Modelling policy options in the Indonesian agricultural sector

This paper persents a simple model framework for quantitative multi-market agricultural sector policy analysis. Although the example refers to the Indonesian case, the model structure is also applicable for other country studies. Since either prices or trade requirements can be set exogenously, the model is particularly useful for policy analysis in countries using trade controls to pursue food self-sufficiency targets. Data requirements are limited to supply-and-demand elasticities, some technical coefficients on the relationship between food and non-food prices, non-price induced trends in single commodity markets and in the non-food sector as an aggregate and a base-year data set. The model was developed to be relatively transparent to policy-makers and to allow for an easy revision of the magnitude of policy parameters or trend estimates if so needed. For the case study, econometric estimates, which are consistent with the requirements of neoclassical theory, have been used to parameterize the model. Model simulations have been run for the price run-up period of 1986 to 1988 and also for the Fifth Plan period 1988 to 1993. The results show that the model is a useful instrument to investigate in multi-market and multi-sector interrelationships of a country focussing on agriculture. For the Indonesian setting moel results suggest that during the Fifth Plan period rice self-sufficiency targets are easily met without the need of a particular investment or subsidy scheme. However, rice self-sufficiency and on-target performance of other important agricultural commodity markets in Indonesia will not come along automatically with the creation of jobs up to an amount needed to fight increasing rural underemployment.