, J., Grain games, grain pains, Far Eastern Economic Review, 29 June 1995.
2 There are various interpretations of the causes of the rice crisis of 1995, when shortfalls in rice production
amounting to as high as two million metric tons in the Philippines had to be purchased from abroad. The
common explanations include drought with the onset of cyclical change and the failure to accurately predict
wet season harvests.
3 Amang B., Rice prices may rise by 1.2%-1.8% each month as cited in Terompet, No. 3/11/1995, Pesticide
Action Network (PAN) Indonesia, and, Luib, R., Agriculture takes a beating in 1995, Businessworld, 8,
January 1996, Manila.
lead to increasing food demand in the region. This growth has shaped agriculture and food production by
increased diversifcation into cash crops for export, and a greater reliance on imported cereals and other food
products. Dyson (1996, page 92-95) notes that land previously sown with cereals has been transferred into
other higher-value crops and that fast growing urban populations now often prefer imported wheat rather than
indigenous staple foods. He adds that the Far East (which includes Southeast Asia) is expanding its cereal
imports the fastest in comparison to Sub-Saharan Africa, Latin America, and South Asia and is likely to become
more dependent upon imports as a fraction of its total cereal consumption (Ibid, page 1.29).
The situation can be seen in the case of China and Indonesia which experienced drops in production that turned
them into net food importers in 1995 (Solagral 1996, page 2). From a position of self suffciency a few years
ago, China, Indonesia, the Philippines and Brazil are today major buyers of rice in the world market, accounting
for one third of total imports (Benz and Mendez del Villar : 1994, as cited in Solagral). In Southeast Asia,
Malaysia, Indonesia, Singapore, Laos, Cambodia, and Brunei imports an estimated one million metric tons of
rice per year.
The vulnerability of food importing countries in the region is also aggravated by at least three factors. One,
despite the ability to import rice, the international market situation is especially critical as only 6% of the
commodity is traded in world markets (See Table). Other cereal products that can be imported such as wheat
and corn have also been subject to price fuctuations in the past two years. Two, the presence of major cereal
buyers such as China and the ex-USSR outside the Southeast Asian region, with varying production volumes
and solvency standings that fuctuate on an annual basis can create sudden changes in world prices (Op. cit.,
Solagral,. page 1). in the case of wheat, for example. the ex-USSR imported 19.3 million tons in 1992-93 but
only imported 6.5 million tons the following year, whereas China only imported 4.5 million tons in 1993-94 but
more than 10 million in 1994-95. These variations in demand create market distortions in other cereal products
such as rice. Three, water availability coupled with cyclical changes in climate are creating major problems for
rice production. The World Bank (1995) reports that in the coming years, water scarcity, rather than shortage
of land will prove to be the biggest constraint on agriculture. The report points to Asian agriculture, with its
emphasis on rice cultivation, as facing severe problems. Farming already accounts for 87% of Chinas water
consumption and 93% of Indias, according to the Bank.
Structure of world trade in the main cereals, annual average 1985-l990
Millionb tonsw and percentage
Product
Trade
Volume
Share of
production
Production
Volume
Share of
World
Production
Share of
World
Cereal trade
Rice 12 4a 480 25 6
Wheat 96 20 520 30 48
Maize 70 15 460 25 35
Cereals
Total 200 11 1847 100 100

a. As a proportion of white rice production (paddy x 0.65)
Source: FAQ, in Bcn7 and Mende, del Villar, 1994
These circumstances would presumably warrant a gradual shift in dependence from the production and
consumption of rice to a wider choice of cereal products. But despite the crisis faced in rice a few years ago, one
has to also deal with the fact that the region also encompasses two of the biggest producers and exporters of rice
--- Thailand and Vietnam Together with Burma, Thailand and Vietnam are net exporters of rice which in 1990-
1991 amounted to seven million metric tons.
4
What accounts for the wide disparity in stabilizing food supplies
between, for example, Thailand with its increased rice exports and Indonesias increasing cereal imports?
