Indonesia | Economics

Wednesday, September 13, 2006

The food security nonsense

Here is an old nonsense used by the rice-farming lobbies to fight off rice imports: That food security requires Indonesians to produce more than they consume, and hence, Indonesian rice farmers should be "empowered" (read: protected) and provided with incentives to keep them planting more rice.

It's nonsense because there is a very loose link (if any) between food security and food production. Singapore does not produce any rice. Yet most of them get better deals than Indonesians, since they can buy their (imported) rice at a cheaper price than most Indonesians.

Why is this true? Here is how Amartya Sen began his famous book on famines:
Starvation is the characteristic of some people not having enough food to eat. It is not the characteristic of there being not enough food to eat. While the latter can be a cause of the former, it is but one of many possible causes.

It is, therefore, wrong to pretend that there is a link between rice production and food security! To the extent that all Indonesians can have enough to eat, Indonesia is food secure. In fact, there are many countries that produce lots of food but are food-insecure (North Korea is a case in point). On the other hand, many non-food-producing countries are food-secure. Just look at how much rice Jakartans produce (and how food-secure they are).

Hence, we need more sensibility in the whole food security debate. As a start, we need a better (and more proper) measure of food security. Economist Haryo Aswicahyono, in a private discussion, had a brilliant idea: Why not use the share of food on total expenditure as the indicator -- the point being, the smaller this share, the more food-secure a household is.

Now, that is a simple but very powerful indicator to detect problems of food security in the various regions in Indonesia. There are, of course, other similarly useful indicators such as malnutrition rate. At any rate, it is these indicators, instead of rice production, that should direct the debate on food security.

17 Comments:

  • True.
    Food security (or security of most goods) is more about distribution of resources/wealth, rather than technology or production itself. I.e., the people who produce Nike usually cannot buy the shoes themselves. I think talking about this issue from production/ technology point of view is running away from the larger, more difficult issue of political economy.

    By Anonymous Muli, at 9/13/2006 09:45:00 pm  

  • Muli,
    Well said!

    By Blogger Arya, at 9/15/2006 06:45:00 am  

  • do you know of any country that provides NO protection to its farmers at all?

    Here's an alternate scenario: most rice producer countries set price floor and/or tarrif to protect domestic producer. As a result, domestic farmers produce more than their market can absorb and dump the excess to export (or even by humanitarian aid). if everyone does that why can't we do the same 'tit for tat'??
    ps: not sure if that actually happened in rice market. just a thought

    By Anonymous Anonymous, at 9/15/2006 08:29:00 pm  

  • Anonymous,
    Protection to rice farmers robs consumers of the opportunity to obtain cheaper rice without affecting farmer productivity.

    In fact, it might even limit the expansion of farmer productivity because it maintains inefficient farming practices (as I discussed here in Indonesian).

    Most importantly, many of the consumers 'robbed' are poor. Let me translate a passage from BPS's latest report on 2005-2006 Poverty Rate in Indonesia:

    "The most important commodity for the poor is rice. In March 2006, the percentage of the poor's rice to total expenditure was 23.10 percent; in the rural areas the percentage reached 26.08 percent. The contribution of rice expenditure to the Poverty Line reached 34.91 percent in rural areas and 25.98 percent in urban areas. Hence, rising rice prices will have a large impact on the poor."

    Why would we want to participate in a tit-for-tat game that disadvantages our own poor?

    By Blogger Arya, at 9/17/2006 11:58:00 pm  

  • well IF the world's market price being cheaper is due to the world's over-production (as a result of some other countries' dumping practice to protect their own farmers) then the efficiency argument does not necessarily hold true. This creates an effect similar to the predatory pricing practice in airline industries (big dominance airlines undercutting the regional ones just to get them out of the market)

    I am not saying that it is indeed the case. but I would like to see more evidence that:
    1. indonesia's rice farmers are less efficient
    2. consumers are more elastic than producers in the long run so they benefit the most from any price change.

    The ‘nonsense’ article you referred to indeed indicated that the low rice price due to dumping practice of countries such as Thailand and Vietnam reduces our domestic farmer’s wage which in turn provides ‘artificial' subsidy to other industries in the form of cheap labor (perhaps the very people you claimed being ‘robbed’ by a higher rice price). hence it alluded a very elastic supply curve.

    By Anonymous Anonymous, at 9/21/2006 06:14:00 pm  

  • Anonymous,
    I'll answer your questions with two question-pairs:

    One, is the use of public policy to transfer resources from consumers (including many poor ones) to rice farmers justified? Why?

