How Food Policy Affects the Poor: A General Equilibrium Analysis for Indonesia

The distributional effects of food pricing policy are controversial everywhere, particularly in developing countries. Indonesia is a good example, where rice is a net import and accounts simultaneously for a large share of consumers' budgets and a large share of total employment. For the poor, both the share of rice in total consumption and the dependence on rice production as a source of employment are both much greater than they are for the general population. Imports of rice have been subject to both tariff and quantitative restrictions, but way this protection affects the poor has been hotly debated. Advocates of increased rice tariffs have emphasized reduction of poverty among farmers - net producers of rice - while opponents have stressed increases in poverty among net consumers. An adequate analysis of the distributional effects of a tariff on rice imports needs to take account of its effects on different households' expenditures, disaggregated by household group, but also its effects on their incomes through its effects on the labour market as well as the returns to land. A general equilibrium framework is therefore essential and it must include a disaggregated household sector. This paper applies the Wayang general equilibrium model of the Indonesian economy to these issues. It concludes that protection of the rice sector increases poverty, but to a much smaller extent than opponents of the tariff have claimed. Moreover, these results are robust to variations in the key parametric assumptions of the anal