The situation of Southeast Asia is particularly instructive of the developmental role of the state in ensuring
food security in conditions of high growth. This paper shall analyze the institutional framework governing state
intervention in the stabilization of food markets by focusing on the effects of price policies and stockpiling on
food stability, the changes that will be brought about by trade liberalization, and the effects of these changes
on the role of the state. This paper focuses on the effects of food supply stabilization because this type of
intervention has been the most controversial and contested area of intervention. The growth of international free
trade arrangements under the World Trade Organization permits investments and state intervention in supply-
side aspects such as research, extension, and infrastructure but eschews state intervention in food markets,
criticizes the government costs in maintaining buffer stocks, and transfers the handling of stocks to the private
sector. Goldin and Van der Mensbrugge 1994, page 13, and, FAO (b) : 1996, page 28) The paper will argue
for the necessity of instituting reforms in agricultural trade and marketing. However, for markets to work in
assuring food security the state should provide frst of all the conditions for the proper functioning of rice
markets.
Central to addressing these issues is a reappraisal of the appropriate role of the state in relation to agriculture
and food security. It requires looking at the evidence in the case of Southeast Asia in generals and in Thailand
and Indonesia in particular, towards identifying the similarities and contrasts in the public administration of
food security objectives. For despite the multifaceted evidence surrounding specifc state policies and, their
impact on agricultural growth vis-a-vis food security, the presence of state intervention, rather than the absence
of it, has been the norm in most of the region.
The Defnition of Food Stability
Food security is generally defned as a the state of afrair where all people at all times have access to safe and
nutritious food to maintain a healthy and active life (FAQ 1 996, page 5). Three dimensions are crucial in
this defnition availability, stability, and access (Konandreas: 1996, page 1.4). Food availability means that, on
average, suffcient food supplies should address aggregate consumption needs. Stability refers to preventing
food supplies from falling below consumption needs during specifc seasons and particular areas and regions.
Access refers to the capability of individuals and groups to secure food, to prevent what Dreze and Sen (1989,
page 9-10) call entitlement failures.
5
Scholars have noted how the more decisive aspect among the three
dimensions are those that pertain to stability of supplies and access (Dreze and Sen 1989, pages 166-167,
Konandreas 1996, Boserup: 1990, page 38), and on the national and regional context, Dyson (1996, page 51)
explains this to mean a populations capacity to obtain adequate quantities of food with a reasonable degree
of assurance lie adds that problems of availability will most probably take shape in the form of temporary
shortages where liberalized food trade and targeted emergency food aid becomes increasingly important.
The emphasis on stability is important in reconciling the dynamic of trade liberalization and growth with the
demand for adequate, safe, and nutritious food at all times. It explains the apparent paradox between economic
4 Philippine Department of Agriculture (1997) Proposed treatment of rice in AFTA-CEPT, mimeograph copy,
Quezon City, January 21.
5 The term pertain to the concept of entitlements based on Dreze and Sens thesis that what a person eats de-
pends on what that person can acquire, pointing out to the alternative bundle of commodities over which a
person can establish command.
growth and stability of food supplies, and enlightens the discussion on the role of the state vis-a-vis food
security. In the case of both Thailand and Indonesia, the objectives of food stability has led to a range of
measures undertaken by the state. These include the importation of rice, the imposition of border taxes on the
exports of rice, controls on food prices through market infusion mechanisms and stockpiling, guaranteed prices
for food producers, and investments in infrastructure and, storage.
Redefning the role of government in agriculture
In a World Bank discussion paper authored by Knudsen and Nash (1990 pages 1-7) the role of developing
country governments in agriculture has been described as generally costly and misdirected, costing taxpayers
and consumers hundreds of billions of dollars every year, as state intervention in markets through subsidies
and price controls prevent agricultural prices from refecting their scarcity levels. The artifcial pricing of farm
commodities, propped up by government intervention is seen to result in economic ineffciency and the further
impoverishment of rural people without providing food security. The study particularly emphasized the negative
role of parastatal enterprises
6
which sought to exercise government control over agricultural production and
marketing decisions through pricing policy and direct intervention. (Ibid. page 52-53) The study asserts that
price controls implemented through the stockpiling and market infusion activities of parastatal enterprises
discourage the private sector from holding stocks, leaving storage responsibility largely to the parastatals.
As an indictment of state intervention in agriculture, the study proposed that government spending in agriculture
should be continued to areas where private markets do not work well, such as in infrastructure and agricultural
research (Ibid, pages 83-88). This analysis of the negative role of state intervention in agriculture has been
amplifed in other studies conducted of the dominant types of state intervention. But most of the criticism
has been leveled against price stabilization and stockholding operations, which are presented as costly and
ineffcient.
