"Understanding Indonesia’s High Rice Prices: Structural Costs, Protection, and the Political Economy of Persistence" Working Paper by LPEM FEB UI

 

Author: Mohamad Ikhsan

 

Executive Summary

Rice remains the most politically and economically significant staple in Indonesia, yet domestic rice prices have persistently exceeded international and regional benchmarks. This paper examines the structural and institutional causes of Indonesia’s high rice prices by combining recent empirical evidence (Ikhsan, 2025) with earlier conceptual insights (Briones, 2012; Timmer, 1996). The analysis highlights three interrelated drivers: (i) production costs that are substantially higher than those of regional competitors due to labor intensity, land rent burdens, and fragmented holdings; (ii) post-harvest and marketing inefficiencies that add hidden costs despite relatively modest trader margins; and (iii) trade and price stabilization policies that prioritize self-sufficiency and producer protection at the expense of consumer welfare. The political economy of rice further explains why reform has been difficult: high rice prices serve as a political signal of state support for farmers, even though most of the poor are net rice consumers. The paper argues for a comprehensive reform agenda—what Ikhsan (2025) terms a “Green Revolution 2.0”—centered on technological innovation, mechanization, land reform, and post-harvest modernization, complemented by targeted social protection and calibrated trade liberalization. Without such reforms, Indonesia risks remaining locked in a high-price, low-productivity trap that undermines poverty reduction and structural transformation.

 

"Understanding Indonesia’s High Rice Prices: Structural Costs, Protection, and the Political Economy of Persistence" Working Paper by LPEM FEB UI 
 

 

 

 

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