The Impact of Rice Policy towards Poverty Reduction in Indonesia
Dudi Septiadi
Universitas Pendidikan Indonesia, Setiabudhi 229 street, Bandung, Indonesia
Keywords: Poverty reduction, rice policy, simultaneous equation models.
Abstract: Poverty is an important issue in the Indonesian economy which should be addressed immediately. Rice is a
major source of calories most of the Indonesian people that affect the welfare of million people. The
objective of this research was to analyze the impact of rice policy on poverty in Indonesia. Specifications of
research model using simultaneous equations and allegedly with the method two Stages Least Squares
(2SLS). The results of research shows that poverty in Indonesia is influenced by economic growth,
government spending on infrastructure, percapita income, fuel prices, inflation, the amount of imported rice,
the rice price retail premises and poverty previous year. The decline in the retail price of rice is able to
reduce poverty. Real retail rice price increase 1 percent would increase poverty by 0.037 percent in the short
term and amounted to 0.124 percent in the long term. 1 percent increase in economic growth will reduce
poverty by 0.090 percent in the short term and amounted to 0.306 percent in the long term. In an effort to
reduce the number of poor people, government purchasing price policy should be followed by other rice
policy.
1 INTRODUCTION
Poverty is an important issue in economy which
must be addressed immediately. Poverty rate
measurement is conducted by Central Bureau of
Statistics (BPS) Indonesia that using concept of
ability to meet basic needs. This approach sees
poverty as an economic disability to meet the basic
needs of food and not food as measured by the
expenditure side. So the poor are residents who have
an average monthly per capita expenditure below the
poverty line (BPS 2015).
Asian economic shocks in 1997-1998 had an
impact on increasing poverty in Indonesia. In 1998
poverty increased to 24.2 percent or as many as 49.5
million people. In 2012 and 2013, poverty fell only
0.5 percent per year, the smallest decline in the past
decade. The slowing down of poverty can not be
separated from the slowing economic growth and the
unbalanced income conditions experienced by
Indonesia, where the Gini Index of Indonesia is 0.41
in 2014. This number is considered very high
inequality katogeri. Inequality is increasing because
most of the economic growth that occurs is not
enjoyed evenly, but only enjoyed by the few upper
class society.
People who in recent years can get out of poverty
are people living a little above the edge of the
poverty line but very vulnerable to fall back into
poverty. In line with the decrease of that group, the
group which are in the bottom of poverty line and
the group which are slightly listed above poverty
line are the groups must be helped to rise up.
Research conducted by World Bank (2015)
produced important findings which had relation with
the susceptibility of Indonesian people who fell in
poverty. Many of Indonesian people could escape
from poverty, but they were still survive just above
poverty line. In 2014, about 28 million people were
classified in poverty category with the income about
US$1.30 per day, but 68 million people were
slightly listed above that number. Those people were
people who were susceptible in poverty with the
income about US$1.90 per day. This empirical
experience show Indonesian people are still
susceptible in poverty if there is a shock impacted on
the decline of purchasing power.
Specifically related to food problem (rice) which
cannot be postponed needs a guarantee either the
availability or the accessibility in order not to be
fallen in poverty if there is a shock. This finding was
supported by Booth (2000) in his research which
reviewed poverty and income distribution on
President Soeharto era in 1966-1998. The results of
this tells that agricultural development becomes an
important thing to decrease poverty in Indonesia. By
Septiadi, D.
The Impact of Rice Policy towards Poverty Reduction in Indonesia.
In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017), pages 203-208
ISBN: 978-989-758-308-7
Copyright © 2017 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
203

noting, development program is directed more not
only in developing food plants but also specific
needs for poor people. Furthermore, Timmer (1997)
also suggests that the impact of agriculture
development towards poverty reduction depends on
income distribution.
Problems faced by agricultural sector (food) are
production problem (availability) and price stability.
Production problem occurred is unfulfilled food
needs (rice) in country so as to import, poor
competitiveness of food products and prosperity of
farmers. However, price problems are the instability
of food price. The high price of rice harms people,
either for farmers or non-farmers, because most of
calories takes from rice.
