After the

Determination of
Rice Ceiling Price in
South Sumatra
Province:
Analysis of
Secondary and
Empirical data
by :
Andy Mulyana, Endang Lastinawati,
Lifianthi, Riswani, Desi Aryani

Sriwijaya University
INTRODUC
• Price is a variable that is a very important factor because it coordinates the decisions
TION
of producers and consumers in behaving under perfectly competitive conditions
• The relationship between producers and consumers is usually bridged by marketing
agents or traders who bring them together in a market system.
• An indicator of a marketing system is efficient or not can be measured by the
marketing margin and the transmission of prices from the consumer market to
farmers or to the producer market.
• Research on price transmission is important because it is useful for policy makers in
measuring the distribution of welfare between producers and consumers as well as
an indicator of price efficiency in a marketing channel.
• As of September 1, 2017, the Government has enacted a new policy on determining
the ceiling price of rice and classified into two qualities of rice, namely premium and
medium.
THE OBJECTIVES OF
RESEARCH

• to study the vertical situation of rice price transmission in South

Sumatra after rice ceiling price was determined in 2017
• To interpret the elasticities and their meaning in term of market
structure and efficiency of rice.

• To calculate revenue, cost and and profits in three rice agroecosystem

of South Sumatra before and after the ceiling price policy
M E T H O D O L O G YData Analysis:
The vertically price transmission of premium
and medium rice between price at the
consumer level to farmers level and vice versa,
was analyzed using the price transmission
elasticity, or can be stated as follows :
 Pr/ Pr or Et   Pr . Pf
Et 
Pf / Pf Pf Pr
The price has a linear relationship where Pf is
a function of Pr with the following
mathematical formula : Pf = a + bPr
Pf  Pr 1
so : b atau 
 Pr Pf b
1 Pf
so that : Et  .
b Pr
Symbol Information : With criteria :

Et = the price transmission If Et = 1, (1) the rate of price change at the farm level is the
same as that of at the consumer level; (2) the
elasticity prevailing market is a perfectly competitive; (3) the
δPf = a change in grain prices marketing system is efficient.

at the farmer level If Et < 1, (1) the rate of price change at the farm level is
smaller than that of at consumer level; (2) the
δPr = a change in rice prices at prevailing market is an imperfect competitive; (3)
the consumer level the marketing system is not efficient yet.
If Et > 1, then (1) the rate of price change at the farm level is
Pf = the price of grain at the greater than that of at the consumer level; (2) the
farmer level prevailing market is an imperfect competitive
market; (3) the marketing system is not efficient.
Pr = the price of rice at the
For empirical analysis, 90 samples from three representatives of
consumer level rice agroecosystem in South Sumatra, namely tidal swamp, lowland
swamp, and irrigated rice areas were interviewed using
b = coefficient regression questionnaires. The primary data was processed and analyzed using
function standard t-test statistics for comparing two period performances
(2017 season and 2018 season)
 14,000
• The retail rice price of premium, medium
12,000 and GKP in South Sumatra Province has
10,000
changed at relatively similar directions
prior to 2019.
Price

8,000
• There is a fairly wider disparity between
6,000
the price of GKP at the farm level and the
4,000
III IV I II III IV I II III
retail price of rice at the consumer level.
2017 2018 2019 • There is a larger margin between the price
Period
received by farmers and the price paid by
GKPPrice PremiumPrice
MediumPrice
MediumHET
PremiumHET consumers
• Rice retail prices that have not declined
Figure 1. Prices movement of farmers’ grain, premium after the determination of the HET of rice
and medium rice in South Sumatra Province in
September 2017-July 2019
Transmission Elasticity of Premium Rice
Prices
• A simple linear regression of
premium rice price at the
consumer level to the price of GKP
at the farm level in South Sumatra
Province yielded the equation:
Pf = -1298.745 + 0,482 Prpremium
• The average GKP price at the farm
level was IDR 4,605.41
• The average price of premium rice
at the consumer level was IDR
12,257.91
• The transmission elasticity of
premium rice prices at the
consumer level to the price of
GKP at the farm level was 0,780
or Et < 1
• It meant that the rate of price
change at the farm level was
smaller than the rate of price
change at the consumer level, or
an asymmetrical price
transmission happened.
Transmission Elasticity in Medium Rice
Prices
• A simple linear regression of the
medium rice price at the
consumer level to the GKP price
at the farm level in South
Sumatra Province yielded the
equation:
Pf = 479,324 + 0,379 Prmedium
• The average price of medium
rice at the consumer level is IDR
10,901.07.
• The elasticity of transmission of
medium rice prices at the
consumer level to the GKP price at
the farm level is 1,11 or Et > 1.
• The value of the transmission
elasticity of more than one
indicates that the market system
was not efficient or did not
compete perfectly.
• The rice market was generally not
symmetrical, where a rise in rice
prices at the consumer level did
not increase rice prices at the farm
level at the same percentage.
Outcomes of Rice Price and Farm
Profitability
 Outcomes of Rice Price and Farm
Profitability
• From the empirical data collected from the three locations of rice farming
system, there were revealed increasing rice prices at farmer level from
2017 to 2018
• In tidal swamp, lowland swamp and irrigation area, the price were
consecutively from Rp4,900, Rp4,600, and Rp4,905, increased become
Rp5,100, Rp4.960, and Rp5.200.
• The profit of rice farm in lowland swamp was decreased although not
significant due to the decrease of the yields from 5.19 ton to 4.48 ton and
slightly increase of its production cost.
• The profits of rice farms in two other agroecosystems were increase at
least until 2018.
Causes of inceasing profits of rice
farm at tidal swamp and irrigated
area
(1) Last floor price policy (2) increasing demand for rice by big
in 2015, which set the rice mills in order to raise the
price of dry husk rice process and supply premium price
at Rp4.600, has which more profitable than the
effectively prevent medium ones; and
the price to decrease, (3) rice outflow from tidal swamp
even maintained it (Banyuasin District) and irrigation
above floor price area (Musi Rawas and OKU Timur)
setting since more as rice surplus producers to
than 5 years ago; neighboring provinces still high that
make local prices increased.
CONCLUSIONS
• The price transmission of rice after the
determination of ceiling price policy in 2017
showing in imperfect and inefficient market
of rice in South Sumatra, especially for
premium rice.

• Further study is needed in order to capture

more mid and long run impacts of
combination policies of ceiling price of and
floor price, especially in the case of premium
rice at consumer level versus uncategorized
rice at producer level.