Muhammad Asaad Fakulas Pertanian.
Universitas Islam Sumatera Utara e-mail: muhammad.
asaad62@gmail.
Abstract This study aims at determining the impacts of economic policies on rice and welfare in Indonesia.
It estimates a simultaneous equation model with two-stage least squares method, using secondary data from 1979 until 2008.
The simulation of partial policy will be a trade-off for the producers and consumers of rice.
The policy of the floor grain price is still needed to respond to the increased production of rice.
The paper suggests that if the input subsidy is taken out, it should be preferably followed by the increase in output, and at least, the rising percentage should be in the same number so that the policy will be better off.
Keywords: Welfare, trade-off, better-off, simultaneous equation model JEL classification numbers: Q13.
Q18
INTRODUCTION
Rice constitutes the staple food of Indonesian society.
This makes rice as the most important food commodity in the national The importance of rice can be seen from two sides.
First, as the staple food, rice should be available in sufficient quantity to meet the needs of the society.
Second, it is as a source of income and employment for the majority of Indonesian people, especially for rural communities.
In terms of availability, if the supply of rice is less, it can cause the rising prices and social insecurity.
As the consequence, the government should intervene in regulating and ensuring the availability of food for the society.
It is very important because the great population potentially creates the national instability, if there is a lack of food.
The rice plant is so familiar in the most parts of Indonesian region, and many people work on it as a source of income.
Besides, farming rice becomes the employment for the majority of rural labors.
Therefore, the effort to foster and develop it is of paramount importance to increase the income and to create employment for the society.
Based on the significance of the rice mentioned above, the social role of government in creating stabilization is absolutely needed.
Government should pursue a variety of program development and production improvement, adequate facilities and infrastructure which are sufficient for farmers, supporting price regulation, market availability and organization for either farmers or government that can support the operational activities of farmers.
The ssubsequent development shows that government intervention has so far not fully solved the problem of national The domestic rice production continues to decrease, the price increases both on the rice and inputs used.
Rice is sometimes nowhere to be found in the market and it causes prices to rise.
Besides, there is often a surplus of grain at harvest which causes grain prices decreased, and it makes the farmers difficult to repay their loans.
The problems above indicate that the market aspects require attention.
Rice market conditions will affect the perpetrators to take good decisions on production, consumption, and demand for fertilizer, labor, and their income.
Market changes will signifi- cantly change the reallocation of the perpetratorsAo decisions.
One of the indicators of success development in the agricultural sector is that the achievement of national self-sufficiency in rice in 1984.
The success rate is partly caused by the advances in technology, such as superior seed varieties, fertilizers, plant disease and pest control, irrigation development, agricultural extension activities, provision of credit and it is also caused by the government intervention through various policies of the rice industry in Indonesia.
The government policies include the policy of input subsidies, the grain floor price policy, the highest selling price, which is supported by the system of procurement, storage and domestic rice market operations or some type of buffer stock of government implemented through logistic The policy is distortion of the free market mechanism (Sudaryanto, 2.
, but it positively effects on production and farmer income (Simatupang, 2.
and the availability of rice with a relatively cheap In the last few years, rice production has decreased.
Many issues arise regarding the decline, and it can be seen from two sides, namely from the supply side and the demand one.
The problems of the supply side include: Firstly, the rate of paddy production has been stagnant .
eveling-of.
due to the excess use of fertilizers.
Second, there is lack of provision of investment funds for agri-food sectors namely credit, research, extension, maintenance, and infrastructure development that can encourage the increased food production.
Third, the government reduces the input subsidies for the fertilizer and pesticide which are deemed to affect the decrease of production.
Fourth, there is the increased conversion of fertile rice lands into industrial zones, housing, and non-agricultural land, particularly in Java.
Fifth, there is the rising price of production factors due to the economic and monetary crisis that hit Indone- sia since 1997.
And sixth, the natural disturbance factor is drought, flood, and pest Meanwhile, the problems of demand side include: Firstly, the population continues to grow, people's income increases so that the intensity of demand continues to Second, the policy of cheap rice price causes food diversification program ineffective and the problems of imported rice.
Problems and changes mentioned above will affect the implementation of various variables related to the supply and demand of in Indonesia in the future.
Therefore, the developing phenomena on the domestic rice supply and demand, the impact of measures taken by both the market and the welfare of producers and consumers need to be studied continuously.
This study generally aims to study and analyze the impacts of economic policies undertaken by the government on the supply and demand of rice in Indonesia.
Specifically the purposes of this paper are .
To evaluate the impacts of economic policies on Indonesian rice supply and demand, and .
To evaluate the impacts of economic policies to the changes of welfare in that of producer and consumer, as well as revenue/expenditure of government.
Economic welfare is a branch of economics that studies what should happen, and it is known as a normative approach.
Economic welfare studies about how scarce resources should be allocated to achieve the maximum prosperity for individual economic actors in a society as a whole.
