PROS Evi Nurifah Julitasari Prospects and Challenges fulltext

3rd Economics & Business Research Festival
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PROSPECTS AND CHALLENGES OF INDONESIA'S RICE TRADE
TOWARD INTEGRATED MARKET IN ASEAN COMMUNITY 2015
Evi Nurifah Julitasari
Widyagama University, Malang East Java
nurifah_u wg @ y ahoo. co. id

ABSTRACT
ASEAN takes serious effort to address the challenge of Food Security, within the region of Southeast
Asia. Especially for rice trade, a number of ASEAN as an exporter/ importer country would integrated
market. The aims of study are (1) how the profile of an exporter/importer rice country i.e. domestic
production, consumption, price producer, export/import price and trade restriction (2) effect of
export/import trade restriction to influence the Indonesian rice performance (3) Indonesia's rice
performance in the open market. Models construct by econometric simulation analysis from the time
series data 1984-2007. The results shows: (1) Asia is a center of production 92.25 percent; South Asia
(32.59 persen), East Asia (31,87 persen) and Southeast Asia (27,79 persen) and the export/import
dominate in Asia (2) the effect of export restriction will increase an export price in all export rice
country and extend the word rice supply more than 10 percent, but no- export restrictions not increase
total world supply. The effect of import restriction will be increase an import price in all importer
country, but the absence of import restriction response negative in Philippine (-0.24 percent) (3) the

effect of import trade restriction to Indonesian rice performance are decrease at domestic production
(-0.02 percent), paddy productivity (-0.03%) and demand fertilizer (-0.02 percent). Indonesia was the
third producer but the larger importer, the rate of domestic production is lower (1.82 percent/year)
compare to ASEAN country (2.80 percent/year).
We suggest that rice commodity still intervention through input price instrument, output price
instrument, stock instrument.
Key words : restriction, rice traded, global market

I. INTRODUCTION
Asia is largest paddy producing with a contribution 92.25 percent, Amerika 3.6 percent dan
Afrika 2,1 percent. Asia share in South Asia 32.59 percent, i.e. India 23.24 percent Bangladesh 6,92
percent, Pakistan 1,34 percent, Nepal 0,59 percent and Srilangka 0,50 percent. East Asia 31.87 percent
i.e China 30.12 percent and Jepang 1.75 percent from total production. Southeast Asia contribute 27.79
percent, i.e Indonesia 9.19 percent, Vietnam 5.78 percent,Thailand 5.16 percent, Myanmar 5.05 percent,
Philipines 2. 61 percent of the total world production (FAO, 1984-2008).
Rice traded in the world market is relatively little only about 4 to 7% of total world production.
Therefore, the world rice market is often called thin markets and the residual market because it is more
oriented to sufficiency the domestic demand. Thin markets are particularly vulnerable to price increases,
proved in 2008, an increase in world rice prices by 300% from the

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previous average of 325 U.S. $ / ton to 1.080 U.S. $ / ton (the Business Monitor Online, 21/01/2009).
Indonesia's rice production increased only 1.97% / year on the other hand an increase in demand
for Indonesian imports, which averaged 1,095,799 tons / year-. Share volume of imports of Indonesia
compared to ASEAN countries, is the most substantial, reaching 32%, Malaysia (30%), Vietnam (24%)
and the Philippines (14%) of the total world import demand, as presented in Figure 1.

m\ Philipina Ton
i Indonesia Ten
Malaysia Top
Vietnam Ton
Figure 1. Share Volume Imports Indonesia compared to ASEAN