Other theorists have also pointed out the interrelationship between state intervention in food marketing and
trade to political-economic considerations, as rational producers react to economic and political incentives
provided by the state and the market, the rationale choice framework (Bates : 1989) and the urban-bias (Lipton:
1977) analysis of politico-economic decision making locates state intervention as a contested terrain where
powerful sectoral interests, mainly based in urban areas, infuence policy decisions to the detriment of rural
producers.
As a counterpoint to the adverse interpretation of government intervention in agriculture, Wade (1991)) and
Amsden (1985 page 78-101) point to the positive effects that government intervention can play in rural markets.
Citing the case of Taiwan for example, both conclude that the state intervened in rural markets to address
both the needs of supplying raw materials for industrialization while promoting the stability of food supplies
and access to it.
7
On the other hand, Stiglitz (1087, pages 45) offers a useful framework that defnes, state
intervention in agriculture as second best. However, he argues that political-economic considerations demand
fexibility, noting that whether government or market failures are of greater importance may differ from
country to country and this will crucially affect the nature of government policy.
Dreze and Sen (1989, pages 94-95) substantiates the differential impact of price policies and stockpiling in such
conditions as those obtaining in Sub-Saharan Africa where they note that speculation can be destabilizing.
6 Parastatal are defned here as government-owned corporations.
7 In the initial stages of Taiwans agricultural development, the state also used coercive measures to ensure that
rice was sold to the government and that farmers shifted production into high yielding varieties.
Both argue that the administrative problems involved in imposing direct and effective controls on private
stockholding are enormous, and that such conditions prevail upon governments to vigorously participate in food
trade and storage. They note that the existence of public stocks can go a long way toward reducing fears of
future scarcity and also defeating the manipulative practices of private traders.
In analyzing the role played by the governments of Thailand and Indonesia, this paper locates its analysis from
within the prism offered by Wade, Amsden, Dreze and Sen. From both Wade and Amsden, we learn of the
need for state intervention to go beyond the creation of strong institutions for the functioning of markets, to the
formulation of a clear-cut strategy for agricultural growth and a commitment to pursue this strategy. From Dreze
and Sen we recognize the need for government to maintain a presence in the food market by carrying stocks or
ensuring that food stocks are not prone to the speculative manipulation of middlemen. This paper proceeds from
the premise that though state intervention in trade and stockpiling is costly, the best response is to reform its
mechanisms and processes rather than abolishing it altogether.
8
State Intervention in Food Markets: The case of Thailand and Indonesia
Within Southeast Asia, the histories of rice production in Thailand and Indonesia demonstrates the
contrast in the current options faced by both governments (Op. cit., Palmer, pages 3-5, 9-11). Because the
population in Java rose faster than elsewhere in Indonesia, the rice industry tended to be concentrated in
this island. But land allocated for rice cultivation had to compete with those assigned to sugar, and so as
early as before the Second World War, Indonesia had to import rice. To increase production an intensive
system of irrigation was started before, and continued, after the Second World War. But despite irrigation,
fertilizers, and the increased labour intensity in land, Indonesia continued to suffer chronic shortages and
to import rice.
On the other hand, Thailand specialized in rice production from as early as the pre-war period, such that by the
mid-forties, almost 53/o of total foreign exchange revenues were accounted for by rice exports. However, in
comparison to Indonesias 2.5 tons per hectare yields Thailands rice yields were low at 1.3 tons. With half of
the national rice production consumed domestically, almost 90% of Thailands cultivated land was under rice. In
comparison to Indonesia, Thailand likewise invested in fertilizers and irrigation, though most of the increases in
production were accounted for by the opening up of new land for cultivation.
The historical evolution of paddy production in both Thailand and Indonesia explains the patterns of present
day state intervention, and the opportunities for further increases in productivity. In terms of production,
Thailand may be seen to have reached the limits of its land resources, and any increases can only be undertaken
at the cost of investments to increase current yields. On the contrary, Indonesias yields per hectare can be
supplemented by the opening up of new areas for cultivation, which demands additional investments in
infrastructure and irrigation.