Economic welfare is the foundation of economic science branches, such as: economic resources, public finance, the analysis of benefit cost, and the economy of government policies in many areas of science including international trade, industry and welfare (Daryanto, 1.
Just et al.
distinguishes welfare economics into two parts, namely: old welfare economics and new welfare economics.
Some economic thinkers who belong to the old economic welfare are David Economic Policies on A (Muhammad Asaa.
Ricardo.
Alfred Marshall and Dupuit.
Meanwhile, some economic thinkers who belong in the new welfare economics are Paul Samuelson.
Vilfredo Pareto.
Kaldor and Hicks.
Scitovscky.
Gormand.
Lipsey and Lancaster, and John V.
Krutilla.
David Ricardo made the analysis on the welfare of society by introducing the concept of economic rent .
in discussing the effects of Corn Law in England.
The concept of economic rent is using the approach of producer surplus and consumer Dupuit, a French scientist, used the notation of consumer surplus .
to analyze the effect of building bridge towards the welfare of society.
Furthermore.
Alfred Marshall created the more complete concept of economic rent at the beginning of the 20th century and has since become the basis for important studies of economic Just et al.
state that there are three basic principles used in the old welfare economics, namely: First, the social gains are maximized through competitive markets with interference in noncompetitive Second, by using the technique of partial equilibrium analysis in recommending development policies.
Partial equilibrium analysis sees the impact of welfare changes in one market by assuming that the effects in other markets give no effect, so that it can be ignored.
And third, empirically, old economic welfare determines that the triangle-like area to the left of the demand curve and above the price of money can be used as a measure of the consumer utility market, and that the triangle-like area left of the supply curve and below price is equal to the amount of money from the welfare of producers in the market.
The changes in the region can be used to measure the changes of welfare in the community.
These three principles later get criticism from the economic thinkers who are later known as the new welfare economics.
Paul Samuelson at the beginning of 1942 stated that the old welfare economics does not properly define the consumer surplus.
In general, the consumer surplus is not unique use of money measures of utility, and uniqueness can give different implications depending on the empirical data Vilfredo Pareto in 1896 stated that a number of policies that make someone worse do not match the expected goals.
Then Vilfredo Pareto developed a theory known as Pareto optimal.
Furthermore.
Kaldor and Hicks .
state that the weight of each individual's welfare is not necessarily the same.
Besides, the change in consumer surplus and producer surplus among individuals is not sufficient as a basis for evaluating Kaldor and Hicks introduced the concept of compensation principle.
changes should be done if there are potential gains, so as to create better conditions through the redistribution of output or income in accordance with the changes.
Hicks insisted on alternative measures of money from welfare.
At the time of welfare is not directly related to the utility gains and losses, it can be interpreted with willingness to pay.
This concept is known as compensating variation and equivalent The concept proposed by Kaldor and Hicks gets criticism from Scitovsky in 1941, who claims that there is reversal paradox which illustrates the inconsistency of compensation principle in the analysis Next Gorman in 1955 stated that there is the problem of intransitivity on the compensation principle.
that is the inconsistent ranking of three or more situations.
Further the criticism on the old welfare economics comes from Lipsey and Lancaster .
who state that the partial analysis approach in welfare economics is not appropriate.
By using the Pareto principle, they argue that the control of distortion of the single market or sector of the economy implies that the existence of other sectors may make everyone equally good, or even better.
In the midst of opposition thinking about the accuracy of the concept of economic welfare.
John V.
Krutilla argued the thinking that can be said as a go-between.
John V.
Krutilla stated that the various alternative range can be used, because, the result of the analysis is however determined by the value judgments rather than by legislative mandate.
METHODS
Model Specification A model is an explanation of the actual phenomena as a system or process (Koutsoyiannis, 1.
An econometric model is a special pattern of the algebraic model, namely an element that is stochastic which covers one or more confounding variables (Intriligator, 1.
Econometric model is a description of the relationship of each explanatory variables on the endogenous variables .
ependent variable.
, especially that which concerns with the sign and magnitude of the parameter estimator in accordance with a priori theoretical expectations.
Good model must meet the criteria of economic theory .
heoretically meaningfu.
, the criterion statistics viewed from a degree of accuracy .
oodness of fi.
, known as the coefficient of determination (RA) and statistically significant, while the criteria econometric determines whether an estimate has the required properties such as unbiasedness, consistency, sufficiency, efficiency.
Dw statistic is one of the statistical criteria used to test the econometric estimation, that is to test the validity of the assumption Autocorrelation (Koutsoyiannis, 1.
Specification model which is formulated in this study is very relevant because the purpose of this study is to formulate a model of supply and demand of rice in Indonesia in the context of an open The model is a simultaneous equation model.
Response of Rice Harvest Area RLAPt = a0 a1 HGt a2 HJTPt a3 HFUt a4 CHt a5 KUTt a6 RLAPt-1 U1.
