HISTORY

INTRODUCTION
Food is one of high priorities in national economic development. Historical facts show that the role of food remains strategic in economic, social, cultural and even political aspects. Therefore, it is obvious that developed countries are also the main food producers and the world's food market determinant as well. The importance of food aspect in Indonesia has been acknowledged since many years ago, and still remains important in the future to develop national food security.

Food plays an important role in fulfilling the basic need for human being, increasing quality of human resources, and developing national food security. It also stated in Food Law No. 7/1996 that the right of people to obtain safe and nutritious food is principally similar with the right to obtain adequate food and the right to be free from hunger.

Discussing food issues can not be separated from the role of rice as the staple food for Indonesian people. Rice is not only consumer good, but above all rice is strategic commodity, which constitutes the staple food of most Indonesia people (90 percents). About 63 percents of Indonesian households expend their income to food consumption, which 17 percents for grain. Rice itself contributes 56 percents calories and 49 percents proteins.

PERUM BULOG IN BRIEF

Perum BULOG is a state-owned enterprise (BUMN) which was established through Government Regulation (PP) No. 7/2003 to replace National Food Logistic Agency (BULOG). The main purpose in establishing this entity is to manage the supply and logistic of basic foodstuffs, especially rice to meet people demand. Perum BULOG is also authorized to manage other businesses according to relevant regulations. Furthermore, Perum BULOG carries out assignments from the Government as well, in order to secure food price, to manage Government Rice Reserve, and to distribute food to certain groups of society, particularly rice and other foodstuffs stipulated by the Government under food security framework.

The objective of the establishment of Perum BULOG is to take part in developing national economy, particularly in food sector. To achieve the above purpose and objective, Perum BULOG carries out basic food logistic business activities and other business that support the achievement of the purpose and objective of Perum BULOG.

PUBLIC SERVICE OBLIGATIONS OF PERUM BULOG

Based on Presidential Instruction No.1/2008, the public service obligations of Perum BULOG are as follows:

1. Carrying out domestic purchase of paddy/rice with the Government Purchase Price (HPP).
During the peak harvest season, demand for paddy/rice becomes rather inelastic due to unfortunate factors such as limited private storage, lack of rice milling capacity and so on. Therefore, guaranteed price can minimize the risks in the rice farming industry. The activity may improve the volume and flow of domestic rice production, and greater food independence can be achieved. These factors are strongly related to the availability of domestically produced foodstuffs and the income of millions of individual farmers throughout the country. Perum BULOG is structured to purchase domestic paddy/rice and stimulate the development of modern rice milling industry; therefore the basic price of paddy/rice can reach the desired level, particularly during the peak of harvest season.

2. Distributing subsidized rice for poor and vulnerable people.
This is the government efforts to give social protection for poor and vulnerable families through social protection program as their food security problems in general are rated as high risk. This program ensures access to food economically; hence poor families can be protected from malnutrition (lack of energy and protein nutrition). This is very important for developing country like Indonesia where major problems arise in the lowest socioeconomic groups. The malnutrition will badly affect children intelligence, reducing human resource productivity, and increase in mortality caused by infectious disease as the resistance of the human body weakens.

3. Retaining and managing national rice reserve stock, which include Government Reserve Stock (CBP).
The government has authorized management of rice stocks which is managed by Perum BULOG. This is an effort to anticipate any emergency situation such as natural disaster or any other disasters caused by social conflicts and so on. Perum BULOG is expected to have an optional rice reserve stock (pipeline stock) of around one million tons to anticipate any of these possibilities mentioned above. The centralized stock control system will simplify stock and distribution management. If there is a reserve stocks in any region, then this is the complement to stock held as national reserve stock, but is not a substitute. Therefore, a centralized stock management will also perform another very important function which is helping to unite this nation.

4. Price stabilization particularly rice.
As the foremost household expense is still dominated by food, the fluctuation of food prices will have a strong impact on the real income of the people and will reduce ability to access food. Therefore, the Government will intervene to the market whenever food prices, especially rice increase above the tolerable price level. For this reason, Perum BULOG is ready to accept the above assignment if a mandate fro the government is given, or if there is an emergency situation .

SCOPE OF BUSINESS ACTIVITIES

In commercial activities, Perum BULOG has a strong commitment not to create any market distortions and to build a cooperative basis of working with all stakeholders in order to create food market which is healthy, transparent and efficient.

The scope of business activities of Perum BULOG covers the followings:

1. Rice Industry.
2. Logistic/warehousing service.
3. Survey and Pest Eradication services.
4. Transportation service.
5. Food Commodities Trading.
6. Retail Business .

ROLES OF PERUM BULOG IN NATIONAL FOOD SECURITY

1. Implementation the Government Purchase Price (HPP).
The Government Purchase Price (HPP) is the government price to purchase domestic paddy/rice in accordance with quality and quantity stipulated. By stressing on the quantity, the price of HPP also concludes that there is no other Floor Price that obliges the government to secure if the paddy/rice price in the market is lower than HPP.

The purchase of paddy/rice by Perum BULOG as a form to protect HPP is only about 6-7% of the total national production annually. Some of them are in the form of paddy, which is expected to encourage improvement of rice quality and rice millers to invest on dryers or modern rice milling facilities. Farmers generally sell paddy, so that HPP mechanism can be met their welfare directly.

