THE IMPACT OF TARIFF POLICY AND INTER-ISLAND TRANSPORT COSTS ON THE PROFITABILITY OF SOYBEAN PRODUCTION IN NGADA REGENCY, NTT
by
Wiendiyati Umbu Reku Raya
Paulus Un
Faculty of Agriculture Nusa Cendana University
December 2002
TABLE OF CONTENTS
ACKNOWLEDGEMENTS ...3
SUMMARY ...4
1. INTRODUCTION...5
1.1. Background of the Study ...5
1.2. Description of the Research Site...6
1.3. Objectives of the Study...7
2. RESEARCH METHODOLOGY ...7
2.1. Methodology...7
2.2. Data Collection ...7
3. RESEARCH RESULTS AND ANALYSIS ...8
3.2. The Policy Analysis Matrix ...8
3.2.1. Assumptions ...8
3.2.2. Input-Output ...8
3.2.3. Private Prices ...9
3.2.4. Private Budget ...10
3.2.5. Calculating Import Parity Prices: Soybean...11
3.3.6. Social Prices...12
3.3.7. Social Budget...12
3.3.8. PAM...13
3.3. Ratios ...14
3.4. Sensitivity Analysis ...15
REFERENCES...17
ACKNOWLEDGEMENTS
With our deepest gratitude, we thank God Almighty, because only by His grace was our research about “The Impact of Tariff Policy and Inter-island Transport Cost on The
Profitability of Soybeans Production In Ngada Regency, NTT” completed. This research was done with the help of many people. The authors want to thank:
• Mr. James Gingerich, Team Leader of Food Policy Support Activity DAI Jakarta, who agreed to fund the research.
• Professor Scott R. Pearson (Stanford University, USA) who guided us and sharpened our proposal until the final report of the research.
• Bapak Sjaiful Bahri (DAI Jakarta) for his guidance on PAM analysis and data collection and for communicating with the authors through email, telephone, and SMS.
• Ibu Nurhayati (DAI Jakarta) who assisted on financial administration procedures.
• Head of Food & Agriculture Office of Ngada Regency who helped us on sampling soybeans farmers in Golewa and Bajawa.
Funding for the study was provided under USAID contract 4104-102-01S-001 as part of the Indonesian Food Policy Support Activity administered by Development Alternatives, Inc., Washington, D.C.
We hope this research will benefit the local government of Nusa Tenggara Timur in its efforts to encourage soybean development.
Kupang, December 2002
Wiendiyati Team Leader
SUMMARY
Ngada Regency is an area in East Nusa Tenggara Province where soybeans are grown during the dry season. Typically, soybeans follow paddy and are produced with a minimum of tillage. After the rice residue is cleared, seeds are simply dropped into a hole made with a sharp stick. Red beans, grown during the same season, are a food staple often grown as an alternative to soybeans.
Because the rising demand for soybeans in Indonesia has increased the country’s reliance on imported beans, proposals have been made to stimulate domestic production by introducing a soybean tariff. In this study, a policy analysis matrix (PAM) is computed to analyze the desirability of such an intervention in the Ngada area. The data required to calculate private and social profitability were obtained from a survey of farmers in the area and from secondary sources such as CASER.
The analysis of the PAM shows that soybeans are both privately and socially profitable. According to the calculations, farmers have a strong economic incentive to
produce soybeans and soybeans have a significant competitive advantage over the alternative, red beans. Soybeans are also profitable socially indicating that Ngada Regency has a
comparative advantage in producing soybeans as opposed to red beans. Producing soybeans is an efficient use of the Regency’s agricultural resources.
The positive evidence on profitability indicates that introducing a tariff on soybeans would be undesirable and result in a distortion of incentives in the agricultural sector.
1. INTRODUCTION 1.1. Background
In 2001, the demand for soybean in East Nusa Tenggara province was 4,973 tons. It is expected to increase in the coming years due to people’s awareness of soybeans’ nutritional advantages. (Soybean is used for tofu and tempe production for the local market.) The domestic supply in 2001 was less than 3,200 tons. Thirty-nine percent of the demand was fulfilled through inter-island imports from Surabaya.
The biggest demand for soybean in this province is from Kupang City on Timor Island. Assimilation with Chinese and Javanese has made the local people that live in the provincial capital more aware of soybean nutrition. By 1997, farmers in Kupang district had developed soybean farming with good yields (900–1200 kg/ha). But today many of those soybean farmers have switched to other crops.
