Food policy and poverty in Indonesia: a general equilibrium analysis

Rice is Indonesia’s staple food and accounts for large shares of both consumers’ budgetsand total employment. Until recently, Indonesia was the world’s largest importer, butrice import policy is now highly protectionist. Since early 2004, rice imports have beenofficially banned. Advocates of this policy say it reduces poverty by assisting poorfarmers. Opponents say it increases poverty, stressing negative effects on poor consumers.This paper uses a general equilibrium model of the Indonesian economy to analyse theeffects of a ban on rice imports. The analysis recognises 1000 individual households,including allmajor socioeconomic categories, disaggregated by expenditures per person.It takes account of effects on each household’s real expenditure and its income, operatingthrough wages and returns to land and capital. The results indicate that the rice importban raises the domestic price of rice relative to the import price by an amount equivalentto a 125 per cent tariff, six times the pre-2004 tariff. Poverty incidence rises by a littleunder 1 per cent of the population and increases in both rural and urban areas. Amongfarmers, only the richest gain. These results are qualitatively robust to variations in keyparametric assumptions.