Rice expenditure portion which is relatively big
in the income of poor people, therefore if there is
changes of rice price, it will influence towards the
number of poor people. Every 10 percent rice price
increases, it will cause the increment of poor people
as much as one percent (Malian et al 2004). Since
the vulnerability of foods (rice) is crucial, food
security is not only economic community, but also it
becomes politic commodity. According to the
explanation, therefore this research purpose to
analyze the impact of rice policy towards poverty
reduction in Indonesia.
2 LITERATURE REVIEW
Prominent government policy on rice commodity is
useful price policy to stabilize price. According to
Sadoulet and De Janvry (1995), that policy is main
device of government intervention in agriculture
contribution towards economic development.
Whereas all this time, Indonesian government policy
in agriculture is focused on the achievement of food
self-sufficiency and price stability (Godoy and
Dewbre 2010).
On rice self-sufficiency, the escalation of
productivity policy through new technology
breakthrough, the investment of irrigation
infrastructure, subsidy and procurement of
production facilities (superior seeds, fertilizer, and
pesticide), price policy and rice commerce, as well
as provision of subsidized credit, are main factors
which cause Indonesia achieved rice self-sufficiency
in 1984 (Rosegrant et al 1998). Besides, Anriquez
and Stamoulis (2007) argue that agricultural sector is
important component from developed rural economy
in developing countries.
Rice is main food of Indonesian people. Rice
becomes main calorie resource for most of
Indonesian people. Segment of rice on total calorie
consumption is 54.3 percent, therefore half of
calories are from rice (Harianto 2001). It is not
impossible if rice demand in Indonesia is high.
Kasryono et al (2001) estimates that growth of rice
demand rate in Indonesia as much as 2.3
percent/year. Since food (rice) vulnerability is
crucial, rice commodity is not only economic
commodity, but also political commodity in which
rice scarcity can cause political unrest like occurred
on the end of Orde Lama regime (Manning 1987).
3 METHODS
Research method used is Two Stages Least Squares
(2SLS) on simultaneous equation model with
econometric analysis. Econometric analysis is a
description from relationship of each explanatory
towards dependent variables, especially that
involves magnitude and sign from parameter
estimator in accordance with theoretical expectation.
Good model must have criteria of economic theory
(theoretically meaningful), criteria of statistic
viewed from one degree of precision (goodness of
fit) known by coefficient of determination (R
2
) as
well as real statistically (statistically significant),
however criteria of econometric establishes whether
one estimation has needed properties, mainly
unbiasedness, consistency, sufficiency and
efficiency. Data used for regression are data in 1981-
2014.
Elasticity Concept
To get quantitative measurement of response of
one function towards influenced factors, it is used
elasticity concept. On dynamical model, it can be
calculated elasticity-short term (E-SR) and
elasticity-long term (Gujarati 1995), with the
formula as follow:
E-SR = δYt/ δXt*Xt/Yt ........... (1)
E-LR =E-SR/1-b ................. (2)
Notes:
E-SR = short term elasticity
E-LR = long term elasticity
B = parameter estimated of
lag endogenous variable
Xt = exogenous variable average
Yt = endogenous variable average.
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
204

4 RESULTS AND DISCUSSION
4.1 Rice Productivity
According to estimation results on table 1, it can be
explained that rice productivity in Indonesia is
influenced by grain price on farmer level, ratio of
urea price, rainfall level and productivity level on
the last year. Variable of grain price in farmer level
and rainfall have a positive relationship with rice
productivity variable. According to estimation result,
it can be found out that variable of grain price has
real influence toward productivity and has positive
relationship. It means variable of grain price in
farmer level has important role in the increasing of
grain harvest productivity. It also occurred in rainfall
variable and productivity on the last year that had
real influence statistically. It showed that the
importance of rainfall condition towards the
escalation of rice harvest productivity.
