Rice Price Stabilisation in Indonesia: An Economic Assessment of the Changes in Risk Bearing

One important reason the Indonesian government stores rice is to reduce risk for growers who have restricted access to private insurance It does so to stabilise their real incomes, and to promote rice production with a view to ‘self-sufficiency’. This paper shows that grower risks are reduced only to the extent that growers' real incomes ate linked through taxation to the financial flows of the storage scheme. This is because their real incomes and the financial flows are negatively correlated. Under current arrangements this linkage is negligible, so price stabilisation raises the share of the production nsk they face, Recent increases in production are shown to result from larger expected grower profits, and not from reduced risk. In addition to profiting from price stabilisation, growers have benefited from government subsidies on fertiliser, irrigation and plant research, and from increases in the average domestic price of nee through Bulog intervention.     

Rice in Indonesia: Price Policy and Comparative Advantage

Indonesia's remarkable success in increasing rice production has been achieved through deliberate government intervention. This paper highlights the price policy interventions in the Output and input markets for rice. Summary measures of these interventions are estimated and their impact on private profitability is determined. Economic profitability of paddy and rice production is also estimated for selected regions and these estimates are used to pinpoint comparative advantage across. regions.     

The Price of Electricity in Indonesia

Persistent shortages of electric power and of capital to fund power system expansion have recently prompted the Indonesian government to allow the private sector to supply electricity. Price has become a controversial issue—both the retail price private producers would charge the public, and the wholesale price at which they would seil in bulk to the state utility, PLN The government has traditionally kept the retail price below cost to support economic development objectives, and subsidies have covered PLN's losses. Opponents of private power argue that without subsidies private suppliers would have to raise the retail price to unacceptable levels—according to PLN, almost 50% more per kilowatt-hour than its own price. The paper assesses PLN's claim by quantifying hidden subsidies, and demonstrates that, if these were properly taken into account, the average retail price per kilowatt-hour for 1980–93 should have been 46% higher than it was.     

Price variability and price convergence: Evidence from Indonesia

This paper evaluates price variability and price convergence in Indonesia. Using price indices of 35 products in 45 cities from January 2002 to April 2008, this study shows that, during the observed period, prices in Indonesia converged to the ‘relative’ law of one price. The price variability of one product across cities is found to be smaller than the price variability of all products within a city. Transportation costs and the level of development matter to price variability. This study also reveals that the average speed of convergence, which is measured by the half-life, for perishable goods is about 9 months, non-perishable goods 32–36 months, and services 18–19 months, while the median of the half-life of all products is about 16–17 months. The speed of convergence depends on the initial price difference, but not the distance between cities.     

Does Bulog Stabilise Rice Prices in Indonesia? Should It Try?

The intuition of economists is likely to be a poor guide to the social value of food price stabilisation, because of problems in modelling the impact of stabilisation on consumer behaviour, producer behaviour, and the macro economy, including the impact on economic growth. The potential for stable food prices to contribute to economic growth is especially relevant to the poor countries of Asia, where rice is important in macroeconomic terms. Indonesia's experience since 1959 presents an opportunity to test hypotheses about the design, implementation, and impact on social welfare of food price stabilisation. The model presented here explains Bulog's activities, and confirms that its interventions stabilise rice prices. Should Bulog try to stabilise rice prices? The answer is a clear yes in the 1970s and 1980s, but is less clear in the 1990s as Bulog's costs have risen and the share of rice in the economy has fallen.     

The Technical and Price Efficiency of Fertiliser use in Irrigated Rice Production

Rapid growth in chemical fertiliser use has been key to Indonesia's rice production increase during the past two decades. Very high fertiliser application rates in the country's major irrigated rice areas prompt concerns about technical and economic inefficiency, as well as possible adverse environmental impacts, particularly since fertiliser subsidies constitute a significant financial burden to the government. A 1989 national farm cost survey shows that rates of nitrogen and phosphorus use in wide areas of Java and Bali, and in some parts of Sumatra, are often far higher than those recommended by agronomists both in Indonesia and in similar Asian countries. The analysis indicates that fertiliser rates presently exceed profit maximising levels on much of Java, leading to a net financial loss estimated at over $29 million annually. More intensive extension efforts and changes in pricing strategy are proposed to improve technical and economic efficiency.     

Foodcrop Demand in Indonesia: A Systems Approach

Aggregate agricultural commodity demand parameters are estimated, based on an application of the Deaton and Muellbauer Almost Ideal Demand System to a seventeen year Indonesian time-series data set of prices, expenditures and consumption availability. The statistical results are generally significant and correctly signed. The revealed demand relationships imply that the Indonesian food Staples are normal goods. Expenditure elasticities are higher for the higher value foodstuffs than for the lower value starchy staples. Furthermore, the demand for rice has become highly inelastic to both own and cross-price interventions. This implies that rice price interventions will require a high degree of fine-tuning in order to stabilise prices effectively, and that low urban rice prices cannot be regarded as an appropriate, or even second best policy instrument for improving nutritional status.

A high degree of Substitution between rice and secondary food crops, and amongst groups of secondary food crops, is identified. The significance of the cross-price elasticities for the secondary food crops suggests that single-market interventions will have non-trivial budget-mediated effects in other commodity markets. The management of a multi-commodity food policy requires that the spillover effects from commodity pricing policy must be taken into account in order to optimise the effects of price policy interventions.     

A Regional Poverty Profile for Indonesia

A regional poverty profile can be deceptive if it does not treat people with the same standard of living in different regions the same way. This is particularly important if the profile is being used to guide regional priorities in formulating antipoverty policies. A new regional poverty profile for Indonesia in 1990 is constructed which tries to assure that the poverty lines used for different regions reflect the same purchasing power over basic consumption needs. A wide range of poverty measures is presented. We also examine some proximate determinants of the regional poverty profile and the regional variation in inequality.