Hypothesis: a1, a4, a5 > 0.
a2, a3 <0.
a6<1.
Response of Paddy Production YPPt = b0 b1 (HGt/HFU.
b2 JPFUt b3 AIt b4 GASIt b5 DEt b6YPPt-1 U2.
Hypothesis b1, b2, b3, b4, > 0.
b5< 0 and 0 < b6 < 1.
Fertilizer Use JPFUt = c0 c1HFUt c2HGt c3RLAPt c4DKt c5JPFt-1 U3.
Hypothesis: c1, c2, c3 > 0.
c4 < 0.
and 0 < c5 < 1 Paddy Production and Rice Production PPINt = RLAPt * YPPt.
PBINt = PPINt * kt.
The proportion of seed losses and runoff BSPLt = PROt * PBINt.
Rice Stock at Year-End STBIt = d0 d1 HBERt d2 PGSTt d3 PLSTt d4 SKBRt d5 IBINt d6 STBIt-1 U4.
Hypothesis: d2, d5 > 0.
d1, d3, d4< 0.
and 0 < d5 < 1.
Indonesian Rice Import IBINt = e0 e1 (HIINt*ERINA.
e2 PBINt e3 STBIt-1 e4 PDKINt e5 GDPINt e6 TWt e7 IBINt-1 U5.
Rice Import Price HIINt = f0 f1 HBWt f2 TARIFt f3 HIINt-1 U6.
Economic Policies on A (Muhammad Asaa.
Hypothesis: e4, e5, f1, f2 > 0.
e1, e2, e3, e6 <0, and 0 < e7, f3 < 0.
Total of Indonesian Rice Offer QSBIt = PBINt Ae BSPLt STBIt-1 IBINt Ae EXSPORt .
Rice Domestic Demand DBINt = g0 g1HBERt g2HJTPt g3PDKINt g4 GDPINt-1 g5 DBINt-1 U7.
Hypothesis: g1, g4 < 0.
g2, g3>0.
and 0 < g5 < 1.
Indonesian Rice Export Export = PBINt Ae BSPLt STBIt-1 IBINt Ae DBINt -STBIt.
Procurement of Rice Stock PGSTt = h0 h1 (HGt/HDG.
h2TAPBt h3 PBINt h4 INFt h5 TWt h6 PGSTt-1 U8 .
Hypothesis: h1, h4, h5 < 0.
h2, h3 > 0.
and 0 < h6 < 1.
Disposal of Rice Stock:
PLSTt = i0 i1 (DBINt/PBIN.
i2 STBIt-1 i3 PGSTt i4 IBINt i5 INFt i6 TWt i7 PLSTt-1 U9.
Hypothesis: i1, i2, i3, i4, i5, i6 > 0.
and 0 < i7 < 1.
Indonesian Rice Marketing Margin MPBIt = HBERt Ae HGt/Kt.
Retailing Rice Price HBERt = j0 j1 (HIINt * ERINA.
j2 HGt j3 PBINt j4 TWt j5 HBERt-1 U10.
Hypothesis: j1, j2, j4 > 0.
j3 < 0.
and 0 < j5 < 1.
Grain Price on Farmer Level HGt = k0 k1 (HIINt * ERINA.
k2 HDGt k3 MPBIt k4 PPINt k5 TWt k6 HGt-1 U11.
Hypothesis: k1, k2, k5 > 0.
k3, k4,<0.
0< k6<1.
Farm Income of Indonesian Farmer PUPPt = (HGt*PPIN.
-(HFUt*JPFU.
-(JPPSt*HPS.
-BPLNt.
Variable Details:
RLAPt is response of rice harvest area .
0 h.
HGt is grain price in the farmer lever (Rp/K.
, deflated with index of wholesalerAos price in Indonesia in the basic year .
HJTPt is corn price (Rp/K.
, deflated with index of wholesalerAos price in Indonesia in the basic year .
HFUt is urea fertilizer price (Rp/K.
, deflated with index of consumerAos price in Indonesia.
CHt is rainfall .
m/yea.
KUTt is farm credit (Rp.
, deflated with index of wholesalerAos price in Indonesia.
RLAPt-1 is timing differences lag of harvest area response.
Ut is confounding variables.
YPPt is paddy productivity .
on/h.
JPFUt is the number of fertilizer use .
g/h.
AIt is intensification area .
0 h.
GASIt is irrigation area .
0 h.
DEt is dummy El-nino.
Value 1is occurring symptom El-nino and 0 is no occurring symptom El-nino.
YPPt-1 is year paddy productivity last year JPFUt is the number of fertilizer use .
g/h.
DKt is dummy crisis economy, value 1 is economic crisis is and value 0 is no economic crisis.
JPFt-1 is the number of fertilizer use last year .
g/h.
PPINt is paddy productivity in Indonesia .
0 to.
PBINt is rice productivity in Indonesia .