Table 1: Estimation results of rice productivity
equation
Variable
Parameter
Estimate
t Value
Elastisity
SR
LR
Intercept
877.3366
3.27
Grain price
0.065231
3.04*
0.021
0.090
Urea fertilizer
price
-3.51445
-0.12
-0.471
-1.97
Rainfall level
0.067227
2.01*
0.035
0.147
Lag produktivity
0.761826
11.62*
R-Square : 0.971, F-statistic : 234.74, *α = 5%
Productivity response towards grain price
changes in farmer level is in elastic, with E-SR
0.021 and E-LR 0.090. It means grain price in
farmer level influence to the changes of rice harvest
productivity, but with the small changes. The
escalation 1 percent of grain price in farmer level
will increase productivity 0.021 percent in short
term and increase 0.090 percent in long term. The
small elasticity value of grain price toward rice
productivity shows that rice productivity encounters
saturation, therefore although rice price increases,
but it is difficult for farmers to increase productivity.
Rainfalls variable on equation of productivity,
coefficient of different rainfall is significant affect,
this shows that how rainfalls are important toward
the increasing of productivity of rice harvest, but
productivity is not responsive toward rainfalls
changes with E-SR 0.035 and E-LR 0.147. It is
different from two others exogen variables in
equation of productivity, ratio variable of urea
fertilizer price influences not real with productivity
and negative relation. It means the increment or
reduction of urea fertilizer price will influence to the
lowering or increasing of rice harvest productivity. It
can occur if urea fertilizer price increases, then
farmers will use urea less that the use of urea ideally
on farmers’ rice. The result is the productivity also
decreases because the use of urea decreases.
This research is supported by the result of
Mulayana’s research (1998) which concludes that
response of rice productivity is inelasticity (not
responsive) toward the changes of grain price and
fertilizer price. According to Cahyono (2001), the
behavior of rice productivity and field are
determined by grain price, the use of superior seeds,
intensification areal, rainfalls and El-Nino.
However, Sitepu (2002) concludes rice productivity
is influenced by grain price, urea fertilizer price, the
number of urea use, the large of irrigation area,
intensification area and symptoms of global
warming (EL-nino), but the response is inelastic.
This shows rice production has undergone levelling-
off as a result from unbalanced fertilizer use.
4.2 Price of Retailed Rice in Indonesia
According to estimation result of equation of retailed
rice price in Table 2, it can be found that
coefficience of government purchase price has real
influence to retailed rice price. It indicates that
Bulog’s role which is very central in deciding
government purchase price in keeping stability of
retailed rice price. Price of retailed rice becomes
important because it becomes final price in
consumer level. It also influences to people’s
purchasing power. Besides government purchase
price, grain price in farmer level also has a
significant influence toward price of retailed rice in
mark α = 0.05. It means the influence of grain price
is very good in deciding retailed rice price.
Table 2: Estimation results of the retail rice price
equation
Variable
Parameter
Estimate
t Value
Elasticity
SR
LR
Intercept
102.7107
0.17
Rice
productivity
-0.00174
-0.29
-0.195
-0.211
Gov’ purchase
price
0.118601
1.52*
0.086
0.093
Urea fertilizer
price
0.297236
1.06
0.062
0.067
Grain price
1.778837
9.59*
0.912
0.985
lag retail rice
price
0.074442
1.04
R-Square: 0.9982, F-Statistic: 3085.44, *α = 5%
The Impact of Rice Policy towards Poverty Reduction in Indonesia
205

The result of this research is also supported by
Kusumaningrum (2008) in her research which said
that coefficient of grain price in farmer level has a
real influence toward retailed rice price. Retailed
rice price is not responsive toward grain price in
farmer level with E-SR as many as 0.3617 and E-LR
as many as 0.6294. Price of retailed rice is influence
in real by rice production in Indonesia negatively.
The response is either E-SR (1.2495) or E-LR
(2.1748). It proves that the more rice production the
more rice price decreases. This result is in line with
Sawit (2003) who mentions that the more production
level the more Bulog can provides rice (Sawit,
2003). The purpose of that procurement is to
stabilize the price. Therefore, Bulog’s role in this
part is needed, in which if rice production increases,
Bulog must buy rice/grain from farmers to keep the
price stability. Price of rice or grain production level
influence positively toward Bulog procurement.
