Impact of food price increases on poverty in Indonesia: empirical evidence from cross-sectional data

Abstract

Purpose – Using cross-sectional household survey data, this paper aims to determine the impact of food price increases on poverty in Indonesia. Design/methodology/approach – This paper uses the quadratic almost ideal demand system applied to the 2013 Indonesian household survey data. The impact of food price increase on household welfare is calculated using a welfare measure, compensating variation. Findings – Three food groups with the most outstanding price impact on poverty, rice, vegetables and fish, were studied. The 20% increase in the price of each food group causes an increase in the headcount ratio by 1.360 points (rice), 0.737 points (vegetables) and 0.636 points (fish). Maintaining food price stability for these food groups is very important because the more the price increases, the more the impact on poverty. Food price policies in rural areas are also more critical than in urban areas because the impact of food price increases in rural areas is higher. Research limitations/implications – This paper does not consider the positive impact of rising food prices on food-producing households. Practical implications – Implementing appropriate poverty alleviation policies through food policies for main food groups and social protection. Social implications – Promoting rural development policies and agricultural growth. Originality/value – This paper contributes to the existing literature by providing empirical results regarding the impact of domestic food prices increase on poverty in Indonesia.

Keywords

• Food price increase
• Poverty
• Indonesia
• QUAIDS
• Compensating variation