PRICE AND INCOME ELASTICITIES OF RICE DEMAND IN EAST JAVA, INDONESIA

Abstract

Rice is a political and strategic commodity given its status as the staple food of Indonesian society. In the context of national food stability, East Java Province plays a vital role as one of the largest rice-producing regions. Given the importance of this commodity, rice elasticity has become a top priority for the Indonesian government, making the analysis of its demand responsiveness crucial. This study examines the demand elasticity of rice among 25,470 households in East Java using data from the 2024 National Socio-Economic Survey (SUSENAS). This study employs a double-logarithmic regression model with robust standard errors to address heteroscedasticity. The estimation covers three types of elasticity: own-price elasticity, cross-price elasticity, and income elasticity. The research model demonstrates very high statistical significance and explains 39.11% of the variation in rice consumption. Rice demand is influenced by price factors (real rice prices and alternative carbohydrate commodity prices) as well as socio-demographic characteristics, particularly income and household size. The findings indicate that rice demand is price inelastic with an Ed of -0.4272%, meaning household consumption tends to remain stable despite rice price fluctuations. Cross-elasticity analysis reveals that corn (-0.0873%), sweet potato (-0.1074%), taro (-0.0803%), and potato (-0.0754%) serve as complementary goods rather than substitutes. Meanwhile, wheat and cassava show no significant impact on rice consumption in East Java. Income elasticity (Ey = 0.1584%) confirms that rice is a basic necessity with low income responsiveness. Household size emerges as the strongest socio-demographic factor affecting rice consumption (0.6877%). These findings confirm that rice is inelastic in accordance with the government's longstanding objectives and efforts, thus price stability of rice remains the primary key to maintaining food security. Therefore, to reduce dependence on rice, the government needs to promote food diversification, given the high potential of non-rice foods and tubers in East Java.