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Indonesia could backtrack on rice imports as prices rise, El Nino looms

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A worker walks up a pile of rice at a warehouse. Indonesia's president could be forced to backtrack on promises to curb rice imports, with analysts saying the country may ship in as much as 1.6 million tonnes of the staple grain this year due to soaring prices at home and the threat of a strong El Nino.

[JAKARTA] Indonesia's president could be forced to backtrack on promises to curb rice imports, with analysts saying the country may ship in as much as 1.6 million tonnes of the staple grain this year due to soaring prices at home and the threat of a strong El Nino.

Since coming to power in October, President Joko Widodo has been aggressively pursuing self-sufficiency in various foods as part of an increasingly nationalistic approach to protecting farmers, reducing state imports of rice in a country where private buying from overseas has been largely banned for decades.

But rather than risk a spike in food inflation that could prompt social unrest, some analysts predict the country will import volumes of rice way higher than the 1.1 million tonnes estimated for last year, maintaining its position as one of the world's top buyers of overseas grain.

"Sometimes Indonesia's policy isn't very rational. Right now international prices are so low and at the same time Indonesian rice stocks are not elevated compared to levels we've seen over the past 10 years," said Aurelia Britsch, senior commodities analyst at BMI Research in Singapore.

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While rowing back on election pledges would likely be embarrassing for Widodo, who is already grappling with low approval ratings, the move would be good news for key rice exporters such as Thailand and Vietnam, buoying Thai prices RI-THBKN5-P1 that have fallen around 7 percent in 2015.

BMI's Mr Britsch sees imports of 1.3 million to 1.6 million tonnes this year, while Rabobank predicted 1.5 million, Barclays 1 million to 1.5 million and the International Grains Council (IGC) 1.3 million.

Chief Economics Minister Sofyan Djalil has said the nation would probably need to import with a decision likely by early June, while State Enterprise Minister Rini Soemarno said last week that Mr Widodo has given the green light for quick foreign purchases if needed.

When Reuters contacted Mr Widodo's office on Thursday, Cabinet Secretary Andi Widjajanto responded saying: "Up until today, the decision is not to import."

State rice stocks currently stand at about 1.2 million tonnes, government officials said last week, compared with almost 2 million tonnes around mid-2014.

There is now talk among rice traders in Vietnam that an Indonesian delegation will visit within weeks to discuss possible purchases. An official from Indonesia's state procurement agency, Bulog, said he did not know of such a visit.

Just three months ago Mr Widodo refused to allow rice imports, but rising domestic prices as local supply fails to meet demand, an expected pick up in appetite during the festival of Ramadan in June and the shadow of El Nino could soon force his hand.

A closely watched forecast by Japan last week confirmed that an intensifying El Nino had set in, with Indonesia's rice farmers threatened by the dry conditions the weather pattern typically brings to the region.

Indonesia has set and failed to meet several food self-sufficiency targets over the past six years, but Mr Widodo promised to renew efforts after taking power.

High prices for the staple grain are a burden for many Indonesians, with the UN food agency saying the self-sufficiency policy has driven up local markets.

Indonesian wholesale rice prices were US$0.77 per kg last month, the second-highest in the region behind US$0.79 in the Philippines, which also has self-sufficiency policies, and way more than No.3 China at US$0.64, said David Dawe, senior economist at the UN's Food and Agriculture Organisation in Bangkok.

Indonesia's retail rice prices have gained about 13 per cent in the last year, and industry sources expect further climbs of 5-7 per cent around Ramadan. "The desire for self-sufficiency leads to higher prices if it is done through import restrictions," said Mr Dawe. "If it is done with open trade and increased productivity, then prices will be lower and there will be no incentive to import."

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