Rice

Rice cultivation is well-suited in regions that have a warm climate, low labor costs and high amounts of rainfall as this staple crop is labor-intensive (to cultivate) and requires ample supplies of water. Regions that meet these requirements are mainly found in Asia. A characteristic of Asian rice farmers is that the majority originates from poor environments and lives in underdeveloped conditions.

This section discusses several topics related to rice; its international trade market, the importance of rice for Indonesia, rice production in Indonesia (which is put in world perspective), and about how the Indonesian government encourages domestic rice production in its quest to regain rice self-sufficiency.

The International Rice Market

As mentioned in the introduction above, the largest rice producing countries are found in Asia. The table below lists the five largest rice producing countries.

World's Top Five Rice Producers in 2014:

Country	Production Volume
China	208,100,000
India	155,500,000
Indonesia	70,600,000
Bangladesh	52,400,000
Vietnam	44,900,000
World	741,500,000

^{Figures are forecasts in unmilled tons
Source: FAOSTAT Data December 2014}

An interesting fact about rice is that its international trade market is actually remarkably shallow. According to research conducted by the World Bank only five percent of global rice production is traded on the international market which thus implies that rice prices are vulnerable to small changes in supply and demand.

Moreover, the international rice supply originates from three rice-exporting countries only: Thailand, India and Vietnam. Hence, sudden changes in trade policies of these three exporting countries can lead to hoarding and speculating by rice-importing countries, thereby seriously driving prices up with the imminent risk of exacerbating poverty in Asian countries (where rice forms the major staple food for the poor).

This scenario emerged in 2008 when the rice price increased significantly, hence poverty numbers in Asia rose accordingly. In order to avert such scenarios from happening again the (South) East Asian region signed the ASEAN Plus Three Emergency Rice Reserve (APTERR) agreement which foresees that a total of 0.78 million tons of rice shall be reserved jointly by the participating countries (ASEAN members plus China, Japan and the Republic of Korea) to be used in response to international price volatility, or, when needed due to natural disasters or for other humanitarian assistance. The most substantial rice contributions for this program come from China, Japan and South Korea.

Rice in Indonesia

Indonesian Rice Production

Although Indonesia is the third-largest country in terms of global rice production, it still has to import rice almost every year (although usually to keep the reserves at a safe level). This situation is caused by farmers' use of non-optimal production techniques in combination with large per capita rice consumption (and the massive population). In fact, Indonesia is among the largest rice consumers across the globe. The nation's per capita rice consumption was recorded at nearly 150 kilogram (of rice, per person, per year) in 2017. Only Myanmar, Vietnam, and Bangladesh had higher per capita rice consumption.

Rice production in Indonesia is dominated by the smallholder farmers, not by big private or state-owned enterprises. Smallholder farmers account for around 90 percent of Indonesia's rice production, each farmer holding an average land area of less than 0.8 hectares.

Rice Production in Indonesia:

	2008	2009	2010	2011	2012	2013	2014	2015	2016
Rice Production¹	60.3	64.4	66.4	65.4	69.1	71.3	70.9	75.4	79.2

^{¹ figures are in millions of unmilled tons of rice
Sources: Food and Agriculture Organization of the United Nations and Indonesian Ministry of Agriculture}

Indonesian provinces where most rice is produced are:

1. South Sumatra
2. West Java
3. Central Java
4. East Java
5. South Sulawesi

Considering that Indonesia contains a population that consumes large quantities of rice, and considering the risks involved being a rice importer when food prices rise (which burdens poorer households as they spend over half of their total expenditure on food items), Indonesia places top priority on reaching self-sufficiency in rice. In fact, the country aims to become a rice exporter.

For multiple decades Indonesia has been striving to reach rice self-sufficiency but only succeeded in the mid-1980s and 2008-2009. In recent years Indonesia has needed to import around three million tons of rice annually, mainly from Thailand and Vietnam, to safeguard the country's rice reserves. These imports are handled by state procurement agency Bulog (the National Logistics Agency). This agency holds a monopoly on both import and export of rice, deals with the distribution process and safeguards rice price stability in the country. It usually maintains a rice stock of between 1.5 and 2.0 million tons by buying from domestic suppliers or foreign exporters.

The Indonesian government uses two approaches on both ends of the chain to reach rice self-sufficiency. On the one end, it encourages farmers to increase their production by stimulating technological innovation and by providing subsidized fertilizers. On the other end, the government tries to curb people's rice consumption through campaigns such as "one day without rice" (per week), while promoting consumption of other staple foods.

We detect partial success. Although most Indonesians refuse to give up rice for other food products, domestic rice production has shown good growth since 2014, partly supported by government efforts to improve rice infrastructure (irrigation). The government allocated more state funds, which were made available after reducing the country's fuel subsidies in 2013-2014, to the development of infrastructure in the agricultural sector in 2015. Under this plan three million hectares of irrigation facilities are to be repaired within the period 2015-2018. Further interventions include the rehabilitation of other water management infrastructure, as well as the distribution of seeds, fertilizers and agricultural machinery.

As Indonesia's population continues to grow, thus implying more mouths that need to be fed in the future, the Indonesian Chamber of Commerce and Industry (Kadin) as well as several big Indonesian companies have recently initiated partnership programs with smallholder rice farmers with the aim of increasing rice production through the use of new technologies and innovative financing programs.

Besides being a primary need (food) for the Indonesian population, the beautiful sawahs (rice fields) in Bali and Central Java attract plenty of tourists.

Updated on 28 June 2017