The Price Transmission in Rice Market Chain in Indonesia

Abstract

The aim of this study is to assess the rice market chain performance, namely price volatility and price transmission among producer, rice miller, wholesaler, and retailer, with respect to the enforcement of rice price stabilization policy in Indonesia. We use the standard deviation of return for price volatility and the Cointegration test and the Error Correction Model for price transmission analysis. The results of this study show that the magnitudes of price volatilities along market chain decrease from producer to retailer. Producer in the upstream faces the highest price volatility at 24,9%, and then ricemiller and wholesaler face the lower price volatility than producer but still high at 18,3% and 18,1%, respectively. Whereas retailer in the downstream faces the stable price at 8,7%. The price transmission analysis concludes that the rice market chain in Indonesia is segmented. The rice price is not transmitted completely from producer to consumer, and vice versa. There are only two markets which are integrated, namely price relationships between producer and ricemiller and between wholesaler and retailer. Meanwhile the price relationships between producer and wholesaler, producer and retailer, ricemiller and wholesaler, and ricemiller and retailer are not integrated.