Food security and rice price policy in Indonesia: the economics and politics of the food price dilemma.

Abstract

Food security in Indonesia is intimately connected to rice prices. After more than two decades of stabilizing domestic rice prices around the long-run trend of prices in the world market, Indonesia has emerged from the devastating financial crisis with domestic rice prices much higher than world prices and much higher than long-run trends of real prices in rupiahs. Although the political rhetoric pushing for even higher prices uses food security as the rationale, in fact few productivity gains are available to rice farmers. More importantly, high rice prices have a major impact on the number of individuals living below the poverty line and on the quality of their diet. The paper reviews research on the impact of rice prices on the poor and on the broader macroeconomic consequences for investments in labor-intensive manufacturing. Discussion then focuses on how political and economic circumstances have changed since price stabilization, implemented by the national food agency (Bulog), balanced the needs of producers and consumers.