SCM 300_ASU_ASSIGNMENT 2024_STRENGTHENING MARKET SHARE AND DEVELOPING BULOG'S COMPETITIVE ADVANTAGE STRATEGIES FOR RICE PRICE STABILIZATION IN INDONESIA

STRENGTHENING MARKET SHARE AND DEVELOPING BULOG'S

COMPETITIVE ADVANTAGE STRATEGIES FOR RICE PRICE

STABILIZATION IN INDONESIA

Introduction:

The food price volatility that occurred in 2007-2008 and 2010-2011 prompted

governments around the world to increase their vigilance against food price volatility due to

its far-reaching impacts. The World Food and Agriculture Organization (FAO) estimates that

food price increases in 2007-2008 increased the number of undernourished people by 173

million in those two years (Abdallah et al. 2021).

Price volatility is always associated with the concept of food security. Price shocks

can destabilize food availability and affordability throughout the industrial supply chain from

upstream to downstream. High price volatility can hamper economic growth and poverty

alleviation programs especially in countries with low domestic income. Price increases

reduce household income and purchasing power (Firdaus et al. 2019). Price increases force

households to allocate a larger portion of their income to food purchases. This situation can

worsen the health status of households by hindering their access to sufficient nutritious food

and other services (Persaud and Rosen 2003).

Food price volatility has a very real impact on the poor who are vulnerable to

becoming poorer and threatens food security (Patunru and Ilman 2019). Compared to the rich,

the poor allocate more of their budget to food and are therefore worse affected if food prices

increase (Son and Kakwani 2009). High price volatility is a disincentive for farmers, reducing

their motivation and productivity, potentially reducing investment in cultivation activities,

increasing land conversion, and in the long run further reducing production and increasing

dependence on imports (Girik Allo et al. 2018).

As it turns out, when food prices rise, the results are like "zero sum outcomes."

This happens because any increase in rice farmers' income is actually wiped out because as

rice consumers, farmers also have to spend more money to buy more expensive rice. Without

an increase in productivity, there will be no spillover or multiplier effect (Timmer 2014).

Food price spikes universally evoke traumatic responses for both producers and consumers.

In the experimental and psychological literature, the behavioral basis for this response

explains that individuals strongly prefer stable environments to unstable ones (Timmer 2014).

The food economy is also always linked to politics. Many facts show that political

instability often occurs due to high food price volatility (Arezki et al. 2016). The availability

and stability of food, particularly rice, remains a touchstone of political food security for

governments in Asian countries. Governments define food security as a political concept by

their need to maintain stable rice prices in their countries. Governments that fail to stabilize

food prices are considered to have failed in providing basic human needs (Timmer 2014).

In the face of food price volatility risks, policymakers usually try to reduce price

volatility and mitigate its negative impact on market participants through public intervention

policies (Abdallah et al. 2021). According to Dawe & Timmer (2012), managing food price

stability provides substantial benefits to countries. In developing countries, stable staple food

prices help prevent farmers and consumers from the impact of over- or underproduction,

promote agricultural investment and create social and political stability.

In Indonesia, rice is consumed by more than 95 percent of the Indonesian population

and produced by more than 23 million farming households (BPS 2013). As the main staple

food of the Indonesian people, rice is an important and strategic commodity. The strategic

value of rice is not only in the economic field, rice is also important and strategic in the

social, environmental and political life of the Indonesian people. As one of the national

development priorities, stabilizing the supply and price of rice has been an important focus of

government programs from time to time (Ismet 2007).

Since the reign of Indonesia's first president, Ir Soekarno, food issues have been a

major concern of the government. On April 27, 1952, in conjunction with the establishment

of the Faculty of Agriculture at the University of Indonesia in Bogor, which is now the Bogor

Agricultural University (IPB), Soekarno stated that the availability of food for the people was

"a matter of life and death for the nation". In the New Order Era, President Soeharto

promoted the Panca Usaha Tani program with a focus on agricultural development through

the use of superior seeds, mechanization of land processing, improvement of irrigation

systems, fertilization and control of plant pests and diseases (Suryana et al. 2014).

President Soeharto's Panca Usaha Tani policy was complemented by the support of

economic incentives such as basic price policies, institutional engineering through

cooperatives, and the provision of extension workers to villages. These programs brought

Indonesia to the peak of rice production achievement marked by rice self-sufficiency in 1984

(Sawit 2014).

Since the beginning of reformasi until the current administration, rice has continued

to be considered a strategic commodity. Rice-related food policies, overall, have remained

consistent, with a commitment to meet rice consumption needs from domestic production,

ensure fair grain prices for rice farmers, and maintain year-round stability of rice supply and

prices for consumers (Sawit 2014).

In 2012, the House of Representatives (DPR) and the President of Indonesia passed

Law No. 18 on Food (hereinafter Food Law). The Food Law has to date become the legal

basis for national food policy, which obliges the government to manage the stability of

supply, prices, as well as to manage the government's staple food reserves to realize the

sufficiency of safe and nutritious food for the community. The Food Law mandates the

government to establish a government agency for food that is directly responsible to the

President. This government agency assigns SOEs in the food sector (food SOEs) to carry out

activities along the supply chain in order to carry out government functions to realize food

availability, affordability and price stability.

Following up on the mandate of the Food Law, Perpres No. 48 of 2016 on

Assignment to Public Company (Perum) BULOG in the Framework of National Food

Security was issued, where one of the points is the assignment of the implementation of rice

price stabilization in Indonesia to Perum BULOG (hereinafter in this dissertation manuscript

referred to as "BULOG"). Meanwhile, the "Government Agency for Food", which is another

mandate of the Food Law, was only established in 2021 based on Presidential Regulation No.

66 of 2021 concerning the National Food Agency, in which BULOG is the only state-owned

enterprise whose delegation of assignments is delegated from the Minister of SOEs to the

Head of the National Food Agency in the context of implementing national food policies,

including to maintain price stability of rice commodities.

In accordance with the Sustainable Development Goals (SDGs) in Presidential

Regulation 18/2020 on the National Medium-Term Development Plan (RPJMN) for 2020-

2024, the government emphasizes its commitment to maintain price stability in the form of

low inflation and a stable rupiah exchange rate. Price stability is expected to maintain

people's purchasing power and support the acceleration of high economic growth.

Currently, Indonesia's domestic rice prices are still fluctuating and tend to be

higher than international rice prices (John 2014). During the harvest season, observations by

the Central Bureau of Statistics (BPS) show that many grain prices are below the Government

Purchase Price (HPP). Retail rice prices in all clusters in Indonesia are higher than the

government's Highest Retail Price (HET). According to Yustiningsih and Soetjipto (2013),

the transmission of rice prices from farmers to consumers is not symmetrical in the long run,

indicating the abuse of market power by intermediary traders. These conditions indicate that

the government's management model and involvement in the national rice trade system needs

to be further optimized.

More integrated market stabilization efforts are needed in the future as a number of

long-term structural factors such as climate change, water scarcity, high oil prices, soil

nutrient quality degradation, biofuel production, speculation in financial markets, and other

economic challenges point to a scenario of greater rice price fluctuations in the future

(Demeke et al. 2012). The integration of the rice price stabilization program needs to be done

from upstream to downstream, both with a reserve management optimization model, as well

as optimizing the role of BULOG as a food SOE to be more competitive in the national rice

industry.

Since the 2008 stock market crisis that shook the American economy and the entire

world, a new economic system has been born by making SOEs the backbone of the country's

economy and realizing stability, referred to as "Capitalism 4.0" (Kaletsky 2010). It is evident

that an economic system characterized by market economy indicators can only function

properly if it is shaded by a capable, competent and active government that regulates the

economy. Where the activeness in question is not in the style of John Maynard Keynes who

taught that the government should focus on spending money to maintain macroeconomic

stability. However, the government needs to be "active" on a micro level, namely moving the

economy and markets through its corporations (Dwijowijoto 2021).

Bremer (2010) shows that state capitalism through the control of SOEs in the

country's economy is an increasing trend in almost all countries, in various business sectors

and industries. The United States alone with its program of taking over the majority shares of

large companies that collapsed during the 2008 stock market crisis, has now become the

largest "SOE country" in the world, China has more than 154,000 SOEs with a variety of

scales from national to village level and is a major contributor to China's economic growth

(Dwijowijoto 2021).

In order to create a stable rice market in Indonesia, the government can enhance the

role and function of food SOEs, not only as food reserve managers, but also as active market

players in the national rice industry, so that they can gain a large market share and become

market leaders in the industry. Controlling market share is possible if BULOG, as a food

SOE, has sufficient competitive advantages and business value.

According to Porter (1990), competitive advantage or competitive advantage is the

ability obtained by a company through the development of its characteristics and resources so

that it can have higher performance than other companies in the same industry or market.

Competitive advantage grows fundamentally from the value that the company creates for its

customers, exceeding the costs incurred by the company to create that business value.

The definition of competitive advantage by David and David (2017) is the

company's ability to exceed the performance of rival companies in various aspects.

Competitive advantage is realized when the company is able to do something that cannot be

achieved by its competitors or has an advantage that competitors want. To achieve

competitive advantage, an organization must pay attention to its external position (Porter

1990), as well as its internal capabilities (Barney 1991). Wang et al. (2015) and Lin et al.