However, Perum BULOG also purchases rice to generate national stock which carried out by 4,056 partners all over Indonesia . Capability to obtain domestic paddy/rice to accumulate buffer stock and operational stock is determined by the margin of HPP and market price. The more abundant production of paddy during harvest season - that will lead to the low price, the larger incentive of market player to sell it to Perum BULOG on HPP. In contrast, if the market price is higher than HPP, farmers/rice millers will sell their paddy/rice to the market to get larger incentives.

2. Distribution of Rice for the Poor and Vulnerable Households.
The program of Rice for Poor Household (Raskin) is a social protection program aimed at target groups which are generally at high risk of food vulnerability. Raskin is designed to strengthen food security of food-vulnerable households and carried out throughout Indonesia and has been distributed to more than 49,134 Distribution Points.

3. Management of Government Rice Reserve (CBP).
CBP is required to strengthen food security in emergency situation like natural disaster and man-made disaster such as social conflicts, and to stabilize price. Almost all Asian countries have adopted this policy even tough it applies in slightly different model. In Thailand , Malaysia and Singapore , this policy is managed by private entities or State Owned Enterprise (BUMN), while in China , Japan , and Brunei , this policy is fully managed by the government.

CBP is similar as buffer stock. Once the stock distributed, it must be restock promptly so that it remains available in certain amount. Perum BULOG has been assigned by the government to stock 350,000 tons of rice as CBP since 2005. The amount is basically too small, considering that Indonesia is a vast archipelago country where availability of infrastructure is still limited. As a comparison, rice reserve stock in China reaches 34 millions tons, Thailand two million tons, Vietnam one million tons, Japan one million tons, South Korea 1,1 millions tons and the Philippines 750 thousands tons.
Even the amount is small, but the Government can be flexible and faster in overcoming various emergency situations, and Perum BULOG is not burdened with other public obligations by using commercial credit.

CBP has been already distributed to natural disaster victims, among others Tsunami catastrophe in NAD and Nias; earthquake in Yogyakarta and Central Java; drought in East Nusa Tenggara; flood in Kutai; and fire tragedy in Riau and West Kalimantan. In addition, the Minister of Trade has assigned Perum BULOG to control rice price by carrying out Market Operation in some areas with CBP.

HARMONIZING PUBLIC SERVICE OBLIGATIONS WITH COMMERCIAL ACTIVITIES

As an institution with two different-oriented assignments (public and commercial activities), Perum BULOG designs commercial business pattern that is capable to support public service obligations to avoid conflicts between them. The involvement of business activities in public service obligations is expected to improve the achievement of the government assignments.

On the other hand, business activities are expected to be increased and be able to give significant financial contribution to Perum BULOG, without neglecting proper and transparent business transactions.

ORIENTATION OF PERUM BULOG TO FARMERS

The falling rice price during harvest season is the biggest problem faced by farmers so far. It draws the attention of various parties, since it involves activities of millions of poor farmers who are vulnerable. Therefore, the government protection in form of guaranteed price and market are absolutely required.

Perum BULOG procures paddy/rice at a price level stipulated by the government (HPP). This will be distributed to poor and vulnerable households; budgeted groups (civil servants, military, and police); Market Operation; and raw material of industry.

ORIENTATION OF PERUM BULOG TO HOUSEHOLDS

When monetary and economic crises hit Indonesia in 1997, the Government had a very difficult task to provide adequate food at affordable price, particularly to poor people. At that moment, the economic ability of vulnerable people slumped down and causing the number of poor people increased. Decreasing of purchase power parity added the pressure on food stabilization system as a whole.

Facing this difficult situation, the Government decided to carry out food aid program through Special Market Operation (OPK). In 2002, this program has been renamed as Rice for the Poor Family (Raskin). In its application, rice is distributed to vulnerable family to cope macro nutrient problems, and rice is the only food commodity that contains high macro nutrient. Therefore, the cost of energy and protein transfer will become cheaper.

Coordination among related institutions is needed in order to improve Raskin service, such as:
1. Common understanding on policy, operational strategy, and concept of the poverty eradication programs.
2. Sharpening of Raskin pattern among regions.
3. Enhancing coordination and developing network between the Government- private sectors - the society and other entities, on the application of poverty eradication programs among regions.
4. Improving the ability of state Government in formulating their policies and operational model of Raskin program.

In Raskin Program, Perum BULOG is responsible for providing and distributing rice from warehouse to distribution points that have been stipulated. Perum BULOG has more than 45,000 distribution points throughout Indonesia . Meanwhile, State Governments responsible for distributing rice from distribution points to beneficiaries (food vulnerable households).

In-kind transfer program such as Raskin is better when food price is unstable. When price is highly fluctuated, i.e inflation, currency fall, or high food price abroad, then food aids will become more eminent than cash-transfer. In-kind transfer will secure poor households and enable them to obtain food aid in certain amount. With all considerations above, the Government administers food subsidy program in form of rice. The networking of Perum BULOG covers all over regions in Indonesia so that the in-kind transfer program can be carried out throughout the country effectively.

Social protection program like Raskin in Indonesia is also implemented in developed countries such United States through its food stamp system . The in-kind transfer program is essential to be implemented at all kinds of economic situations, since the availability of food is assured then public productivity and any other forms of aid program can be carried out effectively. Considering the large amount of poor households in Indonesia , the Government decided to carry on this in-kind transfer program. Therefore, the Raskin program is emphasized more on sustainable social protection program.

Actually, Raskin program is the Government effort to create human rights to food, not only as a recovery program against crises (emergency program). Therefore, this program is still necessary to be considered as long term social welfare program and poverty eradication program to support poor people empowerment. With the implementation of targeted food subsidy like Raskin, it is expected that income transfer to poor households will occur in order to improve national economic development.