September 8, 2008

Indonesian Poor Can No Longer Afford U.S. Soy

By Michael Casey

SURABAYA, Indonesia - With the dollar a day he earns scrounging for scrap metal and paper, Jumadi can't buy his family beef or even chicken. But until now, the rail-thin scavenger could at least afford soy.

His wife and two children snacked on slabs of fried fermented soy, known as tempeh, and tossed the cake-like staple into bland bowls of noodles and soup. The soy provided protein, and it was cheap.

Not any more. The cost of tempeh and tofu has doubled to record highs, driven by the soaring price of soybeans imported from the United States.

"What kind of life is this?" complained the 25-year-old, who like many Indonesians goes by only one name, as he stood outside his plywood shack that was buzzing with flies. "I just eat crackers now."

The cost of soy is spreading hunger on the country's main island of Java, where millions of poor and working-class families depend on tofu and tempeh every day. It is also devastating an entire local industry based on soy products. Hundreds of factories have closed, thousands of people have taken to the streets to protest soy prices and at least one soy vendor killed himself after falling into debt.

At first the imports worked

The lessons of the soy crunch, however, go far beyond Indonesia. Over the past decade, Indonesia went from growing more than half its soy to relying on the U.S. for 70 percent of it. Now the poor among this country's 220 million people are going hungry because of changes thousands of miles beyond their shores. It is the same story for dozens of countries that came to depend on richer nations for cheap food, only to find themselves squeezed when prices started rising last year.

"There has been a drastic change in prices and these smaller countries have little to say. They basically have to take it," said Abdolreza Abbassian, a grain economist with the FAO. "They were exposed to the negative sides of globalization, rather than the positive."

Soy has long been a staple in Indonesia. But in the 1990s, farmers complained that it was too expensive to grow because the government did not provide cheap seed or low-interest loans. At the same time, they could not compete with cheaper, better soy from countries like the United States, where farmers had advanced technology and government subsidies.

Ruslan, who farms 7 1/2 acres of land in Ponorogo in East Java, planted soybean for two decades. But in the late 1990s, the 50-year- old farmer began growing melons, corn, onions and chilies instead.

"I got out of the soybean business because the cost of production was so high that I was not making any profit," he said. "Since I switched to corn and melons, I've always had a good profit."

Because of farmers like Ruslan, Indonesia's soy production dropped over the past nine years from 1.4 million tons to around 700,000. The country stopped fixing prices for imported soy, and this year eliminated import tariffs on soybeans.

At first the imports worked fine. Beans were big, prices were low and people were happy.

But Indonesia was now dependent on the soy fields of the U.S. And it paid the price when the Mississippi River flooded in June, leaving thousands of acres of soybeans waterlogged. By July, soybean futures were up 82 percent over the past year, although they have come down since.

Indonesia also felt the ripples from a new demand for alternative fuels. About 20 percent of soy now goes to make biodiesel in the U.S., up from almost nothing three years ago, the FAO said. And the demand for corn to make ethanol has prompted American farmers like Larry Gleason and Tim Henning to switch away from soy.

Gleason, his three brothers and his dad split 3,500 acres in central Illinois evenly between soy and corn until last spring. Now 70 percent goes to corn.

"It's like any other business: You try to find where you're going to make the most money," Gleason said.

Because of the demand for ethanol, the U.S. expanded corn production by 23 percent in 2007, the World Bank found. At the same time, it reduced soybean fields by 16 percent.

Henning calculated last spring that corn brought $75 to $85 more profit per acre than soy. So in 2007, he planted 50 more acres of corn on his 800-acre Minnesota farm and that much less soy. At a time when costs have risen for fuel, fertilizer, machinery and land, Henning is trying to squeeze what money he can from the earth.

"A number of years ago, the farmer got blamed because corn and bean prices were too cheap and farmers overseas were going broke," said Henning, 50. "Now, they are saying the prices are too high and people can't afford to buy the food. So, we kind of feel we are in a damned if you do, damned if you don't situation."

