Price transmission after the determination of rice ceiling price in South Sumatra Province: analysis of secondary and empirical data

Abstract

Price transmission becomes an important issue because it is useful in measuring the distribution of welfare between producers and consumers as well as indicators of the efficiency of a marketing system. This study aimed to analyze the vertical transmission of the rice prices from consumers to farmers after the determination of rice ceiling price by the government in September 2017. The study was conducted in South Sumatra Province as one of the centers of rice production in Indonesia. Price transmission was analyzed using price transmission elasticity, on weekly time series secondary data of rice price for 100 weeks, from September 2017 to July 2019. Besides, primary data of the price, production, and cost of production of rice also collected in an empirical study in South Sumatra province to compare before and after the situation. The results showed that the price transmission of premium and medium rice at consumer-level to the price of harvested dried grain has an elasticity value not equal to one, but rather less than one for premium quality rice and more than one for medium quality. This shows that the rice market in South Sumatra Province is still inefficient because the prices are transmitted asymmetrically both for premium and medium rice. Results from the empirical study have also supported the same phenomena which showed an average increase of rice cost production and then the decrease of farmer income in 2018, one-year implementation of the ceiling price policy, especially in lowland swamp.