countries (FAO, 1984-2007; processed)
The high volume of Indonesia's imports are expected to rise again with agreement on tariff
reductions on a free trade agreement. In agreement AFTA (Asean Free Trade Area) has been committed
to eliminating barriers rice tariffs to 0-5% by 2015 and the Asean agreements with China (ACFTA), the
rice will be fully liberalized in 2018.
The concept of open market (open market) allows any other economic players to enter the market
without reshiction (restriction) trade. Trade restrictions on rice exporting countries which include export
taxes, export subsidies, minimum export price (minimum export price) and other barriers such as export
promotion, credit and subsidies made storage Thailand (Table 1). Trade restrictions on countries that
import tariffs can be either specific or ad valorem rate tariff, TRQ (tariff quota) and other non-tariff
barriers.
Ranjitsinh (2007), states the tariff reduction causes trading volume of rice in the global market
increases. Anderson, Huang and lanchovinchina (2004), said that due to the opening of trade barriers in
China cause the domestic price of rice fell (0.9%) compared to pre-join WTO impact on the production,
farmers' income and the negative effect on food security. Mulyana Research (1998), Haryati (2003) and
Sudjilah (2009), has been identified that variable trade restrictions as a factor affecting the volume of
exports and imports, but have not seen the impact of trade restrictions on the export and import volume
of export or import price changes.
Commodities including rice products arc very sensitive (highly sensitive product) in the trade of
agricultural products. It is proven that the number of exporters and importers who implement

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interventions, as presented in Table 1 below:
Food security was a long standing agenda for the ASEAN, which is in nature dynamic and
covering cross-sectoral issue, which are evolving through time. Since the establishment of ASEAN in
1967, ASEAN has pledged to eliminate poverty hunger, diseases and illiteracy as its primary concerns
(Darmawiredja, 2012).
Recognising the importance of having a strategic for ASEAN, approach towards long term food
security in the region, we have now in place an ASEAN Integrated Food Security Framework and The
work has begun on carrying out the responsibilities of the Strategic Plan of Action on ASEAN Food
Security.
This program was response to the sharp increase of international food price in 2007/2008. Almost
all food prices increase, so it called "commodity price boom". Rice price increase hit until 300% from
325 US $/MT to 1,080 US $/MT (Business Monitor Online, 21/01/2009). The com prices hit until 280
US $/MT, soybean prices hit almost 600 US$/MT, maize prices hit almost 200 US $/MT and wheat

prices hit almost 500 US $/MT. The increase highest was rice prices, normally price in range 300
US$/MT. The food price indexes was hit until 170-210 in 2007/09, manly the indexes only under 130.
Reed (2012), says that some cause for the price boom i.e (1) Speculation, (2) drought or supply
problems, (3) demand increases in emerging countries, (4) trade restrictions, (5) energy policy in the US
and (6) value of the US dollar". Speculation it means the food price very volatile so for feature traders
buy and hold the commodity on their overall strategy to get hedge funds. Higher trading volumes due
to new traders, so increase demand side. No evidence that more speculators have caused price increases,
but this is a short-term phenomenon
The second is drought in supply problems, how is it. Asia was the biggest rice producer in the
world, contribute about 92,25 percent from total world supply. The biggest producer was China 30.12
percent and Japan (1.75 percent), India (23.24 percent), Bangladesh (6.92 percent), Pakistan (1.34
percent), Nepal (0.59 percent) and Srilangka (0.50 percent). The ASEAN country such as Indonesia
contrrbute 9.19, percent, Vietnam (5.78 percent), Thailand (2.61 percent), Myanmar (5.16 percent) and
Philipina (5.05 percent) of total production (Julitasari, 2012).
To compare the production of ASEAN country with Asia, World and Indonesia production was
display in figure it. We know that, the trend of ASEAN paddy production was increase. The average
increase of the ASEAN paddy production was 130,46 MT/year with the rate 2,84 percent/year. This is
the largest growth among World (1,62 percent/year), Asia (1,51 percent/year), and Indonesia (1,82
percent/year).
Rice traded in the world market was a few about 4 to 7 percent from total world production.

Therefore, it's called thin market because some producers more oriented to sufficient domestic demand.
This is phenomenon make vulnerable to increases of price. The third largest rice producer was China,
India and Indonesia rice production had average 48,019 million tonnes/year, while China reached
183,756 millions tonnes/year.