Slim profit, no cash on hand

Fuel costs are making it more expensive not just to grow soy, but also to transport it to faraway places like Indonesia by truck, rail and ship. Prices have gone up further because of a shortage of containers from the booming demand from India and China, said Mike Steenhoek, executive director of the Iowa-based Soy Transportation Coalition.

The cost of shipping soy from the Midwest to ports in the Pacific Northwest and onward to Asia has increased from $32 a metric ton two years ago to $80, according to Mark Klein, a spokesman for Minnesota- based Cargill Inc., one of four companies that import soybeans to Indonesia.

"You add it all up and to take a bean from the Dakotas/Minnesota to the Far East is now $1.90 a bushel more than two years ago," Klein said.

The story of the soybean ends back in Indonesia, in cities like Bandung, famous for its tempeh and tofu industry.

Streets in this West Java city are lined with shops selling crispy tempeh crackers and vendors with small carts offering meatball soup with tofu to passing motorists. Hundreds of mom-and- pop operations make tofu and tempeh, Young men fry soy in vats of oil or ferment the pea-size beans in wicker baskets.

With slim profit and no cash on hand, few were prepared when soy prices started rising steadily in August 2007. Since then, soybean prices have jumped 50 percent to a record high - or about twice the rates in 2004.

The price of kerosene and cooking oil rose at the same time. Almost 300 producers in Bandung shut their doors this year.

"If the price keeps going up, maybe the tofu and tempeh industry will disappear," said H. Akil Dermawi, who heads Bandung's tempeh and tofu cooperative. "We know the global economic situation doesn't support micro businesses like tofu and tempeh makers."

One such maker is Syahroni, who came to the West Java town a poor farmer. Over the past decade, he built a successful business selling tempeh to 150 vendors in the city and converted a ground floor room in his Bandung house into a factory.

But since January, he has had to raise his prices 25 percent to cover rising costs, and has reduced the size of his tempeh portions. He promptly lost a third of his customers and profits fell by half.

Slamet, a street vendor who sold cubes of deep-fried tofu from a cart in the village of Cidemang a few hours outside Jakarta, fared even worse.

For nine years, he worked the town's main street. He brought in a few dollars a day, enough to feed his two children and afford a simple two-room house near the main market.

But as prices peaked in January, he fell 2 million rupiah ($220) in debt, became depressed and stopped eating. His wife came home Jan. 14 to find him hanging by a rope in one of the family's two bedrooms. He was 45.

"He couldn't take the higher prices," said his wife Nuriah, breaking down in tears inside the family's house. "He said there was no point in selling. Now, there is no one to bring in money."

The day he killed himself, thousands of people converged on the capital, Jakarta, to demand that the government provide relief from rising soy prices. The demonstrations sent a chill through a government that still remembers how protests over food prices sparked the overthrow of the Suharto regime more than a decade ago.

The government responded by providing subsidized cooking oil and rice to 19 million households and offering subsidized soybeans to more than 100,000 small tofu and tempeh producers. It also launched a plan to spend more on agriculture and offer incentives like cheap fertilizer, but Indonesia will not be able to meet its own demand for soy until at least 2015.

There is now talk of giving the state the power to set the price for imported soybeans, which worries Ali Basry, the American Soybean Association's country representative. Basry said the rising prices are simply a reflection of market forces.

"Suddenly, the government is trying to calm the situation by putting a subsidy on the bean price," he said. "I don't know."

But tofu and tempeh producers want fixed prices and accuse importers of profiting from the volatility. They are convinced the problem remains the country's dependence on imports.

"My customers get angry because the pieces of tofu are smaller," said Sukarndar, a 38-year-old vendor in Jakarta, who buys freshly baked brown tofu daily at a neighborhood factory and resells it for a few cents at a nearby market.

"I tell them the soybeans come from America," he said, his voice rising in anger. "It is not our fault. I'm being oppressed because of prices in the United States."

Associated Press reporter Irwan Firdaus in Jakarta and Jim Suhr in St. Louis contributed to this report.

Originally published by The Associated Press.

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