0 to.
Kt is score conversion 0.
BSPLt is the amount of rice for seed, other uses/losses .
0 to.
PROt is the proportion of rice for seed, other uses/losses (%).
STBIt is the number of national rice stocks at the end of the year in Logistic Agency .
0 to.
HBERt is retail price of rice (Rp/k.
, deflated with index of wholesalerAos price in Indonesia .
PGSTt is total procurement of paddy/rice .
0 to.
PLSTt is total release/distribution of grain/rice .
0 to.
SKBRt is real lending rate in Logistic Agency (%), that is the nominal interest rate minus the rate of general inflation.
IBINt is the number of Indonesian rice import .
0 to.
STBIt-1 is the number of national rice stocks last year .
0 to.
IBINt is the number of Indonesian rice import .
0 to.
HIINt is Indonesia rice import price (US$/K.
, deflated with index of wholesalerAos price in Indonesia.
TARIFt is Indonesian rice import tariff (Rp/k.
ERINAt is the rupiah exchange rate against dollar (Rp/US$), deflated with index of Indonesia consumerAos price.
PDKINt is the number of Indonesian people (Million peopl.
GDPINt is per capita income of Indonesia's population (Rp millio.
TWt is the tendency of the time or the time HBWt is world rice price (US$/to.
namely 25 percent rice price quality broken in Bangkok Free on Board, deflated by wholesalerAos price index of the United States with a base year .
IBINt-1 is the number of Indonesia's rice import last year.
HIINt-1 is import price of rice last year.
QSBIt is the total supply of Indonesian rice .
0 to.
EKSPORt is total export of Indonesian rice .
0 to.
DBINt is total consumption of rice for food .
0 to.
HDGt is floor Price of grain (Rp/k.
, deflated by wholesalerAos price index in Indonesia.
TAPBt is the total procurement budget of grain/rice (Rp millio.
INFt is the rate of general inflation (%).
PGSTt-1 is the rocurement of paddy/rice last PLSTt-1 is disposal/distribution of rice stocks last year.
HBERt-1 is retail prices of rice last year.
HGt-1 is the price of grain at farmer level last yeark PUPPt is Indonesian FarmerAos Income (Rp JPPSt is total of pesticide use .
iter/h.
HPSt is rice toxic pesticides (Rp/lite.
BPLNt is other production costs (Rp/h.
Model Identification Model iidentification is determined on the basis of "order condition" as a condition of necessity and the "rank condition" as a condition of adequacy.
According to Koutsoyiannis .
, the formulation of structural equation model identification based on order condition is determined by:
(K - M) > (G - .
where K is total variables in the model, namely endogenous variables and predetermined variables.
M is the number of endogenous and exogenous variables which are included in a particular equation in the model, and G is otal equations in the model, namely the number of endogenous variables in the model.
If in an equation in the model indicates the following conditions:
(KAeM ) > (GAe.
is the equation is stated over identified.
(KAeM) is (GAe.
is the equation is stated exactly identified.
Economic Policies on A (Muhammad Asaa.
(KAeM) < (GAe.
is the equation is stated Yt s is value of the basic simulation results of the observation variable.
Yt is the actual value of the observation n is total observation period.
The result of identification for each structural equation must exactly be identified or over identified to be able to suspect its parameters.
In this paper, a model that has been formulated comprising of 11 structural equations and 7 structural identities .
endogenous variables (G), and 42 predetermined variables consisting of 31 exogenous variables and 11 lag endogenous variables Therefore, the total variables in the model (K) is 60 variables, the number of variables in the equation (M) is 7 variables.
Therefore, based on the criteria of order condition, any structural similarities that exist in the model is over-Identified.
Model Estimation Method Model estimation method uses two stages least squares .
SLS) and data processing is done by using software SAS / ETS v.
To determine whether the model is valid enough to create a simulation of alternative policy or non policy and forecasting, it is necessary to do a validation model, with the aim to analyze how far the model can represent the real world.
In this study, the statistic criterion for the validation of the estimating value of econometric model used is: Root Means Square Error (RMSE), (Root Means Percent Square Error (RMSPE) and Theil's Inequality Coefficient (U) (Pindyck and Rubinfield, 1.
The criteria are formulated as follows:
RMSE
RMSPE =
1 n (Y s Oe Y a )2 n t =1 n t =1 .
Yt s Oe Yt a Yt a 1 n (Y s Oe Y a )2 n t =1 1 n (Y s )2 1 n (Y a )2 n t =1 t n t =1 t Model Simulation Policy analysis is carried out to see the impact of economic policies on all endogenous variables.
Thus we can find out how the endogenous variables react to the changes in exogenous variables.
Some simulations of alternative scenarios of economic policy are as follows: .
Raise the floor price of grain 20 percent.
Elimination of urea fertilizer subsidies so that its price increases 20 percents.
Raise the 30 percent tariff on rice imports.
