THE IMPACT OF PADDY FLOOR PRICE AND IMPORT TARIFF ON THE DEMAND AND SUPPLY OF RICE IN INDONESIA

Abstract

Rice is known both as a staple food and salient cultural symbol in Asia, specifically Indonesia, whereas most countries have a strong link toward this commodity. The market failure of supply to meet the demand for rice can intrude social instability. To understand the holistic view of rice economy in Indonesia, this study aims to examine the impact of Indonesia‘s liberalization agreements towards Indonesian rice economy and all participants involved in the rice trade in Indonesia. Overall, it will subsequently describe the performance of Indonesian rice trade, i.e., supply and demand. This study emphasizes time series secondary data for rice, from 1983-2017. Next, Two Stages Least Squares (2SLS) method was used to quantitatively estimate the parameters of the behavioral equations in the model, consisting of five behavioral equations and three identity equations. Finally, three policy alternatives set were simulated for the period 1983-2017. The results from this study shows that reasonable tariff and government involvement are still required to stabilize the rice supply system in Indonesia. Unhusked paddy price which creates farmer‘s margin, drives farmer‘s motivation to produce paddy. Therefore, the government should establish and support new programs aimed at increasing paddy production and, in particular, paddy productivity.