Increased Fuel Prices Will Affect Food Prices, Analyst Says
1 September 2014 18:44 WIB
TEMPO.CO, Jakarta - Agriculture expert Aswaldi Anwar said an increase in fuel prices would cause the costs of distributing agricultural produces to rise, which consequently would lead to higher prices of agricultural produces.
“Prices are expected to increase by around five percent,” Aswaldi told Tempo on Monday, September 1, 2014. He added increased food prices would trigger a rise in the nation's inflation rate as prices of basic necessities remained the main drivers of inflation in Indonesia.
Earlier reports said fuel subsidy was predicted to balloon due to increased fuel consumption beyond the government's expectations. A feasible option to ease the strain on the State Budget (APBN) is increasing the prices of subsidized fuels—an option that president elect Joko Widodo and his transition team was presently canvassing.
According to Aswaldi, the prices of agricultural produces will be among the first ones to be impacted should the next administration decide to increase the prices of subsidized fuels. The reason is very simple: rising fuel prices will not only propel the cost of distributing the final products, but also the cost of producing the products in itself.
“For example, Solar (a brand of diesel fuel marketed by the state oil and gas company Pertamina) is also used by farmers to fuel their tractors, which they use to work their fields with,” explained Aswaldi.
Thus, Aswaldi predicted that in the short-run increasing the prices of subsidized fuels would only drive inflation up by around one percent. He said this was because there were other factors that also played a role in determining the prices of agricultural produces.
For example, he went on, the government's subsidies for fertilizers and seeds were often inaccurately targeted, meaning that ordinary farmers often did not benefit from the much needed assistance.
“The problem will only be worsened by climate change, which introduces even more uncertainties into agricultural production, potentially causing prices to rise even further,” he said.
YOLANDA RYAN ARMINDYA