Indonesia
Indonesias chronic defcits in rice production produced an interventionist strategy that promoted irrigation
projects; agricultural extension, the introduction of high yielding varieties, price support and subsidies on
fertilizers and pesticides. This led to a boom in rice production which reached its climax in 1985 when national
self suffciency was achieved. At present prices and levels of consumption around 30 million tons of milled rice
need to be produced every year to fulfll the objectives of self-suffciency.
8 Dreze and Sen argue that even under the favorable assumptions about the competitiveness of markets, the ac-
curacy of traders foresight, and risk-neutrality of individual behavior, speculation can be destabilizing. (page
94)
The government established a food logistics agency, the Badan Urusan Logistik or BULOG in 1967 to carry out
its objectives of national rice self-suffciency, and in particular, to administer a buffer stock to stabilize prices.
The importance of buffer stocking as a strategy can be gleaned from the description of the role of BULOG -
-- it is frst and foremost, a national rice stock authority, in later years BULOG would also be involved in the
importation and distribution of sugar, soybeans, wheat four, and wheat grain, and the administration of food
aid.
An important context behind the establishment of the BULOG also has to do with the instability of the political
situation in the late sixties, and the role of the government and the military in quelling unrest brought about
by political strife and ethnic tensions in Indonesian society. Hence, the frst objective of the BULOG upon
its creation was to supply rice regularly to the armed forces and to most government servants at prices that
maintain a high degree of stability to real incomes of these key groups (BULOG : 1975, page 2). The other
objectives of the BULOG were to purchase rice or paddy in the domestic market so as to support a minimum
foor price for farmers, thereby inducing producers to increase production; and to be prepared to inject rice into
the market so as to maintain a stable economy by preventing rice prices from going beyond a predetermined
ceiling price.
In the beginning the formula for price setting and buffer stocking was based upon the price of fertilizer
at the village level, based upon the assumption that a kilo of urea could increase rice production by five
kilos. (BULOG 1971, page 6) The government price policy would evolve in the late eighties to make
rice available to all at a price which is reasonably dose to that on the international market. Thornbeck
(1992, page 48, 51) cites this policy as a product of two factors one, the rice boom was construed to
mean that maintaining high subsidies was unnecessary, and two, the onset of structural adjustment
on Indonesia resulting in pressure to reduce government spending resulting in the drawing down of
subsidies for fertilizer and the price stabilization budget. From a peak 55% subsidy on fertilizer in the
early eighties, for example, the support was pared down to 35% by 1988. Alexander and Wyeth (1994,
page 312-313) sees the closer linkages between domestic and world price to have come about from the
reduced procurement by BULOG of only six to ten percent of total production within the government
price band, thereby leaving price formation to the private sector. Another factor responsible for the
setting of rice prices are the relative surpluses in Surabaya and Ujung Pandang
9
, and the demand and the
possibilities for imports in Jakarta. Both areas influence the prices that are pegged for rice. (ibid, page
324325)
The procurement process was originally seen to utilize imports but only to support the creation of buffer stocks,
if domestic procurement is insuffcient. The levels of buffer stocking were fxed on a province to province
basis. The decentralized buffer stocking is necessary to ensure the swift transfer of stocks to any part in a large
country in times of crisis.
An analysis of the combination of Indonesian policies in production and trade show the results in a rapid
increase in rice supply averaging fve percent per year from 1970-1988. Gonzales et. al. (1993, page 13-
14) trace the success of Indonesian production to the mix of government policies, and they further state that
Indonesian rice has comparative advantage as an import substitute but not as an export crop because of the
poor quality and the thin world market.
These government policies and the general role of the state in Indonesia interact with the changes brought about
by trade liberalization, a condition that has already come about under the auspices of structural adjustment. Two
sources of liberalization need to be understood : one, the impact of the multilateral WTO agreement and, two,
the inclusion of rice in the proposed regional facilitation of trade within the ASEAN Free Trade Area (AFTA).
9 Both provinces account for the biggest surpluses in rice production in the early nineties.
Policy analysts in Indonesia have shown the suffcient hedging and protectionist measures undertaken by
Indonesias trade negotiators to prevent a reduction in current levels of domestic support including the levels
of buffer stocking, the calculated use of the green box measures if challenged by other countries, and the
maintenance of state trading enterprises or STE. (Pangestu and Feridhanusetyawan : 1996, page 10) Hence,
Indonesia does not feel threatened by the WTO in terms of its traditional management of the rice sector.
