A US government weather forecaster on Thursday (11/2) said the El Nino weather phenomenon under way was likely to dissipate by the Northern Hemisphere's late spring or early summer and possibly transition to La Nina conditions later this year. (Reuters Photo/Ajay Verma)

El Niño Seen Heating Up Rice Market, Straining Indonesia’s Economy


JUNE 12, 2015

Jakarta. El Niño is likely to occur in Indonesia in the next few months, and warmer weather conditions could weaken Indonesia’s economy by driving up prices of certain crops such as rice and lead to an increase in imports, some economists say.

The US Department of Agriculture has predicted El Niño happening this year from March to June in the Asia-Pacific region. The phenomenon is created by an increase in ocean temperatures that typically leads to droughts or flooding across large parts of the world. El Niño normally brings warmer sea temperatures and increased precipitation to parts of Indonesia. There could also be droughts that lead to forest fires and delay crop harvests, which would in turn create supply shortages and raise prices.

Bustanul Arifin, agricultural economist at the Institute for Development of Economics and Finance (Indef), predicts that El Niño may occur in July or August, and that could affect the country’s major crops. Indonesia’s dry weather typically lasts from May to August.

“The problem now is this season is not yet harvest season, but it will affect the harvest in September, I believe,” Bustanul said on Thursday.

Rice, corn and cassava are the primary crops in Indonesia. Agriculture Ministry data show that total rice production in 2014 reached 70.8 million metric tons, a decrease of 0.6 percent from the previous year. Rice production last year was head and shoulders above corn (19 million tons) and cassava (23.5 million tons).

Rice remains the staple in most Indonesian households, yet many families are turning to alternative starch products like noodles and bread. Indonesia was once a global leader in rice production, but the nation’s needs have grown. Despite existing large-scale output, the USDA has predicted that the country would need to import more than 1.5 million tons this year.

In November 2014, the late appearance of the rainy season held back rice harvests, which pushed up prices by as much as 24 percent on a year-on-year basis, based on USDA data. The Indonesian Bureau of Meteorology, Climatology and Geophysics (BMKG) attributed the longer dry season to a weak El Niño.

Higher food costs are already affecting consumer prices, with increases in food, tobacco and electricity pushing up the inflation rate in May to 7.15 percent, which was the fastest in five months.

Still, with rice in short supply and the rupiah tumbling to become the weakest currency in Asia, the price of rice is likely to climb higher. From July to August, markets face high demand and low supply, a combination that will probably lead to accelerated inflation, Bustanul of Indef says.

“If you combine [the] drivers — the cycle, the stock, the supply and El Niño, the magnitude would be too high, and I think the government should anticipate this,” he said.

Indonesia’s economy in the first quarter grew at its slowest pace since the third quarter of 2009, amid weak exports and a depreciating rupiah. There are other factors that could signal a stunt in growth, such as weak consumer spending during Ramadan — which starts later this month — a pick-up in unemployment and Bulog’s recent failure to acquire the targeted amount of rice that could lead to more imports.

“The long-term solution is to increase production. For the short and middle term, there is no solution other than import,” Bank Central Asia’s chief economist David Sumual said on Wednesday.

With delayed harvests eliciting shortage concerns, President Joko Widodo’s food self-sufficiency policy to avoid imports may give way to price speculation. To prevent price speculation, Arifin and David emphasized the importance of government intervention.

Water-harvesting systems, emergency relief funds and crop insurance policies were suggested by Bustanul as options for mitigating the possible effects of El Niño. Under the Protection and Empowerment of Farmers Act in 2013, mechanisms for the implementation of crop insurance regulation already exist.

“It is very important for the government to convey to the public that that they will import commodities [that are] over-demanded,” David said.