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Ekonomi dan Keuangan Indonesia Vol. 3 6 . , N o . 1 , 1 9 8 8 Supply Parameters for Indonesian Agricultural Policy Analysis . Klaus Altemeier Steven R. Tabor Bambang Adinugroho -ft Abstrak | Dalam makalah ini diperkenalkan sebuah model Supply untuk ekonomi pertanian Indonesia. Model ini t e r d i r i d a r i model 'Adaptive response' u n t u k allokasi areal tanah dan model 'profit function' untuk produktivitas. Hasil pokok yang diperoleh d a r i model adalah: (1) pro- gram diversifikasi komoditi t a n a m a n pangan harus memperhatikan per- saingan tanah yang erat, (2) subsidi pupuk bisa diperkecilkan tanpa akibat supply yang terlalu besar dan (3) program kebijaksanaan harga yang sama di semua tempat dapat berakibat negatif terhadap pasar tenaga kerja. D e n g a n ekonomi yang m a k i n maju dan rumit, dibutuhkan model supply yang konsisten u n t u k menaksirkan kebijaksanaan-kebijak- sanaan sektor pertanian. '

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Page 1: Supply Parameters for Indonesian Agricultural Policy Analysis

E k o n o m i d a n K e u a n g a n I n d o n e s i a V o l . 36. , N o . 1 , 1 9 8 8

Supply Parameters for Indonesian Agricultural Policy Analysis

. K l a u s A l t e m e i e r S t e v e n R . T a b o r

B a m b a n g A d i n u g r o h o

- f t A b s t r a k |

D a l a m m a k a l a h i n i d i p e r k e n a l k a n sebuah model Supply u n t u k ekonomi p e r t a n i a n I n d o n e s i a . M o d e l i n i t e r d i r i d a r i model 'Adaptive response' u n t u k allokasi a r e a l t a n a h dan model 'profit f u n c t i o n ' u n t u k produktivitas. H a s i l pokok yang diperoleh d a r i model a d a l a h : (1) pro­gram diversifikasi komoditi t a n a m a n pangan harus memperhatikan per­saingan t a n a h yang erat, (2) subsidi pupuk bisa diperkecilkan tanpa akibat supply yang t e r l a l u besar dan (3) program kebijaksanaan harga yang sama di semua tempat dapat berakibat n e g a t i f terhadap pasar tenaga kerja. D e n g a n ekonomi yang m a k i n maju dan r u m i t , d i b u t u h k a n model supply yang konsisten u n t u k menaksirkan kebijaksanaan-kebijak­sanaan sektor p e r t a n i a n . '

Page 2: Supply Parameters for Indonesian Agricultural Policy Analysis

A l t e m e i e r ; T a b o r ; A d i n u g r o h o

I . I n t r o d u c t i o n .

A c o n s i s t e n t s e t o f s u p p l y p a r a m e t e r s i s r e q u i r e d f o r t h e e c o n o m i c a n a l y s i s o f a g r i c u l t u r a l p o l i c y o p t i o n s . T h i s i s e s p e c i a l l y i m p o r t a n t f o r t h e f o o d s e c t o r s i n c e , a f t e r r e a c h i n g r i c e s e l f - s u f f i c i e n c y i n 1 9 8 5 , t h e f o c u s o f a g r i c u l t u r a l p r o g r a m s h a s s h i f t e d f r o m a n e a r s i n g l e - m i n d e d c a m p a i g n t o i n c r e a s e r i c e p r o d u c t i o n t o a m o r e m u l t i - c o m m o d i t y o r i ­e n t a t i o n . A n e x a m p l e o f t h i s i s t h e 1 9 8 6 s e l f - s u f f i c i e n c y p r o g r a m s m o u n t e d f o r s o y b e a n s a n d c o m , t w o c o m m o d i t i e s f o r w h i c h I n d o n e s i a i s c u r r e n t l y a n e t i m p o r t e r ( D e p a r t e m e n P e r t a n i a n , 1 9 8 4 , 1 9 8 6 ) . A c l e a r u n d e r s t a n d i n g o f t h e e c o n o m i c i n t e r - r e l a t i o n s h i p s a m o n g s t c o m m o d i t i e s a n d p r o d u c t i v e r e s o u r c e s i s n e e d e d t o m a n a g e a m u l t i - c o m m o d i t y f o o d p o l i c y . _ : . . ;v ;

K n o w l e d g e o f a g r i c u l t u r a l p o l i c y p a r a m e t e r s i s r e q u i r e d i n o r d e r t o o p e r a t e g o v e r n m e n t p r i c i n g p r o g r a m s w h i c h , t h r o u g h t h e i r i m p a c t o n t h e i n c e n t i v e s i n v i r o n m e n t , i n d i r e c t l y e f f e c t a g r i c u l t u r a l s u p p l y a n d d e v e l o p m e n t . T h e u s e o f i n d i r e c t i n s t r u m e n t s a s a m e a n s o f s t i m u l a t i n g g r o w t h w i l l b e c o m e i n c r e a s i n g l y i m p o r t a n t a s t h e g o v e r n m e n t s a b i l i t y t o d i r e c t l y f i n a n c e p u b l i c i n v e s t m e n t s d i m i n i s h e s d u e t o t h e f a l l i n p e t r o l e u m p r i c e s , d e t e r i o r a t i o n i n k e y c u r r e n c y m a r k e t s a n d t h e r i s i n g d e b t s e r v i c e r a t i o . T h i s a d v e r s e e x t e r n a l r e s o u r c e e n v i r o n m e n t h a s a l s o l e d t h e g o v e r n m e n t t o e v a l u t e m e a n s o f r e d u c i n g t h e b u d g e t a r y b u r d e n o f e x i s t i n g a g r i c u l t u r a l d e v e l o p m e n t p r o g r a m s . O n e e x a m p l e o f t h i s i s t h e f e r t i l i z e r s u b s i d y .

A n o t h e r i m p o r t a n t i s s u e f o r t h e a g r i c u l t u r a l s e c t o r i s t h e a b i l i t y o f t h e e c o n o m y t o p r o v i d e p r o d u c t i v e e m p l o y m e n t t o t h e r a p i d l y g r o w i n g l a b o r f o r c e . T h e i n c r e a s i n g c o m m e r c i a l i z a t i o n o f r u r a l l a b o r m a r k e t s i m p U e s t h a t g o v e r n m e n t p o l i c i e s w h i c h i n f l u e n c e w a g e s a n d p r i c e s w i l l h a v e i m p o r t a n t e f f e c t s o n a g r i c u l t u r a l l a b o r a b s o r b t i o n r a t e s . A c l e a r u n d e r s t a n d i n g o f t h e l i n k a g e s b e t w e e n l a b o r u s e a n d a g r i c u l t u r a l p r i c i n g p o l i c i e s i s r e q u i r e d i n o r d e r t o m e e t s e c t o r a l e m p l o y m e n t o b j e c t i v e s .

P r e v i o u s r e s e a r c h o n a g r i c u l t u r a l s u p p l y r e s p o n s e h a s , b y i n l a r g e , b e e n h a n d i c a p p e d b y a n i n a b i l i t y t o d i s t a n g l e t h e e f f e c t s o f t e c h n o l o g i c ­a l t r a n s f o r m a t i o n f r o m t h e i n f l u e n c e o f e c o n o m i c i n c e n t i v e s . A n u m b e r o f a d - h o c a p p r o a c h e s h a v e b e e n u s e d t o c o r r e c t f o r t e c h n o l o g y i n t h e a n a l y s i s o f f a r m s u p p l y , s u c h a s i n c l u d i n g i n s t r u m e n t s f o r a d o p t i o n r a t e s o f n e w r i c e v a r i e t i e s a n d l e v e l s o f i r r i g a t i o n i n v e s t m e n t ( T i m m e r , 1 9 8 6 , W o r l d B a n k , 1 9 8 3 , I F P R I , 1 9 8 7 ) . H o w e v e r , t h e r e s u l t s f r o m t h e s e a d - h o c a p p r o a c h e s h a v e b e e n l e s s t h a n s a t i s f a c t o r y f o r t h e a n a l y s i s o f m u l t i - c o m m o d i t y f o o d p o l i c y .

