Rice distribution and pricing in Indonesia : a spatial equilibrium analysis

Abstract

The Indonesian Government is greatly concerned with the need to increase rice production. Several policies and programs have been attempted, and the last important government announcement was the introduction of floor and ceiing prices of rice in 1968. This policy is regarded as an important achievement in the history of rice policy in Indonesia, despite many questions still needing to be answered. One important question is in regard to the regional aspect of this price policy, which has been formulated uniformly throughout the country. This study is an attempt to formulate a model, a spatial equilibrium model, by which the spatial aspect of pricing could be analysed. The model, based on the transportation problem,is is discussed in detail. As the model requires a price/demand functional relationship, a rice price elasticity of demand is estimated statistically. An empirical application of this model is tried, using the year 1971 data. Data are discussed. The stability of the solution is investigated in view of changing transport costs and of alternative rice price elasticities of demand. A case without importation of rice is also investigated. Then a conclusion is drawn. The possible improvement of this model and the flexibility of its use are discussed. The important conclusion that can be drawn is that this analysis offers an efficient approach for the determination of regional prices and the resulting regional flows. This shows the potential of this model as an operational tool for the policy-maker.