VZCZCXYZ0002
PP RUEHWEB

DE RUEHJA #0762/01 1070631
ZNR UUUUU ZZH
P 160631Z APR 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 8711
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
INFO RUEHML/AMEMBASSY MANILA 3204
RUEHNE/AMEMBASSY NEW DELHI 1762
RUEHHI/AMEMBASSY HANOI 0593
RUEHBK/AMEMBASSY BANGKOK 8397
RUEHBJ/AMEMBASSY BEIJING 4947
RUEHKO/AMEMBASSY TOKYO 1831

UNCLAS JAKARTA 000762 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
USDA U/S KEENUM 
FAS/OA YOST, MILLER, JAKCSON 
FAS/OCRA/CRIKER, HIGGISTON, RADLER 
FAS/OGA/CHAUDRY, DWYER 
FAS/OFSO/DEVER 
MANILA FOR AG COUNSELOR PURDY, ATO VOBRIL 
NEW DELHI FOR AG COUNSELOR HIGGINS 
BANGKOK FOR AGCOUNSELOR MEYER 
HANOI FOR AG COUNSELOR WADE 
BEIJING FOR AG MIN COUNSELOR WESTMAN 
TOKYO FOR AG MIN COUNSELOR BERMAN 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR ECON ID
SUBJECT: Food Prices:  It All Hinges on Rice 
 
REF: (A) Jakarta 000088; (B) Jakarta 000264; (C) Jakarta 000286 
 
¶1. (SBU) Summary. Government of Indonesia (GOI) concern about the 
impact of rising rice prices continues to grow as world rice prices 
soar.  Coordinating Minister for the Economy Boediono has requested 
World Bank (WB) assistance in determining the outlook for rice 
prices in Indonesia and outlining policy options to maintain 
affordable rice for Indonesian consumers.  Emboffs met with the WB's 
US-based consultant 11 April and 15 April to obtain preliminary 
details of likely GOI actions and to gain insight on the dynamics of 
international rice prices.  For the time being, the GOI is 
attempting to minimize rice exports and smuggling, while hoping for 
confirmation of an ample harvest.  It is not clear how long the GOI 
can maintain these policies, given the $400 per ton spread between 
Indonesian and world rice prices.  End Summary. 
 
Rice Prices Worry GOI 
--------------------- 
 
¶2. (SBU) Government of Indonesia (GOI) concern about the impact of 
rising rice prices continues to grow as world rice prices soar.  The 
poor and near poor (roughly half the population) spend up to one 
third of their income on rice, underscoring the impact of price 
increases on the average Indonesian.  In recent months rice prices 
in Indonesia have remained steady, but international rice prices 
continue to soar.  The wholesale price of rice per ton rose $180 in 
early April alone, and now stands at $900 per ton.  The wholesale 
rice price in Indonesia is roughly $500 per ton. In response to 
these trends, Coordinating Minister for the Economy Boediono has 
requested World Bank (WB) assistance in determining the outlook for 
rice prices in Indonesia and outlining policy options to maintain 
affordable rice for Indonesian consumers. 
 
India, Vietnam and China Restrict Exports 
----------------------------------------- 
 
¶3. (SBU) On April 11, Tom Slayton, a well respected global rice 
analyst working on the GOI-sponsored WB project, provided Emboffs 
with a candid assessment of the current world rice situation. 
According to Slayton, the surge in global rice prices is directly 
related to actions to restrict exports by several countries, and 
panic issuance of tenders by the Philippine Government, rather than 
an absolute supply shortfall.  Export bans in India, export 
restrictions in Vietnam and export taxes in China have created a 4.0 
million metric ton (MMT) hole in the current international trade 
regime for rice.  The result is the most precipitous rise in rice 
prices in 35 years.  Although a reversal of these polices or the 
sale of large Japanese and/or Chinese rice stocks would alleviate 
rice price pressure, Slayton was not hopeful that these policies 
would materialize in the near term.  That leaves Thailand as the 
principal origin for global trade in rice for the near term. Yet the 
Thais are over committed from Slayton's perspective, and will be 
unable to meet international demand.  At its current pace, Thailand 
would export 13 MMT this season, but the Thai crop will probably 
only allow 9 MMT of exports.  If additional stocks are not released, 
Slayton believes rice price could rise as high as $1200 per MMT 
before the end of the year. 
 
The Indonesian Situation 
------------------------ 
 
¶4. (SBU) Indonesian rice production is up, but the wide margin 
between Indonesian and international prices will be difficult to 
maintain.  Indonesian rice harvest prospects, while not as rosy as 
those announced by the Ministry of Agriculture, are nevertheless 
better than last year.  The main harvest on Java is currently in 
full swing, and FAS/Jakarta estimate production at 35.5 MMT (milled 
basis), 200,000 MT above the 2007 level.  The real question for 
Indonesia is how long the GOI can constrain exports and limit 
smuggling given a $400/MT spread between the Indonesian and world 
prices.  According to Slayton, the GOI is preparing to restrict 
private sector trade, with any exports should conditions warrant to 
BULOG, the national logistics agency, in an effort to maintain price 
levels.  Slayton views the GOI's proposed actions as constructive in 
the short term.   However, GOI targets for BULOG rice purchases are 
in the 2.4 - 3.0 MMT range, with perhaps 650,000 MT already in 
store.  While the lower range of BULOG purchases may be possible if 
harvests are strong, the high-end of that range is unrealistic. 
Should the harvest fail to meet current projections, Indonesia would 
need to import rice later this year at prices that could be roughly 
double the local price, or higher. 
 
Hume