T h i s p a p e r i s d i v i d e d i n t o s i x s e c t i o n s . I n s e c t i o n t h r e e a b r i e f r e v i e w o f t h e m e t h o l o g y u s e d t o d e r i v e s u p p l y p a r a m e t e r s i s p r e s e n t e d .

Page 3: Supply Parameters for Indonesian Agricultural Policy Analysis

S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

S e c t i o n f o u r d i s c u s s e s t h e s o u r c e o f d a t a u s e d t o e s t i m a t e t h e s e p a r a ­m e t e r s a n d s e c t i o n f i v e p r e s e n t s t h e m a i n f i n d i n g s o f t h e i n v e s t i g a t i o n , i n c l u d i n g e x a m p l e s o f p o l i c y a n a l y s i s . M a i n c o n c l u s i o n o f t h e p a p e r a r e d i s c u s s e d i n s e c t i o n s i x .

I I . M e t h o d o l o g y

T h e s u p p l y o f f o o d c r o p s i s d e f i n e d as t h e p r o d u c t o f a r e a h a r v e s t ­e d a n d y i e l d s . I t i s a s s u m e d t h a t f a r m e r s f o l l o w a t w o - s t a g e d e c i s i o n m a k i n g p r o c e s s w h e n a l l o c a t i n g r e s o u r c e s f o r f o o d c r o p p r o d u c t i o n . I n t h e f i r s t s t a g e , f a r m e r s a l l o c a t e t h e i r l a n d t o a p a r t i c u l a r c o m m o d i t y . I n t h e s e c o n d s t a g e , f a r m e r s u t i l i z e v a r i a b l e p r o d u c t i o n f a c t o r s i n s u c h a w a y s o a s t o m a x i m i z e p r o f i t s . T h e a l l o c a t i o n o f v a r i a b l e p r o d u c t i o n f a c t o r s d e t e r m i n e s t h e i r o u t p u t l e v e l w i t h r e s p e c t t o a n u n d e r l y i n g p r o d u c t i o n f u n c t i o n . B e c a u s e o f d i f f e r e n c e s i n r e s o u r c e e n d o w m e n t a n d t e c h n o l o g y , b o t h a r e a a n d f a c t o r a l l o c a t i o n d e c i s i o n s a r e d i s a g g r e g a t e d i n t o t w o r e g i o n s , J a v a a n d o f f - J a v a . T h e c o m m o d i t i e s i n c l u d e d i n t h e a n a l y s i s a r e w e t l a n d r i c e , d r y l a n d r i c e , c o r n , c a s s a v a , s o y b e a n s , m u n g -b e a n s a n d p e a n u t s .

T h e a r e a a l l o c a t i o n d e c i s i o n i s m o d e l l e d as t h e f u n c t i o n o f o w n c r o p p r i c e s a n d p r i c e s o f o t h e r c o m p e t i n g s t a p l e c r o p s . F o r r i c e , s o y ­b e a n s a n d p e a n u t s , a r e a t a r g e t s a r e i n c l u d e d i n t h e m o d e l t o r e p r e s e n t t h e e f f e c t s o f n o n - p r i c e i n t e r v e n t i o n s , s u c h a s i r r i g a t i o n i n v e s t m e n t a n d e x t e n s i o n c a m p a i g n s o n t h e l a n d a l l o c a t i o n p r o c e s s . T h e t y p i c a l f o r m o f t h e a r e a r e s p o n s e e q u a t i o n i s a s f o l l o w s ; ( 1 ) A . = a+b^p^ +b^p^ + . . . + b^p„ + c A ^ _ ^ + d T . + u . '

T h e a b o v e e q u a t i o n i s i n t e r p r e t e d a s t h e r e d u c e d f o r m o f a N e r l o -v i a n a d a p t i v e r e s p o n s e m o d e l w i t h s i n g l e p e r i o d l a g g e d e x p e c t a t i o n s ( A s k a r i , 1 9 7 1 , C u m m i n g s , 1 9 7 5 , I n t r i l l i g a t o r , 1 9 7 8 , H e d l e y , 1 9 7 8 ) .

F a c t o r a l l o c a t i o n a n d s u p p l y a r e m o d e l l e d s i m u l t a n e o u s l y u s i n g a t r a n s l o g p r o f i t f u n c t i o n s a p p r o a c h . T h e u s e o f a t r a n s l o g p r o f i t f u n c t i o n h a s t h e a d v a n t a g e t h a t t h e u n d e r l y i n g p r o d u c t i o n f u n c t i o n i s f l e x i b l e i n t e r m s o f t h e p o s s i b l e r e l a t i o n s h i p b e t w e e n v a r i a b l e i n p u t s ( M a r g g r a f , 1 9 8 6 , J u s t , 1 9 8 3 ) . T h e b a s i c f o r m o f t h e p r o f i t f u n c t i o n c a n b e w r i t t e n a s f o l l o w s : - -- ^ • ft' j

( 2 ) l n ( p r o f i t ' . ) = a + E b. l n { w . / p . ) + 0 . 5 E E c.^ l n ( w . / p . ) l n ( w ^ / p . )

+ d^.l n { F F ^ ) 1 n ( w . / p . ) + E I n{FF^ ) ^ E g ^ { \ n(FFj^ ) f + u.

A s s u m i n g p r o f i t m a x i m i z a t i o n , t h e f i r s t d e r i v a t i v e s o f t h e p r o f i t f u n c t i o n w i t h r e s p e c t t o i n p u t p r i c e s a r e t h e f a c t o r d e m a n d f u n c t i o n s ( Y o t o p o u l o s , 1 9 7 6 , B r a v e r m a n , 1 9 8 3 ) :

1 1 3

Page 4: Supply Parameters for Indonesian Agricultural Policy Analysis

A l t e m e i e r ; T a b o r ; A d i n u g r o h o

( 3 ) - ( W . X . / p r o f i t . ) = b . A E c.^ 1 n ( w . / p . ) + E d^. 1 n ( F F ^ ) + u.

I n t h e f i r s t e s t i m a t i o n a p p r o a c h , f a m i l y l a b o r , h i r e d l a b o r a n d f e r t i l i z e r a r e t r e a t e d as v a r i a b l e p r o d u c t i o n f a c t o r s . N o q u a n t i t i e s o f f i x e d f a c t o r s a r e i n c l u d e d . S i n c e t h e d a t a r e f e r s t o t h e s a m e s i z e o f l a n d h o l d i n g , p o s s i b l e d i f f e r e n c e s i n t h e m a g n i t u d e o f f i x e d f a c t o r s , s u c h a s s e e d s a n d p e s t i c i d e s , a r e a s s u m e d t o b e o f n e g l e c t a b l e s i z e o r v a r i a n c e . I n t h e s e c o n d a p p r o a c h , f a c t o r d e m a n d f u n c t i o n s a r e o n l y e s t i m a t e d f o r h i r e d l a b o r a n d f e r t i l i z e r , w h i l e f a m i l y l a b o r i s a s s u m e d t o b e a f i x e d f a c t o r . T h i s l a t t e r a p p r o a c h w a s a p p l i e d i f t h e r e s u l t s o f t h e f i r s t a p ­p r o a c h a p p e a r e d t o b e u n s a t i s f a c t o r y .

A r e a r e s p o n s e f u n c t i o n s a r e e s t i m a t e d b y a p p l y i n g o r d i n a r y l e a s t s q u a r e s r e g r e s s i o n t o a s e v e n t e e n y e a r t i m e - s e r i e s . C o r c h r a n e - O r c h u t t r e g r e s s i o n t e c h n i q u e s a r e u s e d i n c a s e o f a u t o c o r r e l l a t i o n . P r o f i t f u n c t ­i o n s a r e e s t i m a t e d b y a p p l y i n g F u l l I n f o r m a t i o n M a x i m u m F i k e l i h o o d ( F I M L ) t e c h n i q u e s t o c r o s s - s e c t i o n a l d a t a f r o m a 1 9 8 3 a n d 1 9 8 5 f a r m m a n a g e m e n t s u r v e y .

