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

Abstract

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.

Additional information

Notes on contributors

Chris Jones

The paper has benefited significantly from comments and suggestions by George Fane, the participants at a seminar in RSPAS, ANU, and an anonymous referee.