The Distributional Impacts of Food Security Policies in Indonesia: Results from a Stochastic Simulation Model of the Agricultural Sector

In the past 15 years, the Indonesian economy has grown rapidly, and, since 1973- 1974, increased oil revenues have reduced foreign exchange constraints and allowed rapid increases in capital and consumer goods imports. Despite growth in the industrial sector, the subsistence oriented farm sector is still the largest employer in the country. About 80 percent of the present population of 150 million live in rural areas. The food security of both the urban and rural populations has been a prime goal of the government. It has been achieved principally through the regulation of the domestic rice market by the National Logistics Agency (BULOG), the total cost of which fluctuates considerably from year to year, depending on world price movements and domestic production performance. The prospect that domestic energy demand may erode oil export revenues suggests that food policies which focus less on the level and stability of rice prices need to be evaluated. Since food consumption patterns and preferences differ markedly between income groups, changes in policies affecting relative rice prices have different impacts on the quality and stability of the food intake within each group. This paper describes results from a stochastic simulation model which disaggregates consumers into two urban and two rural income groups, and food production and consumption into five staple food crops. Results from the model support the hypothesis that higher and less stable rice prices would have their most deleterious impact on the urban poor; however, less severe regulation of the domestic rice market is shown to lead to significant increases in the food risk faced by all groups.