4.3 Poverty in Indonesia
According to Table 3, it can be found that poverty in
Indonesia is influenced by economic growth,
government’s expenditure for infrastructure, and
income per capita of Indonesian people with
negative sign. Besides, fuel price variable
(premium), inflation, the number of rice import,
retailed rice price in Indonesia and the poverty in the
last year gives positive influence toward poverty in
Indonesia.
Statistically, the influence of growth variable
toward poverty variable has real influence. It
indicates economic growth becomes an alternative
sustainability in decreasing poverty in Indonesia. No
one to doubt about (potency) relation between
economic growth and proverty decline. One of study
which includes data panel involves 80 countries and
covers periods for 4 decades shows that the growth
of group of people 20 percent lowest moves
proportionally with the growth of GDP per capita.
This study also finds that there is no different pattern
between superpower countries and developing
countries and there is no different relation if it is
viewed per decade. It means this study finds that
(positive) influence from economic growth has the
same goodness toward poor people (Dollar and Kray
2000).
Tabel 3: Estimation result of poverty equation
Variable
Parameter
Estimate
t Value
Elasticity
SR
LR
Intercept
11496010
1.98
Economic growth
-595319
-1.80*
-0.090
-0.306
Fuel price
560.0010
0.46
0.035
0.117
Gov’Spending
on Infrstructure
-0.01935
-0.62
-0.027
-0.091
Percapita Income
-0.78510
-0.61
-0.234
-0.791
Inflation
95083.38
0.86
0.028
0.095
Nett rice import
0.000049
0.09
0.002
0.005
Retail rice price
427.5662
0.32
0.037
0.124
Lag Poverty
0.704099
5.89*
R-Square: 0.864, F-statistic: 19.20, *α = 5%
Empirical proof as long as several years shows
economic growth in Indonesia is a main factor
supporting the decreasing of poverty for 30 years.
Poverty alleviation in long term can only be
achieved with sustainable economy. This finding is
supported research by Olowa (2012) conducted in
Nigeria. The research concludes that the low
economic growth is the main cause of poverty.
According to Timmer (2004), the main challenge
faced is food security is not focused on productivity
dimension, but it is to create fast growth and focuses
on poverty alleviation in context of new structural
transformation.
In table 3, it can be viewed that estimation
parameter for variable of retailed rice price has
positive mark. It means the increasing of price can
increase poverty. It is in line with Warr (2005) who
shows that raising rice price, raising poverty. Among
farmers, only rich farmers who enjoy benefits from
this policy.
This finding is in line with research conducted by
Yudhoyono (2004) that the number of poverty is
influenced by fiscal policy, economic growth and
wage rate. Government’s expenditure gives positive
influence for decreasing poverty. The increasing of
government’s expenditure for infrastructure in real
decreases the number of poverty. Besides, according
to Simatupang (2000) in his research shows that the
development of agriculture sector is very effective in
poverty alleviation, the value of increasing of
income per capita and the decreasing of food price
especially rice price. The decreasing of rice price is
very effective in decreasing the number of poor
people in rural areas or in urban areas.
The Impact of Rice policy in Indonesia
Every policy conducted by government can cause
positive or negative impact toward each endogen
variable. Policy conducted by government also has
a possibility not to have impact toward other
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
206

endogen variables. Simulation conducted in this
study is by applying combination of price policy that
can decrease poverty in Indonesia from 1981 till
2014. These are the recapitulation of simulation
conducted in research.
Tabel 4: Recapitulation of simulation combination
of price policy
Variable
Simulation (percent)
A
B
C
D
Poverty
0.0106
-0.0350
-0.2650
-0.2620
Rice
productivity
1.0589
1.1520
1.0580
0.1240
Price of
retail rice
0.3932
-1.3350
-9.9270
-9.8440
Notes:
1. Simulation A: Policy in increasing the price of
government purchase and the large of irrigation
areal each 20 percent and 12 percent and
decreasing urea price 20 percent.
