Volatility of world rice prices, import tariffs and poverty in Indonesia: a CGE-microsimulation analysis

This study aims at measuring the impact of world price volatility and import tariffs on rice on poverty in Indonesia. Applying a Computable General Equilibrium-Microsimulation approach and the endogenous poverty line, this study found that the volatility of world rice prices during 2007 to 2010 had a large effect on the poverty incidence in Indonesia. The simulation result showed that a 60 per cent increase in world rice price raises the head count index by 0.81 per cent which is equivalent to an increase in the number of poor by 1,687,270. However, both the 40 per cent decrease in the effective import tariffs on rice enacted by regulation No.93/PMK.011/2007 and the zero import tariffs implemented by regulation No. 241/PMK.011/2010 in response to high world rice prices could not perfectly absorb the negative impact of increasing world rice prices on poverty. The 40 per cent decrease in the effective import tariffs on rice reduced the head count index by 0.08 per cent equal to 161,546 people while the zero import tariffs on rice reduced the head count index by 0.19 per cent equal to 390,160 people. These policies might not be enough to absorb the negative impact of an increase in world rice prices from 2007-2010, because, during this period, the world rice prices increased on average by almost 71 per cent, which have impoverished approximately two million people. Moreover, protection in the agricultural sector, such as raising import tariffs, intended to help agricultural producers will have the reverse effect of raising the head count index.