Simulation combination 1 and 2.
Welfare Changes In this study alternative policy simulation is also used to calculate and analyze the changes in the welfare of society.
The indicators which are used as a change from the public welfare are producerAos surplus, consumerAos surplus and governmentAos revenue.
The Indicator of welfare changes will be used as a basic evaluation and a determining policy direction that will be taken.
Analysis of changes in welfare can be formulated as follows:
Changes in Producer Surplus Rice PPINB (HGTTS Ae HGTTB) A (PPINS .
Ae PPINB) (HGTTS Ae HGTTB).
Changes in ProducerAos Surplus Rice PBINB (HBERS Ae HBERB) A (PBINS .
Ae PBINB) (HBERS Ae HBERB).
Changes in ConsumerAos Surplus Rice DBINB (HBERBAeHBERS) A (DBINS Ae DBINB) (HBERS Ae HEBRB).
Government Revenue (IBINS * HIINS) - (IBINB * HIINB) .
Net Surplus is .
2 3 .
with two-stage estimation methods least squares method .
SLS).
The result of behavioral prediction equation .
tructural behavio.
which is based on the sign and magnitude, the coefficient of determination (R A), t and F statistics can be seen in Table 1 untill Table 11.
The result of the economic prediction of rice in this study is quite well as seen from the value of determination coefficient (RA) of each equation behavior ranging from 0:55 to 0.
This shows that in general the explanatory variables .
xogenous variable.
that exist in the equation can explain well the behavior of endogenous variables.
Types and Sources of Data Data used in this paper are secondary data with the time series from 1979 up to 2008.
Sources of data are BPS.
Logistic Agency.
Sitepu .
and related institutions.
RESULTS DISCUSSION
Uncertainty of Estimation Results and Elasticity As described before, the model formulated is linear simultaneous equations model.
Table 1: Harvest Area Estimation Results Variable INTERCEP
HGTTR
HJTPR
HFUR
KUTR
LRLAP
Parameter Estimate Standard Error t statistic Prob > .
Variable Label Intercept Grain price Corn price Real fertilizer price Rainfall Credit UT RLAP t-1 Elasticity R2 is 0.
Prob>F is 0.
Source: Data estimation.
Table 2: Paddy Productivity Estimation Results Parameter Estimate INTERCEP 0.
INA3
JPFU
GASI
LYPP
R2 is 0.
Prob>F is 0.
Variable Source: Data estimation.
Standard t statistic Error Prob > .
Variable Label
Intercept
HGTTR/HFUR
Tot.
use of urea fertilizer Intensification area irrigation area dummy el-nino Productivity t-1 Elasticity Economic Policies on A (Muhammad Asaa.
Table 3: Estimation Result of the Number of Urea Fertilizer Use Variable INTERCEP
HFUR
HGTTR
RLAP
LJPFU
R2 is 0.
Prob>F is 0.
Parameter Estimate Standard Error t statis- Variable Prob > .
Label 3467 Intercept 048 Real Fertilizer Price 3228 Grain price 0904 Harvest Area Response 3792 dummy crisis 0015 Fertilizer use t-1 Elasticity Source: Data estimation.
Table 4: Estimation Result of Indonesian Rice Stock Parameter Standard Estimate Error INTERCEP 1778.
HBERR
PGST
PLST
SKBR
IBIN
LSTBI
R2 is 0.
Prob>F is 0.
Variable t statis- Prob > .
Variable Label Intercept Rice grain stock procure.
total release of stock interest rate Rice Import Rice stock a t-1 Elasticity Source: Data estimation.
Table 5: The Estimation Result of Indonesian Rice Import
Variable Parameter Estimate INTERCEP
INA6
PBIN
LSTBI
PDKIN
GDPIN
LIBIN
R2 is 0.
Prob>F is 0.
Standard Error t statis- Variable Prob > .
Label
1557 Intercept
0985 (HIINR*ERINAR)
173 Ina.
Rice Production 0199 Rice Stock at t-1 0722 Population size 2133 Income population 1545 Time trend 3065 Ina.
rice Import t-1 Elasticity Source: Data estimation.
Table 6: The Estimation Result of Indonesian Rice Import Price
Variable Parameter Estimate INTERCEP
HBW
TARIFR
LHIINR
R2 is 0.
Prob>F is 0.
Source: Data estimation.
Standard Variable t statistic Prob Error .
Label 0292 Intercept 0014 World Rice Price 8882 Import Tariff 0001 Ina Import Price t-1 Elasticity The value of F test statistics is generally high, that is ranging from 3.
79 to 21, which means that the variation of the explanatory variables in each equation behavior is jointly able to explain well the endogenous variation at the level is 0001 and 0.
Besides, every structural equation has parameter magnitude and its sign is in line with the expectations and quite logical from the standpoint of economic theory.
Table 7: Estimation Result of Rice Demand Parameter Standard Estimate Error INTERCEP -8594.
