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Government intervention and market integration in Indonesian rice markets

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  • Mohammad Ismet
  • Andrew P. Barkley
  • Richard V. Llewelyn

Abstract

Long‐run spatial price relationships in Indonesian rice markets and factors affecting the degree of market integration are evaluated using multivariate cointegration tests with weekly price data for the 1982‐1993 period. The analysis includes evaluation of pre‐self‐sufficiency and post‐self‐sufficiency periods as well as Cot the entire period. The cointegration tests for entire Indonesian rice market, represented by the nine most relevant price series, indicate that relative to the pre‐self‐sufficiency period, the post‐self‐sufficiency period has a smaller degree of market integration. The change of the degree of market integration over time indicates that rationalizing of the Indonesian rice price policy beyond 1984 rice self‐sufficiency has resulted in a less integrated market. This suggests that the policy shift has allowed the government to decrease its intervention without significantly decreasing market integration, indicating that the private sector is responding to price signals appropriately. It is possible that further reduction in intervention through widening the band between the floor and ceiling price could be accomplished without greatly affecting market integration. Regression results show that government intervention in terms of rice procurement significantly influenced market integration during the period of post‐self‐sufficiency (1985‐1993) and the entire period of 1982‐1993. This indicates that this aspect of government intervention has had positive influences on market integration, in contrast to distribution efforts, which were not found to be statistically significant, Procurement prices may be high, and could perhaps be lowered, reducing program costs. Regional per capita income is also found to be positively related to highei levels of market integration, suggesting that in periods of economic growth, government intervention may be decreased, thereby reducing program costs.

Suggested Citation

  • Mohammad Ismet & Andrew P. Barkley & Richard V. Llewelyn, 1998. "Government intervention and market integration in Indonesian rice markets," Agricultural Economics, International Association of Agricultural Economists, vol. 19(3), pages 283-295, December.
  • Handle: RePEc:bla:agecon:v:19:y:1998:i:3:p:283-295
    DOI: 10.1111/j.1574-0862.1998.tb00532.x
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    References listed on IDEAS

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    1. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    2. Dickey, David A & Rossana, Robert J, 1994. "Cointegrated Time Series: A Guide to Estimation and Hypothesis Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 325-353, August.
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    4. Petzel, Todd E. & Monke, Eric A., 1980. "The Integration of the International Rice Market," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 17(3), pages 1-20.
    5. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
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    Cited by:

    1. Marks, Daan, 2010. "Unity or diversity? On the integration and efficiency of rice markets in Indonesia, c. 1920-2006," Explorations in Economic History, Elsevier, vol. 47(3), pages 310-324, July.
    2. Brosig, Stephan & Yahshilikov, Yorbol, 2005. "Interregional integration of wheat markets in Kazakhstan [Interregionale Integration von Weizenmärkten in Kasachstan]," IAMO Discussion Papers 88, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    3. Suharno, S., 2018. "Spatial Market Integration and Price Transmission of Meat in Indonesia," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277371, International Association of Agricultural Economists.
    4. Chen, Jing & Rozelle, Scott & Carter, Colin A., 1999. "Grain Price Stability And Farmer Decision Making In China," 1999 Annual meeting, August 8-11, Nashville, TN 21538, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph, 2008. "Grain marketing parastatals in Asia: Why do they have to change now?," IFPRI book chapters, in: Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph (ed.),From parastatals to private trade: Lessons from Asian agriculture, chapter 2, pages 10-47, International Food Policy Research Institute (IFPRI).
    6. Satya Laksana & Arie Damayanti, 2013. "Determinants of the Adoption of System of Rice Intesification in Tasikmalaya District, West Java Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 201306, Department of Economics, Padjadjaran University, revised Mar 2013.
    7. Rashid, Shahidur & Cummings, Ralph Jr. & Gulati, Ashok, 2005. "Grain marketing parastatals in Asia," MTID discussion papers 80, International Food Policy Research Institute (IFPRI).
    8. Varela, Gonzalo & Aldaz-Carroll, Enrique & Iacovone, Leonardo, 2012. "Determinants of market integration and price transmission in Indonesia," Policy Research Working Paper Series 6098, The World Bank.
    9. Mu, Y., 2018. "Pork price transmission and efficiency in China," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277387, International Association of Agricultural Economists.
    10. Koffi-Tessio, Egnonto M. & Sedzro, Kossi & Tossou, Kokou A. & Yovo, Koffi, 2008. "Structure, Coûts Des Transactions Et Integration Spatiale Des Marches Des Produits Alimentaires Au Togo," 2007 Second International Conference, August 20-22, 2007, Accra, Ghana 52187, African Association of Agricultural Economists (AAAE).
    11. Getnet, Kindie, 2008. "From market liberalization to market development: The need for market institutions in Ethiopia," Economic Systems, Elsevier, vol. 32(3), pages 239-252, September.
    12. Tsiboe, Francis & Dixon, Bruce L. & Wailes, Eric J., 2016. "Spatial dynamics and determinants of Liberian rice market integration," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 11(3).
    13. Varela, Gonzalo J., 2012. "Incomplete, slow, and asymmetric price transmission in ten product markets of Bolivia," Policy Research Working Paper Series 6291, The World Bank.

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