September 27, 2012

Indonesia's Bulog to create strategic soy, sugar reserves

As part of efforts to stabilise prices and contain inflation, Indonesia's state-run logistics agency, Bulog, will soon establish strategic soy and sugar reserves.

"Our aim is to stabilise the prices of all food items, and Bulog can also manage stockpiles for other commodities in addition to rice," Bulog's head, Sutarto Alimoeso, told The Wall Street Journal ahead of the World Rice Conference that begins here later Wednesday (Sep 26).

Indonesia's inflation has been relatively tame this year, with the consumer price index rising by 4.58% last month. But keeping inflation under control amid rising prices of imported agricultural commodities could present a challenge ahead of Indonesia's presidential election in 2014.

Earlier this month, global soy prices hit a record high, with front-month futures on the Chicago Board of Trade hitting US$17.9475 a bushel. The benchmark closed lower at US$16.1075 Tuesday (Sep 25), but it has still risen 34% this year due to tight global supply.

In recent months, soys have been offered above US$700 a tonne on a delivered basis in East Asia compared with less than US$500 a tonne a year ago. Indonesia has suspended its 5% import duty on soy to curb rising prices of popular food items such as tempeh and tofu, although many retail outlets stopped stocking such items in July, when global soy prices hit a previous record high, before Indonesia suspended the duty.

Bulog is finalising plans to import sugar and soy to serve as buffer stocks, including such details as the target volumes, the roles of private trading companies and how the reserves will be allocated to processors, Sutarto said.

Currently, private companies directly import most agricultural commodities under government licenses. Many sugar mills are state-controlled. Indonesia is one of Asia's largest importers of agricultural commodities. On an annual basis, it buys more than five million tonnes of soy and soymeal, 6.5 million tonnes of wheat and wheat flour, and 1.5 million tonnes each of rice and corn. At current prices the total bill for these volumes works out to around US$7 billion a year.