A simulation of increasing rice price toward the disparity of income distribution: An evidence from Indonesia

Purpose: Considering the significance of rice as a staple food in Indonesia, this study aims to
analyze the impact of various factors, i.e., domestic price production level, exchange rate, in�ternational rice price, and Gross Domestic Product (GDP) per capita, on domestic rice prices and
the resultant disparity in income distribution and inequality in the country.
Methods: A simulation analysis has been performed to assess the impact of the above-mentioned
factors on rice prices and the resultant income disparity in Indonesia. For that, input data from
2006 to 2020 was used to depict the change in domestic rice prices from 2021 to 2026 due to
independent variables changes.
Findings: Results revealed that a regular increase in rice production decreases rice prices in the
longer term. Besides, a rise in the exchange rate decreases rice prices, and a fall in the exchange
rate results in higher rice prices. Results also showed the insignificant impact of international rice
prices on domestic rice prices in Indonesia. In contrast, an increase in per capita income reflected
an increase in rice prices. Moreover, the result of the study exemplifies that the expenditure for
rice has a very low elasticity (0.0975) compared to the expenditure on non-rice food (0.4096).
More than half of the total household expenditure (50.71%) is spent on food, while the rest
(49.29%) is used for non-food. The increase in rice prices affects the rise of income amongst
farmers and declines the income of non-farmers. Hence it affects the decline of disparity in
households’ income distribution.
Originality/value: This study adds value to the existing literature with several implications for
practitioners, policymakers, and government organizations to take necessary measures to stabi�lize rice prices and income distribution among the various income groups.