Besides, the gradual changes had been propelled earlier under the adjustment process, and tariff rates under the
WTO are suffciently protectionist in terms of rice.
10
In the case of ARIA, the inclusion of unprocessed agricultural commodities initially met resistance from both
Indonesia and the Philippines which saw the move as threatening the protection accorded to rice. The apparent
twist in terms of the fear accorded to AFTA versus the WTO is of course a result of the fact that major exporters
such as Thailand, Burma, and Vietnam are part of ASEAN. An agreement has been reached that provides
protection to rice of at least an additional 5% tariff above the agreed rates that are to be imposed by 2010.
The additional tariff plus the inclusion of safeguard measures against dumping have temporarily appeased
both Indonesia and the Philippines, which are considered the laggard countries in ASEAN with regard to the
liberalization of agricultural commodities (Ibid, page 13).
Thailand
Thailand also intervenes heavily in agricultural production and trade, in quite similar ways as those practiced by
Indonesia, such as in the provision of incentives for the use of fertilizer and high yielding varieties and in price
stabilization and stockpiling. However, though one may argue that the dominant policy framework is geared
towards food stability, the emphasis in the type of involvement is different.
Thailand utilizes a tax system for rice exports, combined with a strategy for encouraging local capital investment
in crop diversifcation. Butch (1996 page 323-324) notes how the simplistic argument that trade liberalization leads
to underdevelopment of local capital and the integration of national agricultural sectors to transnational capital
has not occurred in Thailand. He adds that Thailands case of being a leading exporter of rice as well as other
value added food products (canned pineapple, baby corn, prawns, poultry etc.) suggests that the transformation
of national agricultural coutries into exporters of non-essential commodities does not necessarily imply that they
become importers of essential food commodities. Any analysis of the rice sector in Thailand should also take
into account the major role played by rice production as a source of valuable foreign exchange. Rice is also an
important part of the food diet and accounts for a major part of household expenditures.
Rice prices and rice production have been the target of government intervention since the post-war period.
Holtsberg (1982: page 170-171) explains how the concept of price manipulation started from as early as the
Bowring Treaty of 1955 between Britain and Thailand, where an export tax on white Thai rice amounting
to 4 baht per ton was imposed. As a revenue generating project together with the head and land taxes of the
1930s, the rice export tax was maintained after the latter two were abolished after the creation of constitutional
monarchy. Subsequent policies in the forties and ffties should be seen within this framework where a major
share of government income came from agricultural taxation in general, and rice taxes in particular. The
combined impact of tax measures on rice was to drive down domestic prices to as low as 50% below world
market prices --- penalizing in the process the farmer producers. The taxation was only eased in 1986, when
world prices were at an all-time low.
The tax on rice, and its revenue generating power, is indicative of the evolution of this commodity as major
product and export earner due to consistent production increases. These increases were a result of the rapid
10 The import tariff on rice is at a high 180%.
expansion of area cultivated, and the OECD (1991: page 16) notes that from 1950-1978, it is only Thailand
in Asia where land area per agricultural worker actually increased, as forests were felled and brought under
cultivation. This expansion led to increased productivity averaging 3.8% per annum which continued up to the
nineties.
Productivity and the growth of the export market raised concerns about the need to control exports to ensure
domestic supply and low market prices. Three mechanisms were imposed to meet the objectives of national
security and economic growth. Quantitative restrictions on the export and import of rice, the creation of a
reserve stock policy, and price stabilization through a guaranteed price for paddy rice. Of particular relevance
in contrasting Thailand with Indonesia is the evolution of a reserve stock policy. Like Indonesia, Thailand
compelled its exporters to sell a defnite percentage of surpluses to the government at government imposed
wholesale prices which were generally low. However, the reserve stock policy is not a permanent feature of
annual production, and is instead introduced when domestic prices reach a politically dangerous level, and
abolished after a crisis ends,
In a study conducted by the World Bank (1985 page 2) these policies were seen to distort local
prices and create disincentives for intensification of fertilizer use and rice production and as costly
interventions with minimal effect because prices were below market levels. Panayotou (1985 page 13)
notes that conducting food policy in a country with continued surpluses often leads to complacency
since without a real crisis there is little pressure or justification for initiating changes. So despite
the World Bank admonition on free markets in rice, very little has changed in Thailand except for
the abolition of the export tax. But the rice reserve policy remains combined with the program for
subsidized seeds, fertilizers, and pesticides; the increase in suhsidized credit for production; and price
support. ( Poapongsakorn 1996, pages 19-21).
