Ahmad Muslim Faculty of Economics.
Universitas Al Azhar Indonesia e-mail: ahmadmuslim_uai@yahoo.
Abstract Corn has important roles to Indonesian economy both for staple foods and for price transmission to other products.
The high domestic demand for corn compared to its domestic production has made corn imports continue to grow.
This research is aimed to know the elasticity of price transmission and its implication to cornAos farmers.
The results of analysis show that corn price transmission is The coefficient shows that corn market is oligopsony under the imperfect competition To help the corn farmers, the government has to provide fertilizer subsidy and farm credit with low interest rates, as well as impose import tariff on corn.
Keywords: Corn.
Elasticity of price transmission, oligopsony, imperfect competition market JEL classification numbers: Q00.
Q12.
Q18 Abstrak Jagung memiliki posisi penting dalam perekonomian Indonesia baik sebagai makanan pokok maupun sebagai perantara aliran harga ke barang lain.
Tingginya permintaan jagung dalam negeri dibandingkan dengan produksi dalam negeri telah membuat impor jagung terus tumbuh.
Penelitian ini bertujuan untuk mengetahui elastisitas transmisi harga dan implikasinya kepada para petani Hasil analisis menunjukkan bahwa aliran harga jagung adalah tidak elastis.
Koefisien dari model menunjukkan bahwa pasar jagung berstruktur oligopsony dalam kondisi pasar persaingan tidak sempurna.
Untuk membantu para petani jagung, pemerintah harus memberikan subsidi pupuk dan kredit pertanian dengan tingkat bunga rendah, serta memberlakukan tariff impor atas jagung.
Keywords: Jagung, elastisitas alairan harga, oligopsony, pasar persaingan tidak sempurna JEL classificationnumbers : Q00.
Q12.
Q18
INTRODUCTION
Corn is the second most important staple diet after rice, especially in rural Central Java.
Yogyakarta.
East Java.
South East Nusa and all provinces in Sulawesi.
While in the period of 1985-2008, household consumption on corn have decreased by some 52 percent, there has been a growth of demand for corn for industrial sector .
he animal food industry, food industry, corn flour and cooking oi.
by about 22.
61 percent per year.
Thus, there was a net increase in consumption of corn by about 09 percent.
Corn production has in- creased by 5.
76 percent per year (Table .
As the consequences, the corn imports increase steadily so that now Indonesia becomes a net corn importer (Table .
In Indonesia, corn are traded through a long trade chains from farmers to the village traders and then to district collectors and finally to wholesalers.
This causes a high price disparity between the prices at the producer level and the prices at the wholesale level.
Moreover this price disparity is likely widening.
According to Indonesia Central Bureau of Statistics, as of December 1985 the disparity is Rp 66 per kg of dried corn and as of December 2008 becames Rp 693.
37 per kg.
This widening gap suggests that the farmers do not enjoy most of benefits from the increasing corn prices occurred at the wholesale level (Figure .
Table 1: Development of Harvested Area.
Production and Yield Per Ha Corn in Indonesia, 1990-2008 Harvested Area Production Year .
To.
Growth Sources: Indonesia Central Bureau of Statistics (BPS), several years.
Yield (Ton/H.
Table 2: Volume of Indonesia Imports and Exports of Corn, 1990-2008 (Tonne.
Year Import Export .
Sources: Indonesia Central Bureau of Statistics (BPS), several years.
Balance .
Elasticity of Corn Price A (Musli.
Source: Calculated from Indonesia Central Bureau of Statistics.
Figure 1: Monthly Corn Price.
Wholesale Levels & Manufacturers, 1985-2008 (USD/ k.
During the political reform era in 1997, the agriculture sector gained a momentum to move the national economy out of the economic crisis.
Before the crisis, the agriculture sector was considered as a supporting sector for other sectors.
At the time of crisis, unemployment rose sharply, so that growth in sectors outside of agriculture sector has declined.
The growth of agriculture sector was positive and abled to accommodate unemployed people.
Along with the political reform era in 1998 the corn production and exports increased sharply so that the trade balance was surplus more than 300 thousand tons.
However, in later years.
Indonesia experienced a trade deficit which continued to be a net importer of corn (Table .
Along with the growing importance of the agricultural sector on the Indonesian economy, the government gives greater attention to the agricultural sector especially the sub-sector of food crops including corn.