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Produksi Padi Dunia. ASIA, ASEAM dan Indonesia 1984-2007
700.000.000
600.000.000
500.000.000

Dunia
ASIA

ASEAM
INDONESIA

400.000.000
300.000.000
200.000.000
100.000.000 -||
0
1

11

13

15

17

19

21

23

25

The ASEAN leaders at the 14th ASEAN Summit, reaffirmed their commitment and pledged
Food Security as a Top Priority Policy Agenda as a Permanent and Long-Term Policy of the region.
The Leaders adopted the ASEAN Integrated Food Security (AIFS) Framework and Strategic Plan of
Actions on Food Security (SPA-FS) as guidance and measures of the region's work on food security.
Thailand was the largest rice exporter, contribute 31.04 percent, India (13 percent), Vietnam
(15.32 percent), Pakistan (9.53 percent) and United States (9.52 percent) from total rice world. The
export volume of Thailand was 5.245 million tonnes/year (FAO, 1984-2008). The volume import or
demand side we know that Africa was the best rice importer (31.71 percent), Asia (24.38 percent),
Eropa (22,52 percent) and America (21,40 percent).
The big importer country was Fan with the import volume 80.52 percent of total demand Asia,
Indonesia (29.83 percent), Philipina (26.86 percent), China (22.23 percent) and Malaysia (14.60
percent). Altough, Asia was the big producer in the same case Asia was the big consumer. How to
anticipate the increasing demand from ASEAN country? Is the Fade policy restriction come on ASEAN
country? What happe if the trade policy restriction eliminate from the country because the ASEAN Free

Trade Area committed to eliminate tariff until 0 to 5 percent in 2015 and ASEAN-China will full
liberalized in 2018.

II. LITERATURE REVIEW
Trade restrictions are essentially a government intervention at the border price (Tweeten, 1992).
The h ade restrictions implemented in import/export country include tariff/tax subsidy and quota. Export
trade reshictions such as of export taxes, export subsidies, export quotas, minimum export price and
non-tariff barriers such as export promotion, credit and subsidies made storage.
Sawit (2009), the major rice exporting countries still use export subsidies, such as India to
implement rebate (discount price), so it can be sold cheaply on the world market in order to reduce the
burden of stock. Thailand, China, Vietnam and the developed countries of the European Union and the
United States also apply export subsidies.
The ASEAN integration and community-building as mandated by the Charter. Petroleum
feb

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Security Agreement aimed to minimise exposure to help the region in this effort. The ASEAN leaders
has also been signed ASEAN's best strategy is to for an ASEAN Community (2009-2015). The
ASEAN Leaders tasked ASEAN Ministers on Agriculture and Forestry (AMAF) to implement the
SPA-FS.
The issue of food security was establish on 2009 at 14th ASEAN Summit, the Leaders reaffirmed
Food Security as Permanent and Long-Term Policy Agenda and Adopted ASEAN Integrated Food
Security (AIFS) Framework and Strategic Plan of Action on Food Security (SPA-FS).
Before, in ASEAN Summit 1992 the agenda was (1) strengthening food security in the region,
(2) facilitation and promotion of intra and extra ASEAN trade in agriculture and forestry, (3) Generation
and transfer of technology to increase, productivity and develop agribusiness and silvo-business, (4)
Agricultural rural community and human resource development, (5) Private sector involvement and
investment (6) Management and conservation of natural resources for sustainable development, and
Shengthening ASEAN Cooperation and Joint Approaches in addressing international and regional
issues.
III. RESEARCH METHODS
The study use time series data in 1984-2007, collect from www.faostat.fao.org , www.appi.or.id
, www.bps.co.id , www.bulog.go.id and www.database.deptan.go.id. Nominal data deflated by the
consumer price index (CPI) with base year- 2000 = 100, and for export and import price deflated by the

