Impacts of Rice Prices on Farm Revenue: Evidence from Indonesia

Abstract

Rice has a strategic role in the food structure and socioeconomic system of Indonesia. Fluctuations in prices directly impact the welfare of farmers and communities. Instability impacts the achievement of Indonesia’s food security objectives, particularly those related to stability. Using an econometric model, this study analyzes the impact of increasing rice prices on farm revenues from Indonesian rice paddies. Monthly data on rice prices and farm revenue from 2013 to 2016 are taken from the website of the Indonesian Central Bureau of Statistics. Error correction models (ECMs) are used to analyze the impact of rice prices on farm revenue in the short and long runs. Vector ECMs are used to provide an in-depth analysis of ECM and to predict how pricing lags impact farm revenue. This research found that rice prices have significant short- and long-run impacts on farm revenue.