F x o g e n o u s s h i f t s i n t e c h n o l o g y a r e m o d e l l e d b y s h i f t i n g t h e i n t e r ­c e p t o f t h e p r o f i t f u n c t i o n u n t i l t h e e s t i m a t e d s u p p l y e q u a l s t h e a c t u a l s u p p l y f o r t h e b a s e p e r i o d , 1 9 8 1 t o 1 9 8 5 . A l i n e a r t r e n d t h r o u g h t h e s e i n t e r c e p t d i f f e r e n c e s i s u s e d t o c o n s t r u c t a d y n a m i c i n t e r c e p t t e r m , i n t h e p r o f i t f u n c t i o n , t o a l l o w f o r f u t u r e e f f e c t s o f e x o g e n o u s t e c h n i c a l c h a n g e .

I I I . D a t a

F o r t h e a r e a r e s p o n s e f u n c t i o n m o d e l s , t i m e s e r i e s d a t a f r o m a s e t o f r e v i s e d f o o d b a l a n c e s h e e t s a r e u s e d ( T a b o r , 1 9 8 7 ) . S i n c e t h e c o r r e l a t i o n s b e t w e e n J a k a r t a w h o l e s a l e p r i c e s a n d o b s e r v e d f a r m g a t e p r i c e s t e n d s t o b e h i g h , J a k a r t a p r i c e s a r e u s e d i n a l l c a s e s a s a n i n s t r u ­m e n t f o r f a r m g a t e p r i c e s o n a n d o u t s i d e o f J a v a ( B i r o P u s a t S t a t i s t i k ) . A l l n o m i n a l p r i c e s a r e d e f l a t e d b y a p r i v a t e c o n s u m p t i o n e x p e n d i t u r e s p r i c e i n d p v . I n t h e I n d o n e s i a n c o n t e x t , w h e r e t h e r e h a s b e e n a h i g h d e g r e e o t c o m m e r c i a l i z a t i o n o f t h e f a r m i n g s e c t o r , i t c a n b e a r g u e d t h a t f a r m h o u s e h o l d s a r e u t i l i t y m a x i m i z i n g , i n s u c h a w a y t h a t t h e y w i l l a l l o c a t e t h e i r l a n d t o t h e m o s t p r o f i t a b l e c r o p . P r o f i t a b i l i t y , i n t h i s s e n s e , i s e x p r e s s e d i n t e r m s o f t h e f a r m e r s a b i l i t y t o p u r c h a s e g o o d s a n d s e r v i c e s w h e n p l a n t i n g t h e c r o p . H e n c e , t h e u s e o f a c o n s u m p t i o n b a s e d d e f l a t o r i s a p p r o p r i a t e .

A r e a t a r g e t s a r e c o n s i d e r e d a s a n i m p o r t a n t f a c t o r d r i v i n g a r e a a l l o c a t i o n . S i n c e o n l y n a t i o n a l t a r g e t s f r o m t h e F i v e Y e a r P l a n s ( R e p e -

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Page 5: Supply Parameters for Indonesian Agricultural Policy Analysis

S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

l i t a I , I I , I I I a n d I V ) a r e a v a i l a b l e f o r m o s t o f t h p o b s e r v a t i o n p e r i o d , t h e s e a r e a p p l i e d i n t h e e s t i m a t i o n ( D i r e k t o r a t B i n a P r o g r a m , 1 9 8 6 ) .

T h e p r o f i t f u n c t i o n a n a l y s i s u s e s f a r m s u r v e y d a t a f r o m a p a n e l o f c o s t o f p r o d u c t i o n s t u d i e s c o n d u c t e d b y t h e D e p a r t m e n t o f A g r i c u l t u r e b e t w e e n 1 9 8 3 a n d 1 9 8 5 / 8 6 . C r o s s - s e c t i o n a l d a t a a r e u s e d b e c a u s e o f t h e l a c k o f a n a p p r o p r i a t e t i m e s e r i e s o n c r o p w i s e f a c t o r u s e . T h e c r o s s -s e c t i o n a l f a r m h o u s e h o l d r e c o r d s a r e s c r e e n e d f o r o b v i o u s e r r o r s a n d i n c o n s i s t e n c i e s . T h e r e m a i n i n g s e t o f r e c o r d s f r o m t h e t h r e e y e a r s o f f a r m m a n a g e m e n t s u r v e y s a r e c o n v e r t e d t o a s t a n d a r d o n e h e c t a r e b a s i s . T h i s p r o c e d u r e a s s u m e s s c a l e n e u t r a l i t y i n o b s e r v a t i o n e r r o r . T o a v o i d s e v e r e s c a l e b i a s , h o u s e h o l d s w i t h l e s s t h a n . 2 h e c t a r e s a r e e x c l u d e d f r o m t h e a n a l y s i s .

r v . D i s c u s s i o n o f t h e R e s u l t s

T h e e s t i m a t e d a r e a r e s p o n s e c o e f f i c i e n t s a r e p r o v i d e d i n a p p e n d i x o n e . O w n p r i c e r e s p o n s e f o r a l l c o m m o d i t i e s , e x c e p t c a s s a v a a n d m u n g b e a n s , i s h i g h l y s i g n i f i c a n t a n d d i s p l a y e d t h e e x p e c t e d s i g n . I n t h e c a s s a v a c a s e , t h e l a c k o f o w n p r i c e r e s p o n s e a c c o r d s w i t h a p r i o r i e x ­p e c t a t i o n s . C r o s s - p r i c e c o e f f i c i e n t s w e r e f o u n d t o b e s i g n i f i c a n t a n d c o r r e c t - s i g n e d f o r m o s t o f t h e c o m m o d i t i e s i n w h i c h a r e a s u b s t i t u t i o n i s n o r m a l l y o b s e r v e d . B e s i d e s r i c e , t h e o t h e r c o m m o d i t i e s s h o w e d s i g n i f i ­c a n t r e a c t i o n t o p r e v i o u s p e r i o d a r e a s . T h i s s u g g e s t s t h a t a n a d a p t i v e r e s p o n s e f r a m e w o r k i s a n e m p i r i c a l l y s u i t a b l e f r a m e w o r k f o r m o d e l l i n g a r e a a l l o c a t i o n b e h a v i o u r . F o r rice, t a r g e t s e x p l a i n a g r e a t d e a l o f a u t o ­n o m o u s a r e a c h a n g e . T h i s i s t o b e e x p e c t e d i n t h a t t h e t a r g e t s v a r i a b l e s e r v e s a s a p r o x y f o r t h e g o v e r n m e n t s w i l l i n g n e s s t o i n v e s t i n i r r i g a t i o n a n d e x t e n s i o n s e r v i c e s , t w o v a r i a b l e s w h i c h h a v e b e e n c l o s e l y a s s o c i a t e d w i t h t h e g r o w t h o f r i c e a r e a .

A n e x a m p l e o f t h e e s t i m a t i o n r e s u l t s f r o m t h e p r o f i t f u n c t i o n — i n t h i s c a s e f o r w e t l a n d a n d d r y l a n d rice— i s p r e s e n t e d i n a p p e n d i x t w o . T h e s t a t i s t i c a l r e s u l t s a r e b e s t f o r w e t l a n d rice, d r y l a n d rice, s o y ­b e a n s a n d f o r p e a n u t s a n d m u n g b e a n s o f f J a v a . F o r t h e o t h e r s , t h e r e s u l t s a r e l e s s s i g n i f i c a n f , b u t t h e e s t i m a t e d v a l u e s h a v e t h e c o r r e c t s i g n . T h e r e s u l t s f o r r i c e , i n a p p e n d i x I I , s h o w t h a t p r o d u c t i o n t e c h n o ­l o g y i s n o t C o b b - D o u g l a s , b e c a u s e o w n a n d c r o s s p r i c e c o e f f i c i e n t s i n t h e f a c t o r d e m a n d e q u a t i o n s a r e s i g n i f i c a n t . T h i s i m p l i e s t h a t a f l e x i b l e f u n c t i o n a l f o r m b e t t e r t r a c e s p r o d u c t i o n t e c h n o l o g y t h a n t h e o f t e n i u s e d C o b b D o u g l a s r e s t r i c t i o n ( C h a n d , 1 9 8 4 , S h u m w a y , 1 9 8 3 ) .