(2007) state that competitive advantage has a positive and significant effect on business

performance.

1.1 Problem Formulation

Domestic rice prices in Indonesia fluctuate from year to year and tend to be higher

than foreign rice prices. Based on World Bank data, the price of Vietnamese rice with 5

percent broken is still cheaper than the wholesale price at the Cipinang Rice Main Market

(PIBC) of IR III rice with 20 percent broken in Indonesia. Once lower in 2008 and 2009, in

the ten years to date, Indonesia's domestic rice prices have always been higher than rice prices

in other major producing countries.

Based on BPS data, the average price of the cheapest medium rice at the retail level

is still higher than the price ceiling set by the government. On the upstream side, despite the

implementation of the Domestic Procurement (ADA DN) program by BULOG, cases of

grain prices below the Government Purchasing Price (HPP) still occur frequently, and even

more frequently in recent times. Based on BPS data, in 2020 cases of grain prices below the

HPP jumped dramatically, reaching 16.2 percent of the total observations in May, and in

2021 reaching 17.7 percent of the total observations in February. This is contradictory

because the level of grain/rice production in the last few years has been high.

The last year actually showed a downward trend compared to previous years,

although for the record, the decline in production was also due to the influence of the use of

different data sources from previously using data from the Ministry of Agriculture, starting in

2018 using BPS data in accordance with the government's One Data Program.

The instability and high price of rice at the consumer level, as well as the many

cases of prices below the HPP during times of declining rice production, indicate that the

government's efforts to maintain prices at the producer and consumer levels through various

programs implemented by food SOEs are currently not optimal. Some studies even suggest

that BULOG does not play an effective role in stabilizing domestic rice prices (Suparmin

2006).

The government's current efforts to control rice prices are based on the theory of

price equilibrium based on supply and demand, assuming the need for government

intervention to prevent trader speculation and protect farmers and consumers. This concept is

translated in the form of a floor price policy under various names (most recently under the

name of the Government Purchase Price (HPP), with a concept that is somewhat different

from the floor price concept, and a ceiling price with the Highest Retail Price (HET)

program.

The philosophy of the Domestic Procurement policy changed from the concept of a

floor price with an obligation to purchase by the government if the price was below the floor

price, to the Basic Government Purchase Price (HDPP) and then changed again to the

Government Purchase Price (HPP) as it is today, where the price setting is only a reference

for purchases by BULOG according to its needs (Suryana et al. 2014).

Likewise, on the downstream side, the rice market operation policy has changed

from time to time, from the form of Special Market Operations (OPK), Market Operations

(OP) with various variations in the policy of determining indicators of price increases that are

deemed necessary to intervene, and then changed again to the Supply Availability and Price

Stabilization Program (KSPH) which can be carried out at all times and without restrictions

on the amount, with the philosophy no longer to reduce prices, but to prevent price increases.

The concept of Government Rice Reserves has also changed over time, from the

concept of stocks purchased and controlled by the government (in the form of iron stock and

buffer stock), to the concept of BULOG operational stocks that are recognized as government

stocks. These changes in Domestic Procurement programs, Market Operations and the

concept of stock in BULOG, affect the supply chain management model which in turn will

affect its effectiveness in efforts to stabilize rice prices at both the producer and consumer

levels.

On the other hand, as a food SOE, BULOG's market share is currently decreasing

year by year, especially in the last 4 to 5 years after the gradual disappearance of the Rastra

program from 2017. By relying solely on the Supply Availability and Price Stabilization

(KPSH) Program and commercial rice sales, by 2022, BULOG's rice business volume will

only amount to 1.4 million tons or ± 4.69 percent of national rice consumption. The change in

BULOG's market share from year to year is depicted in Figure 1.

Evaluating BULOG's role as a market player is important in accordance with the

trend of the world economic model that makes SOEs the backbone of the country's economy

and realizes stability (Kaletsky 2010). According to Dwijowijoto (2021), the active role of

the government in the economy can be expanded not only in macroeconomic matters such as

the perspective of John Maynard Keynes, but further to be active on a micro level, namely by

moving the economy and markets through its corporations (BUMN). Without an effective

and active role of the government, food market liberalization lacks credibility and

discourages private actors from actively contributing to the economy (Gouel 2014). Another

perspective that illustrates the importance of a company's role in price stabilization is shown

by Kotler and Armstrong (2010) who state that a company can become a price maker,

influence and direct the market when it can take a position as a market leader. The

characteristics of a market leader are companies that control a certain minimum market share

and have competitive advantages over other market players in the same industry, so that

market leaders are always at the center of the market.

reference of other market participants.

This concept shows that in addition to the reactionary price stabilization programs

implemented by the current government, the state has other alternatives to achieve stable rice

prices, namely by increasing the role of food SOEs as market leaders in the rice industry, so

that they can not only carry out price stabilization programs (market stabilization) more

effectively, but further provide the ability to create a stable rice market (stabilized market).

The perspective of creating a stable market through the concept of market leader food SOEs,

in addition to being more robust, can also reposition the concept of managing government

rice stocks/reserves from static to dynamic, so that it is expected to be more efficient and

effective in financing and management.

Previous research on rice price stabilization efforts in Indonesia focused on the

effect of stock management programs on rice prices, such as Research by Puska Daglu

BP2KP Kemendag (2015); and Aryani (2021), which examines that market operations and

rice imports have an effect on rice prices, but are not effective in stabilizing rice prices due to

inaccurate timing and quantity in policy implementation, so that market operations and rice

import policies do not necessarily reduce rice prices. Hermawan, et al (2017) and Dabukke

(2000) found that domestic rice production has a negative coefficient sign on domestic rice

prices. Saptana, et al (2019) concluded that the supply aspect influences the formation of

grain and rice prices more than the demand aspect. The results of Sulandari's (2008) study

stated that the weighted retail price of rice significantly positively affects the Consumer Price

Index. The price of rice in Jakarta is influenced by Market Operations (OP), total rice

production in Java, rice consumption in Java, rice supply to PIBC, and imports. Respatiadi

and Nabila (2018) found that rice prices in Indonesia deviate and are more expensive than the

international market.

Based on the above, it can be concluded that rice is the main staple food of the

majority of the Indonesian population and is very strategic economically, socially and

politically. The government has a strong commitment to maintaining the stability of national

food supply and prices, especially rice through Perum BULOG. But until now, rice prices in

Indonesia still tend to fluctuate. Rice prices in Indonesia tend to be higher than international

rice prices. The price of rice at the consumer level is still above the Highest Retail Price

(HET) set by the government, and grain prices falling / below the HPP still often occur

during the harvest season. Current world economic trends encourage the Government to be

more active in the economy not only in regulating the macro economy, but further to be

active on a micro level, namely moving the economy and markets through BUMN, and it has

become a common strategy in various countries to use BUMN as a major player in various

strategic industries including food. Kotler and Armstrong (2010) state that if a company has a

sufficient market share, it can become a market leader, set prices, direct and control the

market. So it is necessary to conduct research that can explain the effect of market share that

needs to be owned by Perum BULOG on rice prices in Indonesia, how much market share

BULOG should have to be more optimal in carrying out price stabilization, and how

strategies can be carried out to develop BULOG's competitive advantage to increase its

market share so that it can carry out rice market stabilization in Indonesia more optimally.

2.1 Food Policy and Price Stabilization

After the food crisis that occurred in 2007 and 2008, many researchers, including

Galtier (2009), evaluated the impact and importance of food price stability, especially in

developing countries. The concept of price stability is based on the condition that price

fluctuations are too high in a certain time frame. Price instability occurs due to the variability

and volatility of prices from their equilibrium point. Price instability occurs due to changes in

supply and demand, technological changes and psychological factors of unbalanced

expectations of economic actors.

Galtier (2009) explains that the government can take various approaches to

stabilize prices and to reduce the impact of price instability on society. The approach can be

done from a market-based perspective or in the form of public policy, as set out in Table 1.

Policies in category A aim to maintain price stability through a market approach.

The policy is carried out by facilitating arbitrage between market participants (producers,

consumers and traders). The theoretical basis of this policy is the idea that good arbitrage

between market participants will cause prices to be homogenous across time and place,

thereby reducing the level of price instability. An example of this policy is the creation of

commodity auction markets.

Similar to category A policies, policies on category B instruments are conducted

through a market approach, but with a different objective of reducing the impact of price

instability that leads to income instability. This policy allows economic agents to protect

themselves against the risks associated with price volatility. Examples of category B policy

instruments are futures contracts/blanket orders, warehouse receipt programs and farm

business insurance.

Category C instruments aim to maintain price stability through public policy. In

practice, this policy is often carried out by setting price limits so as not to exceed or fall short

of certain limits. Examples are floor price and ceiling price policies, both of which are

commonly referred to as price band policies. Other examples of this category of policy

instruments are agricultural input subsidies, import taxes, import quotas, export subsidies,

export bans and the management of government-controlled food stocks. Category C policies

are widely applied in Indonesia and developing countries.

Category D policies are public policy instruments created to reduce the impact of

price instability on the community, these policies help household income (households) can

still meet their needs when price increases occur. Examples of category D policy instruments

are direct assistance to beneficiaries in the form of cash, energy / fuel subsidies, vouchers and

direct food assistance.