export/import price index.
Model construct by simultaneously equations, analysis with SAS/ ETS (Statistical Anaysis
Simulation/Econometric Time Series). The model include two block i.e supply side and demand side.
The total supply is the sum of export volume of rice exporter i.e. Thailand, India Vietnam Pakistan
United State China and other countries, in equation (1).
TEXDt =
TEXD, = EXTRA, + EXINDI, + EXVIE, + EXPAK, + EXAS, + EXCHI, +EXLN ,
(1)
The total demand s is the sum of import volume of rice importer countries i.e. China, Indonesia,
Philippines, Fan, Malaysia and other countries expressed in equation (2)
TIMD, = XZMit
TIMD, =IMCHI+ IMINA + IMPHI, + IMRAN, + IMMAL, + I MEN ,
(2)
The volume of export/import depend on price export/import we can derivative price of export/import
function through the value equation. Nyhodo, Punt C and N Vink (2009), the domestic value of
production is the sum of export value plus domestic market value, expressed an equation :
PEXi,*EXi, - PPXi,* QSX i,- PDX;,* QDX ,
The domestic price was include the subsidy/tax of export in equation:
PDXi: = NERit*PEXit( 1 -Txit)
So we can derived the export price with the trade restriction in equation:
PEXi,*EXi, - PPXi,* QSX , PDX;,* QDX;,

(3)
(4)
(5)

PEXi,*EXi,=
PPXi,*
QSX;,[NER*(PEXitPEXit*
tax)*
QDX;,
...(6) PEXi,*EXi,= PPXi,* QSXi,-NER*PEXit* QDXi,+
PEXit* tax* QDX;,
(7) Assuming (PEX;, - PEX;, * tax) is the trade
restriction, can be expressed:

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PEXi, - f(EXi,, PPXi,, QSXPWEXit, QDX .)
In the same way, we can derived in import demand function is expressed here :
PIM =f (IM PPIM QIM PWIM QDIMi,)
Where :
TEXDt
EXTHAt
EXINDh
EXVIEt
EXPAKt
EXASt
EXCHL
EXLNt
PDXit
NERit
PEXn
Txn

(8)
(9)

= Total export volume in world market year-t (tons)
= export volume Thailand year-t (tons)
= export volume India year-t (tons)
= export volume Vietnam in year-t (tons)
= export volume Pakistan in year-t (tons)
= export volume United State in year-t (tons)
= export volume China year-t (tons)
= export volume another country year-t (tons)
= price producer in exporter country-i year-t (US$/ton)
= exchange rates in the exporter country i year t (US$)
= export price in exporter country year-1 (US$/ton)
= export tax on exporters of the country year-1 (US$/ton)

IV. RESULTS DISCUSSION AND ANALYSIS
4.1. IDENTILICATION OL TRADE RESTRICTIONS
Rice is very high sensitive product in the trade of agricultural products. It is proven that the
number of exporter/importer intervention. Mulyana (1998), Haryati (2003) and Sudjilah (2009), has
been identified that variable trade restrictions as a factor affecting the export/imports volume. Some of
trade restrictions expressed in the table 1.
Table 1. Identification of Internal and External Policy and Importer of Rice Exporting Countries
World
Countries

Internal Policy

External Policy

India

Pricing policies (price support) **
minimum producer price **

export subsidies**
ad valorem rates**
export tax***

Thailand

Supply and Input Subsidy Policy *
* Production Management Policy
Seed Provision and Credit Offers *
Fertilizer Procurement *
Regions Production Centers *
Program R&D Technology Transfer *
Price Stabilization Policy: Pawn Rice
*>

For milled rice export tax
**
Promotion of Exports **
Storage and Credit
Subsidies
* Import Control

Intervention Market, Stock Rice *
Agricultural Bank credit scheme **
United State

Loans in the form of LDP **

tariff **

China

Subsidies, irrigation and improved

tariff rate quota **

,feb
wW

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seedsminimum support price policy **
procurement price program **

tarif maximum 10%**

Philipines

There in data

tarif 35 %***
quota***

Pakistan

There in data

minimum export price***

Excerpted from :: *Simatupang (2002),**Ratjitsinh (2000), *** http://orvza.com/World-RiceTrade/Rice-Market-Prices/10746.html

