enhancement, food diversification, price policies, import policies, and rice distribution for the poor www.bulog.co.id.
Bulog transformed to be a state enterprise with public company status. Bulog has mandates to maintain price stabilization in the rice market through
www.bulog.co.id: 1
Domestic Procurement.
Bulog has right to procure the excess supply of rice in the harvest time from domestic market with determined Government Purchasing Prices Harga
Pembelian PemerintahHPP and determined characteristics. The previous policy of floor price as the guarantee price for producer in the New Order is
replaced by the Government Purchasing Price as a reference price for producer price. Bulog is given budget to procure about 7-8 of the total
production Natawidjaja 2011. Bulog purchases the excess supply by create a new demand in the market. Bulog only purchases the products which meet
the requirement of HPP, so Bulog does not absorb the whole excess supply and does not guarantee the rice price for producers.
2
Manage Government Rice Reserve Stock.
Bulog manage Government Rice Reserve as an anticipation way for food shortage problems, emergency in the case of disaster or food insecurity, and
as a tool for rice price stabilization. Bulog gets the stock from domestic procurement and release it by the Market Operation and the Rice for the
Poor Program. Every year Bulog has to provide stocks depends on the previous stock and the forecasting supply and demand. Ideally, Bulog has to
have 0,75-1,25 MT in stock each year. These policies succeed to maintain stable rice supply in the domestic rice market when the world rice crisis
occurred in 20072008. 3
Rice Distribution through Market Operation Operasi PasarOP and Rice for the Poor
RASKIN.
Bulog distributes its rice stocks to cover the shortage of rice supply and dampen the high price of rice in the market. Market Operation will be held
if rice price rises in one week about 10 or more of the normal price compared to the normal price in three months before Regulation of the
Minister of Trade no.04M-DAGPER12012. The rice price is determined on the open market depends on supply and demand, but the Government
through Bulog intervenes by inject rice supply into the rice market with Market Operation Alexander Wyeth 1995. In addition, Bulog has
mandate to distribute rice for the poor Raskin with lower price directly to the targeted household. Bulog distributed 15 kg of ricemonth for each poor
family by IDR 1.600kg. 4
Rice Import Policies.
Beside maintain domestic supply, Government also regulate the rice import mechanism. The rice import regulation is ruled by Decree of the Minister of
Industry and Trade No. 9 Year 2004. This regulates that the rice import is banned in one month before main harvest, at main harvest, and two months
after main harvest. The harvest time is determined by the Minister of Agriculture each year due to uncertain harvest time related to climate
anomalies. The right to import rice is given to Bulog with tariff import at IDR 550kg and import quota at 1,5 MT.
2.3 Indonesian Rice Market Chain
The rice market chain is the flow of rice from farmer in the production point to consumer in the retail market. Natawidjaja 2011 described the rice market
chain in Indonesia consists of several marketing channels and marketing agencies. Most of the farmers sell their product to local collector, but some of them sell
directly to large rice miller and small rice miller. The local collector is the middleman between farmer and large rice miller. In this part, farmers have weak
bargaining power over buyers in the harvest time, because supply is redundant whilst the number of traders are less than farmers. Often price is determined by
the trader. Further, the paddy harvests are processed to be rice by rice milling unit. The
rice millers distribute rice dominantly to the traditional central markets in the big cities or the capital of provinces. The rice supply to traditional central market is
about 55 of rice miller ’s product. The rest is distributed to Supermarket by 1γ,
Bulog by 7 and rice wholesaler trader by 25. These marketing agencies take
role as wholesaler in the rice market chain. They buy rice in the big amount and do not sell their product directly to the consumer, except supermarket which
produce home brand product. The traditional central markets in provinces sell their product to the traditional retail market then to the consumer. Whereas the
rice wholesale trader sell their product to the rice agent at consumer area or directly to the retailer kiosk. Further the retailer kiosks sell their product directly
to the consumer Natawidjaja 2011. Bulog which has stocks from the excess supply will store the stocks until
necessary time. Bulog will release the stock through market operation both in the wholesale market and in the retail market when rice supply is shortage for
consumers. The injection of Bulog is aimed to balance the market demand and to dampen the high price for consumers.
Figure 5 Rice market chain in Indonesia
Source: Natawidjaya 2011
25 55
13 7
Farmer Consumer
Traditional The retail
market Traditional
Central Market
Large Rice Miller
Local Collector
Supermarket Bulog
Rice Wholesaler Trader
Small Rice Miller
Rice Agent at Consumer Area
Retailer Kiosk
2.4 Previous Studies on Rice Price Transmission in Indonesia
There are several studies about rice price transmission in the Indonesian market. These studies can illustrate how price transmissions had worked in the
rice market of Indonesia, with variety of cases and conditions. The rice price performs in vertical and spatial markets from domestic market, national market
and international market. The price transmission performances of Indonesian market also will be different depends on the time period of regime related to
different policies. In the international market case, Aryani 2009 found that the Indonesian
rice market is integrated with Thailand and the Philippine with very weak level of cointegration. This condition might be caused by the persistence of import control
policies both tariff and non tariff which are applied by these countries for rice trade. In the other study, the Indonesian central market Jakarta is cointegrated
with international market Bangkok and domestic markets in Indonesia Irawan 2006. The domestic markets are counted from the average rice price of 33
provinces in Indonesia. The study shows that if the international rice price increases by 1, it will increase the domestic rice price by 0,4. Whereas if the
central market price in Jakarta increases by 1, the domestic rice price will increase by 0,66. The contrast result from Conforti 2004, he used annual price
series and found that Indonesian rice market and international rice market are not cointegrated. But with the causality test, his study found that Bulog which holding
monopoly power and managing domestic policies, following the world market price trends.
In the national market case for spatial market integration, the price transmissions among retail markets are not fully cointegrated. There are only 10
cointegrating vector from 12 retail markets in Indonesia, with Jakarta as a referred market. The wholesale markets are also not fully cointegrated. There are
cointegrating vectors among Jakarta, Medan, and Makasar, but no cointegration between Makassar and Surabaya Sari 2010.
The previous study from Istiqomah 2006 supports this results that the domestic markets in Indonesia are not fully integrated. In her study, she did ex-
post study of liberalization policy implementation in Indonesia in 1998. The result
