16 Feb 2016

Improving Food Security through Supply Chain Management: A Study of Rice Supply Chains in Indonesia

Joni Murti Mulyo Aji, March 2010, The University of Queensland

Abstract
This study links the concepts of supply chain management (SCM) and food security, a linkage that has received little research attention, particularly in the context of developing countries. The broad objective of the research is to analyse whether applying the concepts of SCM could improve the competitive advantage of the Indonesian rice industry, and if so, how this could be achieved in practice. It is proposed that results from such a study may contribute to food security policy because of the possible link between more competitive rice supply chains, and improved food security.

From a review of literature, it is established that both SCM and food security have a common interest in the competitive advantage of firms that make up an industry. Food security can be defined by three criteria: availability (having enough supply at the locations in which it is demanded); access (being able to afford that supply); and stability (on going access to a sufficient supply). From an Indonesian government perspective, a major food security goal is to maintain rice self-sufficiency. To achieve this goal, government contributes to maintaining the competitive advantage of the rice industry through a farm-gate price stabilisation policy and the provision of subsidised inputs for farmers in conjunction with trade policy. At the same time, SCM may improve the performance of rice supply chains, and thus the competitive advantage of firms within the chain (including farmers), through higher levels of co-ordination and value creation among chain members. Thus food security policy and SCM have a common focus on improving the competitive advantage of individual firms within an industry.

This study is guided by a social constructionist paradigm, thus it is primarily qualitative in nature. Data are mainly obtained from fieldwork in the Jember District, East Java Province, using semi structured interviews with rice supply chain participants. The study applies mixed methods incorporating case studies, inductive analysis and marketing margin analysis. To represent typical rice supply chains in Indonesia, three different cases were studied: a modern (packaged) rice supply chain; a traditional (bulk) rice supply chain; and a Bulog (a public company that acts as a parastatal agency for rice price stabilisation) supply chain.

Findings across all cases indicate that contemporary rice supply chains are characterised by transactional and asymmetric dependence-based relationships. Under such conditions, implementing the concept of SCM in Indonesian rice supply chains will not be an easy task. Challenges to be addressed include a lack of perceived need to collaborate, a large number of small farmers with lack of capacity and access, a strong focus on production and lack of support for SCM initiatives, as well as public company management traps. Nonetheless, more positive SCM opportunities are expected to emerge with increasing demand for more differentiated rice following the rapid growth of supermarkets in the 
country.

From a food security perspective, results from this study suggest that it would be beneficial for the government to move from its present production focus, towards a more ‘whole-chain’ focus. Empirical evidence from the case studies suggests that, in the absence of collaborative supply chain relationships, farmers are increasingly dependent on collectors and are unlikely to benefit from any improved value created in the chain. The role of government in moving towards a whole of chain orientation could include facilitation, education and support for the uptake of SCM practices. This could lead to improved value creation and more equitable value sharing among chain participants, with positive benefits for food security. Farmers who receive more equitable shares of the value created could be more motivated to continue working in this way, and in the process contribute to greater and more sustainable food security in rice.

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