To fulfill the demand for soybean in Kupang, soybean distributors import soybean from Ngada by using inter-island transportation from Flores. The cost of transportation is highly affected by the fuel price. Fuel in Indonesia is subsidized, and the central government has gradually decreased the subsidy for fuel. As fuel prices increase, transportation costs also increase. Since August 2002, the Government of Indonesia (through the Ministry of
Transportation) has increased shipping costs by 17%-50%. This increase has affected the prices of goods that are transported between islands, including soybean from Surabaya to Kupang and from Ngada to Kupang.
Currently, there is no tariff on imported soybean. But the government of Indonesia (through the Ministry of Industries and Trade) has announced plans to impose tariffs on food and horticulture products, including soybean. Based on importers’ information, the tariff for imported soybean would be low and would likely be in the 2% - 6% range.
These government policies – inter-island transportation costs and increased import tariffs – will influence the profitability of soybean production in Ngada. Both higher inter- island transport cost and a non-zero tariff would improve private profitability
(competitiveness). Higher inter-island transport charges would increase social profits (comparative advantage), while tariffs would not affect social profits.
There are several reasons to think that there is a potential for increasing soybean production in East Nusa Tenggara:
(1) East Nusa Tenggara has unused dry land (29,096 ha) that is good for soybean cultivation from a climate and soils point of view.
(2) Farmers in several parts of East Nusa Tenggara have considerable experience with soybean production.
(3) According to tofu and tempe producers, local cultivated soybean is stickier than the imported soybean that comes through Surabaya. (Direct
importation from foreign countries to Kupang is not possible because the port in Kupang is not suitable for international shipping.)
1.2. Description of the Research Site
Ngada Regency in Flores is the main soybean producing area in East Nusa Tenggara.
Data on the area’s soybean production for the period 1994-2001 are presented in Table 1.1.
The wide variation in hectares harvested, yields, and production is caused by high variation in seed availability and rainfall intensity. The largest area harvested occurred in 1998. Highest yields were attained in 2001. There is no significant trend in acreage or yields.
Table 1.1. Productivity of Soybean in Ngada
Year Harvested area
(ha) Production
(ton) Productivity (kg/ha)
1994 2605 1595 612 1995 2429 1201 494 1996 1575 1015 644
1997 1691 812 480
1998 2719 1131 416 1999 2617 1511 577 2000 1806 1176 651
2001 810 700 864
Average 2032 1143 592
Source: Office of Agriculture and Food Crops of Ngada Regency, 2002
Dry land and a dry climate (9 months dry, 3 months rainy) are common characteristics of Ngada. Although there is semi-technical irrigation in some parts of Ngada, water
availability for plantations is limited. Farmers plant drought-tolerant food crops that need little water after the paddy crop has been harvested.
Soybean is one crop that fits these dry conditions. It needs only 70 days from planting until harvesting. Soybean technology currently used by farmers is either
monoculture or a sequential rotation. In the monoculture pattern, farmers cultivate soybean only on dry land, once a year starting in March. Before March, this dry land is not used because of a lack of labor.
There is no tradition of hiring migrant labor from other parts of the Province. Family labor is used to cultivate the rain-fed paddy fields. There is little chance to hire labor in the wet season because farmers who own no land prefer to work as tenant farmers rather than as hired laborers. Many farmers cannot utilize all of their owned land. In the wet season, farmers work on their own land or within farmer groups.
In the sequential cropping pattern, farmers cultivate soybean soon after paddy or red bean have been harvested in March. Because rice and red bean are food staples, farmers do not plant two crops of soybean, preferring a rotation of paddy-soybean or paddy-red bean.
Also, soybean cannot grow well when the soil is too wet as in the middle of the rainy season.
Red bean, on the other hand, is highly adaptable to both the rainy and dry seasons. In 2002, farmers in the two main soybean areas, Golewa and Bajawa, used a soybean-red bean pattern.
This research covers only the soybean-red bean sequential pattern of soybean farming.
Seed availability is a major problem limiting the expansion of soybean production.