    Two, do what other countries do change your answer above? Why?

    PS: If you want to read more about rice policy and poverty, here is a paper.

    By Blogger Arya, at 9/22/2006 04:59:00 am  

  • Gee I thought you'd answer my qs first but anyway here's my short answers:
    1. strictly academic speaking: govt. intervention/pub policy is bad because of the dead weight loss, etc. thats however ONLY valid in an ideal world where all players are facing close to perfect competitive market, no price collision, fixing, dumping, predatory etc. hence everybody sees the same price e.g., the 'true' market price not an artificial one due to dumping

    2. see 1. depending on my perception of the market: i.e., highly competitive vs. the opposite my answer will indeed change. so yes what others do matters to me

    I will go to my longer version, if you'd allow me, in my next post

    By Anonymous Anonymous, at 9/22/2006 03:25:00 pm  

  • OK now let me elaborate my short answer above.

    thanks for the paper btw. It is a decent one I must say and touches many of the points I was mentioning (mind you I am not used to read any economics paper let alone a 30+ pages one)

    So with that being said, here’s my understanding (based on a quick 15-20 minutes reading at work at the risk of being caught by my boss so I may have missed some points here and there) The ‘model’ says that a ban on imports increases poverty incidence by less than 1ppt hence not possible to justify import ban by claiming it reduces poverty.

    But my intuition says that the fact that it needs a model to simulate the not-so-slam-dunk-results indicated that, under certain parametric conditions. there was (is) a possibility that import ban reduces poverty. (and please remember reducing poverty is not the only reason for protection-food security: the ability to be self sufficient whenever we need it in the case of war, embargo, etc. -I think-is the bigger one)

    I also found some unsubstantiated remarks there including:
    p4 (argument for protection) : If rice import prices were to be PERMANENTLY depressed by exporter policy….
    Who said it will be permanent?? If it is what it seems to me, hence predatory pricing, then by definition it WON’T be permanent. hence beating the whole premise of the paper right there..! (but I kept reading)

    Soo… back to your questions;
    My favorite answer is, as you see above, ‘it depends’
    If I were an economist wearing my academic hat explaining the theoretical concept of dead weight loss off course I’d say any price intervention is ‘economically’ bad to the society.
    BUT,
    If I were a policy maker trying to make a national decision I will say ‘wait a minute’. I would imagine the conversation will go like this:
    Me: Mr. economic adviser, can you advise me if we really see a pure competitive market that warrants a pure market driven approach here? Or did you see a predatory pricing that in the long run will come back and bite us once we are no longer in the rice producing business?
    Economic adviser: uhm.. we have a model to explain that sir, regardless of what others do
    Me: so does the model justify a ban on rice import?
    Economic adviser: umm..no sir
    Me: so it does support a lift on import protection then?
    Well, kinda…at least if we lift the protection we can lessen the poverty by almost one percentage point
    Me: less than one percent??? And how do you feel about your model?
    Economic adviser: uhmm..well…depending on the assumptions and parameters we picked on supply and demand elasticity, but we did play with some plausible ranges ..bla..bla…
    Me: OK got it, thank you very much Mr. advisor. Next issue please?

    Anyway, honestly I was originally trying to be a devil’s advocate to find the right and strong reason to support a market driven approach here but the more I inquired the less I am convinced now. But I do learn something more, thanks to you kind response. But you gotta help me more now..:)

    Best regards,

    By Anonymous Anonymous, at 9/22/2006 04:06:00 pm  

  • Anonymous,
    I didn't answer your questions because I was hoping you'd find your answers in the referred paper ;-).

    But, back to my questions. The first question wasn't meant to be merely an economic one, but also an ethical one.

    Let's abstract from efficiency for a while: Is it justified to use public policy to redistribute from consumers to farmers?

    Taking cues from Rawls and Sen, in the light of the BPS report on poverty, my answer is no.

    Does what others do affect my answer? Not really. If other countries want to subsidise consumers, including poor ones, in Indonesia, all for the best!

    Nationwide predatory pricing? Unlikely. Predatory pricing relies on the assumption that the cost of entry is high. I don't think this applies to rice-farming.

    Self-sufficiency? Now this is what I called 'nonsense' -- as Sen has shown, there is little link between production and access to food.

    The nonsense is this idea that we have to produce our own food at all cost -- even at the cost of being able to produce something else that will bring in more money (to buy food).

    Case of war? Well, inter-country relations post-ASEAN has been calm, so war is unlikely.

