The Price of Chilis Is Way Up. Here’s Why It Matters

The price of  cabai rawit is up. Way up. These fiery little chilis are fetching prices as high as Rp 150,000 per kilogram—a five-fold increase over October's prices.

In a country where tastes for spicy chili borders on a national obsession, a significant rise in the commodity's price doesn't bode well for the domestic economy. The country's Central Bureau of Statistics (BPS) warned that volatile food prices played a significant role rising inflation rates in recent years. Last year, Indonesia's headline inflation rate—the percentage rise in the cost of things in general, including food—reached 3.45 percent year-on-year. This year it's expected to be higher at an estimated 4.5 percent, according to analysts.

Now, there is nothing wrong with 3.45 percent—or even 4.5 percent—inflation. The central government considers both rates to be safe and vital to job creation. The basic idea is that a healthy inflation rates drive consumption and create new jobs.

But higher inflation rates, especially on food staples like chili, also hurt consumption rates in Indonesia—especially among its poorest residents. Nationwide, some 10.86 percent of the population—or 28 million people—are below the government's poverty line, living on less than Rp 302,735 per month.

But take a step back and you'll notice that nearly half the population earns just above the national poverty rate. When you live off around $0.82 USD a day, it's easy to dip below the poverty line, especially when staple foods suddenly cost more. And when chili costs five times more than it did in October of last year, consumers are likely to spend less on chilies than before.

Rika Eksa, a Jakarta-based fresh produce buyer, said orders have been down since prices started to rise in steadily in December.

"It's been a week since anyone even ordered [some chili peppers]," Riki said. "And even my last order was only for a quarter kilogram."

So when inflation rates on food staples spikes, purchasing power, or the ability of average Indonesians to buy things, drops. This has add-on effects. Less money moving through the economy means less economic growth at a time when growth expectations are already down. Indonesian lawmakers have already revised the country's annual GDP growth targets down to 5.1 percent for this year.

Food security has been a focus of President Joko Widodo's administration since he stepped into the presidential palace two years ago. But, so far, the central government hasn't been able to increase yields to promised levels. One of the root issues has always been a lack of communication and a habit of finger-pointing in the halls of the government, said Enny Sri Hartati, the executive director of the Jakarta-based Institute for Development of Economics and Finance (Indef).

"The problem has always been dishonesty," she said. "If they [the government] aim to increase production, then they must act upon it."

The chili issue has a relatively easy, but expensive, fix. Chilis hate too much moisture, and an unusually heavy rainy season took a toll on this year's yields. The president, who is popularly known as Jokowi, said as much during a visit to a local market in Central Java.

But the chili crop has been adversely affected by the rainy season for at least a decade, according to experts. Greenhouses would help reduce the annual shortages, by protecting the crops from the elements and increasing yields. But greenhouses are expensive—costing an estimated Rp 200 million per-hectare.

Instead, the central government tends to focus more on a policy of fostering self-sustainability that includes providing farmers with subsidized seeds and fertilizer—a policy that some experts call a drain on the national budget.

"If the government wants to continue its policy of self-sustainment, it's only going to burn through our national budget," said Hizkia Respatiadi, a researcher from the Center for Indonesian Policy Studies (CIPS).

Self-sustainability in the agriculture sector requires long-term solutions and solid data, said Hizkia. But the country needs a short-term solution right now, one that can't wait on years of research to conclude.

"We can't wait around for this period of research to finish," Hizkia said. "Especially when people are going hungry because food prices are skyrocketing."