Based on Figure 1, we can indeed observe the trend of the yearly price of rice in Indonesia from 2010 to 2022. The significant fluctuations in the price of rice, from its modest beginnings slightly above 7000 rupiah per kilogram in 2010 to nearly 13000 rupiah per kilogram in 2023, underscore the pivotal role that rice plays in Indonesia's economic and social fabric. Despite occasional dips, such as the notable decrease to 10500 rupiah per kilogram in 2021, the overall upward trajectory highlights the indispensability of rice within Indonesian society. As a staple food, rice holds not only economic significance but also deep cultural and social importance with its fluctuations directly impacting the daily lives of millions of Indonesians, shaping dietary habits, household budgets, and even cultural traditions. The surge in rice prices reflects not only market forces but also the intricate interplay of environmental factors, government policies, and global market trends, and above all that, Indonesian demand for rice itself.
Baumol's Cost Disease, recognized as a universal phenomenon affecting various sectors, holds significance in the context of the Indonesian rice industry. Despite the industry's traditional nature, the persistent rise in wages and modernization demands contribute to cost escalation in labor-intensive processes. The application of Baumol's theory elucidates the rigidities hindering productivity growth and cost containment in the rice sector (Pearson, 1991). The absence of substantial technological advancements and the industry's reliance on manual labor amplify the impact of cost disease, leading to cost inflation without corresponding productivity improvements. Through the lens of this economic theory, it becomes apparent that the Indonesian rice industry faces challenges in achieving efficient resource allocation and enhancing competitiveness due to the structural constraints imposed by cost disease. 
In figure 2, the observed trends in the Indonesian rice industry, including a decline in rice production provide compelling evidence supporting the presence of Baumol's Cost Disease within the sector. We can examine the decrease in rice production from 5.9e7 tons in 2018 to slightly less than 5.5e7 tons by 2023 and it suggests stagnation in productivity growth within rice farming. This stagnation is further corroborated by the gradual reduction in the harvested area, observed in figure 3, from 1.14e7 hectares in 2018 to 1.02e7 hectares in 2023, indicating a limited expansion of agricultural practices.
Moreover, the dynamics of input and output prices as reflected in the farmer's exchange rate index (figure 4) and the price indices received and paid by farmers align with Baumol's Cost Disease hypothesis. The considerable growth in the farmer's exchange rate index from 100 in 2018 to 114 in 2023 signifies that changes in output prices outpace fluctuations in input costs. This imbalance is mirrored in the price indices received (figure 5) and paid by farmers (figure 6), with the former growing considerably from 100 to slightly above 140, while the latter also experiencing significant growth from 105 to slightly above 118 over the same period. Such trends indicate a widening gap between the costs of production and the revenues generated, exacerbating the cost disease phenomenon within the Indonesian rice industry.
The widening gap between the price indices received and paid by farmers within the Indonesian rice industry reflects a concerning trend that exacerbates the presence of Baumol's Cost Disease. The substantial growth in the price index received by farmers, from 100 to slightly above 140 over the observed period, indicates a significant increase in the prices farmers receive for their rice products. On the surface, this might seem like a positive development, suggesting higher revenues for farmers. However, when juxtaposed with the simultaneous growth in the price index paid by farmers, from 105 to slightly above 118, it becomes evident that the rise in output prices does not offset the escalating costs of production.Â
This phenomenon is primarily attributed to Baumol's disease hypothesis, which states that sectors with slower productivity growth face increasing costs that outpace the rise in output prices. The failure of output prices to sufficiently offset the growing production costs leads to reduced profitability for farmers in the long run. This situation exemplifies a broader pattern where escalating expenses diminish the economic benefits gained from higher prices, ultimately jeopardizing the financial sustainability and competitiveness of agricultural producers.
For a clearer illustration, envision a bucket symbolizing farmers' incomes, being filled with water from the surge in output prices. Initially, the rising output prices result in a promising influx of water into the bucket, indicating higher earnings. However, concurrently, holes at the bottom of the bucket symbolize the mounting production costs, steadily draining away the profits from the price increments. Despite the water flowing in from the output prices, the outflow caused by the increasing input expenses reduces it, leading to a depletion of water from the bucket over time. This imbalance undermines the profitability of rice farming activities as the disparity between revenue and costs widens gradually. As a result, farmers encounter growing financial strains, intensified by stagnant productivity levels and a diminishing harvested area.
We can as well further measure how correlated the variables are, that is using the Pearson's correlation coefficient on Farmers Exchange rate, Productivity, Price of rice, to further see the existence of Baumol's Disease in the industry. From the regression plots of figure 7 and 8, we can superficially observe that the data points are, all of them, in fact,caters around the zero value (meaning that if there's in any way positive or negative correlation, it will be insignificant). The notably weaker correlation coefficients between the farmer's exchange rate and rice production productivity (-0.122457) which is presented in figure 8, and between the price of rice and rice production productivity (0.026163), presented in figure 7, highlight the disconnect between input costs, output prices, and productivity levels. Despite the significant influence of input costs on rice prices, there is limited correlation between input costs (Farmer's paid price) and productivity levels, as well as between rice prices and productivity. In Figure 8 we can see the negative relationship, showing the consistent decrease of productivity itself, whilst the farmer's paid price kept on growing significantly, leaving a disparity that underscores the stagnation in productivity growth within the rice industry.
These correlation coefficients collectively provide further evidence of the underlying dynamics contributing to Baumol's Cost Disease within the Indonesian rice industry. The slight negative correlation between input costs and rice prices, coupled with the lack of significant correlation between input costs and productivity or between rice prices and productivity, reflects a scenario where cost pressures decrease productivity gains significantly. This imbalance perpetuates the industry's susceptibility to Baumol's Cost Disease, wherein rising costs erode profitability and hinder investments in technological innovation and efficiency improvements.