HBERR
HJTPR
PDKIN
GDPIN
LDBIN
R2 is 0.
Prob>F is 0.
Variable Variable Label Intercept Rice price Corn price Population size Population income Rice Demand t-1 Elasticity Variable Prob > .
Label
0025 Intercept
1824 HGTTR/HDGRR
0062 Total budget of Logistic Agency 0014 Ina rice production 0002 Gen.
inflation rate 0025 Time trend 8035 Stock procure.
Elasticity t statis- Prob > .
Source: Data estimation.
Table 8: Estimation Result of National Rice Stock
Parameter Estimate Standard
Error
PBIN
INF
LPGST
R2 is 0.
Prob>F is 0.
Variable INTERCEP
INA2
TAPB
t statis- Source: Data estimation.
Table 9: Estimation Result of National Rice Stock Release Parameter Standard
Estimate Error
INTERCEP
INA4
LSTBI
PGST
IBIN
INF
LPLST
R2 is 0.
Prob>F is 0.
Variable Source: Data estimation.
t statis- Prob > .
Variable Label
Intercept
DBIN/PBIN
Rice stock at t-1 Stock procure.
Total Ina rice import Gen.
inflation rate Time trend Stock release t-1 Elasticity Economic Policies on A (Muhammad Asaa.
Table 10: Estimation Result of Retail Rice Price
Variable Parameter Estimate INTERCEP
INA6
HGTTR
PBIN
LHBERR
R2 is 0.
Prob>F is 0.
Standard Error t statis- Prob > .
Variable Label
Intercept
(HIINR*ERINAR)
Grain price Ina rice production Time trend Rice price t-1 Elasticity Source: Data estimation.
Table 11: Farmer Grain Price
Variable Parameter Estimate INTERCEP
INA6
HDGRR
MPBI
PPIN
LHGTTR
R2 is 0.
Prob>F is 0.
Standard t statistic Error Prob > .
Variable Label
Intercept
(HIINR*ERINAR)
Grain Floor Price Rice Market Margin Ina Rice Production Time Trend Grain price t-1 Elasticity Source: Data estimation.
The tstatistic value is used to test whether each of the explanatory variables gives significant effects to the endogenous variables which are not significant or giving no significant effect to the endogenous variables for the level is 0.
From the results of model prediction models, we then calculate the short-term elasticity (SR) and long term (LR) of endogenous variables to each its endogenous variable.
the eleven endogenous variables which are analyzed, it is obtained several endogenous variables that respond elastically to the exogenous variables as shown above.
Model Variation Simulation policy is aimed at analyzing the impact of various alternative policies by changing the value of its policy variables.
However, before doing the policy of alternative simulation, it needs to accomplish the model validation to see whether the allegation is in accordance with the actual value of each endogenous variable (Pindyck and Rubinfield, 1.
In this study, a basic simulation for the observation of sample period 1979-2008 has been The validation of statistical indicator used is the Percent Root Mean Square Error (RMSPE) to measure how close the value of each endogenous variable estimation results following the actual data value during the period of observation or in other words how much the deviation in percent is.
Besides, the statistic of bias proportion (UM), the regressive proportion (UR), the distributive proportion (UD) and also Theil's statistical inequality coefficient (U) are used to evaluate the ability of the model for the analysis of historical and ex-ante Basically, if the values of RMSE.
RMSPE and U-Theil's are smaller and the value of RA is greater, the prediction model will be better.
TheilAos coefficient value (U) ranges between 1 and 0.
If U is 0, the model prediction is perfect, and if U is 1, the model prediction is naive.
Table 12: Testing Result and Model Validation No Variable RMS
Error
1 PPIN
2 PBIN
3 BSPL
4 QSBI
5 PUPP
6 MPBI
7 EKSPOR
8 RLAP
9 YPP
10 JPFU
11 STBI
12 IBIN
13 HIINR
14 DBIN
15 PGST
16 PLST
17 HBERR
18 HGTTR
Source: Data estimation.
Bias (UM) Reg
(UR)
From Table 12, it can be known that four equations in the model have greater RMSPE values than 50 percents.
the rests have RMSPE value of fewer than 50 percents.
Based on of U-Theil's statistic value, it is found that all the equations have less U-TheilAos values than 0:20, and it shows that valid is carried out to perform policy simulations whether at the historical or forecast periods.
The Impact of Economic Policies on Rice Supply and Demand There are four policies analyzed in this paper, they are the increasing of floor price by 20 percent, the elimination of fertilizer subsidy so that the price of urea fertilizer is increased by 20 percent, and the policy of increasing import tariffs by 30 percent, and the combination of policies of the increasing of grain floor price and the elimination of fertilizer subsidy respectively increases by 20 percent.
The result of policy analysis can be seen in Table 13.
