MBG and Koperasi Desa Merah Putih: Indonesia’s Expensive Social Experiments

The Expanding Fiscal Burden of MBG

Indonesia’s Program Makan Bergizi Gratis (MBG) was conceived as one of the flagship social initiatives of the administration of Prabowo Subianto. The idea is politically simple and emotionally compelling: provide free nutritious meals to schoolchildren across the country while stimulating local agriculture and employment.

In principle, the program addresses three structural challenges simultaneously. It aims to improve childhood nutrition, strengthen domestic food supply chains, and generate jobs in food preparation and logistics. These are goals that most economists and policy analysts broadly support. School feeding programs, when properly designed, are among the most effective social policies governments can implement.

The difficulty lies not in the goal but in the structure.

The cost profile of MBG expands rapidly as the program scales nationwide. Feeding tens of millions of students daily requires a massive procurement network for rice, eggs, vegetables, cooking oil, and protein sources. Small fluctuations in staple food prices can multiply into enormous fiscal swings when applied to national-scale volume.

Indonesia’s food markets are notoriously volatile. Commodities such as rice, chicken, eggs, and cooking oil regularly experience price swings driven by weather disruptions, logistics constraints across the archipelago, feed costs, and global commodity movements.

When this volatility intersects with a fixed national feeding commitment, the state budget becomes the shock absorber.

The result is a program whose fiscal trajectory becomes increasingly difficult to predict. What begins as a social investment gradually evolves into a structural budget obligation that expands every time food inflation spikes.

Food Market Distortions and Procurement Pressure

Large-scale government procurement inevitably influences domestic food markets.

When a program like MBG requires millions of meals per day, it becomes one of the largest buyers of staple foods in the country. This new layer of demand competes with households, restaurants, and food processors for the same commodities.

During normal harvest cycles, the impact may be manageable. But during supply disruptions or seasonal shortages, this additional demand can intensify price movements.

Suppliers naturally prioritize large and predictable buyers. Government contracts tied to MBG often provide guaranteed volume and timely payment, making them attractive to producers and distributors. Over time, this can divert supply away from traditional retail markets.

The paradox is that a program designed to improve food access for children can indirectly contribute to higher prices for households purchasing food in local markets.

These second-order effects rarely appear in policy design documents. They emerge gradually as procurement networks scale and private market actors adapt their behavior to new incentives.

The Emerging MBG Labor Ecosystem

Perhaps the most socially complex consequence of MBG is its effect on the labor market.

In many regions of Indonesia, employment growth has struggled to keep pace with population growth. Manufacturing expansion has been uneven, and small businesses often face capital and regulatory constraints.

Against this backdrop, MBG has quietly become one of the few sectors actively hiring.

Food preparation teams, logistics workers, kitchen staff, and procurement coordinators are now forming a new employment ecosystem around the program. For many individuals, MBG kitchens represent stable work in areas where stable work is scarce.

Over time, this has created a growing group of workers whose livelihoods depend directly on the continuation of the program.

These workers become natural defenders of MBG, not necessarily because of ideological alignment but because the program provides one of the few reliable employment opportunities available.

This dynamic creates a political feedback loop. The more people employed through MBG, the stronger the constituency that supports its continuation and expansion.

In economic terms, the program increasingly functions as both a nutrition initiative and a public employment system.

Supporting School Lunches, But Designing Them Better

None of these criticisms imply opposition to school lunch programs themselves.

On the contrary, free school lunches are widely recognized as one of the most effective social policies for improving childhood nutrition, educational outcomes, and long-term productivity.

Countries like Japan offer a powerful example of how such programs can be designed effectively. Japanese school lunch systems integrate local agriculture, nutrition education, and careful menu planning. Meals are balanced, seasonal, and often sourced from nearby farms, strengthening local supply chains while maintaining quality.

Equally instructive is the approach taken by Brigaid, a social enterprise that works with professional chefs to redesign school meal programs. Brigaid focuses on improving the quality of school food through culinary training, better procurement practices, and professional kitchen management.