In terms of the effects of trade liberalization, a reverse situation exists in Thailand in comparison to Indonesia.
Thailand is concerned with continued US subsidy payments to its rice farmers which the WTO has been unable
to prevent, and which Thailand hopes to bring under dispute settlement rules. On the other hand Thailand is
interested in speeding up the actualization of the AFTA as it pertains to unprocessed agricultural products.
However, Thailand is closely monitoring the performance of Thailand and Burma, both of which are bound to
enter the AFTA soon and will create competition for Thai rice farmers.
Conclusion: Reforming State Intervention in Food
The state has often played a dual role in addressing food security objectives. The centrality of food security in
decision making originates from; one, the need to strengthen the rural constituency to the political projects of
states; and two, from the desire to protect political legitimacy and stability in urban areas. Both demands lead to
the evolution of a type of state intervention that projects itself as reconciling the interests of both producers and
consumers.
Indonesias rice policy is a classic example of this type of government intervention, It saw a role for government
in directly intervening in rice markets to increase productivity on the one hand, and to promote rural, and
urban stability on the other. It is also clear that the primary purpose of the stockholding operation was to act
as disincentive for speculative market forces (BULOG: 1974, page 1), to prevent prices from causing social
unrest. This was seen to come about from the collapse in farm gate prices due to peak periods in harvesting, or
the increase in rice prices during the production lean months.
The impact of speculative market forces is a real one, though often there is a tendency to play up the trailers
and middlemen as the cause of all food problems. Studies done by Griffn ( 1979) Usher (1978) and Srisuraksa
(1968) all point out how in the case of Thailand, there is very little empirical evidence that middlemen
reap monopoly profts at the expense of the peasantry.
11
Instead, the monster image created of exploitative
middlemen appears to hide a more important issue which reveals the problems faced with price stabilization and
stockholding policy the inevitable recourse to foreign trade, rather than domestic procurement as a means of
resolving supply problems.
Siamwalla (1981: page 84) points out that despite the rhetoric of adequate returns to farmers, price policy and
food reserves actually offer low paddy prices to farmers that either market prices exceeded them without much
effort by the government or else, in years when they could have affected the prices, the capacity of government
procurement was puny. In the case of BULOG, reliance on imports was a better means of ensuring continuous
fow of food to an urban clientele rather than domestic procurement. Holtsberg (page 180) reinforces this claim
by showing that paddy price support was clearly never permitted to challenge the priority given to stabilizing
consumer prices. He notes how in 1975, the proposal to raise the offcial consumer price following the increase in
paddy prices was met with violent opposition from the combined forces of trade unions and students in Bangkok.
The reality of states penalizing the farming sector is a real one, and it buttresses the argument posed by Lipton
of an urban bias, or that of Bates who pointed out to the under representation of rural producers as resulting in
low food prices, ultimately resulting in lower farm gate prices of farm commodities. However, despite these
policies, increased productivity in rice has been accomplished in both Thailand and Indonesia because pricing
strategy and stockholding was accompanied by programs designed to increase productivity, as in the case of
Indonesia, or in a more benign form of stockpiling, as in the case of Thailand,
Reinsel (1993: page 114) argues that the objective of an independent stock program would be to smooth the
fow of unanticipated products to the market in response to unanticipated short supplies. They can play a
powerful role as demonstrated in the case of China, where if the state had not undertake storage programs in
the 1980s, yield variability would have emptied the storage bins (Ibid.) He suggests that instead of fxed
targets of grain to be stored, governments should instead move towards a yield-triggered buffer, and away
from fxed stock and proportional buffers. The difference lies in the fact that fxed and proportionate buffers
target the attainment of a fxed amount or proportion of stocks, rather than the timely delivery of these stocks
to the market. They can exacerbate price changes rather than buffer them. With a yield-triggered buffer stock,
producers are given the option of whether to sell to the market or to the government, and only an amount
equivalent to the deviation above the national trend time the acres harvested would he permitted to enter
government storage from the current years crop. (Ibid, page 111)
