Who Bears the Burden? Protection, Politics, and Persistence of High Rice Prices in Indonesia

Indonesia's rice price has persistently exceeded international benchmarks and ranks among the highest in ASEAN. Technically, this stems from structural inefficiencies in the production process. These inefficiencies, however, do not fully account for the price gap. Indonesians could still access cheaper rice if domestic prices were allowed to follow international levels, but the government has instead chosen protectionist measures that shield domestic producers from import competition. High rice prices are therefore a deliberate policy decision as much as a production problem.

The government resorts to protectionist measures for political reasons. It’s been well known that rice is not just a food staple in Indonesia but also a political commodity. The sector employs a large share of workforce(1), placing it at the centre of political campaigns built around national self-sufficiency and rural protection. What also sustains this dynamic is that “nationalist” cultural value shapes public sentiment broadly(2), giving protectionist measures a legitimacy that goes beyond rural constituency alone. Operating on short electoral cycles, protection is the politically rational choice made by the government. The question this raises is then distributional: if these measures serve farmers and political actors, who actually bears the burden of persistently high rice prices?

High rice prices impose a disproportionate burden on consumers, particularly lower income households for whom food takes up a significant share of expenditure(3). Since the vast majority of Indonesians are net rice consumers rather than producers, the policy can be viewed as redistributing welfare away from the majority of people.

Graph: The Majority of Indonesians are Net Rice Consumers

This burden, however, is not limited to the poor. For middle-income households, persistently high food prices that outpace income growth erode purchasing power gradually, reflected in the growing proportion of household budgets consumed by food. Given that most Indonesians remain in this middle-income bracket (4), the cumulative effect is a pressure on domestic consumption and a drag on poverty reduction, both of which are central to Indonesia's longer-term economic development.

Graph: Middle Income Are Spending More on Food

High rice prices also damage the industrial sector. They put upward pressure on real wages, which erodes the comparative advantage of labour-intensive industries at a time when Indonesia's unit labour costs already exceed those of competing manufacturing economies in ASEAN (5). Indonesia’s highest-yield farmlands are also concentrated in Java(6) along with Indonesia's industrial base (7), meaning the two sectors compete directly for the same scarce land and crowd each other out. Furthermore, limited access to nutritious food constrains workforce productivity over time, which then compounds the competitiveness problem. Together, these pressures contribute to what economists describe as premature deindustrialisation, which is happening in Indonesia. Since manufacturing is one of the primary channels for absorbing labour in a populated developing economy, its contraction means the costs of high rice prices hit the majority, not only as consumers but also as workers losing access to formal employment.

Addressing the structural inefficiencies in Indonesia's rice production, however, requires a strong manufacturing sector. One driver of those inefficiencies is excessive labour use in rice farming, which keeps per-unit production costs high and limits the scope for mechanisation (8). Reducing this requires shifting surplus rural workers into other sectors, particularly labour-intensive manufacturing, where they could be more productively employed. The problem is that manufacturing, as discussed, is itself under pressure from high rice prices that inflate labour cost and from the broader trend of deindustrialisation. The two sets of problems therefore reinforce each other, forming a vicious cycle in which neither sector can recover without progress in the other.

One way to get out of this loop is to separate the goal of protecting farmers' income from the goal of keeping food prices affordable for everyone. One direction worth considering is a gradual opening of the import gate, with the government cushioning the transition by buying rice from farmers closer to production cost and reselling closer to the lower international price. The price gap, however, is treated as a transitional subsidy rather than a permanent feature of the market. This subsidy would need to be temporary from the outset, but making that timeline real is the government's job as much as the farmers'. It would mean actually delivering the mechanisation services, clearer land rights, and consolidation support needed to close the gap(9) . Farmers who still cannot compete once the cushion tapers would then be nudged toward exit, selling land into consolidation with operations that can compete, rather than being kept on subsidy indefinitely. By letting domestic prices converge downward, it will also relieve the wage pressure on labour-intensive manufacturing described earlier, which gives reindustrialisation room to happen and, in turn, somewhere for rural labour leaving low-productivity farming to go. Of course, none of this is self-executing, and whether it would actually work depends on constraints that sit outside the economics of the mechanism itself.

