Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.5, No.23, 2014 106 The Effects of Market Integration on Rice Market Performance and it’s Implication on National Food Security in Indonesia Muhammad Adam, Mirza Tabrani Lecturer of Doctoral Program in Management Science, Syiah Kuala University, Banda Aceh, Indonesia. E-mail : adam_usk@yahoo.com, ) mirza_tabrani@yahoo.com Abstract This research is aimed to assess the rice market performance by identifying the rice price, market and marketing situation nationally and domestically and factors that influence the rice market performance within the last ten years as well as its impact to the national food security level. The primary data was conducted by distributing the open- and close-ended questioners to the trade, famers, and agents. The Secondary data was collected from Central Bureau of Statistic (BPS) and Food Security Agency based on time series data. Structural Equation Modeling (SEM) applied to test the model that has been previously formed and at the same time examine all the hypotheses. Ultimately, this research finds that: (1) the market integration is significantly and positively influences the rice market performance in Indonesia. (2) The rice market performance also significantly and positively influences the national food security. (3) The integration of rice market also significantly and positively influences national food security. Keywords: Market integration, Market performance, Food security 1. Introduction Food security has become a central issue for any government policies, because it concerns the fundamental and crucial livelihood of every people. The demands for rice in Indonesia tend to rise following the increase in number of population. The government of Indonesia remains focused on ensuring the availability of food to overcome its scarcity and insecurity in this country with various policies from increasing domestic production, managing food procurement system and policy in base price of food grain. However these policies still cannot meet the demands and needs of the dynamic markets. The less dynamic and effective of policies implemented by the government within these few decades have had impact on the insecurity of food in many areas, despite the fact that rice production teds to continue to increase. It is similar to the import policies applied by the government to cover food shortages that has caused many new problems particularly regarding the rice performance in this country, from the instability and scarcity of rice supply to the increase and fluctuating price. This unfavorable performance is exacerbated by the behavior of traders who dominate the marketing system and the lack functioning of government institution to control the price and rice supply. In some areas, freight charge is still very expensive that inhibit the mobilization of rice crops to other targeted market. This constraint also slows down the market integration and price transmission between two markets that spatially separated. In the rice market in this country often found that the price in one market is determined by other markets. The price in one market is sometimes a reference for other markets. However, it is not always happen that lower market price is determined by the higher one, but it can conversely take place. One thing that needs to be observed is the potentiality of changing the price, not the problem of which market that determines the price, so the difference among the market is relatively small and getting smaller as a reflection of those markets which are perfectly integrated. The study of market of market integration has usually tried to characterize the degree of movement of price across spatially separated markets. Since prices are the most rapidly available and often the most reliable information on developing marketing system, marketing integration studies have almost exclusively referred to events resulting in price changes. Most specifically, market integration is stricter to interdependence of price change across spatially separated location in market. Markets are complex institution, encompassing hierarchies and interlinked transactions that may involve the simultaneous consideration of various commodities. This paper addresses the issue of marketing integration and marketing performance and its implication for national food security in Indonesia. 2. Literature Review There are many factors that influence the rice commodity market performance in a country, from economic variable to political and cultural variables that are likely to contribute to the market performance. The important factor that often discussed in viewing the market performance is the low of deviation of price between producers and consumers, between domestic and local as well as its profit margin. Besides, the instability of price will affect on farmers as producer and community as consumers, this reflects that the rice marketing in Indonesia is always indicates the loss to smaller degree. Moreover, the availability and equity of rice distribution as well as