E s t i m a t e d a r e a , y i e l d , a n d s u p p l y e l a s t i c i t i e s a r e r e p o r t e d i n t a b l e 11 T h e s e r e s u l t s c a n b e u s e d , i n a p a r t i a l e q u i l i b r i u m s e n s e , t o e x p l o r e t h e ; c o n s e q u e n c e s o f g o v e r n m e n t p o l i c y i n t i a t i v e s . F o l l o w i n g t h e a c h i e v e - 1

l i s

Page 6: Supply Parameters for Indonesian Agricultural Policy Analysis

1-ftv-'-fsff?'?,-•siisa'fN'-«!̂ ^

A l t e m e i e r ; T a b o r ; A d i n u g r o h o

T a b l e 1 Short T e r m A r e a , Y i e l d and Supply Elasticities ( 1 9 8 6 )

l l ^ . l . D n H « H n H

witn Kespect to :

Java Off Java Indonesia l l ^ . l . D n H « H n H

witn Kespect to :

Area Yield Supply Area Yield Supply Area Yield Supply

WETLAND RICE Rice-Price 0.22 0.24 0.46 0.05 0.41 0.46 0.17 0.31 0.46 Com Price -0.12 -0.12 -0.01 -0.01 -0.07 -0.07 Sugar Price -0.17 -0.17 -0.13 -0.13 -0.15 -0.15

-0.01 -0.01 -0.00 -0.00 C/-4i/Vu&on ^ J T - I AA

i joyucaii rn^-HC

-0.05 -0.06 -0.02 -0.02 T Q1X/XT AA/'iof̂ c Ti 'amilx/ x-icLUKji vvctgca r d i i i i i y

-0.05 -0.05 -0.26 -0.26 -0.14 -0.14 Hired -0.16 -0.16 -0.12 -0.12 -0.14 -0.14

-0.03 -0.03 -0.03 -0.03 -0.03 -0.03 Rpnplitn I V

1.10 1.10 1.18 1.18 1.14 1.14

DRYLAND RICE Rice Price 0.45 0.50 0.95 0.49 0.16 0.65 0.47 0.26 0.73 Mungbean Price -0.29 -0.29 -0.01 -0.01 -0.13 -0.13 ftovhpnn Pripp i j y j y U C o l l X X I C C

-0.01 -0.01 0.00 0.00 O U ^ o X X X I C C -0.41 -0.41 -0.29 -0.29 Labor Waees Familv -0.12 -0.12 0.00 0.00 -0.04 -0.04

Hired -0.29 -0.29 -0.10 -0.10 -0.16 -0.16 Fer t i l izer Prices -0.08 -0.08 -0.06 -0.06 -0.07 -0.07 Rpnplita TV X V C L z C i l L a 1 V Targets on Area n Rg

0 . 0 7 n RQ 1 04 1 04 i . e * t n QO

\ j , y y n OQ

C O R N Corn Pripp V ^ V J I J l X I J C C

0.69 0.79 1.48 0.68 0.19 0.87 0.68 0.59 1.25 ftr»\rI\(iQn P 'rir'f* tDOy U c t U l X I I C C -0.30 -0.30 -0.19 -0.19 Ca5a< lV t l X X I C C -0.13 -0.13 -0.04 -0.04 l a b o r Wapes Fami lv -0.27 -0.27 f.f. f.f. -0.09 -0.09

Hired -0.44 -0.44 -0.14 -0.14 -0.33 -0.33 FprtilizPT T*ripps I CX LXllAiCX X 1 1 C C 3

-0.08 -0.08 -0.05 -0.05 -0.07 -0.07

CASSAVA Cassava Price C ' d S A a v a X 1 I C C

0.09 0.20 0.29 -0.10 0.41 0.51 0.09 0.27 0.36 Corn Price -0.04 -0.04 -0.01 -0.01 -0.03 -0.03 Peanut Price X \. CT-l Xd L X 1. ±\'\i

-0.18 -0.18 -0.12 -0.12 Sovbean T*rice b^\j y in/waxi X X a^ w

-0.21 -0.21 -0.07 -0.07 TahrtrWatrps F a m i l v L m U k j I W a ^ C s r a l l l l i j '

f.f. f.f. -0.29 -0.29 -0.01 -0.09 Hired -0.13 -0.13 -0.10 -0.10 -0.12 -0.12

Fert i l izer T^rices X C I LU1X.CX 1 l l C C d

-0.07 -0.07 -0.01 -0.01 -0.05 -0.05

SOYBEANS Soybean Price 1.45 0.28 1.73 0.58 0.05 0.63 1.10 0.19 1.30 Corn Price -0.26 -0.26 -0.16 -0.16 Cassava Price -0.20 -0.20 -0.07 -0.07 -0.15 -0.15 Peanut Price -0.19 -0.19 -0.12 -0.12 Sugar Price -0.15 -0.15 -0.05 -0.05 Labor Wages Family f.f. f.f. f.f. f.f.

Hired -0.23 -0.23 -0.03 -0.03 -0.15 -0.15 Fertilizer Prices -0.04 -0.04 -0.02 -0.02 -0.03 -0.03 Repelita IV Targets on Area 0.37 0.37 1.29 1.29 0.86 0.86

1 1 6 - f t^

Page 7: Supply Parameters for Indonesian Agricultural Policy Analysis

\ I S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

T a b l e 1 ( c o n t i n u e d )

Short T e r m A r e a , Y i e l d and Supply Elasticities ( 1 9 8 6 )

W i t h Resnert to :

Java Off Java Indonesia W i t h Resnert to : Area Yield Supply Area Yield Supply Area Yield Supply

Ppaniit Price 0.37 0.07 0.44 0.98 0.13 1.11 0.57 0.09 0.66 Cnrn Price -0.08 -0.08 -0.05 -0.05 ftnvhpati Price ouyucaii d i c e -0.75 -0.75 -0.24 -0.24 Tahnr Waves F a m i l v f.f. f.f. f.f. f.f.

—U.U / n nn —U.U/ n i l — U . l 1 n i l n no —U.Uo n no —U.Uo Fertilies Prices -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 Repelita IV Targets on Area 0.7 0.7 1.24 1.24 0.85 0.85

MUNGBEANS Mungbean Price 1.06 0.29 1.35 0.23 0.14 0.37 0.64 0.21 0.85 Corn Price -0.65 -0.65 -0.70 -0.70 -0.67 -0.67 Sugar Price -0.20 -0.20 -0.10 Labor Wages Family f.f. f.f. f.f. f.f.

Hired -0.23 -0.23 -0.12 -0.12 -0.17 -0.17 Fertilizer Prices f.f. f.f. -0.03 -0.03 -0.02 -0.02

Notes: Elasticity values derived from the area response model. (see Appendix I) and the profit function model (see Appendix II). f.f. means fixed factor.

m e n t o f r i c e s e l f - s u f f i c i e n c y i n 1 9 8 5 , t h e ' g o v e r n m e n t h a s b e g u n t o d i v e r s i f y f o o d c r o p p r o g r a m s t o p r o d u c t i o n o f s e c o n d a r y f o o d c r o p s . S e l f - s u f f i c i e n c y c a m p a i g n s f o r s o y b e a n s a n d c o m w e r e m o u n t e d i n 1 9 8 6 . T h r o u g h t h e u s e o f b i n d i n g q u o t a s , d o m e s t i c s o y b e a n p r i c e s a r e h e l d a r t i f i c a l l y a b o v e w h a t w o u l d b e e q u i l i b r i u m p r i c e s i n t h e w o r l d m a r k e t .