In order to realize food security, governments in various countries make various

policies in the food sector, especially to realize food availability, affordability and price

stability. Food policies in various countries cover 3 aspects: economic, political and socio-

cultural. While current food policies are mostly developed, implemented and promoted

worldwide by economic institutions, six social changes around the world will have a major

effect on food policies: 1. life expectancy and population increase, 2. increasing urbanization,

3. globalization of food markets, 4. technological change, 5. changing attitudes and values,

and

1. Declining role of "traditional households. Key actors in the food

system are farmers, workers, traders, processors and manufacturers, wholesalers and retailers,

and consumers. Three important elements to achieve food policy objectives are 1.

institutions, 2. policy instruments, and 3. access to information (Goeff 1994).

Food diversification, research development and technology transfer, improved

irrigation as well as policy consistency, are critical to achieving national and household food

security. Similarly, private sector development and empowerment is a panacea for a strong

food security system that will provide stable supply and prices (Hunga et al. 2019).

In the United States, food remains a major focus of government policy for US

society, the challenge of crafting a more sustainable food policy involves three phases,

namely the identification of public, market, and civil society engagement processes, the

identification of global conditions of engagement, and the process of building policy

scenarios for the "future of food" (Smith et al. 2016). The US Food Policy Council (FPC) is

an embodiment of food democracy, successfully engaging the public, professionals and

government to address the complex issues of the food system in the United States (Bassarab

et al. 2019).

In the UK, food policy has become an important part of the state in order to realize

people's welfare. UK food policy has evolved through a process of ideational and institutional

stretching and layering. Concerns about food supply and productivity have driven food policy

covering safety, environment, food quality, obesity and the impact of climate change. The

food political system in the UK provides many opportunities for new ideas and actors to enter,

driven by the concept of the plurality of social constructions of food (Feindt and Flynn 2009).

In the European Union, food policy has been successful in realizing stable

agricultural product prices. Correlation and regression analysis show that agricultural

production and agricultural product prices affect price stability. The objectives of food policy

in the EU have largely been achieved. Thus, interventionism in agriculture brings economic

effects and justifies food policy actions (Spasojević et al. 2018).

The Chinese government focuses on making policies in the food sector, from

production, processing, distribution to ensuring food safety for the community, the

government needs to create food assistance programs for the poorest people at low prices and

in accordance with the diversified needs of these people (Kiminami and Kiminami 2009).

Empirical results show that there is a relationship between inflation and food prices, food

price inflation and international food prices, being a significant driving force for inflation in

China (Zhang et al. 2014).

In Asia and the Pacific, when measured against the main determinants of food

security, namely increased availability, access, utilization and stability, the food security of

Asia Pacific countries has never reached a higher level. At the same time, however, food

security strategies in Asia and the Pacific are not working perfectly. Most countries protect

rice farmers by providing high price support, but high rice prices hurt most of the poor.

Continued efforts to stabilize rice prices are politically understandable and economically

desirable, but a much more open rice trade regime would help food security across the region

(Timmer 2014).

The government's current efforts to control rice prices are based on the theory of

price equilibrium based on supply and demand with the assumption that government

intervention is necessary to prevent trader speculation and protect farmers and consumers.

This concept is translated into a floor price policy under various names (most recently under

the name of the Government Purchase Price, with a concept that is somewhat different from

the floor price concept) while the roof price policy is carried out with the Highest Retail Price

(HET) program.

Currently, the ceiling price policy is implemented by the Indonesian government

through National Food Agency Regulation No. 7 of 2023 on the Highest Retail Price of Rice,

which regulates the highest retail price for medium and premium types of rice by grouping

several regional clusters. Meanwhile, the floor price policy is currently implemented by the

Indonesian government through the National Food Agency Regulation No. 6 of 2023 on

Government Purchasing Prices and Grain and Rice Price Factions. Unlike the Basic Price

concept, HPP is more of a reference price, which is the purchase price of grain or rice by the

government (through BULOG) for the needs of the Government Rice Reserve (CBP) and

other BULOG public operational needs (Suryana et al. 2014).

Floor and ceiling price policies have been around since the concept of religion and

the state emerged. Ancient Hebrew Law and Islamic Law, as reflected in the Old Testament

and the Koran, prohibit interest collection, a fee charged to someone who borrows money.

The prohibition of interest is the concept of a price cap, which is set at zero.

In ancient Egypt, Babylon and Greece, governments set prices for grain and other

agricultural products. They enforced these price controls under penalty of death. A

hyperinflationary crisis that occurred in Rome during the time of Emperor Diocletian (245-

316 AD) led Ducletian to impose price controls in an attempt to stop the uncontrolled rise in

prices. During World War I (1914-18), World War II (1939-45), and the Korean War (1950-

53), for example, the US government attempted to control inflation through price caps. High

inflation in the early 1970s led President Richard Nixon to establish price controls on

consumer products to control inflation (Amrullah 2003).

2.2 Factors Affecting Food Prices

Budiman F et al. (2014) in their research concluded that prices, markets and

government policies are three important elements in efforts to realize food security. Dabukke

(2002) in his research using a long data series for 30 years, from 1969 to 1998, concluded

that the wholesale price of rice is negatively affected by production, while the price of grain

at the producer level is influenced by price, price with lag 1, rice field area, use of technology

in cultivation and benchmark interest rates.

According to Nurmalina R (2007), land conversion, land use suitability, paddy

fields, productivity, production, population and per capita consumption are factors that affect

the availability of rice in Indonesia. According to Nuryanti S (2005), rice supply is strongly

influenced by rice prices in both the short and long term. In the short term, another variable

that affects rice supply is the price of urea fertilizer.

Saptana et al. (2019) concluded that supply aspects influence the formation of

grain and rice prices more than demand aspects. The rice supply chain is considered too long

with more than 6 actors. Grain prices at the farm level can be improved by cutting the

industry supply chain, as well as efforts that can be made to reduce rice prices at the

consumer level. The rice milling industry is at the center of the effectiveness of the rice

industry supply chain.

The results of Sulandari's (2008) study stated that the weighted retail price of rice

significantly positively affects the Consumer Price Index. The price of rice in Jakarta is

influenced by Market Operations (OP), the amount of rice production in Java, rice

consumption in Java, rice supply to PIBC, and imports. Sutrisno (2007) states that the retail

price of rice in DKI Jakarta will be strongly influenced by the wholesale price at PIBC.

Pasaribu et al. (2014) concluded that operational policies from upstream to

downstream need to be developed to improve rice competitiveness. Import factors still affect

rice prices in Indonesia, especially for fresh rice. In general, Indonesia's competitiveness in

the world rice market is still low.

Budiman F et al. (2014) concluded that the price of food products is influenced by

government policies or interventions. Meanwhile, according to Ilham N et al. (2006), based

on the results of their research concluded that food security is not effectively influenced by

food price policies, household food access is not necessarily fulfilled by the availability of

food at the national level. Income equality is concluded to improve food security, while

economic growth without inclusion will tend to reduce the level of food security through

inflation and energy consumption.

Respatiadi and Nabila (2018) found that bureaucratic constraints often force

BULOG to import rice when international prices have risen. As a result, rice prices in

Indonesia are higher compared to the international market. As a solution, it is suggested that

the government reconsider the price ceiling, allowing BULOG to determine the timing and

amount of imports based on market and business analysis. This move is expected to keep rice

prices competitive, profitable for both consumers and retailers, and strengthen Indonesia's

position in the regional value chain.

Proborini et al. (2018) conducted research on the effectiveness of rice market

operations in the DKI Jakarta area and concluded that in general cheap market activities in

DKI Jakarta were effective. Of the 5 indicators, cheap market activities have not met the

expected value only for the quantity factor, while in terms of quality, location, time and price

have been able to meet the expected value (target). The Government Purchase Price (HPP)

policy and the Domestic Procurement Program (ADA DN) are effective in achieving food

security goals, while policies in the upstream sector such as subsidized fertilizer programs,

superior seed subsidies, and irrigation network improvements are not effective in achieving

them.

Hermawan et al. (2017) found that domestic rice prices are negatively affected by

domestic rice production and exchange rates, but not by international rice prices and per

capita income levels. Domestic rice production and international rice prices do not have a

significant impact on domestic rice prices, while exchange rates and per capita income have a

noticeable influence on domestic rice prices respectively. The factor that most influences the

formation of domestic rice prices is per capita income. High price differentials between

domestic and international rice can be detrimental to the public and lead to increased rice

imports and illegal market activities.

John (2014) shows that price transmission occurs in the world rice market. The

direction of price transmission shows that Asian prices act as price leaders for North and

South American prices. Vietnam has the most extensive price relationships with other export

markets suggesting that Vietnam's rice export price is a more suitable world reference price

than Thailand's export price. The implication of the price relationships between rice export

markets is that the world rice market is not as fragmented as is commonly suggested in the

literature. This may also explain why international rice prices are so sensitive to volatile trade

behavior in key Asian markets.

According to Suparmin (2006), the level of stability of farmers' grain prices was

relatively higher (more stable) in the controlled open market government (200-2003) than in

the new order government (1975-1997) or the free market period government (1998-1999).