In 1990 corn production only reached 6.
million tons, then in 2008 it has reached 32 million tons.
Productivity of corn also increased sharply starting from 2.
tonnes/ha in 1990 to 4.
08 tonnes/ha in 2008 (Table .
However, the increasing demand has not been accompanied by rising prices of corn at farmer level while the rising prices only occurred at the wholesale levels.
This is due to the price of corn at farmer level is much lower than that of wholesale level.
Sahari and Musyafak .
explains that corn agribusiness system includes four subsystems i.
subsystem of production procurement, production subsystem, post harvest subsystem and marketing subsystem.
Marketing system is one of the important subsystems agribusiness.
This system affects farmers' income because it is directly related to the level of prices received by farmers.
Inefficient trading system, a less competitive market, the longer chain of trade, inadequate transportation infrastructure, unhealthy institutional system are problems that influence the level of prices received by farmers.
Inefficient trade system and less competitive market is a kind of market failures.
Corn farming is one example of imperfect competitive market where the farmers are price-takers dealing with a price Weak bargaining position of farmers has made the price of corn at the producer level is determined by manufacturers and wholesalers.
Some important characteristic of agricultural commodities is the lower price transmission and monopsonist market structure.
The lower price transmission indicates that the increasing price in consumer or wholesale level does not automatically increase prices at the producer level.
By contrast, decreasing price in consumer or wholesale level would be more quickly transmitted to the producer price at farm level.
Meanwhile the imperfect market structure leads to peasant producers facing the powerful traders and wholesalers as the price makers.
This creates a market failure (More on agricultural product characteristiscs, please refer to Liefert .
Hassouneh et al.
, 2010.
Sun, 2.
Mubyarto .
suggests the oligopolistic or monopsonistic market structure potentially occur in physically and socioeconomic isolated area.
This condition is what happened in the agricultural sector because this sector is generally located in rural areas which are far from the trade center .
ee also Habtu, 2004.
and Ahn and Lee, 2.
Meanwhile.
Chechura and Sobrova .
say that the market structure of food crops is oligopoly or oligopsoni.
However, only few economists pay attention to this market structure.
Yet this is very important in agricultural commodities including corn.
Lloyd et al.
states that monopsony or oligopsony market structure has less than 1 elasticity of price transmission or not While a competitive market struc- ture is called if and only if the elasticity of price transmission is equal to 1.
According to Corriston et al.
the price fluctuations of agricultural commodity are high.
In a perfectly competitive market the changes in price will be perfectly transmitted through all the market chains up to the final consumers.
Furthermore.
Corriston et al.
states that one approach to analyze the price transmission is the inter market price transmission.
The coefficient of the price transmission elasticity (EPT) shows the relationship between the prices of a commodity at two different market levels.
The coefficient of EPT can be used to identify the price change effect at the farm level to corn prices at the wholesale level, or vice versa.
Lagvariables can also be incorporated into the formula because the corn can be stored for a long time.
Given that the economic crisis and the era of political reform have a positive impact on the prices of agricultural commodities in the country including the price of corn.
Then, including the dummy variable of reformation era is relevant Because of market failures occur in the corn market, it would disturb the transmission of corn prices from the farmers to the wholesale levels, and vice versa.
Thus the increase in corn prices at the wholesale level is not transmitted perfectly to the price of corn at the farm level producers and vice versa.
Meanwhile the era of reform in mid-1997 is estimated having a positive effect on corn prices both at the farm level and wholesalers.
Based on the background above, the research question is whether the price of corn at the farm level is perfectly transmitted to the wholesaler level and vice versa, and whether the era of reforms affects the price of corn at the farm level and at the This study aims to determine the effect of changes in producer price of corn to the changes in corn prices at the wholesaler level and vice versa, as well as investigate the effect of the reform era to Elasticity of Corn Price A (Musli.
the price of corn at the farm levels and METHODS The method of analysis used in this study is multiple linear regressions.
The data is a secondary monthly data of corn prices during at the farmer levels and at wholesalers for a period of January 1985 to December This data is obtained from various year of Indonesia Central Bureau of Statistics.
Besides this study also includes the reform era as Dummy variable i.
D = 0
for the period before the era of reform and D = 1 for the aftermath of the reform era that began in September 1997.
To determine the effect of the change of corn prices at the farm level to the wholesaler level it use elasticity of price transmission as proposed by Corriston et al.