The viability of soybean seeds drops when seeds are stored for more than 14 days. The
Technology Bureau of the Provincial Food and Agriculture Office and the Food Crops Research Bureau of NTT have been working to solve the seed problem so that soybean production can be increased. Currently, there is no new soybean technology available that would reduce the unit cost of soybean production
1.3. Objectives of the Study
The objective of the study is to determine the impact of government interventions on the comparative and competitive advantages of soybean. To achieve this objective, the Policy Analysis Matrix (PAM) will be developed for soybean, and then ratios that represent comparative and competitive advantage will be calculated. These results will be interpreted to help the local and regional government make decisions about the resources that should be devoted to various extension programs, crop research and development activities, and benefit-cost studies.
2. RESEARCH METHODOLOGY 2.1. Methodology
The method used to evaluate and measure the effect of government policy on soybean farming in Ngada Regency is the Policy Analysis Matrix (PAM). The methodology is based on the formulation of budgets for representative activities – farming, processing, and
marketing – that compose an agriculture commodity system.
The PAM method has been widely used to analyze many agricultural commodities, such as paddy, corn, sugarcane, cassava, milk, fish, and chicken feed. This study is the first application of the PAM method to analyze soybean production in the Ngada Regency. The principle strength of the method is its ability to measure economic efficiency and divergences caused by distorting policies or market failures. Sensitivity analysis with various scenarios will be applied to assess the impact of changes in assumptions in estimating profitability.
2.2. Data Collection
Data were collected in September to November 2002. Primary data on budgets were gathered through in-depth interviews with 14 soybean farmers in Golewa and Bajawa sub- districts and soybean traders in Bajawa and Kupang. Sample farmers were drawn from a farmer group that had been mentored by the Food & Agriculture Office of Ngada. In-depth interviews were performed on-site. Officers from the F&A office and the village head assisted with the farmer interviews. These 14 farmers were chosen using purposive sampling.
The sample represents both large and small landowners. Small and medium growers represent only 10% of the soybean farmers in Golewa and Bajawa. Though there may be scale differences in per unit fixed costs, per unit input utilization is very similar because the technology adopted by farmers is the same.
Secondary data on the world prices of exported and imported commodities were obtained from the Center for Agro-Socio-Economic Research (CASER), the Food and Agriculture Office of Ngada Regency, the Indonesia National Central Bureau of Statistics, and various academic research reports.
On the basis of primary and secondary data, the full PAM for soybean was derived.
Before the full PAM was produced, the data were arranged into several tables: (1)
Assumptions, (2) Input-Output coefficients, (3) Private prices, (4) Private budget, (5) Import parity prices, (6) Social prices, (7) Social budget, (8) PAM, and (9) Ratios indicating
distortions in the soybean system.
3. RESEARCH RESULTS AND ANALYSIS 3.2. The Policy Analysis Matrix
3.2.1. Assumptions
Macro economic variables influenced soybean production in Ngada. These macro influences included the nominal interest rate, the social interest rate, and the official exchange rate (Rp/US).
Table 3.1. Assumptions Used for PAM Development
Macro-economic assumptions Rate
Nominal Interest Rate (%/annum) 30%
Nominal Interest Rate (%/season) 15%
Social Interest Rate (%/annum) 23%
Social Interest Rate (%/season) 11.5%
Official Exchange Rate (Rp/$)
APBN exchange rate 9,000
3.2.2. Input-Output
Input-output (I-O) data were constructed from in-depth interviews with farmers in Golewa and Bajawa. Because red beans are an alternative to soybean, information on the I-O coefficients of red beans was also collected. Efforts were made to cover all elements of pre- harvest and post-harvest production.
The soil in Golewa and Bajawa is very fertile. Farmers have developed organic farming methods instead of using chemical fertilizers. Farmers chose not to use any chemical fertilizer for three reasons. First, there are no fertilizer shops/stores in Ngada. Second, when the soybean grows and develops, it produces root nodules that fix nitrogen and fertilize the soil. Fertilizer application, especially of urea, is therefore unnecessary. Third, in NTT, most of the soil has a high capacity to bind ions. Phosphate fertilizer is quickly bound by the soil before plants can absorb it, and hence applications yield a low rate of return. Farmers also used no pesticides.
Farming activities are done manually. Farmers work in groups that are established by them. Farmers do not use hand tractors in land preparation. They practice minimum tillage using traditional tools to clear weeds and bushes. Planting is done using sharp rods to make holes in the ground. Crop care activities consist of weeding, irrigation, and hilling soil around the plants. When the soybean reaches its maturity, farmers harvest it by cutting its stem and then directly taking out (shelling) the bean. Soon after harvest, the beans are dried under the sun to reduce water content.