As seen in Table 13, if the policy simulation to raise the floor price of grain
Dist
(UD)
Var
(US)
Covar U-Theil
(UC)
by 20 percent is done, it will have positive impact on the increasing of paddy production by 3.
97 percents and the income of farmers by 38.
79 percents.
The increasing of the floor price of the grain will cause the prices of grain and rice to increase by 22.
percents and 5:55 percents respectively.
This will impact on the demand for rice, which is reflected by the decline in demand for rice by 0.
94 percents.
The case will be different if the reduction policy of fertilizer subsidies or increasing the price of urea fertilizer by 20 percents is made, it will affect on the decrease of the rice production and farmerAos income by 13.
20 percents and 35.
40 percents.
The decrease of this production will also reduce the supply of rice by 13.
21 percents, therefore in order to meet domestic demand, it is required the additional rice import by 209.
73 percents.
The elimination of fertilizer subsidy will also cause the price of rice increased by 9.
52 percents so that the demand for rice will decrease by 60 percents.
Economic Policies on A (Muhammad Asaa.
Table 13: Alternative Evaluation of Economic Policy on Rice Supply and Demand Changing Percentage Value Basic Paddy production 000 ton Rice production 000 ton Seed proportion/decreasing 000 ton Total of rice offer 000 ton FarmerAos income Rp.
Rice market margin Rp/Kg Indonesian rice export 000 Ton Harvest area response 000 Ha Productivity Ton/Ha Total of fertilizer use Kg/Ha Rice stock at year-end 000 ton Total of rice import 000 ton Rice import price US/ton Rice demand 000 ton Stock procurement DL 000 ton Total of stock release 000 ton Rice price Rp/Kg Grain price Rp/Kg Source: Data estimation.
Variable Unit The above table should be understood with the following notes.
Simulation 1 is the increasing of floor price of grain by 20 percents.
Simulation 2 is the elimination of fertilizer subsidies .
rea fertilizer increasin.
by 20 percents.
Simulation 3 is the increasing of import tariffs by 30 percents.
Simulation 4 is the policy combination to raise the floor price of grain and the elimination of fertilizer subsidy by 20 percents.
In terms of trade, the policy of increasing the import tariff 30 percents from the average import tariff that has already been set will not affect on Indonesian rice production so that the total supply will also remain unchanged.
This shows that the policy of the import tariff is not effective to increase the rice production.
The policy to increase the import tariff on the rice import will cause prices to increase by 0.
09 percents that is followed by a decrease in the amount of rice import by 0.
04 percents.
The increase in import prices causes the prices of grain and rice to increase respectively 12.
02 percents and 0.
01 percents.
The small percentage of increasing the rice price does not affect the demand for rice in Indonesia.
To protect producers and consumers, government often performs a combination of alternative policies such as raising the floor price of rice and urea fertilizer subsidy reduction.
The alternative combinations of the policy give negative effects to the rice production by 9.
79 percents.
The decrease of this production will also reduce the supply of rice by 4.
95 percents, so that to meet the domestic demand the additional rice import by 111.
57 percents is required.
Meanwhile, the combination of the policies causes the prices of paddy and rice to increase respectively by 9.
17 and 15:45 percents.
This causes the demand for rice to drop by 2.
60 percents.
The Evaluation of Economic Policy on Public Welfare Table 14: The Impact of Alternative Policies on Indicator Changes of Society Economic Welfare Welfare Indicator Surplus of Paddy Producer Surplus of Rice Producer Surplus of Rice Consumer Government Revenue Net Surplus Source: Data estimation.
Item Rp Billion Rp Billion Rp Billion Rp Billion Rp Billion The calculation results of the impact of the alternative policies on economic welfare by using indicators of producer surplus, consumer surplus, and government revenues are presented in Table 14.
From Table 14 it can be seen that the increase in the floor price of rice by 20 percents gives a positive impact to the acquirement of the surplus of rice and paddy producers respectively by Rp 337.
13 billion and Rp 108.
88 billion.
Instead, the policy gives a negative impact to the consumers by Rp 998.
58 billion.
Thus it can be said that the policy to raise the floor price of grain to the producers of paddy will create economic disparities.
In applying the policy to raise the floor price of rice the government should issue a big enough budget, and this is indicated by negative government revenue by Rp 421.
71 billion.
An alternative policy is causing net surplus to be negative (- USD 974.
28 billio.
This indicates that the policy to raise the floor price of grain inefficient.
On the contrary, the elimination of by raising the price of fertilizer by 20 percents gives a negative impact to the acquisition of the surplus of rice producer and rice consumer respectively by Rp 177.
billion and USD 1718.
73 billion.
On the other hand, a positive impact on producers of rice by Rp 171.
06 billion is closely related to rice marketing margins.
The producer of rice in general is a trader who receives the marketing margin greater than the marketing margin of the paddy and rice Alternative Policy Urea fertilizer is one of the major inputs in producing rice so that the decrease in the number of farmers who use urea fertilizer will directly impact the production decrease.