The spatial integration of the rice market has shifted from incompletely integrated under the

New Order to segmented under the Free Market period.

which embraced the free market and the controlled open market governments.

BULOG only had a role in creating stability in farm-gate grain prices during the New Order

government, and did not play a role at all in stabilizing rice prices during the three

governments. Meanwhile, according to Suryana A et al. (2014) the implementation of the

HPP policy accompanied by supporting policies has a positive impact on stabilizing the

supply and price of rice at the producer and consumer levels.

2.3 The Role of SOEs and Market Competition

The existence of SOEs is an actualization of the government's role in the economy.

For Indonesia, the existence of SOEs is a necessity, because it is a constitutional mandate and

cannot be separated from the framework of Indonesia's ideals as a nation and state. The

Indonesian Constitution mandates that all existing resources and natural resources are

intended to achieve the welfare of the Indonesian people. Article 33 of the 1945 Constitution

states that "the branches of production that are important to the state and that control the

livelihood of many people shall be controlled by the state; and the earth and water and the

natural resources contained therein shall be controlled by the state and used for the greatest

prosperity of the people".

This ideological foundation states explicitly that the state must have a significant

role in managing state assets, especially in the form of natural resources and those that

control the lives of many people, for the purpose of the greatest prosperity of the people.

Related to the vision of managing the State's wealth, it cannot be separated from the existence

of State-Owned Enterprises (BUMN), as the executor of the State's wealth management. SOEs

are needed to manage sectors that have a major impact on people's lives. SOEs are

responsible for public services and are agents of development. The functions of SOEs are

further explained in Law No. 19/2003 on SOEs, especially in article 12, which includes: (a)

to encourage national economic growth; (b) to increase the value of (c) providing public

services; (d) starting new businesses; and (e) supporting the development of MSMEs

(Kuncoro, 2009).

According to Kaletsky (2010), the current world economic trend encourages the

government to be more active in the economy not only in regulating the macroeconomy, but

further to be "active" on a micro level, namely moving the economy and markets through its

corporations/SOEs (Dwijowijoto 2021). Without an effective and active role from the

government, food market liberalization lacks credibility and discourages private actors from

actively contributing to the economy (Gouel 2014).

According to Adam Smith (1776), competition in the market will encourage factors

of production to be allocated to the most high-value and efficient use. This process is often

referred to as the invisible hand. In microeconomic theory, market competition can be

divided into perfect and imperfect competition, with markets without competition referred to

as monopolies. The existence of competition encourages market participants to develop

products, technologies, and services, which in turn creates more choices, better products, and

lower prices.

According to Kotler and Armstrong (2010), based on differences in company

characteristics, there are four company positions in market competition, namely:

1. Market leader

2. Market challenger

3. Market follower

4. Market niche

Market leadership is the ability to dominate or direct a market. Entities that are able

to do so are called market leaders, standing out with the highest market share and superior

competitive advantage over competitors. The position of a market leader gives it the privilege

to influence various aspects of the market, including price, quality standards and best

practices. Three characteristics of market leaders are:

1. Has the largest market share. Market share is measured by

dividing the company's business volume by the market size. Business volume can be

measured through the number of customers, sales volume, or sales value. If a company is a

market leader, it means they have a larger number of customers or sales than competitors in

the industry.

A company's success in achieving the largest market share demonstrates their

ability to sell high volumes of products. This allows the company to achieve higher

economies of scale and reduce the cost per unit of product. In some cases, a company may set

its product prices in line with the industry average. However, there is also a possibility that

the company sets its product price slightly below the average to attract higher demand.

2. Having a competitive advantage. Porter suggests that the source of

competitive advantage can be obtained through two things, namely cost leadership and

differentiation. In cost leadership, companies that are market leaders tend to have a lower

than average cost structure industry average. As such, they can generate greater profits compared to

their competitors.

In a differentiation strategy, the market leader offers a selling proposition that is

unique and best in the eyes of the consumer. Its products provide greater satisfaction for

customers compared to competitors' products. Therefore, consumers have a strong motivation

to choose the company's products over those of competitors, even at higher prices.

Market leaders have advantages not only in products and prices, but also in the rest

of the marketing mix, including having extensive distribution channels so that they can reach

more consumers than competitors. In addition, they conduct intensive promotions by

developing effective promotional channels to create a strong image in the eyes of customers,

becoming a target for competitors. Some competitors may attempt to attack the market leader

and take over market leadership. That may be through aggressively lowering prices to capture

customers. Those who do so we call market challengers.

Being a market leader, with the ability to influence and direct the market, provides

a number of benefits to the company, namely:

1. Higher profits can be achieved by a company by increasing sales volume, which allows

it to reduce costs through greater economies of scale. Cost reduction can come from

several sources such as allocating fixed costs (e.g. machine rental costs) to more

outputs, obtaining discounts from purchasing raw materials in bulk, as well as

implementing specialization to increase productivity.

2. The company's products have a dominant position in the distribution channel.

Distributors or retailers tend to favor market-leading products because of their high

demand. They are willing to put the market leader's product on the main shelf and are

willing to promote it.

3. A strong position as a market leader provides advantages in dealing with suppliers.

Suppliers prefer to work with market leaders because they can sell high volumes of

inputs. To maintain such cooperation, suppliers may offer discounts or more flexible

credit terms. For the market leader, such offers can reduce costs.

4. The status as a market leader can be used as the main material in advertising campaigns

and other promotional materials. This claim of being the market leader increases

consumer confidence in the company's products, thus influencing more consumers to

buy them.

5. Being a market leader makes the company more attractive to top talent. Many people

prefer to work for large, successful companies. In addition to a prestigious reputation,

the company may also offer better career paths and job security.

6. Market leaders are considered to have better financial capacity than competitors.

Therefore, investors or creditors tend to be more favor companies with the highest market

share as they are perceived to generate more revenue.

2.4 Strategic Management and Competitive Advantage

According to Kotler and Armstrong (2010), each level of competition requires a

unique strategy. Companies that are in competition must utilize this understanding to create a

competitive advantage that exceeds the value offered by their competitors. A comprehensive

plan on how to achieve a company's mission and goals is referred to as corporate strategy.

The strategy aims to maximize competitive advantage and minimize limitations in

competition (Wheelen et al. 2018).

Strategies are formulated to pool and manage the organization's diverse resources

with the aim of achieving the company's vision. Without an appropriate strategy, the company's

resources can be wasted without a clear direction, resulting in the organization failing to

realize its vision. In a competitive business environment, strategy plays a crucial and decisive

role in maintaining the company's survival.

According to David (2017), strategic management can be referred to as the art and

science of planning, implementing, and evaluating cross-functional decisions aimed at

ensuring that an organization can achieve its goals. Strategic management is a set of

managerial decisions and actions that determine the long-term performance of a company

(Wheelen 2008). From these two definitions, strategic management can be interpreted as a

series of various sciences in an organization to achieve a vision with a long period of time.

Strategic management combines two aspects, namely the evaluation of the

company's internal and external environment paired with opportunities and constraints to be

formulated into a company strategy. According to David (2017), the internal environment of

a company can be reviewed based on functional aspects such as marketing, finance,

management, and production and operations within the company, as well as information

systems. Meanwhile, in reviewing the external environment, there are five categories to

analyze external forces, namely competitive forces, social, cultural, demographic, and

environmental forces, political, government, and legal forces, and technological forces.

With regard to the development of competitive advantage, Porter (1990) provides

guidance through the concept of the value chain, which encompasses a series of values

resulting from a company's activities, from the initial to the final stage, or until the product or

service is received by consumers. Strong linkages along the value chain are crucial in

improving innovation efficiency. However, integration in the value chain should be done

selectively and focus on aspects that provide significant added value.

Picot & Kaulman (1989) compared SOEs and non-SOEs using Fortune "The

Foreign 500" data. They found that the productivity and profitability of privately-owned large

industrial firms were higher than the productivity and profitability of government-owned

firms. This is consistent with the view of property rights theory. Similarly, Perkins (2007)

found that the productivity of SOEs is lower than that of non-SOEs.

In contrast to these findings, Scarborough and Cornwall (2016) found that the

efficiency of SOEs increased with the restructuring of these SOEs through improved

corporate governance. Companies that have a competitive advantage have the ability to

achieve above-average profits and occupy a leadership position in the market.

Competitive advantage is a corporate strategy designed to take advantage of

opportunities that cannot be copied by competitors, with the aim of increasing profits and

profits (Pakaya 2011). In a rapidly changing business environment and intense competition,

competitive advantage becomes the key to success for organizations or companies in a short

period of time (Utama 2010). Organizational resources become the foundation for achieving

and maintaining competitive advantage (Ismail et al. 2012).

Value chain activities refer to a specific set of activities that can create value and

competitive advantage for an organization. These activities can be divided into two types,

namely:

Primary activities

a. Inbound Logistics: Activities related to the handling of materials before they are used.

b. Operations: Activities related to processing inputs into outputs.

c. Outbound Logistics: Activities performed to deliver products to consumers.

d. Marketing and Sales: Activities related to directing consumers to be interested in buying

products.

e. Service: Activities aimed at maintaining or increasing product value.