Table 3.2. Physical Input-Outputs Coefficients
Items Soybean Redbean
Tradable Inputs Seed (kg/ha) 56.0 60.0
Fertilizers (kg/ha)
- Urea - KCl Pesticide (It)
Domestic factors Labor (man-days/ha)
a. Land preparation 5.71 8.29
b. Planting 20.42 5.78
c. Crop care 10.34 8.44
d. Harvest 17.45 4.90
e. Threshing 4.90
f. Shelling
g. Drying
Working capital (Rp/ha) 747,325.0 757,075.0
Land rent (ha) 1.0 1.0
Output Productivity (kg/ha) 712.0 478.0
The reported yields of soybean and red bean are averages of actual yields realized in 2002. Based on the results of the survey, the productivity of soybean ranged from 400 kg/ha to 1,000 kg/ha. The yield data were validated by checking with the village leader and F&A officials in Ngada.
3.2.3. Private Prices
Private prices were derived from in-depth interviews with farmers. The nominal interest rate for working capital was determined to be 15%, the private interest rate per season (Table 2). Input prices consist of a seed price and a wage rate. Officers from the Office of Agriculture and Food Crops of Ngada Regency estimated the seed price. The wage rate was determined from the cost of hiring non-family labor. Land rent was Rp. 500,000 for 3 years, or Rp. 55,500 per season. Land rents were low because unused land is widely available, the market for land rent does not work properly due to lack of information and a high degree of uncertainty about crop returns, and some landowners needed quick cash for other expenses.
The most common price for soybean received by farmers right after harvest was Rp.
2,000/kg. The representative farm price for red bean was Rp. 3,000/kg. However, time series data show that both of these prices have a great deal of variation.
Table 3.3. Private Prices
Items Soybean Redbean
Tradable Inputs Seed (Rp/kg) 3,000 7,500
Fertilizers (Rp/kg)
- Urea - KCl
Table 3.3. Private Prices
Items Soybean Redbean
Pesticide (Rp/pack)
Domestic factors Labor (Rp/md)
a. Land preparation 12,500 12,500 b. Planting 10,000 10,000 c. Crop care 12,500 10,000 d. Harvest 10,000 7,500 e. Threshing 5,000 f. Shelling g. Drying 5,000
Working capital (%) 15% 15%
Land rent (Rp/ha) 55,500 55,500 Output Output price (Rp/kg) 2,000 3,000
3.2.4. Private Budget
The private budget was found by multiplying the quantities in the I-O table (Table 3.2) by the prices per unit of each item in the Prices table (Table 3.4). Total working capital was obtained by summing over all costs. (This figure was entered in the I-O table.
It was then multiplied by the interest rate to obtain the opportunity cost of working capital shown in Table 3.4.)
Table 3.4. Private Budgets
Items Soybean Redbean
Tradable Inputs Seed (Rp/ha) 168,000 450,000
Fertilizers (Rp/ha)
- Urea - Gandasil Pesticide (Rp/ha)
Domestic factors Labor (Rp/ha)
a. Land preparation 71,375 103,625
b. Planting 204,200 57,800
c. Crop care 129,250 84,400
d. Harvest 174,500 36,750
e. Threshing 24,500
f. Shelling
g. Drying
Cost of capital (Rp/ha) 112,099 113,561 Land rent (Rp/ha) 55,500 55,500 Output Total Revenue (Rp/ha) 1,424,000 1,434,000
Total cost (excl. land) (Rp/ha) 859,424 870,636
Table 3.4. Private Budgets
Items Soybean Redbean
Profit (excl. Land) (Rp/ha) 564,576 563,364
Net Profit (Rp/ha) 509,076 507,864
Total working capital (Rp/ha) 747,325 757,075
The private revenue of soybean production is Rp. 1,424,000/ha while the private cost is Rp. 859,424/ha (excluding land). This makes the profit of the soybean system Rp.
564,576/ha when land rent is not considered or Rp. 509,076/ha after the land rent is subtracted.
3.2.5. Calculating Import Parity Prices: Soybean
Important international information was required for social price and social profit determination. The FOB price of soybean was US $195/ton in July 2002. With freight and insurance to Surabaya of US$ 17.5/ton, the CIF price was US$ 212.5/ton. (If the government of Indonesia imposed a 5 percent import tariff on imported soybean, the parity price would not change, but the private output price of soybean would increase.)