Controlling price through the import monopoly (BULOG) is arguably much simpler than the above suggested scheme, which requires the government to identify, register, and organise millions of farming households, a task that Indonesia's state capacity seems limited. There is also little reason for market to trust that any price cushion is genuinely temporary since the same government reversed liberalisation once before, after the Asian Financial Crisis, when falling prices triggered immediate political backlash. Politically, the current monopoly system also concentrates rents in the hands of a small number of groups that might benefit from controlling the price gap, and this special interest, together with farmers' electoral weight and nationalist sentiment, helps sustain high rice prices. High rice prices in Indonesia are in the end a political problem, not a production one. Escaping the cycle depends less on economic design than on institutions: whether the government can commit credibly, and whether the constellation of rent-seeking interests give space for reform agenda. Until that shifts, protection will persist regardless of cost.

Footnotes:

(1) Badan Pusat Statistik Indonesia, “Penduduk 15 Tahun Ke Atas yang Bekerja menurut Lapangan Pekerjaan Utama - Tabel Statistik.”

(2) Davidson, “Rice Imports and Electoral Proximity,” 462–69.

(3) Patunru and Ilman, Political Economy of Rice Policy in Indonesia, 8.

(4) Yonatan, “Jumlah Penduduk Kelas Menengah Indonesia Turun pada 2025.”

(5) Grabowski and Self, “Industrialization and Deindustrialization in Indonesia,” 108–9.

(6) Ikhsan, Understanding Indonesia’s High Rice Prices: Structural Costs, Protection, and the Political Economy of Persistence, 7.

(7) Tadjoeddin and Chowdhury, Employment and Re-Industrialisation in Post Soeharto Indonesia, 180–83.

(8) Ikhsan, Understanding Indonesia’s High Rice Prices: Structural Costs, Protection, and the Political Economy of Persistence, 3.

(9) Ikhsan, Understanding Indonesia’s High Rice Prices: Structural Costs, Protection, and the Political Economy of Persistence, 13–15.

References:

Badan Pusat Statistik Indonesia. “Penduduk 15 Tahun Ke Atas yang Bekerja menurut Lapangan Pekerjaan Utama - Tabel Statistik.” 2026.

Davidson, Jamie S. “Rice Imports and Electoral Proximity: The Philippines and Indonesia

Compared.” Pacific Affairs 91, no. 3 (2018): 445–70.

Grabowski, Richard, and Sharmistha Self. “Industrialization and Deindustrialization in

Indonesia.” Asia & the Pacific Policy Studies 7, no. 1 (2020): 95–111.

Ikhsan, Mohamad. Understanding Indonesia’s High Rice Prices: Structural Costs, Protection, and the Political Economy of Persistence. 2026.

Katadata. “Kelas Menengah Indonesia Di Tengah Ketidakpastian Ekonomi.” 2025.

Patunru, Arianto, and Assyifa Ilman. Political Economy of Rice Policy in Indonesia: A Perspective on the ASEAN Economic Opportunity. 0 ed. Center for Indonesian Policy Studies, 2020.

Tadjoeddin, Mohammad Zulfan, and Anis Chowdhury. Employment and Re-Industrialisation in Post Soeharto Indonesia. Palgrave Macmillan UK, 2019.

Yonatan, Agnes Z. “Jumlah Penduduk Kelas Menengah Indonesia Turun pada 2025.” GoodStats, 2026.

Acknowledgment from Author:

• I acknowledge the use of Anthropic Claude for helping me sharpen the core

  argument of the essay, making sure it focuses on a less highlighted topic, and framing

  it in a way that is different from the already-published literature.

• I acknowledge the use of Anthropic Claude for suggesting a list of title options for

  the essay.

• I acknowledge the use of Anthropic Claude for suggesting refinements to some

  sentences in my essay to make it clearer and grammatically correct but at the same

  time efficient. I did not copy and paste the whole sentence, but used the refined

  version from the tool as my benchmark to develop my own sentences.

About Author and Article:

Alan Ferdian Syah is a fifth-semester Psychology student at Universitas Negeri Malang. This article is one of the three winning entries of the "From Campus to Policy" essay competition. The views expressed in this article are solely those of the author and do not necessarily reflect the official views or position of CIPS.