Analysis of Indonesian Rice Price Transmission in The ASEAN Economic Community (AEC) Framework

Abstract

The policy of trade barriers carried out by ASEAN countries, especially rice-producing countries can hamper the achievement of long-term food security because it can obscure the transmission of price signals. This study aims to analyze the relationship of rice price transmission between Indonesia and other ASEAN countries, and also to analyze the effect of the application of AEC and other factors on rice prices in Indonesia. This study uses the VECM model using secondary data from January 2008 - December 2017. IRF analysis show that the response of the Indonesian rice market to the shock of the Thai and Vietnamese rice markets is greater than the response of the Indonesian rice market when there are shocks to the Philippines rice market. This is also reinforced by the results of the FEVD analysis which shows that variations in the price of Indonesian rice are largely explained by variations in rice prices of exporting countries (Thailand and Vietnam). It can be concluded that there has been an integration between Indonesian rice market with other ASEAN’s rice market (Thailand, Vietnam, Philippines) with the factors that affected Indonesian rice prices were exchange rate, world oil prices, ATIGA agreements and AEC integration.