    But suppose that there is a more-than-zero percent probability of this. Question is, is it justified to prepare for this unlikely event with this policy? Especially since war is unlikely to close our access to food (and food aid) from outside the border.

    Note, however, that I am attacking this notion of food production-security link.

    I am against a ban, but from the policy of view, I also acknowledge a need not to allow farmers to adjust, especially since many of them are also borderline poor. Policy-wise, conversion from a ban to import tariffs (instead of an import ban) is the way to go.

    PS: As for farmer efficiency: Most Indonesian rice farmers live in Java, and by the chief farmer-lobby's own admission, they are inefficient.

    By Blogger Arya, at 9/22/2006 05:32:00 pm  

  • Thanks for your helpful response.
    now we are talking. OK got it efficiency is out. price predatory being very unlikely? hmm maybe not for long term but what about for short term?..it does take time to grow paddy doesn't it? now that brings me to the next point, 'security'. may be war is a bit too extreme an example. but say some 'geopolitical tension'. kinda what we had with malaysia on the islands, or with thailand on fishing boats, etc, or potentially w/ vietnam/china on some deep sea gas reserve
    would that be nice to have one less thing to worry since no one can play that bargaining chip with us? imagine you are at a negotiation table against any of those countries, which happens to be the major supplier of your food staple that you no longer have the ability to provide yourself sufficently. it will take time for your to convert your land, etc to catch up with any potential shortage threat by your exporters. mind you if we have some others bargaining chips at our disposals (the way singapore does) that might be a bit diff story. dont' think we have much either

    Now of course you had the magic words 'at what cost' do we want to have that security? not at all cost fer sure. I can better understand now-thanks to your reference and expl- that you don;t want to go to the extreme of making your country produces sufficient food that many people can not afford.
    but is that really the case here?

    what about for the risk (not actual) of 'less than one ppt increase in poverty (short term)' as the model 'estimated'? is that too expensive? I'd be start worrying my judgment if it is a) an empirical model and/or b)the results are much stronger

    afterall, our household income record tends to be underestimated because of the informal-sector activities that are not well tracked by the stats doesn't it (CMIIW)? can you feel around you if people would be much better/worse off because of the rice price differential? in the city? in the rural area? -this is not a rethorical question btw cause i honestly don't know the answer due to my geographic limitation

    am I being too extreme here?

    Best regards,

    By Anonymous Anonymous, at 9/22/2006 08:14:00 pm  

  • Anonymous,
    I'll keep it short.

    Predatory pricing, by nature, is a long-term strategy -- never a short-term one.

    On using rice for international negotiation: I think you're pushing the frontier of plausibility here. You overestimate the power of the state over its private sector and underestimate people's ability to adjust their rice-suppliers or their choice of staple foods.

    On poverty and rice, two references: the BPS's poverty rate report (see this comment) and this post. The BPS report uses expenditure, which is more reliable than income.

    Thus far, I have yet to see a strong argument for using public policy to protect farmers at the expense of consumers on both ethical and efficiency terms.

    By Blogger Arya, at 9/23/2006 01:17:00 am  

  • thanks again for your comments, those are great!
    as to int' negotiation I guess I always have this analogy in mind about INA's dependency to rice similar to US's dependency to oil. hence it is always to your best interest to be secured within reason. Call it paranoid but mind you this is rice we are talking about not sugar or nike shoes. 1-3 months of shortage (without the ability to self-recover dom. production quickly) is enough to create instability in my mind (hence my stretch to the price predatory argument albeit it being short termish). btw your Marie Pangestu's article did point out and illustrate the importance of negotiating points to bargain. To me Peter Milne’s article you pointed out is a great example the importance of good policy communication

    I have to look again at your numbers. Been dealing with lots of numbers and models at work but often time they don’t mean a squat for decision makers if they don’t pass their sniff test (does not mean the numbers are wrong but may be they were not presented in a more intuitive and compelling way). I guess at this point, unless I see stronger evidences of how the poor is severely affected by rice protection, I am still not ready to sway either way. but I am learning something new everyday.

    thanks for having me in your blog

    By Anonymous Anonymous, at 9/23/2006 06:14:00 am  

  • Anonymous,
    If security's your main concern, let me give you a cheaper solution: Silos.

    Actually, we already have such a mechanism in our State Logistics Agency, BULOG (similar to the way the Americans have their oil reserve). If you follow the news on this issue, mentions of rice reserves always come up.