According to APBN (Indonesia National Budget), the exchange rate in 2002 was expected to be Rp. 9,000/US$. The actual exchange was a bit lower, around Rp. 8,800/US$
with small deviations.
Soybeans are transported from Surabaya to Kupang using trading ships. From Kupang port to the wholesale market, transportation was by truck. (The freight cost from Surabaya to Kupang will increase soon because the subsidy on gasoline will be reduced.)
The social price at the farm-gate was Rp. 2,062.5/kg soybean.
Table 3.5. Import Parity Prices for Outputs: Soybean Parity
Steps Items Soybean
1 FOB Price (US$/ton) 195.0
2 Freight and Insurance (US$/ton), to Surabaya 17.5
3 CIF Price (US$/ton) 212.5
4 Exchange Rate (Rp/US$) 9,000.0
5 CIF Price, at Surabaya port (Rp/kg) 1,912.5
6 Transportation and handling (Rp/kg)
a. Surabaya port – Kupang port 150.0 b. Kupang port – wholesale 20.0 7 Parity price at wholesale (Rp/kg) 2,082.5 8 Distribution cost to farm (Rp/kg) 20.0 9 Social price at farm-gate (Rp/kg) 2,062.5
3.3.6. Social Prices
Few of the items in the social prices table are affected by government policies. Only fuel and credit fall into this category. The value calculated as the import parity price of output (Rp. 2,062.5) in Table 3.5 is slightly different from the private price of Rp. 2,000 /kg shown in Table 3.3. However, because there is no known policy that affects the private price of soybean, the difference is due to a small error in the data used for the import parity price calculation.
The social price of working capital is lower than the private price. The private cost of working capital is 15%/season, whereas the social cost is only 11.5%/season.
The social profit for red bean is important for the PAM calculation because red bean is an alternative crop to soybean. Red bean profits can therefore be used as an estimate of the opportunity cost of soybean land.
Table 3.6. Social Prices
Items Soybean Redbean
Tradable Inputs Seed (Rp/kg) 3,000 7,500
Fertilizers (Rp/kg)
- Urea - KCl
Pesticide (Rp/pack)
Domestic factors Labor (Rp/md)
a. Land preparation 12,500 12,500
b. Planting 10,000 10,000
c. Crop care 12,500 10,000
d. Harvest 10,000 7,500
e. Threshing 5,000
f. Shelling
g. Drying 5,000
Working capital (%) 11.5% 11.5%
Land rent (Rp/ha)
Output Productivity (Rp/kg) 2,063 3,000
3.3.7. Social Budget
To obtain the entries for tradable inputs and domestic factors in the social budget, entries in the I-O and social prices tables are multiplied together. For example, total revenue results from the multiplication of the I-O entry in Table 3.2 by the social price of output in Table 3.6. Total cost (excluding land) is the summation of the costs of tradable inputs and domestics factors excluding land rent. The social opportunity cost of land shown for
soybeans, Rp. 589,861/ha, is the social profit calculated for red beans, the next best cropping alternative. The net social profit of soybean is Rp. 45,372/ha.
Table 3.7. Social Budget
Items Soybean Redbean
Tradable Seed (Rp/ha) 168,000 450,000
Inputs Fertilizers (Rp/kg)
- Urea - KCl
Pesticide (Rp/ha)
Domestic Labor (Rp/ha)
Factors a. Land preparation 71,375 103,625
b. Planting 204,200 57,800
c. Crop care 129,250 84,400
d. Harvest 174,500 36,750
e. Threshing 25,500
f. Shelling
g. Drying
Cost of capital (Rp/ha) 85,942 87,064
Land rent (Rp/ha) 55,500 55,500
Output Total Revenue (Rp/ha) 1,468,500 1,434,000
Total cost (excl. land) (Rp/ha) 833,267 844,139
Gross Profit (excl. Land) (Rp/ha) 635,233 589,861
Social Opportunity Cost of Land (Rp/ha) 589,861 635,233
Net Profit (Rp/ha) 45,372 (45,372)
3.3.8. PAM
The PAM uses data from both private and social budgets. The private row is taken from the private budget. All items in the social row are taken from social budget for soybean, except the social cost of land. The social cost of land is represented by the social profit of red beans (excluding land), Rp. 589, 861/ha.
The private profit of the soybean system is Rp. 509,076/ha, while the social profit is Rp. 45,371/ha. This makes the total divergences between the private and social profit Rp.