Supported activities, consisting of:

a. Procurement: Related to the process of acquiring inputs or resources.

b. Human Resources Management: The organization of human resources from recruitment

to dismissal.

c. Technological Development: Development of equipment, software, hardware, and

procedures to transform products.

d. Firm Infrastructure: Involves departments and functions such as planning, risk

management, supervision, accounting, finance, and so on, which serve the needs of the

organization and integrate its components into a whole.

The identification of competitive advantage strategies can also be made based on

the evaluation of supply chain management as shown in Figure 2. Said et al. (2006)

suggested that supply chain management involves the coordination of information, goods,

and services from the initial supplier to the final consumer, with an integrated system

approach and uniform objectives. According to Siagian (2005), the supply chain includes all

activities from the procurement of raw materials to the delivery of finished products to

consumers through the distribution system. Meanwhile, according to (Burt and Sparks 2003),

supply chain management is a systems approach to managing the flow of information, goods,

and services from raw material suppliers to consumers, forming a continuous cycle in line

with the company's business processes.

The components of supply chain management according to Turban et al. (2018)

there are three main elements, namely the upstream supply chain, internal supply chain, and

downstream supply chain. Upstream supply chain or upstream includes company activities

with raw material producers and procurement as the main activities. The internal supply

chain includes the activities of putting goods into warehouses to transforming raw materials

into products. In this section, there are key activities such as managing production,

manufacturing, and controlling inventory in the supply chain. Meanwhile, the downstream

supply chain includes all activities related to delivering products to end consumers. The main

activities involve distribution, storage, transportation, and after-sales service.

The supply chain includes all the steps involved directly or indirectly in meeting

consumer needs, involving the movement of goods from suppliers to manufacturers, then to

transporters, warehouses, retailers, and finally to customers. Supply chain management

involves managing the flow of information, products, and financial transactions between the

various stages in the supply chain with the aim of maximizing the overall profitability of the

chain supply chain. Supply chain profit can be measured by the difference between the

revenue earned from customers and the total costs incurred along the entire supply chain

(Chopra and Meindl 2007).

In the supply chain, there are several main actors, namely suppliers, manufacturers,

distributors, retailers and consumers. A typical supply chain involves a wide variety of stages.

Each stage in the supply chain is connected through the flow of products, information and

funds. The appropriate supply chain design depends on customer needs and the roles played

by the stages involved (Chopra and Meindl 2007). This diversity of stages forms a diversity

of supply chain network structures, which can generally be seen in Figure 3.

2.5 Research Framework

This research framework is based on the importance of food price stability,

especially rice in Indonesia. Food is a human right and rice is a food commodity consumed

by most of Indonesia's population so it has strategic value both economically, socio-culturally

and politically. According to Kotler and Armstrong (2010), companies that have a certain

amount of market share can be the determinant of commodity/product prices, and according

to Kaletsky (2010) and Breemen (2011) the role of SOEs is optimized by many countries to

control their strategic commodity markets. BULOG is a food SOE assigned by the

government to manage rice commodities in Indonesia. Based on this, the first stage of

analysis in this study is to identify the factors that affect rice prices in Indonesia and then re-

analyze them by including the BULOG market share variable in the model. If BULOG's

market share affects the price of rice, then an analysis is conducted to estimate the amount of

BULOG's market share needed to create rice price stability in Indonesia.

The next step in the research is to see if BULOG's market share needs to be

increased from its current condition. Efforts to increase BULOG's market share are carried

out by creating a strategy for developing BULOG's competitive advantage based on the four

perspectives of the balance scorecard, namely financial, customer, internal processes and

learning and growth perspectives. BULOG's competitive advantage will be depicted in the

form of a Strategy Map. After that, the research continued by determining the priority of

existing strategies and determine the factors and actors that can make strategy implementation

successful. By increasing BULOG's market share in the national rice industry, it is expected

that BULOG's role in implementing rice price stabilization in Indonesia can be optimized in

the future. The framework in this study is depicted more fully in Figure 4.

Research Design:

This research was conducted in several stages and used several analytical tools. In

the first stage, the research was conducted using a literature study to describe the government

policies that have been carried out to realize rice market stability in Indonesia as well as the

identification of the main variables that affect rice prices in Indonesia, then the research was

carried out using quantitative analysis methods using secondary time series data to see the

effect of BULOG's market share on rice prices using Autoregressive Distributed Lag (ARDL)

analysis and quantification of market share needed to realize rice price stability in Indonesia

using logistic regression analysis and calculations with the Stock Utilization Ratio (SUR)

approach.

In the second stage, research was conducted using in-depth interviews and expert

questionnaires to identify and design a strategy map using SWOT analysis on the four

perspectives of the balance scorecard, and then selection of BULOG's competitive advantage

strategy for optimizing the rice price stabilization program in Indonesia using Fuzzy

Analytical Hierarchy Process (FAHP) analysis as shown in Figure 5.

Prioritization:

Prioritization at each level of the hierarchy requires pairwise comparisons, where

elements are paired and compared based on certain criteria. The intensity of preference

between elements is evaluated, creating a relationship that describes the relative influence of

elements at a hierarchical level on elements at a higher level. In this context, the higher-level

elements act as criteria or traits. The result of this comparison process produces a

prioritization vector, which reflects the relative importance of the element to each trait.

The pairwise comparison process is repeated for all elements at each level. The

final stage involves assigning weights to each priority vector according to its importance. The

initial step in pairwise comparison starts at the top of the hierarchy (objective) to perform the

first comparison, then goes down to the level below (criteria), picking up the elements to be

compared, as illustrated in Table 12.

The relative ranking of all alternatives is determined through the processing of

relative comparison values. Both quantitative and qualitative hierarchy levels can be

compared based on predetermined judgments to produce weights and priorities. Calculation

of weights or priorities is done by manipulating matrices or through solving mathematical

equations.

The pairwise comparison process will provide eigenvectors that reflect the level of

priority between the elements being compared. Eigenvalue, which is a scalar value, and

eigenvector, which is a matrix, are two concepts that can describe a matrix. Not all square

matrices have eigenvalues and eigenvectors (Santoso 2016).

Logical Consistency

All elements are logically organized and ranked according to predefined logical

criteria. Consistency of assessment plays an important role in decision-making to ensure

accurate decision outcomes. However, achieving perfect consistency in real life is often a

challenge.

Setting priorities consistently to a certain degree is essential to obtain accurate

results in real-world situations. In the AHP method, the consistency of various considerations

is measured using a consistency ratio. The success of the evaluation depends on the value of

the consistency ratio, which should not exceed 10 percent. If the consistency ratio value

exceeds this limit, the evaluation is considered inconsistent and needs to be adjusted

(Marimin 2004).

The assessment of the consistency of A can be seen through the deviation of the

consistency λmax with n, which is measured by the consistency index using the equation:

According to Saaty (1993), the consistency of the pairwise comparison matrix is

considered fulfilled if the consistency ratio (CR) value is ≤ 10 percent. When the CI reaches a

value of zero, the matrix is considered consistent. The level of inconsistency is measured

using the Consistency Ratio (CR), which compares the consistency index with the Random

Index (RI) value. This assessment depends on the order of the matrix n.

Fuzzy AHP:

In this research, AHP analysis is carried out with a Fuzzy approach, which is

hereinafter referred to as Fuzzy Analytical Hierarchy Process (F- AHP). F-AHP is an analysis

method developed from traditional AHP analysis. Fuzzy logic was first introduced by Prof.

Lotfi A. Zadeh from the University of California in 1965. Zadeh argues that true and false

values in conventional logic are unable to overcome the problem of infinite gradations in the

real world. To overcome these problems, Zadeh then developed fuzzy set theory.

Fuzzy AHP was developed to improve the weaknesses that exist in the AHP

method, namely to overcome the inability of the AHP method to provide precise assessments

in the pairwise comparison matrix (Hakan et al. 2015). The difference between this method

and the AHP method lies in the implementation of the assessment in the pairwise comparison

matrix between criteria, where in F-AHP the value of each criterion is represented by three

variables (a, b, c) or (l, m, u) called Triangular Fuzzy Number (TFN).

Marimin (2013) states that the Fuzzy AHP method is an approach used in selecting

alternatives in a problem by integrating the concepts of Fuzzy theory and hierarchical

structure analysis. The utilization of fuzzy methods allows decision makers to combine

qualitative and quantitative data in the decision framework. Thus, in the decision-making

process, the assessment can be made in the form of a range, providing a greater level of

confidence than an assessment in the form of a specific value.

The Fuzzy AHP method combines the Fuzzy approach with the AHP method

(Kusumadewi & Hari 2010). Fuzzy AHP originally used fuzzy ratio comparisons described

through triangular membership functions. The new approach introduced by Chang uses

Chang's extent analysis method by using Triangular Fuzzy Number (TFN) as a pairwise

comparison scale. TFN, as a fuzzy set theory, helps in measuring human subjective judgment

using language or linguistics. The essence of Fuzzy AHP lies in pairwise comparisons

illustrated through a ratio scale associated with a fuzzy scale, as explained by Shega et al.

(2012).

