Economists Expect Indonesian Rice Harvest to Temper Inflation in March

Analysts expect annual inflation to ease to a range of 3.34 percent to 3.55 percent in March, from 3.81 percent in February, due to the rice harvest helping to stabilize food prices. Purbaya Yudhi Sadewa, chief economist at the state-run Danareksa Research Institute, predicted annual inflation of 3.46 percent in March, falling 0.12 of a percentage point month-on-month. “The price of rice and other staple foods are decreasing this month because March is the harvest season so we traditionally see deflation around this time,” Purbaya said. The price of rice has dropped in the past month, from Rp 6,300 per kilogram on March 1 to Rp 6,100 per kilogram on Thursday, Bloomberg reported. “Government reports suggest that rice prices have declined as the harvesting period approaches,” Helmi Arman and Anton Gunawan, economists at PT Bank Danamon, said in a research note. “International sugar prices also dropped by close to 20 percent month-on-month amid increased global production. This was probably followed to some extent by domestic sugar prices.” Bank Danamon said year-on-year inflation may decline to 3.34 percent, down 0.24 of a percentage point month-on-month. Eric Alexander Sugandi, an economist at Standard Chartered Bank Indonesia, forecast March inflation would be 3.5 percent year-on-year. “In addition, the rupiah’s appreciation helped contain imported inflation,” he said. Month-on-month inflation eased to 0.3 percent in February, down from 0.84 percent in January, bringing year-to-date inflation to 1.14 percent. Bank Indonesia has predicted relatively restrained inflation of 4 percent to 6 percent this year and has held its benchmark interest rate steady at 6.5 percent since last August. “With inflation like this, the central bank will not increase its interest rate soon,” Purbaya said. Eric also said he expected the central bank to keep rates on hold. “Inflation remains manageable in the short term and the current BI rate level is still supportive of the rupiah and GDP growth,” he said. The government has forecast full-year 2010 inflation of 5.7 percent. Finance Minister Sri Mulyani has also predicted that the harvest would lower prices.

Standard Chartered Bank sees rice prices may soften on better harvests, slowing demand

Rice prices are likely to soften in view of improving global harvests and slowing demand, especially with significant imports by India, to overcome the production fall in the kharif season, being ruled out. A Commodity Outlook by Standard and Chartered Bank said the prospects of large rice import bill have receded. It also cut the expected average price for Thailand B grade 100 per cent rice this season to $544 a tonne from $593. “Overall, the sentiment has been adversely affected by the likelihood of burgeoning global grain stocks, which will make it difficult for the market to recover from current subdued levels,” the bank cited as reason for the downgrade in its outlook. CBOT rice Pointing out that rough rice prices on the Chicago Board of Trade (CBOT) had declined 20 per cent this year after rising to a 16-month high in December, the bank said during the same period, physical price of Thai rice dropped 10 per cent. “The decline in both CBOT and physical rice prices has been triggered primarily by increased supply as the harvest in Asia and North America progresses, and the ample supply of substitute foodgrains, such as wheat. We believe that the previously expected large import bill from India will not materialise and that prices will remain under pressure over the coming months, it said. Rice prices had gained in November when India, the second-largest rice producer in the world, said it would import about two million tonnes (mt) of rice for the buffer stocks to overcome the anticipated production shortfall. The kharif rice crop was first hit by a prolonged dry period and then by untimely rains. This led to nearly 15 mt drop in the kharif production to 69.45 mt. Indian output The global market's panic intensified as importing nations such as the Philippines after India issued a tender to import 30,000 tonnes rice. The Philippines ring-fenced its imports and it lead to panic, pushing up the prices further. Rabi production estimates of over 15 mt rice production have cooled the market, though the shortfall remains. However, the net impact of the drop in Indian production on global output is less significant. The US Department of Agriculture estimates global rice production for 2009-10 at 440.3 mt, fractionally below last season's record 447 mt. This will be the second-highest global output on record. Indonesia scene Prospects in Indonesia that accounts for around 10 per cent of the global output have improved due to a weaker El Niño event improving irrigation reservoir levels. Better seed varieties in Indonesia have also helped improve yields, the bank said. Despite production fall in India, the global end-season stocks are unlikely to drop by over one per cent year-on-year. Moreover, the wheat output in India has been largely unaffected, with the production being estimated at around 82 mt. All these factors will only lead to a limited demand pressure on global grain stocks, the outlook said.

Indonesia to Export Rice in 2010

Minister of Agriculture Suswono said that this year Indonesia have the opportunity to export rice because, according to data from the Central Statistics Agency (BPS), harvest production this year is increasing.

“We will prioritize the export of premium quality (rice),” said Suswono yesterday.

He will forbid the export of medium quality rice because it is widely consumed in the country.

Medium quality rice will be prioritized for national rice reserves.

But, according to him, the government could open export of medium quality rice.

“If rice reserves reach 1 million tons, we might export medium quality rice too,” he said.

Right now, according to Suswono, national rice reserves are 400,000 tons.

Head of the Central Statistic Bureau (BPS) Rusman Heriawan said he was optimistic that Indonesia could still maintain rice self-sufficiency and fulfill domestic rice needs.

“Rice self-sufficiency can still be maintained until this year,” said Rusman on a separate occasion.

Heavy Rain Threatens Indonesia's Rice Harvest, Ministry Warns

The Agriculture Ministry has warned farmers in western Indonesia that higher-than-normal rainfall could put thousands of hectares of rice paddy at risk this rainy season.

Meanwhile, an agricultural analyst doubted the above-average rainfall would cause a shortage in the rice harvest, despite the harvest being delayed a month because of the inclement weather.

Ati Wasiati Hamid, the Ministry of Agriculture’s director of food-crop protection, said on Friday that the heavy rainfall was being caused by the El Nino weather pattern, which caused temperatures in the Indian Ocean to rise.

Areas experiencing higher-than-usual rainfall included Aceh, Lampung, West Sumatra, West Java and some parts of South Kalimantan.

Although rice fields need a lot of water, too much causes the fields to spill over and the crops to die, especially if floods last for longer than two or three days.

The ministry said there were 18,175 hectares of flooded rice paddy nationwide, and about 3,245 hectares of crops have been destroyed.

However, this was still below the five-year average, Ati said. On average, 85,000 hectares of rice fields flood each year, with about 28,000 hectares destroyed.

She said data would not be final until the end of next month — often the period of the heaviest rain s .

The unusually wet weather has resulted in the main harvest being pushed back from April to May, causing an increase in domestic rice prices.

The average price for medium-quality rice on the retail market hit Rp 7,409 (81 cents) per kilogram this week, a 7.4 percent increase since December, according to the Central Statistics Agency (BPS).

Juniman, an economist at PT Bank Internasional Indonesia, said higher rice and sugar prices would result in higher inflation.

“A heavy rainy season significantly affects commodity prices, especially for rice,” he said.

However, the government has indicated it might intervene in the market by selling cheap rice through the State Logistics Agency (Bulog).

“The government has enough rice stocks in Bulog to conduct market operations to control the price,” Juniman said.

Ati called on farmers to quickly report damaged rice crops to local governments, so the governments could provide them with free seeds to replant their fields.

The government has 30,000 tons of rice seed on hand to disburse to farmers to replant crops.

“We are providing enough free seed to farmers,” Ati said. “So if the farmers whose paddy fields are damaged replant their fields immediately, there should be no impact on national rice production.”

Despite the heavy rainfall, the Agriculture Ministry expects farmers to produce 66.6 million tons of rice this year, an increase of 4.45 percent from 2009.