Evaluation of the Impact of Trade Liberalization on Food Crop Production and Farm Income in Lowland Java, Indonesia

Since the mid-1980s, the Indonesian economy has been progressively liberalized, following a self-adjustment process after the drop in oil prices. Despite these adverse circumstances the country managed to maintain rapid economic growth, as it had since the end of the 1960s. The agricultural sector has contributed to the dynamism of the economy. Both BULOG (the national foodcrop agency) and the Ministry of Agriculture have played a major role in that success, providing a stable environment for producers and consumers through use of various policy instruments, promoting adoption of new varieties and techniques for growing crops, and providing subsidized inputs. By maintaining rice price stability on domestic markets, BULOG, since 1967, has diminished some of the risk associated with agricultural activities and contributed to social stability by isolating consumers from sharp fluctuations in staple food prices. The importance of market regulation for the welfare of the poor is well known (Newberry, 1989; Timmer, 1992). With the intensification of international negotiations on trade liberalization, further deregulation of the agricultural sector is probable and there is an urgent need to assess the consequences both for national production and for farm income. These issues will be discussed using a micro-macro approach. The methodology is described first, the Indonesian context is then reviewed and the results of various simulations are described and analysed.