Abstract
This study analysis how much the price of rice influences the price of milled paddy. The results can aid in policy suggestions related to the price of rice. If the price of rice has a big impact on the price of milled paddy, increasing rice prices could be an effective policy to increase the price of milled paddy. This would desire farmers to increase production and create food security. If is the little effect, this policy would not be effective. The impact of this policy might harm consumers and increase poverty. The analysis was carried out using price integration and data from Indonesia. The data were taken from January 1, 2007, to December 31, 2014. The results show that rice prices influence the price of milled paddy, but not proportionally since increases in milled paddy price are always lower than increases in rice prices. Thus, increasing the price of rice to increase the price of milled paddy to help the farmers is not effective because it does not substantially increase farmer income and will not be effective for stimulating production. This phenomenon occurs because for many farmers (especially small farmers), the market structure is nearly a monopsony market. As a suggestion for make increasing rice prices more effective, the government could intervene via Indonesian logistics Bureau to make the market more competitive. This intervention could create competition for traders in the monopsony market
Highlights
Information on the influence rice price is important for food policy in Indonesia since rice is the staple food [1]
The model used in this analysis is: Pp = a + b Pr + u where Pp is the price of a milled paddy, a is a constant, b is a coefficient of the proportion of increase in rice prices due to the rising price of milled paddy, Pr is the price of rice, and u is a residual variable
The effect is the regression coefficient value, which shows how large the proportion of the increase in the price of milled paddy is when rice prices rise by one unit
Summary
Information on the influence rice price is important for food policy in Indonesia since rice is the staple food [1]. Reducing rice prices to make it more affordable could threaten food security and impact the price of paddy. If rice prices are low, the price of paddy will be low too and rice farming will not be profitable. Policies to increase rice prices would harm most people in Indonesia since rice is the main food, and poor people would suffer
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