Consequently, the rice farmerAos revenue declines.
Another implication is the price of rice will increase so that the acquisition of consumer surplus The application of the removal policy of the urea fertilizer will directly imply on the government revenue with the acquisition of revenue by USD 1903.
Overall, the net surplus is positive and it shows that the application of the policy is efficient.
In the international trade, the policy of import tariffs by 30 percents gives a positive impact to the acquisition of the paddy and rice producerAos surplus and gives a negative impact to the acquisition of consumerAos surplus.
The policy to raise the import tariffs by 30 percents brings about surplus to the producer of paddy and rice respectively by Rp 12.
23 billions and 17, while the acquisition of the consumerAos surplus decreases by USD 1:57 The application of the policy to raise the import tariffs by 30 percents gives a positive effect to the government revenue by Rp 12.
47 billions.
Furthermore, the net surplus of the application of policy to raise the import tariff is negative (USD 0.
70 billio.
It also happens to the application of policy to raise the floor price of grain.
Therefore it can be inferred that the policy of increasing the import tariff is inefficient.
Economic Policies on A (Muhammad Asaa.
The alternative combination of the subsidy reduction policy and increasing the floor price of rice has the same implication with the application of the import tariff policy from the aspects of welfare indicators which are analyzed, but with a different The combination of these policies brings a positive impact on the acquisition of the paddy and rice producerAos surplus but it brings a negative impact for the acquisition of consumerAos surplus.
In addition, the combination of these policies has positive impact on the government revenue, but generates a negative net surplus.
Thus it can be said that the combination of policies to raise the floor price of grain by 20 percents and remove the subsidy of urea fertilizer by raising its price by 20 percent will cause bias to the producers of paddy and And the value of a negative net surplus shows that the application of this combination is economically inefficient.
CONCLUSION
From the research that has been carried out on the impact of economic policies and trade liberalization on the supply and demand of rice in Indonesia, it can be concluded as follows.
First, harvest area is affected by the price of grain on the price of grain on the farmer level, the price of urea fertilizer, rainfall, the price of corn on the level of farmer and farm credit, but the response is inelastic.
This shows that the area of paddy field has reached the maximum limit .
losing cultivation frontie.
Second, paddy productivity is affected by the price of grain, the price of urea fertilizer, the total of fertilizer use, irrigated acreage, the area of intensification, and the symptoms of global warming (El Nin.
, but the response is inelastic.
This shows that the productivity of paddy has encountered a problem stagnant production .
eveling-of.
as a result of the use of imbalanced fertilizer.
Third, the response of grain/rice production which is supposed from the in- creasing of acreage and productivity is not responsive to the price.
This indicates that the price is not the main orientation for farmers to increase their production but it is mainly due to the consumption needs.
Fourth, the demand of rice for consumption is significantly influenced by the changes in the retail prices of rice, but the response is inelastic.
It means that the changes in the price of rice brings only a small impact on the changes in demand for rice, and on the price of corn, the response on the rice demand is also inelastic.
The other factor that affects the demand for the consumption of rice is the large number of Indonesian populations.
The response to the changes in the amount of rice demand is inelastic in the short-term residents, and elastic in the long term.
Fifth, the factors that influence the number of Indonesia's rice imports are Indonesia's rice import price, exchange rate, early rice stocks, population, and income per capita of the population.
The response of rice imports to the total demand for domestic rice production and population of Indonesia is elastic.
Indonesia's rice import price itself is influenced by world price of rice and import tariffs.
Sixth, the increase of the floor price of grain by 20 percents brings a positive impact on the rice production and farmerAos It also makes the price of rice rise, but it brings impact on the decline in demand for rice.
This policy increases the welfare of the paddy and rice producers, while consumerAos welfare decreases, and the government should issue a big enough budget to implement the policy.
Overall, this policy is economically inefficient.
Seventh, the policy to increase the price of fertilizer by 20 percents affects on the decrease of the paddy production and farmerAos income.
This policy causes the price of rise to rise so that the demand for rice decreases.
This policy causes the welfare of paddy producer and consumer to decrease, whereas the welfare of the rice producer increases.
The removal of urea fertilizer subsidy will reduce the government spending.
Overall the implementation of this policy is economically efficient.
Eigth, the increasing of the import tariffs by 30 percents has no impact on the total supply of rice, but it only increases the price of paddy and rice in a low percentage.
This policy increases the welfare of the paddy and rice producers, but the welfare of the rice consumer welfare decreases.
Government obtains additional revenue by implementing this policy.
Overall the policy is economically inefficient.
Ninth, the combination of the policies on the floor price of grain and the elimination of urea fertilizer subsidies has a negative impact on the production and demand of rice.
The combination of these policies will improve the welfare of the paddy and rice producers, but the welfare of the consumer will decline.
This alternative policy produces a negative net surplus.
it means that it is economically inefficient.
REFERENCES