Asche et al.
state that economists are interested in studying the relationship between both prices because of its easiness in finding the data.
In the research time-lag data is included into the Based on the model of Corriston et .
, this study also applies a model that describes the relationship between the two price levels.
Subandi et al.
state that the corn can be stored up to 6 months when the water content in the seeds are around 11 This study applies this 6 month time lags into the model.
The transmission model from the farmers to the wholesale is i =1 i =1 H G = H P0 Oa H Pi_ i Oa H G i_ i e D eOO in double log form is ln H G = ln 0 ln H p 1 ln H P _ 1 .
6 ln H P Oe6 1 ln H G _ 1 .
6 ln H G _ 6
D OO
ln H G = 0 ln H P i =1 ln H Pi Oe1 i =1 i H G Oe1 .
D OO HG is the price at the wholesaler.
HP is the price at producer level.
HG-_i is the price at i time lag at the Hp_i is the price at i time lags at peasant L is the time Lag.
D is a dummy variable where D is 0 if it is before the era of political reform and D is 1 otherwise if it is after the reform era.
OO is Error While the transmission model from the wholesalers to the producers is i =1 i =1 H P = H Gb0 Oa H Gbi _ i Oa H Pci_ i e dD eOO Taking the log form.
Equation .
becomes ln H P = ln a b0 ln H G b1 ln H G _ 1 .
c6 ln H P _ 6 dD OO ln H P = ln a b0 ln H G i =1 i =1 bi ln H Gi _ i ci H Pi _ i dD OO By using log model as mentioned above, the results of the regression coefficients express the price elasticity.
RESULTS DISCUSSION
Based on the results of the testing parameters, it is obtained that a good model is an equation that includes 2 time-lag due to poor corn storage systems in Indonesia.
The full estimation results are the following:
lnhg = 0.
2077 lnhp .
** .
***
Ae 0.
0537lnhp-1 Ae 0.
(-1.
(-2.
***
lnhg-1 = 0.
1828lnhg-2 0.
(-3.
where ***, **, and * indicate significant at almost 0%, 0.
8%, and 7.
5% level, respectively.
The results above indicate that the signs of the elasticity of price transmission coefficient are in accordance with the theory.
Generally all the independent variables significantly affect the dependent variable except lnHp-1.
The lnHp coefficient is 0.
indicating that for every 1% increase in corn prices at the producer level led to rising corn prices at the wholesaler level by 21% which is smaller than one, ceteris This shows that the price of corn at farm level is not transmitted perfectly to the wholesaler level.
So the corn market is not perfect competition.
Lloyd et al.
states that less than 1 elasticity of price transmission indicates the presence of oligopsoni market.
This is in line with Mubyarto .
that mentions the role of the brokers in the formation of prices at farm level.
They are also as lender to farmers as well as provider for farmersAo basic needs.
Therefore, the farmers have a strong attachment to the This led to farmers receiving the lower price from the middleman because they act as single buyer .
or oligopsoni.
Therefore, the market faced by the farmers or producers is a monopsony market or oligopsoni.
As a comparison.
Chechura and Sobrova .
found that the elasticity of price transmission for pork in Chehnia Republic at the farm level to the price at the wholesale level was 0.
means inelastic.
This demonstrated that the pork market in the country are also not perfect or oligopsoni.
While lnHp-1 coefficient is negative but the effect is not significant.
The influence of corn prices two months ago .
nHp-.
is significant and negatively marked by -0.
It shows that for every 1% increase in corn prices at farm level at two months ago led to a significant decline in currently corn prices at the wholesaler level of 0.
It because the farmers begin to plant corns to respond to price increases which is in line with Cobbweb Theorem (Mubyarto 1.
Wholesale traders expect there will be increased supply of corn from farmers within a few months, so they buy less corn to reduce the storage burden.
At the end the price of corn at farm level go down.
Furthermore, a 1 percent increase of corn prices at the wholesaler level a month ago will increase 1.
11 percent current corn price at the wholesale.
This coefficient indicates that the elasticity of price transmission is larger than 1 or elastic.
Lloyd et al.
indicates this elasticity oligopsoni market structure dealing with an oligopoly Thus the structure of the corn market at the level of wholesalers in Indonesia is oligopsoni or oligopoly.
This finding is further strengthened by Erwidodo et al.
Buyers of corn such as Charoen Pokphan and Japfa Comfeed are the two large-scale plants which control about 5060 percent of the total animal food production in Indonesia.