2. Simulation B: Policy in decreasing urea 20
percent as well as increasing credit and
irrigation areal each 20 percent.
3. Simulation C: Policy in removing government
purchasing price, decreasing urea price and
increasing the large of irrigation areal each 20
percent and 12 percent.
4. Simulation D : Policy in removing government
purchasing price and import tariff with the
policy of decreasing urea price and increasing
credit each 20 percent.
According to table 4 which explains simulation
in research, simulation C shows best result in
decreasing poverty, that is 0.2650 percent.
Simulation showed on simulation B and D still
shows smaller impact toward the decreasing of
poverty. Simulation B is the best simulation in
increasing rice production in Indonesia. That is
1.523 percent.
This result is in line with Hutauruk (1996) who
states that the policy of the increasing of irrigation
areal will increase domestic product and impacts to
the decreasing of rice import. It is also supported by
Sitepu (2002) who said the increasing od irrigation
areal will increase the number or grain production
and farmers’ income.
Simulation that decides the policy of the
increasing government purchasing price has
impacted to the increasing of poverty. It is in line
with Ritonga (2004) who states that the policy of the
increasing basic price has commonly increased the
prosperity level in one party. However, in another
party, the increasing of grain basic price is followed
by the increasing of retailed rice price, causing the
decreasing of consumers’ prosperity level. The
decreasing of prosperity level has implication to the
increasing of the number of poor people. This
finding indicates that the policy of removing the
government purchasing price becomes one of good
recommendation in decreasing poverty in Indonesia.
Besides, simulation B and C still shows small impact
toward the decreasing of poverty. The simulation
shown on simulation A and D shows the increasing
of poverty, each 0.0459 and 0.0435 percent. It
indicates the policy to increase government
purchasing price influences to the increasing of the
value of poor people.
5 CONCLUSIONS
Variable of economic growth in Indonesia
influences significantly toward the poverty in
Indonesia. In trying to reducing poverty, policy is
directed to the increasing of people’s purchasing,
therefore policy which focuses on rice availability
and stability of rice price becomes main focus in
taking government policy. The decreasing of rice
price can decrease poverty, but the influence is still
small. The removing of government purchasing
price for commodity becomes alternative policy
which impacts to poverty alleviation. In trying to
decrease poverty and increasing rice production, the
policy of government purchasing price is combined
with another price policy, such as policy to increase
irrigation areal.
REFERENCES
Anriquez G, Stamoulis K. 2007. Rural Development and
Poverty Reduction: is agriculture still the key?
Electronic Journal of Agriculture and Development
Economics. 4 (1):5-46.
Booth A. 2000. Poverty and Inequality in the Soeharto
Era: An Assessment. Bulletin of Indonesian Economic
Studies. 36(1): 73-104.
[BPS] Badan Pusat Statistik. 2015. Kemiskinan ; Konsep
dan Metodologi [Internet]. Jakarta (ID): BPS.
[diunduh 2015 Sep 17]. Tersedia pada:
http://www.bps.go.id/Subjek/view/id/23#subjekViewT
ab1
Bank Dunia. 2015. Pengentasan Kemiskinan di Indonesia
[Internet]. Washington (US): [diunduh 2015 Nov 18].
Tersedia pada:
http://www.worldbank.org/in/country/Indonesia/brief/redu
cing-extreme-poverty-in-Indonesia
Dollar D, Kray A. 2002. Growth Is Good for the Poor.
Journal of Economic Growth. (7): 195–225.
Godoy DC, Dewbre J. 2010. Economic Importance of
Agriculture for Sustainable Development and Poverty
Reduction: Findings from a case study of Indonesia.
OECD. Global Forum on Agriculture.
The Impact of Rice Policy towards Poverty Reduction in Indonesia
207

Gujarati DN. 1995. Basic Econometrics. Third Edition.
New York (US): McGraw-Hill, Inc.
