Disaggregated Welfare Effects of Agricultural Price Policies in Urban Indonesia

The government of Indonesia, like many governments in developing countries, has intervened in food markets to control an stabilize food prices. And recently, the government has had to reduce input and food subsidies due to an increasing fiscal deficit. The resulting food price increases have had effects on consumers that differ among income groups. This paper develops a theoretically consistence methodology to measure changes in different income groups' welfare cause by the adoption of alternative food pricing policies. Households were classified according to expenditure behavior. We obtained estimates of demand parameters for each income class using Indonesian household level expenditure survey data, and evaluated welfare changes from the estimated parameters. The different income groups consumed different types of foods and had different demand response to prices and income. The results show the impotence of considering distributional effects of policy changes and of developing appropriate targeting of food policies.