How much does rice price influence milled paddy price? Analysis of price integration in Indonesia
AbstractThis 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
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