Harianto. 2001. Pendapatan, Harga dan Konsumsi Beras.
Dalam Suryana dan Mardianto (Editor) Bunga
Rampai Ekonomi Beras. Jakarta (ID): Lembaga
Penyelidikan Ekonomi Masyarakat. Fakultas
Ekonomi. Universitas Indonesia.
Hutauruk J. 1996. Analisis Kebijakan Harga Dasar Padi
dan Subsidi Pupuk terhadap Permintaan dan
Penawaran Beras di Indonesia [Tesis]. Bogor (ID):
Institut Pertanian Bogor.
Kasryno F, Simatupang P, Pasandaran E, Adiningsih S.
2001. Reformulasi Kebijaksanaan Perberasan
Nasional. Forum Penelitian Agro Ekonomi. 19 (2) : 1-
23.
Kusumaningrum R. 2008. Dampak Kebijakan Harga
Dasar Pembelian Pemerintah terhadap Penawaran
dan Permintaan Beras di Indonesia [Tesis]. Bogor
(ID): Institut Pertanian Bogor.
Malian A, Mardianto HS, Ariani M. 2004. Faktor-faktor
yang Mempengaruhi Produksi, Konsumsi, dan Harga
Beras serta Inflasi Bahan Makanan. Jurnal Agro
Ekonomi. 22 (2): 119-146.
Manning C. 1987. Public Policy Rice Production and
Income Distribution: A Review of Indonesia's Rice
Selt Sufficiency Program. South East Asean Journal of
Social Science. (15): 66-81.
Mulyana A. 1998. Keragaan Penawaran dan Permintaan
Beras Indonesia dan Prospek Swasembada Menuju
Era Perdagangan Bebas Suatu Analisis Simulasi
[Disertasi]. Bogor (ID): Institut Pertanian Bogor.
Olowa OW. 2012. Concept, Measurement and Causes of
Poverty: Nigeria in Perspective. American Journal of
Economics. 2(1): 25-36.
Ritonga E. 2004. Analisis Keefektifan Kebijakan Harga
Dasar Beras [Tesis]. Bogor (ID): Institut Pertanian
Bogor.
Rosegrant MW, Kasryno F, Perez ND. 1998. Output
Response to Prices and Public Investment in
Agriculture: Indonesian Food Crops. Journal of
Development Economics, Elsevier Holland. 55.
Sadoulet E, De Janvry A. 1995. Quantitative Development
Policy Analysis. London (UK): The John Hopkins
University Press.
Sawit HM. 2003. Pengadaan Gabah Bulog dan Lumbung
Pangan Masyarakat Desa (LPMD). Majalah Pangan.
12 (40): 34-40.
Simatupang P. 2000. Kelayakan Pertanian Sebagai
Sektor Andalan Pembangunan Ekonomi Nasional.
Bogor (ID): Badan Penelitian dan Pengembangan.
Departemen Pertanian.
Sitepu RK. 2002. Dampak Kebijakan Ekonomi dan
Liberalisasi Perdagangan terhadap Penawaran dan
Permintaan Beras di Indonesia [Tesis]. Bogor (ID):
Institut Pertanian Bogor.
Timmer PC. 2004. “The Road to Pro-Poor Growth:
Indonesia in Regional Perspective,” Bulletin of
Indonesian Economic Studies, vol. 40, no. 2 (August,
2004), pp. 173-203.
Timmer C. 1997. How Well do the Poor Connect to the
Growth Process. CAER Discussion Paper. No. 178.
Harvard Institute for International Development,
Cambridge.
Warr PG. 2005. Food Policy and Poverty in Indonesia: A
General Equilibrium Analysis. Australian Journal of
Agricultural and Resource Economics. 49: 429-451.
Yudhoyono SB. 2004. Pembangunan Pertanian dan
Pedesaan sebagai Upaya Mengatasi Kemiskinan dan
Pengangguran: Analisis Ekonomi Politik Kebijakan
Fiskal [disertasi]. Bogor (ID): Institut Pertanian
Bogor.
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
208