Food Policy and Poverty in Indonesia: A General Equilibrium Analysis

23 Pages Posted: 7 Jan 2006

See all articles by Peter G. Warr

Peter G. Warr

Australian National University (ANU) - Crawford School of Public Policy

Abstract

Rice is Indonesia's staple food and accounts for large shares of both consumers' budgets and total employment. Until recently, Indonesia was the world's largest importer, but rice import policy is now highly protectionist. Since early 2004, rice imports have been officially banned. Advocates of this policy say it reduces poverty by assisting poor farmers. Opponents say it increases poverty, stressing negative effects on poor consumers. This paper uses a general equilibrium model of the Indonesian economy to analyse the effects of a ban on rice imports. The analysis recognises 1000 individual households, including all major socioeconomic categories, disaggregated by expenditures per person. It takes account of effects on each household's real expenditure and its income, operating through wages and returns to land and capital. The results indicate that the rice import ban raises the domestic price of rice relative to the import price by an amount equivalent to a 125 per cent tariff, six times the pre-2004 tariff. Poverty incidence rises by a little under 1 per cent of the population and increases in both rural and urban areas. Among farmers, only the richest gain. These results are qualitatively robust to variations in key parametric assumptions.

Keywords: general equilibrium, rice imports, trade policy, Indonesia

Suggested Citation

Warr, Peter G., Food Policy and Poverty in Indonesia: A General Equilibrium Analysis. Australian Journal of Agricultural and Resource Economics, Vol. 49, No. 4, pp. 429-451, December 2005, Available at SSRN: https://ssrn.com/abstract=868729 or http://dx.doi.org/10.1111/j.1467-8489.2005.00312.x

Peter G. Warr (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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