The scholarship on the impact of these policies on food stability clearly point out to their maintenance and
reform rather than their full abolition. Echoing Dreze and Sen, Reinsel argues that even for just the fact of
seasonal variability (the imbalance of output and consumption within a production season) andd weather
induced supply variability, government intervention is a must. Echoing Bates rational choice framework,
Reinsel also explains how commercial frms will meet proft maximizing objectives by equating marginal
cost of storage with the expected marginal revenue from storage. When it is clear in a production season that
crop production will decrease, commercial frms may fnd it proftable to carry over grain to the next marketing
season instead of meeting shortages on the expectation that prices will rise suffciently to offset storage costs
and turn in higher profts. In the absence of state intervention, as Dreze and Sen claim, traders will have
unrestrained and commanding infuence on market operations, even when that infuence has damaging effects
on vulnerable people
Goldin and Van der Mensbrugge also note that strategic stocks should be accommodated between either free
markets or through non-distortionary international accords such as may be managed through the World
11 As cited in Holtsberg (1982)
Food Programme of the UN FAO. Siamwalla (1981, page 89) relates how Asian countries tried to develop an
Asian Rice Trade Fund under the ESCAP and the 1978 ASEAN emergency rice reserve to meet the needs of
food stability through buffer stock operations. Three years ago ASEAN countries organized the food security
reserve board to restore the discussion on a food reserve. Coming out of a rice crisis in 1995 has increased the
momentum of the discussions on this mechanism.
These developments point out to the need to recast the role of the state in terms of food security. It
means a bigger role rather than a small one. A more active initiative rather than a passive one. States in
Southeast Asia, especially those of Thailand and Indonesia, are important in negotiating and actualizing
the creation of regional food reserves, or in the reallocation of resources to supply-side intervention
that would either restore or sustain rice productivity. Thailands on-off experience in buffer stocking
and price stabilization is a feature of state intervention that is now coupled with the removal of export
taxes on rice. In a sense, the institutional framework for the proper functioning of a rice market exists
that can withstand the effects of either multilateral trade under the WTO, or regional liberalization under
die AFTA. Indonesia needs to implement the same type of policy reforms that will lead to at least three
priority changes, i.e., one, a restructuring of buffer stock operations to connect these with yield trends
rather than fixed targets, two, a further liberalization of rice to regional trade under AFTA, and, three, a
renewed effort to improve investments in supply enhancing initiatives such as in research, infrastructure,
and extension work. These steps are necessary for challenging the conditions eminent under global trade
liberalization, as well as in locating an appropriate role for the state, and the conditions are already
present for both countries.
Robison (1985) highlights the role of the state in New Qrder Indonesia as both investor and fnancier and
mediator between state and national capital. This provides positive conditions for improving agricultural
productivity by mobilizing local capital and restructuring agriculture and food as it relates to the international
market. Pasuk and Baker (1995) stress the role of the state in creating positive conditions for domestic capital
investment in agribusiness in Thailand. Burch (page 324) adds that local capital, established and strengthened in
an earlier phase of restructuring provides the current impetus for the transformation of Thai agriculture. Using
these advantages would be strategic to strengthening the state in both Indonesia and Thailand as it engages in
achieving food stability.
REFERENCES
Alexander, Carol and John Wyeth. (1994) Cointegration and Market integration : The Indonesian Rice Market,
Journal of Development Studies, Frank Cass, London, Vol 30, No. 2, January.
Amsden, Alice. The State and laiwans Economic Development in Evans, Rueschmeyer, and Skocpol, eds.
Bringing the State Back in, Cambridge University Press, Cambridge. 1985.
Bates~ Robert, Beyond the Miracle of the Market, Cambridge University Press, Cambridge, l989.
Badan Urusan Logistik (BULOG) (1974) The Indonesian Polkyto achieve Short term and Long Term Food
Security, BULOG, Jakarta, October.
Badan Urusan Logistik (BULOG) (1 975) The Problem of Stock Size in the Indonesian Rice Stock Policy,
BULOG, Jakarta, February.
Butch, David. Globalized Agriculture and agri-food restructuring in Southeast Asia The Thai Experience, in
David Butch et. al eds. Globalization and Agri -Food Restructuring: Perspectives from the Australasia region,
Ashgate Publishing Company, Aldershot, England
1996.