    However, this solution does not require taxing consumers for the benefits of farmers: The rice that is stocked up need not be produced domestically. In fact, it can be most efficiently done by purchasing the cheapest rice (given the same quality) available in the world market.

    Also, don't forget people's ability to adjust. If the shock is manageable, people will simply find other sources of carbohydrates. See this article in The Jakarta Post

    You're always welcome here. I was kinda hoping, for all practical purposes, it's not going to be anonymous next time around -- but, hey, it's your call ;-).

    By Blogger Arya, at 9/23/2006 07:01:00 am  

  • thanks arya,

    I agree with you that the more recent rants about rice import has been blown up out of proportion. after all it was just bulog piling up its safety stock, not that we open the gate completely to import
    actually I think now am able to better frame up my question for you:

    are you against the idea of food security (at any cost?) OR
    you are OK with the idea, but believe there are cheaper ways to achieve it, without risking the poor?

    so for me it is more like should I give up the idea of food security completely? I am just thinking, besides the simple way of rice reserve you just mentioned, there are many other ways you can use public money (tax) that may not impact the poverty directly, such as investing in farming technologies/improving efficiency, etc partialy because of heck what other best use of our farmland and people? but you got me thinking there

    as to being anonimous I have yet to make up my mind whether I want give up some of my privacy online (and just found out how to use an online handle on this bolgging thing). would be easy if my name is simply john or ardi.
    just call me working class for now. In a slightest chance you want to know more about me I would be happy to introduce myself to you offline, which I doubt it will do much since i am practically just a random anonimous indonesian..;)

    working class

    By Anonymous working class, at 9/23/2006 07:55:00 am  

  • Working class,
    I might have put a wrong title to this post, but if you read it carefully, you'll see that I am for food security.

    The nonsense is the effort of rice lobbies to put in people's mind that food security equals "self-production" -- and hence arguing that anything that will lower domestic rice price will threaten "national security".

    Food security is about access. Apparently North Korea produce food surpluses, but more people there are undernourished than, say, in Singapore, which produce no food at all, or even Indonesia.

    (BTW, an aside on Singapore: Do you know that Singapore buys its supply of clean water from Malaysia? Water vs. rice -- which one's substitutable? ;-))

    This illusion of food security = food production is dangerous because it diverts resources in ways that actually harms food security.

    Instead of focusing on policies to ensure people have enough calories to live their lives (which is what food security really means), it diverts policies towards ensuring self-sufficiency of rice -- and, in the import-ban case, at the cost of true food security concerns.

    You're saying that there are ways to ensure self-sufficiency through the use of public money that do not directly affect poverty. But economists don't believe in a free lunch. A Rupiah spent on ensuring self-sufficiency is a Rupiah taken away from education, health, and other public expenditures that are more effective in ensuring real food security.

    It doesn't mean that I disagree with spending more on agricultural research. It simply means that the decision must be based on rational calculations on which policy is the most effective to achieve a particular policy objective. It's similar to the problem of scholarship allocation.

    That's why I pointed out that the share of food to total expenditure amongst the poorest fifth of the population to be a useful rough indicator of food security. Access to -- not production of -- food that matters to food security.

    As for anonymity, a handle is good enough. It avoids confusion, which for my practical blogging purposes is what matters most.

    By Blogger Arya, at 9/23/2006 09:05:00 am  

  • thanks arya,
    I really like your north korea example, come to think of it. now I can better understand both side of the story.

    Singapore example, on the other hand, is not as strong because it is landlocked. Hence, not sure if it has as much choice to begin with. Be nice if there's an example of a country that is actually similar to Indonesia in terms of land's/resource availability and choose to give up its production capacity

    Yes I agree with you on rational calculation. But in practice the 'value' of each option is not as easy to quantify to say one option is clearly dominating the others. this rice issue is a good example, depending on your 'plausible range' of elasticity assumptions, etc. it is always going to be a tough sell.

    that's why I prefer using 'clinical' example better than simulation result. or I wish we can do 'clinical trial' on this...say in buru island?..;)

    working class

    By Anonymous working class, at 9/30/2006 05:14:00 am  

  • Working class,
    Me too! 'Clinical trials' (or 'randomized evaluations' in social policy) is cleaner. But it can only answer a small set of questions about development -- and unfortunately not the one you're proposing here. [Imagine the trial set-up: Randomly select 100 countries, ban rice import in 50 randomly-assigned countries... ;-)]

    By Blogger Arya, at 10/06/2006 05:19:00 pm  

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