T h e u s e o f h i g h p r i c e s t o s t i m u l a t e s o y b e a n p r o d u c t i o n , a c c o r d i n g t o t h e s e s u p p l y p a r a m e t e r e s t i m a t e s , h a s a n u m b e r o f i n d i r e c t e f f e c t s i n o t h e r c o m m o d i t y m a r k e t s . T h e e f f e c t s o f h i g h s o y b e a n p r i c e s c a n b e e x a m i n e d b y s i m u l a t i n g t h e s u p p l y c o n s e q u e n c e s o f a t e n p e r c e n t r i s e i n r e a l s o y b e a n p r i c e s r e l a t i v e t o t h e o t h e r f o o d c r o p s ( T a b l e 2 ) . S u c h a n i i n c r e a s e , a l t h o u g h h y p o t h e t i c a l , w o u l d b e w e l l w i t h i n g o v e r n m e n t ' s [ d i s c r e t i o n a r y r e a c h , b e c a u s e o f t h e i m p o r t a n c e o f i m p o r t s t o d o m e s t i c u t i l i z a t i o n . R a i s i n g s o y b e a n p r i c e s ( o r f o l l o w i n g a h i g h p r i c e p o l i c y ) w o u l d i n c r e a s e s o y b e a n o u t p u t l a r g e l y b y i n d u c i n g f a r m e r s t o i n c r e a s e t h e a r e p l a n t e d t o s o y b e a n s . A s a r e s u l t , l a n d w o u l d b e t a k e n o u t o f t h e o t h e r l a n d c o m p e t i n g f o o d c r o p s . O n b a l a n c e , a n a d d i t i o n a l 1 5 0 , 0 0 0 t o n s o f s o y ­b e a n s i s p r o d u c e d , b u t a t t h e c o s t o f 1 3 , 0 0 0 t o n s o f p e a n u t s , 9 8 , 0 0 0 t o n s o f c o r n , 9 1 , 0 0 0 t o n s o f c a s s a v a a n d 4 4 , 0 0 0 t o n s o f r i c e f o r e g o n e

1 1 7

Page 8: Supply Parameters for Indonesian Agricultural Policy Analysis

A l t e m e i e r ; T a b o r ; A d i n u g r o h o

p l u s o t h e r p r o d u c t i o n w h i c h i s n o t i n c l u d e d i n t h e a n a l y s i s . T h i s u n d e r ­l i n e s t h e i m p o r t a n c e o f m u l t i - m a r k e t i m p l i c a t i o n s o f s i n g l e m a r k e t c o m ­m o d i t y p r i c i n g p o l i c i e s . A s I n d o n e s i a e x p l o r e s o p t i o n s f o r f o o d c r o p d i v ­e r s i f i c a t i o n , t h e i m p o r t a n c e o f i n t e r - c o m m o d i t y m a r k e t r e s p o n s e m u s t b e c a r e f u l l y e x a m i n e d i n o r d e r t o a v o i d h i g h c o s t r e s o u r c e a l l o c a t i o n p a t t e r n s . •

T a b l e 2 . The p a r t i a l e q u i l i b r i u m effects of a ten percent rise in r e a l soybean prices

C o m m o d i t y A r e a A b s o l u t e P r o d u c t i o n E f f e c t s A r e a C h a n g e E f f e c t s

( % change ) ( H a ) ( M T )

S o y b e a n s 1 1 . 0 1 3 0 , 0 0 0 + 1 5 0 , 0 0 0 P e a n u t s - 2 . 4 - 1 6 , 8 0 0 - 1 3 , 0 0 0 C o r n - 1 . 9 - 4 3 , 7 0 0 - 9 8 , 0 0 0 Cassava - 0 . 7 - 8 , 4 0 0 - 9 1 , 0 0 0 W e t l a n d R i c e - 0 . 2 - 1 8 , 0 0 0 - 4 4 , 0 0 0 O t h e r s - 4 3 , 1 0 0

T h e r e s u l t s f r o m t h e s u p p l y m o d e l c a n a l s o b e u s e d t o e x a m i n e t h e e f f e c t s o f a n i n c r e a s e i n r e a l f e r t i l i z e r p r i c e s . F a i r l y s u b s t a n t i a l u p ­w a r d r e v i s i o n o f f e r t i l i z e r p r i c e s w i l l b e r e q u i r e d i n o r d e r t o r e d u c e t h e g o v e r n m e n t s u b s i d y b u r d e n a n d i n o r d e r t o c o r r e c t d o m e s t i c r e s o u r c e a l l o c a t i o n s i g n a l s . A t w e n t y p e r c e n t u p w a r d a d j u s t m e n t o f r e a l f e r t i l i z e r p r i c e s w o u l d c a u s e p r o d u c t i o n c h a n g e s w h i c h c o u l d b e o f f s e t b y o u t p u t p r i c e a d j u s t m e n t s . U n d e r a f l e x i b l e p r i c e r e g i m e , t h e p r o d u c t i o n e f f e c t s o f a t w e n t y p e r c e n t f e r t i l i z e r p r i c e i n c r e a s e , a n d t h e p e r c e n t a g e r i s e i n o u t p u t p r i c e s r e q u i r e d t o c o m p e n s a t e f o r s u c h a n i n p u t p r i c e i n c r e a s e , i s s h o w n i n t a b l e 3 .

T a b l e 3 Effect o f twenty Percent f e r t i l i z e r price increase i

D i r e c t C o m p e n s a t i n g P r o d u c t i o n O w n P r i c e

I m p a c t Increase ( % ) ( % )

W e t l a n d R i c e - 0 . 6 2 . 0 D r y l a n d R i c e - 1 . 4 2 . 0 C o r n - 1 . 4 1.1 Cassava - 1 . 0 2 . 9 S o y b e a n s - 0 . 6 0 . 4 P e a n u t s - 0 . 2 0 .3 M u n g b e a n s - 0 . 4 0 . 4

1 1 8

Page 9: Supply Parameters for Indonesian Agricultural Policy Analysis

S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

O n b a l a n c e , a f a i r l y a m p l e i n c r e a s e i n r e a l f e r t i l i z e r p r i c e s w i l l h a v e o n l y a r e l a t i v e l y t r i v i a l e f f e c t o n a g r i c u l t u r a l s u p p l y . F u r t h e r m o r e , t h i s e f f e c t c a n b e o f f s e t b y m i n o r u p w a r d a d j u s t m e n t s i n p r o d u c t p r i c e s . F o r r i c e , t h e a l r e a d y h i g h r a t e s o f f e r t i l i z e r u s a g e a n d l o w s h a r e o f f e r t i ­l i z e r t o t o t a l v a r i a b l e c o s t s n e c e s s i t a t e a l o w f e r t i l i z e r p r i c e e l a s t i c i t y . F o r m a n y o f t h e s e c o n d a r y f o o d c r o p s , t h e p a u c i t y o f f e r t i l i z e r r e s p o n ­s i v e v a r i e t i e s u n d e r c u l t i v a t i o n , p r e s e n t l y e x p l a i n s t h e s m a l l r e a c t i o n t o u p w a r d f e r t i l i z e r p r i c e a d j u s t m e n t .

A n i n t e r e s t i n g f i n d i n g i s t h a t l a b o r d e m a n d i s f a i r l y s e n s i t i v e t o r e a l w a g e r a t e s a s a r e y i e l d l e v e l s . F a c t o r d e m a n d e l a s t i c i t i e s f o r w e t l a n d r i c e a r e p r e s e n t e d i n t a b l e 4 . I n t h e J a v a n e s e w e t l a n d r i c e c o n t e x t , a t e n p e r c e n t r i s e i n r e a l w a g e s w i l l l e a d t o a t w o p e r c e n t d e c l i n e i n f a m i l y l a b o r e m p l o y e d a n d a f i v e p e r c e n t d e c r e a s e i n h i r e d l a b o r . T h e n e t e f f e c t o f a t e n p e r c e n t r e a l r i s e i n w a g e r a t e s i s t o c a u s e a t h r e e t o f o u r p e r c e n t d e c l i n e i n t o t a l w e t l a n d r i c e e m p l o y m e n t a n d a n i n c r e a s e i n t h e c u s e o f f a m i l y l a b o r e r s r e l a t i v e t o h i r e d l a b o r . A s a r e s u l t o f t h e h i g h e r w a g e s , a n d l o w e r l a b o r d e m a n d , w e t l a n d r i c e s u p p l y f a l l s b y 1 . 4 p e r c e n t .

A v e r a g e w a g e r a t e s a r e a p p r o x i m a t e l y f o r t y p e r c e n t h i g h e r o f f - J a v a c o m p a r e d t o J a v a . A s a r e s u l t o f u s i n g g o v e r n m e n t p o l i c y t o m a i n t a i n p a n - t e r r i t o r i a l r i c e r i c e s , p r o d u c t i v i t y a n d p r o f i t a b i l i t y i s a r t i f i c i a l l y r e s t r a i n e d o f f o f J a v a . T h i s i s b e c a u s e t h e c o m b i n a t i o n o f r e s t r a i n e d p r o d u c t p r i c e s a n d h i g h e r w a g e r a t e s i n d u c e s a l o w e r l a b o r a b s o r b t i o n a n d l e a d s t o a d o w n w a r d p r e s s u r e o n p r o d u c t i v i t y o f f J a v a . T h e n e t r e s u l t i s a l o w e r e m p l o y m e n t d e m a n d n a t i o n w i d e t h a n w o u l d r e s u l t u n d e r a f l e x i b l e p r i c i n g r e g i m e . T h e i n c r e a s i n g i m p o r t a n c e o f e m p l o y ­m e n t a b s o r b t i o n f o r t h e e c o n o m y a s a w h o l e i m p l i e s t h a t t h e u n i n t e n d ­e d e m p l o y m e n t e f f e c t s o f g o v e r n m e n t p r i c i n g p o l i c i e s m u s t b e g i v e n c a r e f u l s c r u t i n y .

