Market integration and rice price transmission in Indonesia

Indonesian Center for Agricultural Socio-Economic and Policy Studies, Ministry of Agriculture, Bogor, Indonesia

^* Corresponding author: lidya.rahma1989@gmail.org

Abstract

Rice is a strategic commodity in Indonesia. Prices at the producer level fluctuate relatively due to shifts in supply and demand. These fluctuations make government intervention in stabilising rice prices important, mainly if market integration exists. This study aims to analyse market integration and rice price transmission. The Vector Error Correction Model (VECM) and descriptive analysis methods were used. The results show rice market integration in both the long and short term. Long-term integration occurs in the relationship between prices at the producer and consumer levels. Long-term integration also occurs in the connection between wholesale and retail costs. The VECM model shows that short-term price transmission occurs when consumer and producer prices in this month are significantly impacted by changes in producer prices from the previous month. However, changes at the consumer level do not affect prices at the producer level. Thus, price stabilisation efforts must be made at the producer level. This is especially necessary when grain supply disruptions cause price fluctuations due to weather factors and plant pest attacks in certain months, which cause grain prices to spike.