The lesson from both models is that school lunch programs succeed when they focus on quality, efficiency, and local integration, rather than simply scale.

Indonesia could pursue similar improvements by:

• Integrating local farmers into stable procurement contracts
• Professionalizing school kitchens with trained culinary staff
• Designing menus around regional agricultural strengths
• Stabilizing procurement prices through long-term contracts

Such reforms would maintain the core objective of MBG while reducing volatility and improving nutritional outcomes.

The problem is not the existence of the program. The problem is how it is structured.

The Cooperative Ambition of Koperasi Desa Merah Putih

Running parallel to MBG is another ambitious initiative: Koperasi Desa Merah Putih (KDMP).

The program reflects a long-standing aspiration in Indonesian economic thought. Cooperatives have historically been seen as a pathway to distribute ownership more equitably and empower rural communities. This philosophy is deeply associated with Mohammad Hatta, Indonesia’s first vice president and one of the strongest advocates for cooperative economics.

KDMP seeks to establish or expand cooperatives across villages, transforming them into engines of local economic development.

The concept is attractive. In theory, cooperatives allow communities to pool resources, share profits, and collectively manage businesses that serve local needs.

But translating cooperative ideals into functioning enterprises has always been difficult.

The Problem of Institutional Clarity

One of the central issues facing KDMP is the lack of clarity regarding what many of these cooperatives are actually meant to do.

A cooperative is not merely a legal entity. It is a governance system that requires member participation, financial transparency, managerial competence, and a viable business model.

Many villages still lack clarity about which economic sectors their cooperatives should focus on.

Should they operate retail stores? Provide agricultural inputs? Manage storage facilities? Offer microfinance services? Run logistics networks?

Without a clear strategy, cooperatives often attempt to operate across multiple sectors simultaneously. This spreads limited capital and managerial capacity too thin, increasing the likelihood of failure.

In rural areas where business management skills may already be limited, institutional confusion can quickly translate into operational weakness.

Debt and Financial Risk

Another emerging concern is the financing structure behind the expansion of these cooperatives.

To accelerate development, many cooperatives rely on loans or credit facilities to fund initial operations. While this can enable rapid asset creation, it also introduces financial risk into communities that may already face economic vulnerability.

If the cooperative fails to generate sufficient revenue, the debt burden remains.

Members may be forced to absorb losses, or local governments may eventually need to intervene through restructuring or financial assistance.

Debt-financed development works best when business models are proven and demand is clearly understood. Without these conditions, debt can magnify failure rather than accelerate growth.

Supporting Cooperatives, But Building the Right Ones

As with school lunches, criticism of KDMP should not be interpreted as opposition to cooperatives themselves.

Cooperatives can be extraordinarily powerful economic institutions when they are built around clear community needs and strong governance.

Several types of cooperatives could prove especially valuable in Indonesia:

Cooperative Grocery Stores
Community-owned grocery stores could stabilize food prices while keeping profits within the local economy.

Credit Unions
Member-owned financial institutions could provide affordable loans to families and small businesses, reducing dependence on high-interest informal lending.

Agriculture and Food Cooperatives
Farmers could pool resources to produce higher-quality agricultural products, including organic and specialty foods that command higher market value.

These models have proven successful in many countries because they are rooted in specific economic functions, rather than broad and ambiguous mandates.

The success of cooperatives depends less on how many are created and more on how well they are designed.

Ambition vs. Execution

Both MBG and KDMP reflect an ambitious vision of state-led development. They attempt to address social welfare, employment, rural development, and food security simultaneously.

But ambitious programs require careful institutional design.

MBG risks becoming a permanent fiscal obligation exposed to volatile food markets and growing political constituencies. KDMP risks producing large numbers of fragile institutions burdened by unclear mandates and rising financial risk.

None of this means the underlying goals are misguided.

Free school lunches and cooperative economic structures remain powerful tools for inclusive development. The challenge is not whether Indonesia should pursue these policies.

The challenge is how to implement them in ways that strengthen communities rather than unintentionally creating new forms of dependency or financial vulnerability.