significantly. Rice miller price will be influenced by producer price with lower price volatility than producer price, but then rice miller price is not transmitted to
wholesaler price. Wholesaler blocks the seasonal price effects transmitted to retailer price or consumers. They have ability to storing rice for the stocks then
manage the supply to provide stable supply for the retail market. The high price volatility of producer price inhibits the price transmission along the rice market
chain. Therefore, the policy implication based on this factor is that the government should manage the price stabilization for producer price through
overcome the unstable supply along the year. This policy can be implemented through managing the cropping pattern in the rice production areas.
In addition, as the typical smallholder farmers in the developing countries, farmers do not have strong power to store the rice production in harvest time.
They always sell their rice production immediately in harvest time due to immediate cash needs. They cannot control rice production supply into market as
well as to control the rice price. Strengthening farmers’ institution is also needed
to do. Reinforces “Lumbung padi” for the farmers may can be solution to control
the rice supply from production. This is the traditional warehouse which is used by Indonesian ancient farmers in the past to storing the yield in the harvest time
for consumption in the dry season. When farmers can control the rice production and can provide stable rice supply into market, government does not need to do
price stabilization policy in the consumer market. How they interact in the trade also influence the price transmission. Direct
or indirect interaction among market institutions related to the product flows effects on price determination and the transaction costs. The market institutions
which interact directly have strong linkages in product flows. The strong linkage in product flows influence the price determination in each market related to
supply and demand which determine the equilibrium price in the market, with no trade barrier assumption. Direct or indirect interaction also influence the
transaction costs. The marketing institutions which do not interact directly will need more transaction costs for transportation cost, processing cost, storage cost,
and marketing profit because the rice products have to pass the other marketing institutions. The big transaction costs inhibit the price transmission in the rice
market chain. In addition there are no communication infrastructures to get informations about price nor demand in Indonesian rice market chain.
Transparancy of market informations significantly influence the price transmission performance. The imperfect market information mystify the market
signal among market institutions in the rice market chain. Therefore, government should provide good infrastructures for transportation, rice processing,
warehousing, and communication infrastructure in Indonesian rice market chain system.
In addition, Market Operation by Bulog strongly influences the price determination when rice prices increase. The Bulog rice injection supplies into
rice market significantly maintain stable supply in the rice market. Therefore, when rice supply is maintained to be stable in the market and rice demand is
constant, the equilibrium price in the retail market is relatively stable. Consumers relatively face stable price along the year, meanwhile in the other stages the other
farmers get high price volatility. Price stabilization policy by Bulog benefits consumer with stable prices
along the year. But the negative side of this policy is when rice price increases in the retail market then consumers pay more for rice, but there are no transfer of
benefits from consumers to the backward linkages which are not cointegrated such as rice millers and producers. The price stabilization policy is deemed to be
too pro-consumer and neglects farmer interests. Ideally the price stabilization policy should give benefit fo all institutions in the market chain. Therefore there
should be improvement strategy of rice price policy. Government should encourage the market competitiveness along the rice market chain. Let the price
follow the market mechanism to determine price equilibrium. The competitive market is more efficient than the controlled market. If the supply from production
point can be managed well and the rice market works competitively, the rice price stabilization policy in the retail market may be omitted. The rice price
stabilization policy paid high budget and it does not solve the problem for the long-run. Furthermore, government can save the budget efficiently.
VI CONCLUSSION AND RECOMENDATIONS
6.1 Conclussion
1. The magnitudes of price volatility in the rice market chain decrease from
upstream to downstream. Producers in the upstream face the highest price volatility at 24,9, then rice millers and wholesalers face lower price
volatility than producer price but still high at 18,3 and 18,1, respectively. Whereas retailers face stable price at 8,7. This study also
confirms that rice price volatilities before and during crisis are not differently significant.
2. The rice price is not transmitted completely along the supply chain from
producer to consumer, vice versa. So, the Indonesian rice market chain is not integrated vertically. We found there are only two cointegration
relationships between producer price-rice miller price and wholesaler price-retailer price. Meanwhile, there are no cointegration between
producer price-wholesaler price, producer price-retailer price, rice miller price-wholesaler price, and rice miller price-retailer price. The factors
which may influence these relationships are seasonal price effects, market power to manage supply, trade barriers, direct or indirect interaction
related to product flows effects on price determination, transaction costs, transparancy of market information, and price stabilization policy.
3. The policy implication which can be recommended from this study are:
manage the unstable supply from production point through managing the cropping pattern in the production areas and strengthening the farmer
s’ institution by reinforces
“Lumbung Padi” to the farmers, provide and manage good infrastructures for transportation, rice processing,
warehousing, and communication infrastructure in Indonesian rice market chain system, encourage the market competitiveness along the rice market
chain, and if everything is going well the rice price stabilization policy in the downstream market may be omitted.
6.2 Recomendations
There are some drawbacks of this study. The seasonal pattern data in the models need manipulated treatment series data statistically to produce the better
model estimations without autocorrelation. This study only uses a linear price transmission analysis. Further studies uses non linear price transmission analysis
are needed and challenging, such as studies about the asymmetry price transmission in the rice market chain, the performance of price transmission in
different regime, the effect of Government Purchasing Price to the price transmission performance, the spatial price transmission analysis, larger scope
study using agregate data, and further study using more advance price transmission analysis. There are many questions of Indonesian rice market which
need further price transmission studies to give more complete information and knowledge about Indonesian rice market.
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