463,705/ha. Because the social profit is positive, the soybean farming system has a
comparative advantage in using the economy’s resources. It can operate profitably without any policy transfer, that is, without any government subsidies.
The tiny divergence in revenue is caused by the difference between the output price received by farmers and social farm-gate price. Because there are no known policies or market failures, the minor difference is the result of data errors. The divergence in tradable inputs equals zero. This result is similar for labor. The divergence in capital costs arises because the interest rate of working capital at social prices is lower that the private interest rate. The private interest rate is 30% p.a. (15% per season), while the social interest rate is 23% p.a. (11.5% per season). This 7% p.a. (3.5% per season) differences occurs because farmers in Ngada have few links to formal credit markets such as banks and other lending institutions.
The land divergence in the PAM’s third row – the major source of difference between private and social budgets – arises because private land rental values fall far short of the calculated profits that could be obtained if the land were used to produce red beans. Part of the discrepancy is due to the absence of a widespread land rental market. As the study’s
survey demonstrates, few farmers rent land in and out. Also, there is a great deal of variation in rainfall during the dry season in which soybean and red bean are grown. Except where there is adequate irrigation, the resulting uncertainty in crop yields leads to a reluctance to pay high rents for land.
Table 3.8. Policy Analysis Matrix (PAM) of Soybean Farming System in Ngada Revenue Tradable Domestic Factors Profit
Inputs Labor Capital Land
Private 1,424,000 168,000 579,325 112,099 55,500 509,076 Social 1,468,500 168,000 579,325 85,942 589,861 45,371
Divergences -44,500 0 0 26,156 -534,361 463,705
3.3. Ratios
Seven important ratios are used to assess policy distortions in the soybean farming system in Ngada. Each ratio was derived from values in the PAM table. The ratios are shown in Table 3.9.
Table 3.9. Policy Distortion Indicators of the Soybean Farming System
No Ratios Soybean
1 NPCO (Nominal Protection Coefficient of Output) 0.9697 2 NPCI (Nominal Protection Coefficient of Input) 1.0000
3 PCR (Private Cost Ratio) 0.5947
4 DRC (Domestic Resource Cost Coefficient) 0.9651 5 EPC (Effective Protection Coefficient) 0.9658
6 PC (Profitability Coefficient) 11.2202
7 SRP (Subsidy Ratio to Producers) 0.3158
The NPCO of soybean farming system in Ngada is 0.97. This result implies that farmers receive an actual price that is 3 percent lower than the true price. However, there is no policy on soybean pricing in East Nusa Tenggara. This apparent divergence arises due to small errors in the price data.
The NPCI of soybean farming in Ngada is equal to 1. No policies or market failures affect tradable inputs.
The PCR of soybean farming in Ngada is less than 1. This result indicates that the farming system has a competitive advantage and is privately profitable. PCR is minimized by holding down factor and tradable input costs.
The DRC is less than 1. This figure indicates that Ngada has a comparative advantage in growing soybean. Domestic factors are utilized efficiently.
The EPC is less than 1. This outcome implies that the value added calculated at private prices is less than the value added calculated at social prices. The comparative
advantage of the system is stronger than its competitive advantage. The small negative incentive effect on farming systems arises from the data error in pricing output.
The PC value of the soybean farming system is 11.2. This value shows the extent to which private profit exceeds social profit. Private land rental markets undervalue land relative to its ability to produce crops of soybean or red bean.
The SRP is 0.3158 or 31.58 percent. This means that the divergence between private and social profits amounts to nearly one-third of gross revenue. This large positive transfer arises mostly from imperfections in the land market.
3.4. Sensitivity Analysis
Five conditions that merit simulation may occur in the near future:
1. The imposition of an import tariff on soybean would increase the domestic price.
When the tariff is 5% above the CIF price, the tariff becomes ($212.50 /ton * 0.05) or
$10.63 /ton.
2. When the exchange rate is Rp. 9,000/US$, this tariff equals to {($10.63 /ton * 9,000 Rp/US$) * 1 ton/1,000kg} = 95.625 Rp/kg. This would make the private price of output (Rp. 2,000 + 95.625) or 2,095.63 Rp/kg.
3. Inter-island transportation cost from Surabaya to Kupang may increase up to 25%, from Rp.150/kg to Rp.187.5/kg.
4. If the production technology is not improved, the output (kg/ha) may decrease to 560 kg/ha. There is still a problem with seed quality. There is a tendency for soybean productivity to be low because the seed is not an F1 (1st generation) quality but an F10 or more.
