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Poverty, food prices and supply shocks of agricultural products in Indonesia

Listed author(s):
  • Arief Anshory Yusuf

    ()

    (Department of Economics, Padjadjaran University)

Agricultural products constitute a significant component of food consumption in Indonesia particularly among the poor. The prices of these products are relatively volatile and susceptible to occasional disruption in their supply originating from both domestic and overseas. Without good understanding of the effect of agriculture product price volatility on poverty incidence, it will be more difficult for the government to devise appropriate policy measures. Using a general equilibrium model of the Indonesian economy, this paper simulates the effect of the increase in the prices of various important agriculture product caused by supply shocks originating from both domestic and oversea supplies. The result suggests that Indonesian poor, both in urban and rural areas are most vulnerable to the volatility of the price of rice, Indonesians’ main staple food. However, the poverty impact of an increase in the price of other product such as soybean is also non-trivial suggesting the relative importance of these products for the poor. Results also revealed that increases in the price of agriculture food product tend to increase inequality and the increase in poverty incidence is larger in rural areas than in urban areas. The model also accommodates the channel through which increase in the price of agriculture product may affect household income through the factor market. However, the result suggests that those effects are much smaller compared to the effect through increases in the cost of living. Policy implications are discussed.

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File URL: http://ceds.feb.unpad.ac.id/wopeds/201408.pdf
File Function: First version, 2014
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Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 201408.

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Length: 28 pages
Date of creation: Jun 2014
Date of revision: Jun 2014
Handle: RePEc:unp:wpaper:201408
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  1. Aswicahyono, Haryo & Narjok, Dionisius, 2011. "Indonesian Industrialization," WIDER Working Paper Series 053, World Institute for Development Economic Research (UNU-WIDER).
  2. Warr, Peter & Menon, Jayant & Yusuf, Arief Anshory, 2012. "Poverty impacts of natural resource revenues," Journal of Asian Economics, Elsevier, vol. 23(4), pages 442-453.
  3. Arief Anshory Yusuf, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," Working Papers in Economics and Development Studies (WoPEDS) 200604, Department of Economics, Padjadjaran University, revised Nov 2006.
  4. François Bourguignon & Anne-Sophie Robilliard & Sherman Robinson, 2003. "Representative versus real households in the macro-economic modeling of inequality," Working Papers DT/2003/10, DIAL (Développement, Institutions et Mondialisation).
  5. Peter Warr & Arief Anshory Yusuf, 2011. "Reducing Indonesia’s deforestation‐based greenhouse gas emissions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 297-321, 07.
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