Wednesday, April 02, 2008

Which Rice Price is Which

I am confused.

Some months ago, when the domestic rice price was high --due to shortage--, and the international price low, we didn't want to import because, some said, it would hurt the rice farmers, eventhough when majority net consumers would love to have lower imported rice price.

Now, when the domestic price is low --due to harvest season--, and the international price high, we don't want to export because, some says, it would be good to have large domestic reserve to protect the rice consumers, eventhough at the cost of, well, the rice farmers who may gain for that high international price.

So which one is which --defending the rice farmers or consumers? I am scratching my head.

Meanwhile, if BPS said that in January 2008, in 11 regions the farmer's term of trade increases while the other 11 otherwise, but nationally it goes up by 0.04 percent, can we say that the farmer's purchasing power decline, as that headline's subtitle suggest? Note, too, it was on January when the harvest didn't come yet.

On why the rice price persists high despite harvest time, it's the demand-supply mechanism. The article itself says that the demand increases significantly in Batam, Bangka, Pontianak, and Pekanbaru. Can you guess why? Yes, because international price and demand is high, exporting rice is profitable, and in those area, it is likely easier to sell the rice out. The law of one price, the economist friend would tell you.

If you really want to help rice farmers, what you should do is not to pile up national reserves, but get them more access to international market to outdo the middlemen that you keep blaming on the disparity between consumer and producer rice price. Or in other words, make the rice middlemen services market competitive and let the rice farmers enjoy the high international rice --if you really want to defend them, of course.

Make up your mind, sire


  1. If none of countries want to sell their surplus in international market, what should we do to help farmers and consumers?
    Are you economists have any ideas?

  2. Eat something else, I guess.

  3. Just curious about one thing: Price of rice is high not because of shortage. It may be because supply of rice decreases.

  4. ... or demand for rice increases, or both. But it's not because there is shortage of rice, I think.

  5. Joko, you can't eat the cake and have it, too. You could help either the farmers or the consumers.

    In that case, if you are for the farmers, sell them out at price just slightly lower than countries' that aren't willing to export their surplus. Let the consumers pay international price.

    If you are for the latter, you stock up your own surplus too --but don't say you do t for rice farmers, because you force the price below international market.

    Anonymous if the supply doesn't meet the demand (for the reason what you said), it's a shortage, no?

  6. Again, price is high because supply curve shifts to the left (supply decreases) or demand curve shifts to the right (demand increases), or both.

    Shortage happens because the ongoing price is lower than market price.

  7. Anonymous, oh I know what you mean. It's "kelangkaan" in Bahasa Indonesia --due to price ceiling policy or import ban.

    When I say shortage, it refers to situation of what you said --supply shift down, or demand shift up, or both --so that the existing supply can not meet demand, unless the (new) equilibrium price rises. Hope it clarifies.

  8. The price ceiling is not binding. As you wrote in the first sentence, domestic rice price is higher than international price.

    Again, shortage is the case when quantity demanded is larger than quantity supplied. And that can only happen when the going price is lower than market price.

    If the demand- or supply curves shifts, there will no shortage. The market just moves to the new equilibrium, i.e., the intersection of new demand- and new supply curves.