Volatility of World Soybean Prices, Import Tariffs and Poverty in Indonesia

Abstract

High volatility of world soybean prices have caused uncertainty and vulnerability particularly in net-importer countries like Indonesia. This study aims to measure the impact on poverty in Indonesia of volatility in the world price and import tariffs of soybeans. By applying a computable general equilibrium (CGE)-microsimulation approach and the endogenous poverty line, it was shown that the dramatic volatility of world soybean prices during 2007–09 had a significant effect on increasing poverty in Indonesia. The simulation result showed that a 40 per cent increase in world price raises the head count index by 0.204 per cent which equals 427,971. However, zero import tariffs implemented by the government through regulation 01/PMK.011/2008 in response to high world prices could not perfectly absorb the negative impact of increasing world soybeans price on poverty. Zero import tariffs would be effective in protecting the poor in Indonesia if the world soybean price increase was not more than 10 per cent. Moreover, protection in the agricultural sector, such as raising import tariffs, intended to help agricultural producers will have the reverse effect of raising the head count index.