Indonesia suspends rice, soybean duties to combat inflation

 * Measure aims to help fight high inflation

* Indonesia imported bumper rice volume, seeks sugar

* Sugar import duties remain unchanged 

Indonesia will suspend import duties on rice, soybeans and wheat as part of government efforts to fight inflation and the president warned about the global risks posed by scarce resources, as countries grapple with escalating food costs. 

Rising food prices across many parts of the world have been partly responsible for a number of protests in the last week and world leaders warned on Thursday they risked stoking more unrest and even war. 

Indonesia surprised markets this week by buying nearly 5 times as much rice as expected, lifting regional prices, and the measure to remove rice duty until its own harvest in March could signal it may be looking to stockpile more of the staple. 

Fresh demand from Indonesia and Bangladesh for rice is sending a worrying sign the region's main staple may join a price surge for other grains, worsening Asia's spiralling food inflation. Elsewhere, countries like Algeria are rushing to buy grains, a move seen heading off unrest over food prices as protests swept north Africa. 

Food price protests were seen as a major factor in the ousting of Indonesia's long-term autocratic ruler Suharto in 1998, and investor worries over inflation at a 20-month high in December led to a sell-off in Indonesian markets this month. 

"Globally there is increasing pressure on governments, especially developing countries where food prices represents a higher proportion of their CPI basket, to implement some immediate measures to fight inflation and avoid civil unrest," said Chen Xin Yi, analyst at Barclays Capital. 

Southeast Asia's biggest economy also suspended import duties for soybeans and wheat for all of 2011, but maintained duties on sugar despite high prices for the sweetener causing state firms to fail to buy any in recent tenders. 

Rising food prices, especially for rice and chillis, have been at the top of Indonesian policy makers' agendas after they helped drive annual December inflation to near 7 percent, leading economists to call for rate hikes and President Susilo Bambang Yudhoyono to ask people to start planting food at home. 

Yudhoyono told the World Economic Forum meeting in Davos that the next economic war could be over the race for scarce resources, due to the pressure on food, energy, water and resources, as the world population could top 9 billion by 2045. 

"They are trying everything to add commodity supply into the country," said Wellian Wiranto, economist at HSBC. "It's a good thing for inflation, to ease the bottleneck of domestic supply from overseas. But don't depend on it too much to tame inflation." 

Traders are speculating on what other commodities may see import duties cut. The archipelago is reliant on imports of wheat, sugar and soy from Australia, Thailand and the United States, and occasionally buys rice if government stocks are low.

Indonesia hasn't seen food protests so far. Costs may have eased this month, but the price of rice -- a staple for its 240 million population -- is still high, partly because the main harvest has not yet started. 

Earlier this week, Indonesia's state buying agency Bulog bought a hefty 820,000 tonnes of rice from Thai exporters for prompt shipment, traders and industry officials said. 

The United Nations' food agency (FAO) this week warned food producing countries against introducing export curbs to protect local markets as world food prices rose close to levels that sparked food riots in 2007/2008, while top executives in Davos rejected calls for curbs on commodity speculation. 

Indonesia's scrapping of import duty for rice of 450 rupiah per kg is unlikely to be extended beyond that date because imports of the staple are not allowed during the main harvest, which traditionally runs from March to April. 

"Import duties for both soybean and wheat should return to normal levels of 5 percent each by January 2012," Bambang Brodjonegoro, the head of the fiscal policy office at the finance ministry, told reporters. 

NO CHEAP NOODLES

A soybean industry official said the duty cut would be good for many producers and consumers, although Indonesian farmers would be unhappy as it might harm domestic production. 

He added the decision to cut import duties was not a surprise and the present situation was not the same as in 2008 when import taxes were suspended because of record prices. 

He said the import duty cut would ultimately help soybean imports, but maintained an import forecast of 1.7-1.75 million tonnes in 2011.

Indonesia imports 70 percent of its annual soybean requirements mostly from the United States, the world's top exporter, and depends entirely on imported wheat, mostly from Australia. 

"We want the duty to stay zero," said a wheat industry official. "Wheat is Indonesia's second staple diet after rice. The farming industry will reject any further duty increases."

Higher wheat prices led Indonesia's PT Indofood CBP Sukses Makmur , the world's top noodle maker, to say this week it had lifted the price of its instant noodles by roughly 10 percent a pack, which could further push up domestic inflation. 

"The abolishment of import duty will help to some extent to ease input cost pressure for companies such as Indofood Sukses, Indofood CBP and Mayora," said Wilianto Ie, head of Indonesian equity research at Nomura in a note on Friday. 

Some sugar traders were also hoping for a reduction on import duties, after two white sugar tenders recently failed due to high prices. The tenders were part of plans to bring in 450,000 tonnes to bridge an anticipated production shortfall. 

"This creates difficulties for imported sugar now, due to sugar prices rising," said a sugar trader. "Those with import licenses are complaining.". Source: Reuters