Rice prices and poverty in Indonesia

One of the reasons often given for government policies that promote higher rice prices is the desire to protect farmers and to reduce poverty, particularly in rural areas. The underlying assumption is that farmers benefit from higher rice prices and that helping farmers will reduce poverty since the majority of the rural poor are connected in some way with agriculture. This paper examines the evidence underlying this assumption. I show that only around a quarter of all households plant rice. A large majority of the population, including in rural areas, consume more rice than they produce and most are therefore harmed by higher rice prices. Those that gain from higher prices tend to be farmers with access to slightly larger plots of land. Thus an increase in the rice price constitutes a transfer from the large majority of consumers to a minority of producers at all income levels.