GOVERNMENT INTERVENTION ON RICE PRICE CEILING ANALYSIS

IN INDONESIA

MID EXAM TEST

BUSINESS ECONOMICS

By:
Tjoa Josua Evan Wahyudi
29120635
EMBA 64

Master of Business Administration

School of Business and Management
Institut Teknologi Bandung
 Rice Price Ceiling Analysis in Indonesia

Most of Indonesian people consume rice in their own land. Rice is a major main food of the
Indonesian people. On average 60% of the people in Indonesia still consume rice as their main
food. According to the Badan Pusat Statistik (BPS), the total harvest area in 2019 was 10.68
million hectare. If it is compared with the previous year, the total harvest area decreased 6.15% or
700.5 thousand hectares. The total production of rice in 2019 was 31.31 million tons, unfortunately
it decreased around 7.75% or equal to 2.63 million tons from the production in 2018. Many factors
cause the decrease of the production, first it is because of the bad weather, the second one is
because of the rice price ceiling that the government made to control the highest price of rice in
Indonesia. To keep the rice price stable in Indonesia, the Government has set a Rice Price Ceiling
(RPC) policy based on rice form and distribution areas. This policy was issued through the Minister
of Trade Regulation No. 57/2017 that has been in effect since 1 September 2017. It aims to keep
the rice price affordable and support the local farmer to get their own right. Government divide
RPC into seven categories:
1. RPC for Java, Lampung, and South Sumatera area are set at Rp 9.450 per kg for medium
quality and Rp 12.800 per kg for premium quality.
2. RPC for Sumatera except Lampung and South Sumatera area are set at Rp 9.950 per kg for
medium quality and Rp 12.800 per kg for premium quality.
3. RPC for Bali and West Nusa Tenggara area are set at Rp 9.450 per kg for medium and
Rp12.800 per kg for premium quality.
4. RPC for East Nusa Tenggara area is set at Rp 9.950 per kg for medium quality and
Rp13.300 per kg for premium quality
5. RPC for Sulawesi area is set at Rp 9.450 per kg for medium quality and Rp 12.800 per kg
for premium quality
6. RPC for Kalimantan is set at Rp 9.950 per kg for medium quality and Rp 13.300 per kg for
premium quality
7. RPC for Moluccas and Papua are set at Rp 10.250 per kg for medium quality and Rp 13.600
per kg for premium quality.
Having a good intention is not enough. Government must prepare the policy to ensure everything
keeps on the track. Many cities in Indonesia got implication from RPC policy. For instance, many
rice mills were closed after the policy. In the market the price of rice increased above the RPC, it
is around Rp12.800 for medium quality and Rp13.600 for premium. According to the Persatuan
Penggilingan Padi dan Pengusaha Beras Indonesia (Perpadi) around 70% (especially small scale)
rice mill industries in Indonesia shut down their production. In dry season it makes the price of the
rice grain increase, because many farmers face crop failures, making a shortage of the availability
of rice grain. The rise of the price of rice grain making an industry cannot make profit because of
the RPC policy. The RPC does not change, but the price of the rice grain is getting higher. In some
cities, many farmers change to cultivate other products, such as onion. Indonesian Bureau of
Logistics (Bulog) records that the stock in July 2017 was 1.55 million tons, but in December 2017
decrease to 950.000 tons. Many farmers also moves their production into premium quality, it
creates shortage in the medium quality, that 60-70% people in Indonesia consume medium quality
rice. In 2017 after the issue of the RPC, the three largest rice production provinces in Indonesia
experienced a decrease in production. Production in East Java decrease 3.73%, West Java decrease
0.18% and Central Java decrease 0.46%. In the same year, consumption in East Java increase from
4,027,910 in 2015 become 4,272,900 in 2017.

Price control is a form on government intervention to control market price. It aims to protect
customer or producer. In this case, price ceiling is aim to protect the customer, especially for the
poor people can access the rice in a stable price. Government making RPC policy to protect the
customer from the high rise of the price in dry season. To make an effective price ceiling,
government set a price below the market equilibrium price.

Picture 1.1 Graph of Price Ceiling

According to the data above, the government set a price of Rp 9,450 in Java, but the market price
is Rp 12,800 for medium quality. The result is many small scale producers (around 70%) shut
down their production.

Rice Price Ceiling having a good aims to control the market and give benefit to the society, but
Government can make an adjustment of RPC based on the situation (dry season, shortage of the
grain, crop failure) and calculate the grain price with the margin for the producers. Government
can also put enough stock to fill the lack of the produce, this plan is to fulfill the needs of
Indonesian people.
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 Appendix

Appendix 1 Table of Rice Production

Province Production (ton)
2018 2019 2020
West Java 9 647 358,75 9 084 957,22 9 016 772,58
Central Java 10 499 588,23 9 655 653,98 9 489 164,62
East Java 10 203 213,17 9 580 933,88 9 944 538,26
Source: BPS

Appendix 2 Graph of Three Largest Rice Production Provinces

Source: CNBC Indonesia