Effects of rice import tariffs on farmer and consumer welfare in Indonesia

Abstract

Indonesia, the world's fourth most populous country, is heavily dependent on rice imports — the staple food of its population. Left unaddressed, this import dependency poses a serious threat to national food security. This study aims to examine the impact of rice import tariffs on domestic supply and demand and assess their effect on changes in the welfare of Indonesian society. This study employs secondary documentary data obtained from relevant institutions and agencies and publicly released, pertaining to the issues under investigation at the macro (global) level over a 15-year period spanning 2009 to 2023. The analytical tools employed include Two-Stage Least Squares (2SLS) and economic surplus. The results show that simulations of tariff adjustments at the baseline rate of Rp450/kg reveal that a tariff reduction benefits consumers but harms farmers, whereas a tariff increase protects farmers but burdens consumers and generates deadweight loss. A reduction in the import tariff enhances consumer welfare and aggregate economic efficiency, but is detrimental to farmers and reduces government revenue.