To determine the level of membership in FAHP, function rules in the form of

triangular fuzzy numbers (TFN) are used, which are arranged based on linguistic sets. So, the

number on the intensity level of importance in AHP is converted into a TFN scale set. TFN

has three membership functions, namely the lowest value (l), the middle value (m), and the

highest value (u). Triangular fuzzy number (TFN) is a concept in fuzzy set theory that helps in

measurements involving subjective human judgment using language or linguistics. The

essence of fuzzy AHP lies in pairwise comparisons described by a ratio scale associated with

a fuzzy scale (Shega et al. 2012). In this study, the function representation used is a triangular

function representation or Triangular Fuzzy Number (TFN) as shown in Figure 13.

Fuzzy AHP Steps

Once the hierarchical arrangement is made, experts are asked to compare the

elements at each level through pairwise comparisons. The aim is to assess the extent to which

the elements have a relative importance to the elements at the previous level. In general, the

steps in conducting an analysis using the Fuzzy AHP approach can be seen in Figure 14.

To evaluate pairwise comparisons in this study, a ratio scale was used. The ratio

scale applied was a 9-scale (Saaty 2001), where 1 means equal importance, 3 indicates

slightly more important, 5 indicates clearly more important, 7 indicates very clearly more

important, and 9 reflects absolutely more important, as listed in Table 13.

After the scale is set, the next step is to enter the data by inputting the numbers that

come from the questionnaire filled out by the FAHP experts. After the data is inputted,

pairwise comparisons will be generated for each criterion, sub-criteria, and alternative

model/strategy. These results will form a priority vector for each element.

The fuzzy AHP method was chosen because it has several advantages, as stated by

Kastaman (1999) as follows:

1. Fuzzy AHP has the ability to handle qualitative issues that are often complex or

ambiguous. It can provide a framework for measuring aspects that are difficult to explain

or are relative using a qualitative scale, just as is done with quantitative data. The analysis

process involves pairwise comparisons to avoid inconsistencies in calculations...

2. The criteria and the weights of each criterion can be determined with certainty, following a

pairwise comparison process that starts from the lowest level of criteria in the problem

hierarchy. This process involves weighting the criteria and selecting alternatives through

full competition.

3. This method is very flexible in handling both individual and group decisions. The

decision-making process can be conducted both individually and in groups, depending on

the number and preferences of the respondents involved.

4. The problem definition can be refined by adding necessary information and developing

decisions through a process of iteration.

5. The definition of a problem can be corrected if something goes wrong during a stage

because there are deficiencies that need to be added, and develop the decision through

repetition,

6. This method allows for the pooling of opinions from each individual, either through

personal judgment or reaching consensus.

7. There are interrelationships and dependencies between system elements in the analysis

process because of the hierarchy of systems that are accommodated.

1.1.1 History of Food Institutions

History records that food politics has been implemented since the Republic was

established. Even before the proclamation by Sukarno-Hatta, food politics had taken place.

The Mataram Kingdom era used food as a political tool to conquer small kingdoms. Mataram

under Sultan Agung Adi Prabu Hanyakrakusuma (1593-1645) besieged Surabaya (1620) by

damming the Mas River and sending troops to conquer Sukadana and Madura. The struggle

over Sukadana and Madura weakened Surabaya because it was cut off from food supplies, so

the city fell in 1625 due to starvation. Seeing the importance of food for government stability,

Sunan Amangkurat I (1645-1677) continued the policy of banning exports during the famine,

resulting in a tripling of prices, with the aim of quelling rebellions.

During the Dutch occupation of Indonesia, a policy of low rice prices was used to

defuse the situation and support the export of plantation products. In 1932, the Netherlands

established the Voeding Miededelen Funds (VMF) to regulate food supply in the colonial

territories. This pattern succeeded in increasing the productivity of rice farming, as evidenced

by the production of 4.5 million tons of rice in Java in 1940 (Suksmantri et al. 2012). During

the Japanese occupation (1942-1945), the VMF was replaced by the Sanbyobu-Nanyo

Kobatsu Kaisha for the purpose of logistics for the Japanese army (Gafar 2008).

The struggle for food was continued by President Soekarno (Bung Karno). On

September 2, 1945, President Soekarno formed the Presidential Cabinet where food affairs

were handed over to the Ministry of Prosperity. On May 21, 1948, President Soekarno issued

Presidential Decree No. 16/1948 to establish the Jogjakarta Agrarian Committee. The

legislative task was successively continued by subsequent committees until September 24,

1960 when Law No.5/1960 was drafted, known as the Basic Agrarian Law (UUPA).

Bung Karno called agriculture a matter of life and death for the nation. His firm

position on this was clearly illustrated in his speech when inaugurating the construction of the

Faculty of Agriculture building at the University of Indonesia on April 27, 1952, which is

now the Bogor Agricultural University (IPB). In the speech, Bung Karno emphatically stated

that food security was an urgent need for the Indonesian people, and that food shortages

could have devastating effects in a short time. Bung Karno's nationalist views placed food as

an issue closely related to state sovereignty.

From 1945 to 1950, two food organizations were established, the Jawatan

Pengawasan Makanan Rakyat (PMR) and the Ministry of Food Supplies. In 1950, the

Foodstuff Foundation (BAMA) was established with the task of buying, selling and

managing food supplies. food. The BAMA Foundation ran until 1952 and was replaced by

the Foodstuffs Affairs Foundation (YUBM), the Rice Purchasing Agency Foundation

(YBPP). The YBPP, which was established in the regions, was tasked with buying rice

domestically, while the YUMB was tasked with importing rice to cover domestic needs, while

the DBM was tasked with stabilizing prices and distributing rice throughout Indonesia (Gafar

2007).

At the beginning of the New Order, the Provisional People's Consultative

Assembly (MPRS) authorized Soeharto to form the Tritura Cabinet with the main task of

creating political and economic stability through improving people's lives, especially in the

fields of clothing and food. On August 17, 1966, based on TAP MPRS No. XIII/MPRS/1966

dated July 5, 1966, the Ampera Cabinet was formed (a Presidium consisting of 5 Main

Ministers) chaired by General Soeharto. On April 23, 1966, Decree No. 87/1966 was issued

by the Chairman of the Ampera Cabinet Presidium to establish the National Logistics

Command (Kolognas), with the main task of ensuring the supply of rice in the country.

Kolognas replaced Bung Karno's BPUP, which had only supplied rice for civil servants and

the military, and expanded its duties. Appointed as Head of Kolognas were Achmad

Tirtosudiro and Special Assistant Bustanil Arifin.

In 1967, Kolognas was abolished and replaced by the National Logistics Agency

(BULOG), which was established by Presidential Decree No 114/ KEP of 1967. Through

Presidential Decree No. 272/1967, BULOG was designated as the Single Purchasing Agency.

On 22 January 1969, BULOG underwent reorganization and changes in its organizational

structure based on Presidential Decree No 11/1969. BULOG's task is to assist the government

in stabilizing food prices, especially the nine basic necessities (sembako).

In mid-1968, Soeharto issued Presidential Decree No. 183 to transform the

enhanced Ampera Cabinet into the Development Cabinet I with a working period of 1968-

1973. At that time, the government placed rice not only as a strategic commodity, but also as

a political commodity. Thus, in 1969, several basic concepts of food policy began to be

developed, which were closely linked to the pattern of national economic development. These

concepts included floor price (lowest/minimum price) and ceiling price (highest price), the

concept of buffer stock, as well as procurement, transportation, storage and distribution

systems and procedures.

BULOG's duties expanded over time. They began managing various commodities

such as sugar and flour in 1971, meat in 1974, soybeans in 1977, corn in 1978, and peanuts

and green beans in 1979. In 1970, a rice price stabilization policy was initiated that focused

on buffer stock operations. To support this buffer stock orientation, BULOG built warehouses

throughout Indonesia. In accordance with Presidential Decree No. 39/1978 dated 6 November

1978, BULOG's organizational structure was changed with the task of helping to provide

supplies to maintain price stability, both for the benefit of farmers and consumers, in

accordance with the government's general policy.

Between 1968 and 1992, there was a significant increase in rice production.

According to data from the Central Statistics Agency (BPS), rice production reached 17.16

million tons in 1968, then jumped sharply to 47.29 million tons in 1992, almost tripling. This

success changed Indonesia's position from the world's largest rice importer to a country that

achieved food self-sufficiency since 1984, an achievement that was successfully maintained

until the fourth year of Repelita V. This success was also matched by the structuring of

economic ranks, ranging from institutions (farmer groups and village unit cooperatives),

production facilities and infrastructure (fertilizers and their distribution, irrigation networks)

to the marketing of their products (price policy).

In 1998, Indonesia experienced an economic crisis. The International Monetary

Fund (IMF), which intervened in restoring the Indonesian economy, suggested reducing

BULOG's authority in managing staple foods in Indonesia. Based on a letter of intent (LOI),

BULOG's (Badan Urusan Logistik) monopoly on rice imports was revoked and import duties

on food products were cut to a maximum of 5 percent. In fact, import duties on rice, corn,

soybeans and sugar are set at zero percent.

Rice liberalization was first implemented under Presidential Decree No. 19/1998,

dated 21 January 1998, which directed BULOG to focus solely on rice management.

BULOG's duties were later amended by Presidential Decree No. 29/2000, dated February 26,

2000, which mandated BULOG to carry out general government and development tasks in

the field of logistics management, including inventory management, distribution, rice price

control, and logistics service businesses in accordance with applicable laws and regulations.