Mulyana (1998), analyzing the state government's intervention in the major rice
exporter/importer. Thailand export price always higher than domestic prices because of export taxes.
The goal is to protect domestic consumers but the volume of rice exports are elastic means an increase
in world prices responded with an increase in export volumes.
Sudjilah (2009), China rice export restriction are significant influence the export volume and the
export price was compared to other countries because China impose export tax. Effect of rice export
restrictions in Vietnam was also significant increase in the volume of exports, due to export subsidies.
But in the United States influence of grain export restrictions were not significant, it is often associated
with aid programs by selling cheap rice through the Farm Bill 2002. Hariyati (2003), trade restriction
is significant positive effect on domestic prices but negative effect on import price.
7
Export/Import Price
Export restriction of rice significantly influence the export price (R2 = 0.67 to 0.91) in Thailand,
India, Pakistan, United States and China. The sign was positive except United States because for Food
Aid. The effect of export price to volume export was significantly its means the increase export price
respond with the export volume. Lag endogenouse export price is significant to determine export price
so trend of export prices always grow up. The impact of export restrictions to export price Thailand
(4.31%), India (1.00%), Vietnam (3:26%), Pakistan (3.62%), China and US (-0.77%).
Effect of import restriction is significantly to increase import price for all countries, with the
positive sign but not effect to import volume except China. In China, Philippines and Malaysia, the
increase of import price following decrease of import volume. In Indonesia and b an not effect to volume
import because trend of import volume is very high, variable lag previous year influence this year.
Haryati (2003), Malaysia price import was negative effect on volume import. Malaysia import
prices are affected by world rice prices and import prices in the previous two is positive. Import volumes
are influenced by the price of imports and exchange rate marked negative.

Impact of Export Restriction
Simulation shows export restriction intervention will increase the world supply to 9.92% and
export volume to 10.00% from Thailand, India, Vietnam, Pakistan, U.S. and China. Export restriction
also increase the export price in Thailand (0.03%), India (9.26%), Vietnam (7.70%), Pakistan (3.55%),
feb

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China (10.98%), but the response negative in U.S. (-42.83%). The effect of no intervention is not
increase the total world t supply and the export volume of exporter country. It is proved that the increase
the world supply is due to export restriction.
Impact of Import Restriction
Simulation of import restriction intervention will respond positive increase price import in
China (10.11%), Indonesia (3.84%), Iran (2.60%) Malaysia (0.07%) and negative response in Philiphina
(-0.30). The impact of no-import restriction will affect the production blocks of lower domestic grain
production (-0.02%), decreased productivity (-0.03%) and demand urea fertilizers (-0.02%).
In world market, the absence of import restrictions responded with an increase in the import price
of China (10.12%), Indonesia's import prices (9.10%) and import prices arc Malaysia (3.04%). While
the impact of the absence of import restrictions by the negative response Philippine import prices (0.24.) and import prices Iran (-0.20%).
V. CONCLUSION AND ADVICE
1. Impact of export reshictions will increase in total world supply and export volume in all the major
countries. It is proved that the increase in world supply just influence intervention of exporter
country. The export prices in all the countries will increase except the United States. The opposite,
no-intervention will decrease in world supply and an increase in export prices in some countries
exporters.
2. Impact of Import restrictions intervention in major importing countries have no effect on domestic
block production, but if no-intervention import restrictions applied d country importers will affect
production blocks responded with a decrease of domestic grain production, productivity and the
realization of urea distribution.
3. The impact of an increase in the quantity of imports by major importers State would respond with a
10% increase in total world export supply 10.86% and an increase in the volume of imports of the
larger Indonesia is 21,40%. The impact of an increase in the quantity of imports in country importers
also responded with increased import prices Indonesia (8.00%).
1. Impact of Increased import price response that blocks the production of domestic grain production
decline (-0.02%), decreased productivity (-0.03%) and a decrease in the realization of the
distribution of urea (-0.02%).
ADVICE
Intervention export reshictions would indeed increase the total world export supply, if removed
would cause no increase offer but the effect on the increase in export prices. Intervention export
restrictions by major exporters State is still required to improve the total world export supply, if the nointervention retrksi exports will affect negatively on the performance of Indonesia's rice.
Rising import prices contributed to the decline of domestic grain production, productivity and
the realization of urea distribution. Intervention by the State of import restriction major importers axe
still required because if no-intervention import restriction will affect negatively on the performance of
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rice in Indonesia. Without applying import restrictions will impact on the domestic grain production,
productivity and the realization of urea dishibution.

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