An Almost Ideal Demand System approach in analysing demand for Indonesian imported rice

Abstract

Indonesia’s rice imports throughout 2022 will increase by 5%. Indonesia plans to import again to anticipate production disruptions due to a potential El Nino. Indirectly, Indonesia depends on other countries for its rice needs, so this study’s main objective is to analyse rice import performance and estimate the competitiveness and elasticity of demand for Indonesian rice imports. This research used annual import data of Indonesia from Thailand, Vietnam, and India, which came from the UN-Comtrade and will be analysed using the Almost Ideal Demand System (AIDS). The results showed that Thailand has the largest share and an inelastic own-price elasticity, so the consumption of imported rice from Thailand is unaffected by price changes. Based on income elasticity, it shows that imported rice is a normal good. Rice imports from Thailand and India are complementary, while others are substitutes for each other. Thailand is still the largest supplier of imported rice for Indonesia, and it will be a challenge for Indonesia if Thailand limits the amount of rice it exports to domestic needs. Imports are a short-term solution, so a long-term policy must deal with limited rice stocks caused by climate and weather uncertainties.