V . C o n c l u s i o n s

I n t h i s s t u d y w e h a v e u s e d a n a d a p t i v e r e s p o n s e m o d e l a n d a f l e x i b l e f o r m p r o f i t f u n c t i o n m o d e l t o e s t i m a t e p a r a m e t e r s f o r t h e e c o n o m i c a n a l y s i s o f a g r i c u l t u r a l s u p p l y . A c o m b i n a t i o n o f t i m e - s e r i e s a n d c r o s s - s e c t i o n a l d a t a a n a l y s i s t e c h n i q u e s w e r e u s e d t o p r o d u c e a s e t o f s u p p l y r e s p o n s e a n d f a c t o r d e m a n d p a r a m e t e r s .

T h e e m p i r i c a l r e s u l t s a r e g e n e r a l l y s a t i s f a c t o r y b u t , m o r e i m p o r t ­a n t , t h e r e s u l t s a r e s q u a r e l y r o o t e d i n n e o c l a s s i c a l t h e o r y . M a i n t a i n i n g t h e o r e t i c a l c o n s i s t e n c y i s e s p e c i a l l y i m p o r t a n t b e c a u s e o f t h e r e v e a l e d c o m p l e x i t y o f r e a l w o r l d r e l a t i o n s h i p s i n t h e I n d o n e s i a n a g r i c u l t u r a l e c o n o m y . I n t e r - p r o d u c t , i n t e r - f a c t o r a n d t h e r e f o r e i n t e r - m a r k e t e f f e c t s o f p r i c e a n d w a g e p o l i c i e s a r e n o n - t r i v i a l . S i m p l i e r , m o r e a d - h o c , a p p r o -

1 1 9

Page 10: Supply Parameters for Indonesian Agricultural Policy Analysis

A l t e m e i e r ; T a b o r ; A d i n u g r o h o

T a b l e 4 . Labor D e m a n d Elasticities ( H i r e d L a b o u r )

O u t p u t W i t h Respec t t o P r i c e o f L o n m i o d i t y P r i c e F a m i l y L a b o u r H i r e d L a b o u r

W e t l a n d Java n cy

0 . 6 3 O i l

—0.13 —0.48

R i c e O i l Java 0 . 7 2 - 0 . 4 7 - 0 . 2 6

D r y l a n d J ava 0 . 9 2 —0.28 o ^ c —0.65 R i c e O i l J ava 0 . 6 9 0 . 2 9 - 0 . 7 9

Cassava Java 1 H R t l 1 1 T —1.17 O f f T M , ™

yjii Java 1.58 - 1 . 1 6 - 0 . 5 0

S o y b e a n Java 1 i n f f I " 1 0 * 3 — l . Z j O f f Java 0 . 2 4 f f - 0 . 2 4

P e a n u t Java 0 . 4 1 f f - 0 . 5 1 O f f J ava 0 . 7 9 f f - 0 . 7 3

C o r n Java 1.83 - 0 . 2 5 - 1 . 4 4 O f f Java 0 . 6 4 f f - 0 . 5 9

M u n g b e a n Java 1.39 f f - 1 . 3 9 O f f J ava 1.95 f f - 1 . 8 5

( F a m f l y L a b o r )

O u t p u t W i t h Respec t t o P r i c e o f C o m m o d i t y P r i c e F a m i l y L a b o u r H i r e d L a b o u r

W e t l a n d Java 0 . 8 0 - 0 . 3 2 - 0 . 5 5 R i c e O f f Java 1.18 - 0 . 7 3 - 0 . 3 7

D r y l a n d Java 0 . 8 0 - 0 . 1 7 - 0 . 5 6 R i c e O f f J ava 0 . 0 1 - 0 . 0 7 0 . 1 4

Cassava O f f Java 1 .04 - 0 . 7 1 - 0 . 2 6

C o r n Java 1 .50 - 0 . 9 6 - 0 . 3 2

N o t e s : E l a s t i c i t y V a l u e s a d j u s t e d t o a 1 9 8 5 / 1 9 8 6 y i e l d base. V a l u e s d e r i v e d f r o m r|f^ t h e p r o f i t f u n c t i o n m o d e l . N o e l a s t i c i t y v a l u e s are l i s t e d i n cases w h e r e

l a b o r w a s a s sumed t o be a f i x e d f a c t o r , f . f . r e fe r s t o f i x e d f a c t o r s .

1 2 0

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S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

a c h e s a t m o d e l l i n g s u p p l y r e s p o n s e w o u l d t e n d t o i g n o r e t h e i m p o r t a n t i n t e r a c t i o n s w i t h i n a n d a m o n g s t f o o d s t a p l e m a r k e t s . I n c r e a s i n g i n t e r ­a c t i o n s a m o n g s t m a r k e t s i n t h e r e a l w o r l d i m p l i e s t h a t a d - h o c a p p r o a c h ­e s t o m o d e l l i n g a g r i c u l t u r a l s u p p l y r e s p o n s e r u n m u c h g r e a t e r r i s k s o f p r o d u c i n g d i s t o r t e d c o e f f i c i e n t s f o r p o l i c y a n a l y s i s p u r p o s e s t h a n d o e s t h e u s e o f a t h e o r e t i c a l l y c o n s i s t e n t a p p r o a c h .

F o o d c r o p d i v e r s i f i c a t i o n p r o g r a m s t h a t r e l y o n p o s i t i v e i n c e n t i v e r e g i m e s s h o u l d t a k e i n t o a c c o u n t e f f e c t s o f d i s t o r t i o n s i n t r o d u c e d i n t o o t h e r c o m m o d i t y m a r k e t s . F o r e x a m p l e , t h e r e s u l t s i n s e c t i o n five s h o w t h a t t h e f o r e i g n e x c h a n g e s a v i n g s r e s u l t i n g f r o m a h i g h s o y b e a n p r i c e p o l i c y m u s t b e w e i g h t e d c a r e f u l l y a g a i n s t t h e p r o d u c t i o n f o r e g o n e o f c o r n , p e a n u t s , c a s s a v a a n d w e t l a n d r i c e .

S e c o n d l y , t h e r e s u l t s s h o w t h a t a l o w f e r t i l i z e r p r i c e p o l i c y i s c l e a r l y o f l e s s i m p o r t a n c e t o a g r i c u l t u r a l s u p p l y t h a n i t w a s t h e c a s e a d e c a d e a g o . H i g h a d o p t i o n r a t e s o f m o d e m r i c e v a r i e t i e s , c o u p l e d w i t h v e r y h i g h f e r t i l i z e r u s e r a t e s h a v e d r i v e n d o w n t h e e l a s t i c i t y o f s u p p l y t o f e r t i l i z e r p r i c e s . R e l a t i v e l y s m a l l s e c o n d a r y c r o p s u p p l y r e s p o n s e t o f e r t i l i z e r p r i c e s a r e a l s o o b s e r v e d , r e f l e c t i n g t h e l o w r e s p o n s i v e n e s s o f s e c o n d a r y c r o p p r o d u c t i o n t e c h n o l o g y t o f e r t i l i z e r u s e . R e l a t i v e l y s m a l l u p w a r d a d j u s t m e n t s i n c r o p p r i c e s w i l l b e r e q u i r e d t o o f f s e t t h e r e m o v a l o f f e r t i l i z e r s u b s i d i e s .

M o r e i m p o r t a n t t h a n f e r t i l i z e r i n t h e v a r i a b l e c o s t b u d g e t i s l a b o r . A s a r e s u l t o f t h e g r e e n r e v o l u t i o n a d v a n c e s , t h e r e h a s b e e n a c o m m e r c i a l i z a t i o n o f t h e m r a l l a b o r m a r k e t s . T h i s i n c r e a s i n g c o m ­m e r c i a l i z a t i o n i s r e v e a l e d i n t h e p a t t e m s o f l a b o r d e m a n d a n d p r o d u c t r e s p o n s e i d e n t i f i e d i n t h i s s t u d y . T h e s e r e s u l t s s u g g e s t t h a t n e g a t i v e e m p l o y m e n t e f f e c t s r e s u l t i f p r o d u c t p r i c e s a r e h e l d c o n s t a n t w h i l e c o s t s d i f f e r a c r o s s r e g i o n s .

