Analysis on Price Spread between Paddy and Rice, Market and Commodity Integration

Abstract

The stable and affordable rice price is one of the components that well contributed to the food security in Indonesia. One of the rice problems is related to its price spread, farmer as a rice producer want to get high rice price, and the other hand consumer want to get low rice price. Government intervention, especially Bulog, is needed how to help maintain a good price for consumer and producer. But, many parties had been expected that this role was decreased. It had been showed by the price spread that increased since 1998. The objectives of this paper are to analyze the price movement of paddy and rice in the farmer, wholesaler, and consumer level, as well as the type of price spread between paddy and rice in various islands and big cities in Indonesia; analyze the factors that influence the price spread between paddy and rice; and identify the rice market integration, both spatial and vertical analysis. The quantitative approaches, especially the vector error correction model, were used to answer those objectives. From the result, it can be concluded that paddy price in the farmer level is more volatile than rice price in the consumer and wholesaler level. Moreover, the rice price in the various islands and big cities in Indonesia when Bulog’s function as LPND is more volatile than the status as Perum. But, the other way, the national paddy price is more stable when Bulog’s status as Perum. It shows that rice policy stands up for the consumers and sellers than the producers or farmers. Price spread between paddy and rice was increasing from time to time, but the price fluctuation in the Perum period is better than LPND period. There is long run relationship between total of rice purchase, total of paddy purchase, Government Purchasing Price (HPP) for rice, Government Purchasing Price (HPP) for paddy, premium oil price, international price, exchange rate and price spread of paddy and rice. Result of market integration analysis shows that retail price in 12 big rice markets, as well as wholesale price in 4 big ports in Indonesia was not fully integrated. Besides that, vertical market integration of rice in Indonesia was founded, but with asymmetric price. Response of price change in the consumer level was transmitted to the farmer level imperfectly.