However, this change was short-lived as on November 23, 2000, Presidential Decree No.

166/2000 was issued, shifting BULOG's duties to that of executing government tasks in the

field of logistics management in accordance with applicable laws and regulations. Finally,

with Presidential Decree No. 103/2001, dated September 13, 2001, BULOG's duties and

functions were re-established as a non-departmental government agency directly responsible

to the President.

In 2003, the government issued Government Regulation No. 7/2003 on BULOG,

which changed BULOG's legal status from a non-departmental government agency to a state-

owned enterprise in the form of a Public Company (Perum). Article 6 paragraph 2 (b) of

Government Regulation No. 7/2003 states that, in certain situations, BULOG is responsible

for carrying out tasks assigned by the government related to securing staple food prices,

managing the Government Rice Reserve (CBP), and distributing staple food to certain

community groups, especially rice and other staple foods determined by the government to

ensure food security (Suryana et al. 2014).

The change in BULOG's status from a department to a Public Company had a

significant impact. First, BULOG is mandated to carry out specific tasks assigned by the

government, such as maintaining the stability of staple food prices, managing food logistics

including food reserves, and managing food logistics government rice, as well as distributing

rice and other food commodities to those in need. Second, by becoming a business entity,

BULOG has greater flexibility in carrying out business functions in accordance with the Law

on State-Owned Enterprises, without disregarding its public responsibilities. Third, BULOG

can act as the main distributor for staple food commodities, in line with the provisions in Law

No.5/1999 on Anti- Monopoly (Saragih 2016).

The issuance of Government Regulation No. 13/2016 on Perum BULOG is a

starting point in developing and finding solutions for the future staple food trading system,

especially in terms of distribution. In an effort to strengthen BULOG's role and authority, the

government, with careful consideration, issued Government Regulation No. 49/2015 which

increased state capital participation by IDR 3 trillion from the State Budget for Fiscal Year

2015, and Government Regulation No. 70/2016 which increased state capital participation by

IDR 2 trillion. The funds will be used by BULOG to improve its competitiveness through the

development of modern infrastructure for the storage and processing of Rice, Corn, and

Soybean commodities.

In 2020. The President of Indonesia, Joko Widodo, decided to restructure a number

of SOEs operating in the food sector with the aim of improving efficiency, coordination and

competitiveness in the face of global challenges in the food sector. The restructuring involved

the establishment of a food SOE holding company as part of a strategic program known as

the "Indonesian Food SOE Holding". This plan involves several state-owned companies

operating in various segments of the food sector, such as rice, palm oil, sugar and fertilizer

production. The aim is to create synergies between these companies, reduce overlaps in

operations, increase efficiency, and improve competitiveness.

The establishment of the Food SOE holding is part of the Indonesian government's

efforts to improve the country's food security and maintain the stability of domestic food

supply. With better coordination between state-owned companies in the food sector, it is

expected that food production and distribution can be more efficient, and can better cope with

changes in the global market. Initially, BULOG was planned to become a Food SOE holding,

but through Government Regulation No 118 of 2021, the government finally decided to

appoint PT Rajawali Nusantara Indonesia (RNI) as the holding and shareholder of several

Food SOEs, namely PT Perusahaan Perdagangan Indonesia (PPI), PT Sang Hyang Seri

(SHS), PT Perikanan Indonesia, PT Berdikari, and PT Garam, with "Id Food" as the Food

SOE holding brand, while BULOG was decided to remain independent.

In 2021, the government authorized the establishment of the National Food Agency

through Presidential Regulation No. 66 of 2021, in accordance with the provisions contained

in Law No. 18 of 2012 on Food. The National Food Agency acts as a government agency

under the direct leadership and responsibility of the President, aiming to carry out food affairs

in order to achieve sovereignty, food security and self-reliance for the country. The National

Food Agency's main focus is on nine food commodities, such as rice, corn, soybeans, sugar,

onions, poultry eggs, ruminant meat, poultry meat and chili. The duties of the National Food

Agency include procurement, management and distribution of food reserves, which are

carried out in cooperation with State-Owned Enterprises (SOEs). The Head of the National

Food Agency, who was inaugurated, plays a central role in carrying out his duties and is

directly responsible to the President of the Republic of Indonesia.

1.1.2 Review of Rice Price Policy in Indonesia

Government interference in the price and distribution of rice has been practiced for

a long time, dating back to Sunan Amangkurat I of the Mataram kingdom. Gafar (2008)

argues that in 1651 the Mataram government attempted to monopolize the rice trade with the

closure of ports on the north coast of Java to cripple the VOC trade. Furthermore, after the

Dutch ruled the archipelago, interference in rice affairs by the Dutch was to support their

colonial politics. During the Japanese rule, the government intervened to support the logistics

of the Japanese army.

Historically, rice policy in Indonesia during the colonial and early New Order

periods has always focused on consumer interests with the aim of ensuring sufficient and

affordable rice for c o n su me r s (Mubyarto and Bromley 2002). This policy can be divided

into three main periods: (i) the cheap food policy, which was in effect from the Dutch

colonial period until around 1959; (ii) the in-kind wage policy during the inflationary period

from 1959 to 1966; (iii) the inflation suppression policy from 1966 to 1969. The cheap food

policy emerged during the Dutch colonial period, when it was implemented to serve the needs

of large plantations that were more likely to import rice at affordable prices from a b r oa d .

The main objective of this policy was to reduce production costs on these plantations in order

to compete more effectively in the global market. The profits earned by the plantation

companies also contributed greatly to

on government revenue through significant taxes.

The Dutch government issued the Rijstinvoer Ordonantie in 1933, which abolished

import permits and restricted imports through a license and quota mechanism (Gafar 2008).

Only Jambi, West Kalimantan, Bangka, Indragiri and Aceh were allowed to import rice in

limited quantities. South and East Kalimantan, North Sulawesi and Maluku can import rice

from Java and South Sulawesi. Meanwhile, the Moluccas could take rice from Lombok

Island. The Dutch government at that time had set a minimum price for rice that must be

received by farmers by encouraging rice mills to buy as much as possible at the minimum

price as set by the government. The guarantee given to the millers for the stock they bought

was that if the millers could not sell the rice on the free market, the government would buy it

at the basic price plus a reasonable profit.

Towards the end of 1957, the price of rice in Indonesia rose sharply enough to

increase the economic pressure on civil servants and fixed-income earners. To ease the

burden on the fixed income group, the government intensified the payment of wages in kind,

especially rice (the food wage policy). Rice became the benchmark for everything during this

period, and became the underlying form of "currency" for the exchange rate. The severe

drought and the cancellation of the rice production intensification program in 1967 resulted in

Indonesia's rice supply being in a very low state. Rice prices reached

The distribution of rice, which was initially only given to fixed income groups such

as civil servants and the armed forces, then expanded to the general population. During the

period 1958-1965, rice distribution regulations continued to change with an ever-widening

scope, so that the government itself was unable to provide rice. The government's rice

reserves, after being distributed to the functional classes, i.e. ABRI, central and autonomous

civil servants, employees of plantations and vital private companies, were sold at prices far

below market prices to the population through village heads and partly distributed to social

bodies, such as hospitals, orphanages and prisons.

According to Law No. 1 of 1957 on the Principles of Regional Government,

regions were authorized to develop self-help. Therefore, each region that is a rice producer

decided to establish the Yayasan Badan Pembelian Padi (YBPP). YBPP had the

responsibility to collect paddy, do the processing, and distribute it to consumers. At the

central level, the Foundation for Foodstuffs (YUBM) has the task of accommodating excess

rice purchased by YBPP in areas that have a surplus and distributing it to areas in need. In

addition, YUBM is also responsible for importing rice (Gafar 2008).

In 1966, at the beginning of the New Order government, there was high inflation in

ndonesia. At that time, rice made up 65 percent of the weighted index of nine staples, and 31

percent of the cost of living index, so the government tried hard to control rice prices to curb

inflation (the kill inflation policy). The government imported foodstuffs in the form of rice,

wheat flour and bulgur up to 1 million tons in 1968, at the same time as record domestic rice

production in the same year, which led to high rice supplies and further depressed domestic

rice prices (Mubyarto and Bromley 2002).

The period 1966-1969 can be considered a preparatory stage towards the

implementation of a rice policy utilizing market mechanisms. In addition to institutional

arrangements, various regulations and operational mechanisms were also refined to support a

market-oriented price policy, taking into account the interests of producers and consumers.

Through the Decree of the Main Minister of Economic Finance (Menutama EKKU) No. 58

July 1967, rice mills that had only been allowed to grind government rice were also allowed

to store rice for their own use. Surat Izin Simpan (SIS) and Surat Izin Perdagangan Antar

Pulau (SIPAP) starting in 1969 were abolished by the Minister of Trade and replaced with a

mandatory reporting system associated with licensing.