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A l t e m e i e r ; T a b o r ; A d i n u g r o h o

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S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

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T i m m e r , C . ( 1 9 8 6 ) . " T h e R o l e o f P r i c e P o l i c y i n I n c r e a s i n g R i c e P r o d u c t i o n i n I n d o n e s i a " , i n R . G o l d b e r g e d . Research in Domestic and Intemational Agri­business Management, V o l . 6 , G r e e n w h i c h , C t . : J A I Press.

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K : / t e s * - i

1 2 3

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Appendix 1 : Aiea Response Function Estimates

C o m m o d i t y R e g i o n Pr i ce

E x p e c t a ­t i o n L a g

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P r i c e s ( R p / K g ) C o m m o d i t y R e g i o n

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( - 0 8 5 2 2 9 ) - 1 0 . 5 5 4 3

( - 1 . 1 6 0 3 5 ) - - 5 / 5 6 9 2

( - 3 . 2 0 8 0 7 ) * * - 1 0 . 4 2 4 6

( - 6 . 6 7 7 3 6 ) * *

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( - 0 1 3 5 3 8 4 ) V s-r-A -'*,i-'xa^_/

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O f f Java 0 . 9 7 4 2 2 ( 4 . 6 3 3 5 0 ) "

- - 0 . 3 2 2 6 9 1 ( - 0 . 0 8 5 3 9 2 )

7 . 8 7 3 6 6 ( 1 . 4 9 3 9 5 1 *

- - 2 . 3 0 3 5 7 ( - 0 . 8 0 9 8 2 )

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Java 0 . 3 5 1 8 5 ( 3 . 6 5 2 8 9 ) "

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- • - 6 . 3 9 4 5 9 ( 2 9 . 3 7 2 5 ) * *

- 1 . 6 2 2 9 ( 2 3 . 3 7 2 5 ) * *

P e a n u t Java 0 . 7 8 6 6 3 ( 5 . 3 1 3 6 2 ) * *

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- 5 . 5 1 7 1 2 ( - 1 . 4 0 5 3 1 ) *

2 . 5 6 8 3 6 ( 1 . 7 1 8 1 4 ) *

- 0 . 6 0 4 3 4 1 ( - 1 . 5 6 8 6 2 )

O f f Java 0 . 7 1 5 2 5 ( 6 . 9 5 7 0 9 ) * *

- 9 . 0 5 3 9 6 ( - 4 . 7 4 0 9 3 ) * *

0 . 6 6 4 4 8 6 ( 0 . 8 2 6 4 2 8

Sugar Java - 1 0 . 6 4 0 1 6 ( 3 . 3 9 5 6 8 ) * *

- 0 . 8 1 6 6 8 ( - 0 . 4 8 3 0 2 )

2 , 0 2 2 8 5 ( 2 . 6 3 6 5 5 ) * *

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C o r n Java - 1 0 . 7 7 8 5 9 ( 2 . 8 9 2 6 5 ) * *

7 7 . 1 2 3 6 ( 1 . 9 5 4 1 1 ) * *

- 1 2 . 5 7 2 2 ( - 0 / 0 ) 7 8 )

O f f Java - 1 0 . 5 2 3 6 2 ( 2 . 7 4 6 6 4 ) * *

4 2 . 4 7 3 1 ( 3 / 7 9 4 5 ) * *

- 2 1 . 9 1 5 6 ( - 0 . 6 4 5 5 9 )

Page 15: Supply Parameters for Indonesian Agricultural Policy Analysis
Page 16: Supply Parameters for Indonesian Agricultural Policy Analysis

" " • . A d i n u g r o h o

£ "̂ninio<Jity

Continued

' D a t a source ; Buloc f o r Sugar a n d C B S f o r O t h e r . The d e p e n d e n t v a r i a b l e is " h a r v e s t e d a r e a " . T h e o b s e r v a t i o n p e r i o d is 1 9 6 9 - i 9 8 5 i f n o t i n d i c a t e d o t h e r w i s e . T - v a l u e s i n parcn thcs iv C s i g n r i c a n t o n a 8 0 % leve l •* s ign i f i canr o n a 9 0 % l e v e l ) . D F Degrees o f F r e e d o m . D W D u r b i n W e t s o n t e s t v a l u e . D H D u r b i n - H tes t v a l u e . R H O l first o r d e r a u t o r o n c l a t i o n c o e f f i c i e n t . R H 0 2 second o r d e r a u t o c o r r e l a t i o n coef­f i c i e n t . O L S O r d i n a r y Leas t Squares E s t i m a t e s . C O R C C o c h r a n e O r c h u t t f i r s t o rde r a u t o c o n e l a t i o n p r o c e d u r e . C 0 R C 2 C o c h r a n e O r c h u t t second o r d e r a u t o c o r r e l a t i o n p r o c e d u r e . U s i n g t h e C 0 R C 2 p r o c e d u r e a n o p t i m u m is assumed t o be reached, i f t h e a u t o c o r r e l a t i o n c o c f f i c i e n l s chance b y less t h e n . 0 0 5 f r o m o n e i t e r a t i o n t o t h e n e x t .

) R ^ o n t h e d i f f e r e n c e d m o d e l , b ) A d j u s t e d R " . c ) n o o p t i m u m ach ieved a f t e r i t e r a t i o n , d ) U s i n g an o b s e r v a t i o n p e r i o d 9 7 0 - 1 9 8 5 . c ) less t h a n 15 o b s e r v a t i o n s , f ) V a l u e fo r t h e D u r b i n - H test is i n d i c a t e d f o r m o d e l s w i t h a lagged d e p e n d e n t r u b l e , i f t h e v a l u e is a real n u m b e r .

Page 17: Supply Parameters for Indonesian Agricultural Policy Analysis

•ii' •'

Appendix I I : Profit Function Estimares for Rice

Conunodity Region Po "o 'o "1 '2 "3 ' 2 •̂ 3 P i P2 P3 Sample Size

Wedand Java 8.4921 0.0290 0.2494 0.0005 - 0.0759 0.0139 - 0.0168 -0.3734 - 0.0345 - 0.0691 -0.2838 206 Rice (77.4136)'* (0.8347) (2.7883)** (0.0291) (-4.2997)** (0.7595) (-1.4967)** (-8.7528)** (-4.4066)** (-5.7411)** (-4.0261)** - - (14)

Off Java 7.9307 0.3051 0.4143 - 0.0252 - 9.2534 0.0250 - 0.0008 -0.3164 - 0.0249 - 0.0422 -0.0150 -0.1552 96 (35.6145)** ( 2 . 3 2 8 5 ) " (2.9617)** (-1.0938) e .6693)** (0.4664) (-0.0912) (-4.7203)** (-2.7725)** (-3.6274)** (-0.1108) (-1.2722) (18)

Dryland Java 5.4960 1.8091 0.6046 -0.1719 - 0.8700 - 0.2426 - 0.0245 -0.1363 0.0184 -0.1254 0.6068 76 Rice (!1.6835)** ( 5 . 1 7 5 3 ) " ( 1.7260)** ( 1.8227)** (1.0756)** (-1.5388)* (-0.6286) (-0.6976) (0.4592) (-3.1351)** (0.8080) (14)

Off Java 6.9608 0.4961 0.8620 0.1303 - 0.3856 0.0384 - 0.0321 -0.7119 •0.1071 -0.0142 0.4011 0.2976 46 (17.7438)*' (2 .3172)** (2.8170)** ( 1.5242)* ( 3.5761)** (0.3836) (-1.1405) (-4.4208)** (-2.9842)** (-0.2482) ( 1.0359) (0.7824) (18)

Type of Factor Family Lalxrur Dummy for Non Family Labour Dummy for Fertilizer Dummy for Sample

Commodity Region Time Fertilizer. Subregion Time Fertilizer Subregion Time Fertilizer Subregion Size

Wetland Java 0.00311 0.15219 0.00252 206 Rice (0.24932) (4.19035)** (0.37729) (14)

Off Java - 0.16925 0.02228 - 0.04910 0.03464 - 0.01055 0.01312 96 (-1.93759)** (0.43522) (-0.90840) (0.73116) (-1.28959) (1.81756)** (18)

Dryland Java 0.24180 - 0.36748 - 0.00927 76 Rice (2.15024)'* (-1.95 699)** (-0.26943) (14)

Off Java -0.47635 0.07730 - 0.45443 - 0.15607 - 0.07035 0.00359 46 (-1.19726) (0.43207) (-1.80843)** (-1.23223) (-1.40871)* (0.13791) (18)

Note: i -va luRi in parentliesisare:

• * agnifieant at a W/r system value.