Some of the buyers are from other companies using corn flour for industrial raw materials, food industry and cooking oil industry.
While the raw material suppliers for Chroen Pokphan and Japfa Comfeed and other industries is a wholesalers that are oligopoly.
It can be concluded that the structure of the corn market in a big city or the wholesaler is an oligopoly market which is dealing with oligopsoni market.
Elasticity of Corn Price A (Musli.
The rising corn prices at the wholesale level at two months ago .
causes the current corn prices at the wholesale level fall to 0.
18 percent.
This price decrease occurs because consumers have enough time to respond to rising prices by making imports.
While the economic reform variables have a significant effect 5% level of significance.
It means that the era of reform served to increase the price of corn at the wholesaler level.
From the estimation results above, there is empirical evidence that the price of corn at the farm level is imperfectly transmitted to corn prices at the wholesaler It is because the regression coefficients of lnhp, lnhp-1 and lnhp-2 are less than one.
Meanwhile, estimation of the elasticity of price transmission from wholesaler to the farmer is as follows:
lnhp = -0,1073 0,6508 lnhg (-1,.
***
Ae 0,4052 lnhg-1 Ae 0,0819lnhg-2 .
*** (-2,.
** 0,7315 .
(-0,.
lnhp-1 = 0,11130lnhp-2 0,0004dreform .
* .
where ***, **, and * indicate significant at 0%, 0,1-0,8%, and 5% level, respectively.
The results yield coefficient signs that are in accordance with the theory.
Independent variables are significant at 0 is lnHg with the coefficient of 0.
This means that any 1 percent price increase occurs at the wholesale level will cause a 0.
percent rise in corn prices at the farm level, ceteris paribus.
Furthermore lnhg-1 coefficient is - 0.
41, the lnhp-1 coefficient is 0.
and the lnhp-2 coefficient is 0.
These can be concluded that corn prices at the wholesale level and at farm level are absolutely less than one.
This shows that the corn market in Indonesia is not perfect or not elastic.
Thus the increase in the price level at wholesalers are not all transmitted to the producers.
This shows that the corn market at the wholesale level have oligopsoni structured because the elasticity of price of transmission is less than 1.
The underlying argument is corn market inefficiency in which the wholesaler has a stronger bargaining position than that of the From the estimation results above, it is empirically proved that the price of corn at the wholesalers are not perfectly transmitted to the price of corn at the farm While the economic reform variables does not significantly affect the price of corn in the producer market due to inefficiency and fundamentally the trade system corn-producing areas have not changed at Based on the above results, it can be concluded that the corn market in Indonesia at the wholesaler is monopsony or oligopsoni.
To protect farmers, the government should be able to assist farmers in improving farmers' income to their increasing welfare.
The policies that can be achieved is through fertilizer subsidies, limited import tariffs, floor price, credit provision and encourage strong farmer Fertilizer subsidies can reduce the cost thereby increasing farmers' income.
Manti and Hendayana .
mention that the cost of production of corn is Rp 1.
million per hectare.
It is around Rp 638.
19 percent of it used for purchasing fertilizers and pesticide.
Therefore, provision of subsidized fertilizers and pesticide would significantly reduce the farmersAo Import tariff may improve the welfare of farmers so that domestic production So far the government has never imposed tariffs policy on corn.
Erwidodo al .
suggest that optimal corn import tariff is around 50-10 percent.
This rates are adequate to ensure the profit of farmers by 30 percent.
It also estimate that the elasticity of price transmission of corn import tariff is 0.
75 which is imperfect.
Floor price policy is intended to protect farmers from falling prices because of excess supply in the harvest season.
The policy objective is to ensure the minimum price of farmers willing to plant.
This policy has been applied to rice commodity.
However, this policy has not been applied in Indonesia except for Gorontalo.
Lower capital of corn farmers lead to weak bargaining position so that the farmers are forced to borrow money to the middlemen and eventually the farmers must sell their product to them with cheaper Therefore, the government should provide cheaper credit facilities for the So far these credit facilities are only distributed among rice farmers, cattle ranchers and so forth.
These loans can be used to purchase seeds and pay labour
CONCLUSION
Corn is one of the important staple food after rice.
It is also consumed for animal food industry, food industries, flour and cooking oil.
However the disparity between the corn price at producers and wholesalers is increasing.
This study aims to determine REFERENCES