Evaluation of crop and fertilizer price policies in Indonesia : a policy model exercise -- policy paper

dollars. Additional changes in price policy may be undertaken to bring domestic prices more into alignment with world market prices. Such changes in product price, input price, and exchange rates have significant impacts on production and consumption of food commodities and on important aggregates such as farm income, purchasing power of consumers, and government expenditures. A policy model designed to operate on a microcomputer was developed to evaluate these impacts. The model utilizes basic supply and demand behavioral parameters estimated in other studies and is designed so that these parameters and projection assumptions can be readily altered by the analyst. Assuming domestic food crop prices increase with general inflation, a baseline projection was made including supply and use of rice, corn, cassava, sweet potatoes, soybeans, wheat, sugar and peanuts. The two policy alternatives evaluated to demonstrate the operation of the model were a 60% reduction in the fertilizer price subsidy and the same subsidy reduction combined with a 5% annual increase in real rice prices. Allowing rice prices to rise, offsets the negative farm income effect of the cut in fertilizer price subsidies but also alters the production, consumption, and trade levels for rice and other food crops. (Author abstract)