Page 18: Supply Parameters for Indonesian Agricultural Policy Analysis

A p p e n d i x I I : P r o f i t F u n c t i o n M o d e l E q u a t i o n s

Profit Function : '

L n ^ H = Po + ^% • ' . 5 / ( ^ ( > * ^ < ^ l , n l P n ) + + 5 / / ' ^ / ) * l n K . > n ) + ( % + J ^ ^ . d ^ * ' " (vVs . n /Pn)

+ 0 .5*aj l n ( w , > „ ) ln(Wj_„/p„) + ln(w2,„/p„) ln(w ,_„/p„) + a^ ( i - J ^ „/p„) l n ( W j _ > „ )

+ 0 .5 6 ^ l n K , > „ ) ln(w3_„/p„) + ( i - d , ) ln(w3 „/p„) InCw^ „/p„) + Q . S c ^ i l - d ^ ) H ^ ^ J p ^ ) l n ( w

^ P G 0 p G 0 P ^ d ^

Factor Demand Equations : '

= ^ + ln(^l.„/P„) + «2 '"(^2, A ) + S ( 'A) 1"(^3 «/P«) + « 4 ^ 1 +^ 5̂ ^2 +̂ 6̂ ^3 )

^ 2 . « = ^ ( * o + « 2 1"(^,A) + ̂ l " ( ^ 2 > . ) ^ ^ ( J A ) l n K A ) + ^ ^ l + * S ^ 2 - ^ * 6 ^ 3 ) ^ 3

Page 19: Supply Parameters for Indonesian Agricultural Policy Analysis

S u p p l y P a r a m e t e r s f o r I n d o n e s i a n A g r i c u l t u r e

W h e r e : Wj ^ = P r i c e o f F a m i l y L a b o u r obse rved f o r c o m m o d i t y n ( m p i a h / d a y s ) .

^ = P r i c e o f N o n F a m i l y L a b o u r o b s e r v e d f o r c o m m o d i t y n ( r u p i a h / d a y s ) .

^ = P r i c e o f F e r t i l i z e r ( U r e a , K C L , T S P ) obse rved f o r c o m m o d i t y n ( r u p i a h / k g ) .

= P r i c e o f c o m m o d i t y n ( r u p i a h / k g ) . ^ ^ % d j = D u m m y f o r d i f f e r e n t o b s e r v a t i o n p e r i o d s ( 1 9 8 3 = 0 , 1 9 8 5 a n d

1 9 8 5 / 8 6 = 1 ) . = D u m m y f o r f e r t U i z e r use ( n o f e r t i l i z e r use obse rved = 1 ) .

d = D u m m y f o r subreg ions ( S u m a t e r a = 0 , o f f Java a n d o f f S u m a t e r a = 1 ) .

Xj ^ = D e m a n d f o r F a m i i y L a b o u r o n c o m m o d i t y n ( d a y s / h a ) .

jc^ ^ = D e m a n d f o r N o n F a m i i y L a b o u r o n c o n u n o d i t y n ( d a y s / h a ) . X 3 ^ = D e m a n d f o r F e r t i i i z e r o n c o m m o d i t y « ( k g / h a ) . IT 'n = N o r m a l i z e d p r o f i t f o r c o m m o d i t y n c a l c u l a t e d as p r i ce t i m e s o u t ­

p u t m i n u s v a r i a b l e cos t d i v i d e d b y t h e obse rved c o m m o d i t y p r i ce . = A c t u a i P r o f i t f o r c o m m o d i t y n c a l c u l a t e d as p r i ce t i m e s o u t p u t

m i n u s v a r i a b l e cos ts ( r u p i a h / h a ) . | a,-, b., c., p . = E s t i m a t e d R e a c t i o n C o e f f i c i e n t s . -

E l a s t i c i t i e s f r o m t h e t r a n s l o g , p r o f i t f u n c t i o n : D e m a n d f o r F a c t o r / o n F a c t o r P r i c e i :

( i ) 0 . . = S , - i + ^

D e m a n d f o r F a c t o r i o n F a c t o r P r i c e / : .> ;

Y i e l d o f C o m m o d i t y n o n F a c t o r P r i c e i : '

n

Y i e l d o f C o m m o d i t y n o n C o m m o d i t y P r i ce n :

( 4 ) e„ = - ? L - i + - ^ i * ( i i a. )

1 2 9

Page 20: Supply Parameters for Indonesian Agricultural Policy Analysis

A l t e m e i e r ; T a b o r ; A d i n u g r o h o

F a c t o r D e m a n d o f F a c t o r / o n C o m m o d i t y P r i c e n :

w h e r e :

•5, = - i n e q u a t i o n s ( 1 ) t o ( 4 )

4 i

= n o r m a l i z e d p r o f i t ( p r o f i t i n o u t p u t u n i t s pe r h a ) f o r c o m m o d i t y n = o u t p u t ( k g / h a ) o f c o m m o d i t y n = c o m m o d i t y p r i c e f o r c o m m o d i t y M ( R p / K g ) = f a c t o r p r i ce f o r f a c t o r / ( R p / K g o r R p / M a n d a y ) " = c o m m o d i t y p r i c e / f a c t o r p r i ce r e l a t i o n X , = a m o u n t o f f a c t o r / u sed ( k g / H a o r M a n d a y s / H a ) = e s t i m a t i o n p a r a m e t e r f r o m t h e p r o f i t f u n c t i o n , ( r e f e r t o a, b, c )

1 3 0

Page 21: Supply Parameters for Indonesian Agricultural Policy Analysis

C o n t r i b u t o r s t o t h i s I s sue

A d i n u g r o h o , B a m h a n g

A l t e m e i e r , K l a u s

B o e n j a m i n , S y a h i d A . ' ;

D j i w a n d o n o , J . S u d r a d j a d

I k h s a n , M o h .

M u s t o p a d i d j a y a A R

P a r t o w i d a g d o , W i d j a j o n o

S i u o n o , S u m a r n o

T a h o r , S t e v e n R .

C h i e f o f M a r k e t ana lys i s U n i t , D i r e c t o r a t e o f F o o d C o r p F c o n o m i c s , D e p t . o f A g r i c u l t u r e , Jakarta.

C o n s u l t a n t , f o r D e p t . o f A g r i c u l t u r e , / a f e r r t a .

R e s e a r c h S t a f f , I n s t i t u t e f o r F c o n o m i c a n d S o c i a l R e s e a r c h , F a c u l t y o f F c o n o m i c s , U n i v e r ­s i t y o f I n d o n e s i a , Jakarta.

L e c t u r e r , F a c u l t y o f F c o n o m i c s , U n i v e r s i t y o f I n d o n e s i a , / f l f o r r m .

Resea rch S t a f f , I n s t i t u t e f o r F c o n o m i c a n d S o c i a l R e s e a r c h , F a c u l t y o f F c o n o m i c s , U n i v e r - i s i t y o f I n d o n e s i a , / a / r a r t a .

L e c t u r e r , F a c u l t y o f F c o n o m i c s , U n i v e r s i t y o f I n d o n e s i a , Jakarta.

Resea rch S t a f f , C e n t r e o f E n e r g y R e s e a r c h a n d L e c t u r e r , B a n d u n g i n s t i t u t e o f T e c h n o l o g y , Bandung.

Resea rch S t a f f , I n s t i t u t e f o r F c o n o m i c a n d S o c i a l R e s e a r c h , F a c u l t y o f F c o n o m i c s , U n i v e r ­s i t y o f I n d o n e s i a , Jakarta.

C o n s u l t a n t , f o r D e p t . o f A g r i c u l t u r e , / a f c w T a .