MANAGING THE RISK OF TRANSITORY FOOD INSECURITY: INDONESIA Shingo Kimura OECD Trade and Agriculture Directorate

What is transitory food insecurity? FAO: “Stable” “at all times” availability, access and utilization WB: Transitory food insecurity on top of chronic Food Law: Food crisis, Price stability, Food safety OECD Trade and Agriculture Directorate2 Temporally limited access to food EXTERNAL SHOCKS International Price Hike Natural Disaster Economic Downturn

Food insecurity situation in Indonesia Source: Own c calculation from SUSENAS Survey

4 Motivation of the study What are the major risks to food insecurity in Indonesia, which the government should take into account in its policy making How effective can the current policy set address a diverse risks of food insecurity in Indonesia? In particular, are the policies aiming at self- sufficiency of certain commodities effective?

1.Assessment of risk scenarios i.Rice price spike ii.Economic crisis iii.Fuel price surge iv.Crop failure v.Earthquake and tsunami 2.Policy assessment and dialogue about how policies can respond to a diversity of food insecurity scenarios a.Rice market price support b.Food aid programmes c.Cash transfer programme d.Fertilizer subsidy e.Crop insurance Approach of the OECD study

6 From Scenarios to Impacts External shock Price Expenditure Income Production 1. Definition of Scenario Elasticity of demand AIDS model Change In demand +Self- consumption Consumption pattern 2. Quantification Change in calorie intake at household 3. Impacts on Food Security

7 Assessment of risk scenarios Scenario A. Frequency (No. of years) B. Prevalence of undernourishment C. Expected ↑ of undernourishment (1/A)*(B-B 0 ) 0: Without shock I: Rice Price Spike II: Economic Crisis III: Increase in fuel price IV: Crop failure V: Earthquake and tsunami

8 Scenario Policy impact on undernourishment (%points) 0: Without shock 2 I: Rice Price Spike -10 II: Economic Crisis +2 III: Increase in fuel price +2 IV: Crop failure +9 V: Earthquake and tsunami +4 Policy Impact: Market Price Support Effective only in one scenario (rice price spike) Increases the permanent undernourishment in reference scenario Magnify the impact of crop failure on undernourishment

9 Scenario Policy impact on undernourishment (%points) Raskin Food voucher 0: Without shock I: Rice Price Spike II: Economic Crisis -1.5 III: Increase in fuel price IV: Crop failure V: Earthquake and tsunami Policy Impact: Food aid programmes Raskin is not offsetting this adverse effect of market price support Food voucher is more effective due to less leakage to non-staple consumption and more diversification of staple consumption Consumer price subsidy is less effective in high price scenario

10 Scenario Policy impact on undernourishment (%points) Cash Transfer PastTargeted 0: Without shock I: Rice Price Spike II: Economic Crisis III: Increase in fuel price IV: Crop failure V: Earthquake and tsunami Policy Impact: Cash transfer Cash transfer performs stably across scenarios, including high price scenario Targeting to the poor will increase the performance The program has more impact on poverty than undernourishment.

11 Scenario Policy impact on undernourishment (%points) Fertilizer Subsidy Crop insurance 0: Without shock I: Rice Price Spike II: Economic Crisis III: Increase in fuel price IV: Crop failure V: Earthquake and tsunami Policy Impact: Producer Policies Producer subsidy is not targeted and has very little impact on undernourishment Crop insurance is effective only in crop loss scenarios

12 Average policy Impact across food insecurity risk scenarios Average policy impact is assessed, takes into consideration the probability and impacts of risk scenarios Rice MPS worsen the food security situation on average

13 Policy implications Rice price support policy stabilized rice price, but high rice price has an adverse effects on chronic undernourishment. Risk assessment shows that domestic source of risks (e.g., crop failure) is more important than price spike in international market. Reform in rice price support system could begin with transformation of Raskin to Food voucher system.

14 Policy implications Cash transfer programme is effective in diversity of scenarios, but the targeting should be improved. Fertilizer subsidy has very little impacts on food security. The budgetary outlays should be used for strategic public investments in people and in physical infrastructure Need a reliable rice market and a risk sharing system in the region (e.g., regional cooperation to restrain export restriction).

15 Conclusion An assessment of food security risks helps the government to prepare a robust policy set which responds to a variety of shocks. Policy performs differently in different risk situations: reliance on a single policy instrument is not a good idea.

For more information Visit our website: Contact us: Follow us on 16 Trade and Agriculture Directorate