Analysis of growth and stabilisation policies in Indonesia - a linked modelling approach

• Centre for Agro Socioeconomic Research, Indonesia
• Australian National University, Australia

The key issues for Indonesian and other developing country policy makers as their economies grow and open up is how to maintain agricultural productivity growth and reap the benefits of stable prices without the costs of current subsidy policies. Agricultural commodities are an important component of production and consumption in developing countries and the efficiency of the agricultural sector and instability in prices can have a major effect on incomes, the macroeconomy and overall stability. Alternative policies aimed at achieving cost effective productivity growth have been suggested, for example a shift from investment in irrigation expansion to increased efficiency of the existing irrigation infrastructure. Similarly, alternative stabilisation policies have been suggested such as development of private storage and insurance markets. To fully analyse such alternatives requires policy advisers to have access to a linked suite of analytic models with sufficient sectoral detail, such as representing the dynamic investment behaviour of farmers under risk, and broad enough coverage to capture economy-wide effects of agricultural policies, such as those concerned with commodity price stabilisation. This grant is enabling IFPRI to extend its past analysis of Indonesian Food Crop Sector, in collaboration with the Center for Agro Socioeconomic Research (CASER), in order to link it with a computable general equilibrium (CGE) model of the Indonesian economy being developed by Ray Trewin of the ANU, and to develop a user friendly version of the food crop supply and demand model which can be used by researchers and policy makers in Indonesian institutions to simulate and evaluate the impacts of alternative polices within the food crop sector.

This project enabled IFPRI, in collaboration with the Center for Agro Socioeconomic Research (CASER), Indonesia, to extend its past analysis of the Indonesian Food Crop Sector and to undertake specific policy analysis in relation to price stabilisation policies in Indonesia. The project also provided an opportunity to link in ACIAR bilateral project 9039 which had developed a computable general equilibrium (CGE) model of the Indonesian economy, INDOGEM. To do this the food crop supply system was updated from 1985 to 1990 to increase policy relevance and improve compatibility of the food crop model with the CGE model. Also developed was a user friendly version of the food crop supply and demand simulation model (and user manual) which could be used by researchers and policy makers in Indonesian institutions to simulate and evaluate the impacts of alternate policies within the food crop sector.