In 1998, the Asian economic crisis and a long drought in Indonesia forced
Indonesia to open its agriculture sector to free trade. For the first time in Indonesia
agriculture trade history, private importers were allowed to enter the original BULOG
dominated monopoly market of imported rice. This was an important event since the
changing market structure affects the quantity of rice supplied by domestic farmers, the
price of rice, and farm income. This paper analyzes the effect of rice trade liberalization
on farm income in Indonesia. We first use economic analysis to demonstrate that rice
farm income should fall after trade liberalization. We then apply regression analysis to
examine how rice farm income is affected by rice trade liberalization. The value of rice
gross production (VRP) and annual producer price (APP) were acted as the farm income.
Our VRP regression results show that farm income has no changed after trade
liberalization. On the other hand, the APP results show that farm income has shifted
significantly downward after trade liberalization.
