The Integration of Rice Market in Indonesia as an Archipelago Country (Vector Error Correction Model Analysis)

Abstract

Indonesia is the third-largest rice producer in the world after China and India. Indonesia has different rice distribution patterns with continental countries such as China and India as archipelagic countries. The rice distribution pattern in Indonesia is still problematic, as seen from the high price disparity between producer and consumer level and regions. A considerable price disparity reflects an inefficient market, as prices are not transmitted perfectly between regions within a single region. This study aimed to analyze the integration of the Indonesian rice market, which considered scattered locations geographically separated by the ocean. Market mechanisms that assume the spontaneous movement of goods or services due to price differences cannot fully occur due to physical and infrastructure constraints. This research used the Vector Autoregression method, which is specified as Vector Error Correction Model. The results show that the Indonesian rice market is not fully integrated. In the long run, there is still an independent rice market. It is indicating a low level of efficiency of the rice market. The geographic condition of the Indonesia archipelago causes perfect market integration to be difficult to achieve. Improvement of the infrastructure in transportation and communication will make the flow of rice more efficient from surplus to deficit area. The market is segmented into several points in some areas based on the island. This means that controlling the rice market can not be concentrated at one point, but control must be done at the determinants market spread across every island in Indonesia.