5. The Rupiah/US$ exchange rate could appreciate. The APBN assumption was Rp.9,000/US$, but the exchange rate appreciated to about Rp. 8500/US$ in 2003.
Sensitivity analysis was performed on a range of exchange rates (Rp. 8000/US$ and Rp. 10,000/US$) to find an exchange rate that produced a DRC equal to 1 (trial and error method). The results of the sensitivity analysis are presented in Table 3.10. The base value for each ratio is also presented in Column 2 for comparison.
Table 3.10. Results of Sensitivity Analysis
Ratios Base Value
Imposing Import Tariff 5%
Increase Transport Cost 25%
Decrease Yield to 560kg/ha
Exchange Rate Rp.8000/US$
Exchange Rate Rp10,000/US$
NPCO 0.9697 1.0112 0.9524 0.9697 1.0811 0.8791
NPCI 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
PCR 0.5947 0.5665 0.5947 0.7846 0.5947 0.5947
DRC 0.9651 0.9651 0.9457 1.2717 1.0922 0.8645
EPC 0.9658 1.0138 0.9464 0.9645 1.0929 0.9651 PC 11.2202 12.5973 7.0635 -0.7648 -4.8058 2.5885
SRP 0.3158 0.3583 0.2923 0.4097 0.4669 0.1929
Imposing a 5% import tariff would increase NPCO, EPC, PC and SRP, even though the increase is not high. The values of NPCI and DRC do not change, while the value of PCR decreases. The farming system in Ngada would become more competitive than before.
The farmers would also receive higher profits.
Raising inter-island transportation costs by 25% would increase the comparative and competitive advantages of soybean farming in Ngada. Based on the ratios values, the impact of this policy would create lower benefits to farmers compared to imposing a 5% import tariff.
If soybean yields decrease to 560 kg/ha (-21.35 percent), farmers would suffer. The private profit would drop from Rp.509,076/ha to Rp.205,076/ha (-59.72 percent). Because private profit drops 2.8 times, competitive advantage would decrease sharply.
The appreciation of the Rupiah against the US$ (e.g., from Rp. 9,000/US$ to Rp.
8,000/US$) would disadvantage the soybean farming system. The stronger the Rupiah against the US$, the weaker is the comparative advantage of soybean farming. The weaker the Rupiah against US$ (e.g., a depreciation from Rp. 9,000/US$ to Rp. 10,000/US$), the stronger is the comparative advantage soybean farming system.
4. CONCLUSION AND POLICY IMPLICATIONS
1. Imposing import tariffs on soybeans would increase the price of private output, thereby increasing the competitive advantage of soybean farming systems in Ngada.
2. Increasing inter-island freight costs would also increase the price of private output and the competitive advantage of soybean farming systems in Ngada. Increasing inter- island freight costs by 25% has a smaller impact on private prices than imposing a 5%
tariff.
3. Decreasing soybean productivity (yield) would worsen the welfare of farmers because it would decrease private profits and competitive advantage while eliminating
comparative advantage. The current private and social profitability of soybean means that this commodity might warrant more government research.
4. The stronger the Rupiah, the lower is the comparative advantage of Ngada soybean farming. When the exchange rate appreciates to Rp. 8,000/US$, the DRC exceeds 1 and social profit becomes negative.
REFERENCES
Biro Pusat Statistik. 2001. Ngada in Figures. BPS Ngada Regency.
Black, J.A. and D.J. Champion. 1984. Methods and Issues in Social Research. John-Wiley
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Food & Agriculture Office of Ngada Regency. 2001. Annual Report on Products and Productivity. Ngada, Nusa Tenggara Timur
Monke, E.A. and S.R. Pearson. 1989. The Policy Analysis Matrix for Agricultural Development. Cornell University, Ithaca.
Rohi, B.M. 2000. Profil Proyek Investasi Agroindustri Kedelai di Kabupaten Ngada (Profile of Investment Project of Soybean Agroindustry in Ngada Regency). Lembaga
Penelitian Universitas Nusa Cendana & Badan Koordinasi Penanaman Modal Daerah Propinsi NTT.
Siahaan, S. 1997. Analisis Ekonomi Usahatani Kedelai di Kabupaten Kupang (Economic Analysis of Soybean Farming in Kupang Regency). Unpublished Thesis, Faculty of Agriculture, Nusa Cendana University.