Committee on World Food Security (1996). Rome Declaration on World Food Security and the World Food
Summit Plan of Action. Rome, Italy, U.N.F.A,O. Publications, 38 pages, October 31.
Committee on World Food Security (1996) Food and International Trade, Rome Italy, UNFAO, April.
Dreze lean, and Amartya Sen. Hunger and Public Action, Wider Studies in Development Economics,
Clarendon Press, Oxford, 1989.
Goldin, Ian and Dominique van der Mensbrugghe. Trade Liberalization: Whats at Stake?, OECD
Development Centre Policy Brief, OECD, Paris, 1994.
Gonzales, Leonardo et.al., Economic Incentives and Comparative Advantage in Indonesian Food Crop
Production, International Food Policy Research Institute Research Report No. 93, Washington, 1993.
Holtsbcrg, C.P. Rice Pricing Policy, in Peter Richards, ed. Basic Needs and Government Policies in
Thailand, Singapore, Maruzen Asia, 1982.
Knudsen, Olin, andJohn Nash. Redefning the Role of Government in Agriculture for the 1990s, World Bank.
Discussion Papers 105, IBRD, Washington, November,
Lipton, Michael. Why Poor People Stay Poor: Urban Bias in World Development, Cambridge MA, Harvard
University Press, 1 977
Palmer, Ingrid., The New Rice in Asia : Conclusions from four country studies, (JNRISI), Geneva, 1976.
Panayotou, Theodore. The Conceptual. Framework for the Food Policy Analysis Project in Thailand., in
Theodore Panayotou, ed,, Food Policy Analysis in Thailand, Bangkok, Agricultural Policy Development
Council, 1985.
Pandya-Lorch, Rajul and Per Pinstmp Andersen. (1996) IFPRIs 2020 Vision for Food, Agriculture, and the
Environment, Paper presented at Conference on Food Security and Sustainable Agriculture, APRODEV,
Denmark, March 7.
Pangestu, Mari and Tubagus Feridhanusetyawan. (1996) Liberalization of the Agriculture Sector in Indonesia:
External Pressures and Domestic Needs in Conference on Food and Agricultural Policy Challenges f or the
Asia-Pacifc and APEC, Manila, PIDS-NED& October 1-3.
Poapongsakorn, Nipon. (1996) Thai Agriculture and the WTO Agricultural Agreements Negotiating Objectives,
Implementation, and Implications for Public Expenditure, in Conference on Food and Agricultural Policy
Challenges for the Asia Pacifc and APEC, mimeograph copy, Manila, PIDS-NEDA, October 1-3.
Pongpaichit, PasuL and Chris Baker. Thailand Economy and Politics, Oxford University Press, Oxford. 1993.
Reinsel, Robert Government Grain Storage Food Security and Price Stability, in Robert Reinsel, ed.,
Managing Food Security in Unregulated Markets, Boulder, Colorado, Westview Press, 1993.
Robison, Richard. Class Capital and the State in New Order Indonesia, in Higgott and Robison, eds.,
Southeast Asia Essays in the Political Economy of Structural Change, Routledge Publishers, London, 1985.
Siamwalla, Ammar., Security of Rice Supplies in the ASEAN Region, in Alberto Valdes, ed., Food Security for
Developing Countries, Westview Press, Boulder, Colorado, 1981.
Siamwalla, Amtnar., Setboonsarng, Sepa., and Prasong Werakarnjanapongs (1991) Changing Comparative
Advantage in Thai Agriculture, technical Papers No. 35, OECD, Paris, March.
Solagral. (1996) Instability of World Markets : Seminar Documents on Long Term Food Security : Long Term
Perspectives, Solagral, Brussels, April 1-3.
Stiglitz, Joseph (I 987) Some Theoretical Aspects of Agricultural Policies, The World Bank Research
Observer, Vol.2, Number 1, January.
Thorbecke, Erik. Adjustment and Equity in Indonesia, in Christian Morrisson ed., Adjustment and Equity
inDeveloping Countries, Development Centre Studies, Paris, OECD, 1992.
Wade, Robert. Governing the Market: Economic Theory and the Role of Government in East Asian
Iindustrialization, Princeton UniversityPress, NewJersey, 1990.
World Bank. Thailand: Pricing and Marketing Policy for Intensifcation of Rice Agriculture. Washington,
IBRD, 1985.