Since 1970, a rice price policy that considers both producers and consumers has

been implemented in the price stabilization program. The program includes the principles of

ensuring a floor price at the producer level, maintaining the consumer price by setting a

ceiling price, and maintaining a margin between the floor price and ceiling price to allow for

dynamic inter-seasonal trade and maintain stability in rice prices so that they do not

experience a significant decline. To implement the rice price policy, the bufferstock

instrument is used. This is a new approach to government intervention that has never been

done before. In buffer stock operations the goal or target is the price and not the amount of

procurement or distribution as was done before 1970. Through the principle of buffer stock

operations, the government tries to maintain a minimum price during times of abundant

supply (harvest season) and keep prices from exceeding the ceiling price during times of

scarce stocks (lean season). Besides using the buffer stock instrument, the government also

uses the import restriction instrument, which can only be carried out by BULOG.

In 1982, the government adopted a policy to distribute rice to all civil servants in

surplus areas as a consequence of the policy to accommodate farmers' abundant production

during the harvest season. Furthermore, in 1984, in accordance with economic developments

and deregulation policies in the field of transportation, the government enacted a policy that

eliminated the use of documents for inter-island trade, which also meant completely freeing

up inter-island rice trade. In 1989, the concept of self-sufficiency in rice on trend was

developed, based on the experience of the high cost of maintaining reserve stocks in times of

surplus and the difficulty of maintaining self-sufficiency in abnormal years. This concept

meant that there was an opportunity to import when necessary to maintain government

reserve stocks.

As a result of the long drought in 1997 and the monetary crisis that began in mid-

1997, rice prices and inflation rose significantly. This led to a change in rice policy that

reversed the direction of the policy that had been developed for 30 years. Panic in the face of

rising prices rice and other goods prices as well as the dollar exchange rate, which led to a

political and social crisis. Facing international pressure through the International Monetary

Fund (IMF), the government finally accelerated trade liberalization on several food

commodities, including rice.

In the post-New Order era, Indonesia's rice trade policy was implemented through

tariff, quota, and monopoly import arrangements. A uniform import tariff, applicable to all

types of rice, was stipulated in Ministry of Finance (MOF) Regulation No. 6/2017. In

addition, the government sets import quotas and grants import rights to BULOG specifically

for commonly traded medium rice. Non-tariff trade barriers, as described in MOT 1/2018, are

designed to protect local farmers from competition with imported rice. The regulation also

allows private parties to import certain types of rice for industrial use.

In 2002 through Presidential Instruction No. 9 of 2002, the government changed

the basic price policy (which had been in effect since 1973) to the Basic Government

Purchase Price (HDPP), and then through Presidential Instruction No. 2 of 2005, the

government changed it again to the Government Purchase Price (HPP), where this policy is

philosophically different from the Basic Price policy and is more administrative in nature as a

guide for BULOG in procuring grain/rice (Arifin 2020). The latest determination of the

Government Purchasing Price (HPP) for grain and rice was made in March 2023 through the

National Food Agency Regulation No. 6 of 2023 on the Government Purchasing Price and

Price Rafaction for Grain and Rice. This regulation regulates the HPP for harvested dry grain

(GKP), milled dry grain (GKG), and rice.

In 2017, the government implemented a rice policy by setting the Highest Retail

Price of Rice (HET) through MOT 57/2017. This policy categorizes rice into medium and

premium, and divides the price ceiling based on regional areas (islands). The National Food

Agency Regulation No. 7 Year 2023, issued on March 30, 2023, sets the new rice price

ceiling. The rice price ceiling is divided into 8 zoning areas, such as zone 1 for Java,

Lampung, and South Sumatra, zone 2 for Aceh, North Sumatra, West Sumatra, Bengkulu,

Riau, Riau Islands, Jambi, and Bangka Belitung Islands, and so on for zone 3 to zone 8.

The government also made a policy regarding the assignment to BULOG to

manage the Government Rice Reserve (CBP) through Presidential Instruction Number 5 of

2015. The purpose of this policy is to maintain national economic stability, protect farmers'

income, control rice prices, ensure that the Government Rice Reserve (CBP) is available, and

fulfill rice needs according to government directives. If the domestic rice supply is

insufficient, rice imports are carried out to maintain stocks and CBP, and stabilize prices in

the domestic market. The implementation of rice imports is carried out by BULOG by taking

into account the interests of farmers and consumers. According to Minister of Trade

Regulation No. 1/2018, rice imports for public consumption can only be carried out by

BULOG, while private parties can import rice for industrial purposes.

The implementation of this policy is one way to support the protection of local

farmers (Patunru and Ilman 2019).

The Indonesian government also established a Market Operation program to

prevent the impact of price instability, especially on macroeconomic parameters such as

inflation (Gafar 2008). Initially, the policy to maintain price stabilization consisted of two

programs, namely Pure Market Operation (OPM) and Special Market Operation (OPK).

OPM is part of the general price subsidy that is used when rice prices are high due to

excessive demand in the market. OPM is carried out by BULOG through the distribution of

Prosperous Rice (CBP) according to requests from the regions. Meanwhile, OPK is the

implementation of price subsidies based on targets. At the beginning of its implementation,

OPK aimed to provide food assistance to the poor who were at risk of food scarcity after the

1998 crisis. Starting in 2002, the OPK targeted at the poor was renamed the Raskin Program

(Firdaus et al. 2019).

The Market Operation program, currently called the Supply Availability and Price

Stabilization (KPSH) program, has a philosophical difference from regular market operations

because it can be run throughout the year without having to wait for price fluctuations.

BULOG is responsible for the Management of Government Rice Reserves (CBP), which

previously involved routine monthly stock release programs such as Raskin/Rastra until

2017. The Raskin/Rastra program has now been replaced by Non-Cash Food Assistance

(BPNT), which is purely a form of social assistance. BPNT does not involve CBP, and as

such, it falls outside the integrated stock management model to maintain national rice price

stability.

CONCLUSIONS :

Rice price stabilization in Indonesia is carried out with stock management through

a public policy approach with the main programs being the Government Purchase Price

(HPP) policy, the Highest Retail Price (HET) policy, the domestic and foreign rice

procurement policy, the market operation policy in the form of the Food Supply and Price

Stabilization Program (SPHP), the Government Rice Reserve (CBP) management policy, and

the distribution policy for revolving stock in the form of the Food Aid program. The stock

management policy model has undergone many modifications throughout Indonesia's history.

BULOG's market share affects the price of rice at the consumer level in Indonesia,

with a negative coefficient sign, where the greater BULOG's market share, the lower the price

of rice. The effect of market share also occurs in the long run. Other variables that affect

consumer-level rice prices are the price of rice itself in the previous time lag, producer-level

grain prices, rice production, rice consumption and BULOG stocks. Meanwhile, foreign rice

prices have no effect on consumer-level rice prices, the existence of a price ceiling policy has

no effect on the formation of consumer-level rice prices (compared to when there is no price

ceiling policy), as well as the KPSH policy has no effect on the formation of consumer-level

rice prices (compared to when the Non KPSH policy).

Based on the logistic regression analysis, with the stability criterion using the

coefficient of variation, it is concluded that BULOG needs to have a rice market share of

11.29 percent in order for consumer-level rice prices to stabilize with a 95 percent chance.

While estimation using the assumption of Stock to Utilization Ratio (SUR) of 20 percent of

public rice consumption according to the calculation of the Food Security Agency ( BKP) for

Food Emergency Monitoring and Information ASEAN Plus Three Emergency Rice Reserves

(FEMI APTERR), using 2021 data, the result shows that BULOG needs a market share of

16.35 percent in order to manage enough rice reserves to create stable rice prices in the

market. To enlarge its capacity to maintain food security, BULOG needs to increase its

business volume to become a market leader in the national rice industry. As a Public

Company (Perum) established for the purpose of public benefit, BULOG can increase its

market share through the implementation of government assignments (government market)

and rice trading in the public market (private market) while maintaining the objective of

maintaining food security domestic rice market stability.

Strategies for developing BULOG's competitive advantage, in order of priority,

from a financial perspective are improving the cost structure through operational

productivity, HR and general cost efficiency and government debt collection (0.425); seeking

and increasing revenue by developing the rice business and optimizing asset management

(0.371); adjusting public service financial and accounting systems for corporate activities

(0.112); and optimizing new sources of financing for working capital (0.065). Strategy from a

customer perspective are optimizing communication and customer relations to restore the

trust of the government market and improve the retention of commercial market consumers

(0.476); optimizing the development of products, brands, sales channels and services in

accordance with consumer profiles and expectations (0.415); and improving the image of the

company and products through optimizing marketing activities (0.108).

Strategies for developing BULOG's competitive advantage in the internal process

perspective are successively developing infrastructure and information technology for

business process optimization and developing new business models (0.458); developing

effectiveness and efficiency of operations along the supply chain through strategic

partnerships (0.437); and optimizing strategic and operational planning processes to respond to

market dynamics and changes (0.105). Meanwhile, strategies in the learning and growth

perspective are successively developing a 'sociopreneurship' based corporate culture (0.511);

optimizing new knowledge-based innovation management along the supply chain (0.228);

increasing HR competencies in knowledge and skills along the supply chain (0.198) and

optimizing the implementation of technology-based performance management systems

(0.063).

SCM 300_ASU_ASSIGNMENT 2024_STRENGTHENING MARKET SHARE AND DEVELOPING BULOG'S COMPETITIVE ADVANTAGE STRATEGIES FOR RICE PRICE STABILIZATION IN INDONESIA

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