Impact of Red Chilli Reference Price Policy in Indonesia

Red chilli is one of basic commodities in Indonesia, in household consumption and raw material of industry even though the price of red chilli not only often fluctuates but also contributing to inflation. Policies taken by the government against the red chilli was with the application of the reference price, as the management of importation, for stabilizing the price of red chilli. This study aims to see the effectiveness of the reference price policy in influencing red chilli deals through red chilli import management and determine the factors that affect the red chilli deals in the effort to stabilize the price, using two stage least square (TSLS) simultaneous model with secondary data from Desember 2010- September 2016. In this study, red chili supply models in Indonesia consisted of five equations, four structural equations, and one identity equation. The structural equation consisted of red chili production, red chili import, red chili export, and red chili prices while the identity equation namely red chili supply. The results showed that reference price application had not been effective because it was not able to manage the importation properly, caused red chilli prices were still fluctuating. Implementation of reference prices did not significantly affect imports and prices, it indicated that the reference price policy was ineffective. This policy should be pursued by strengthening the development of production and to encourage red chilli farmers interest to increase the amount of production for continuity the supply side.