Vertical Market Integration of Curly Red Chili in Kulonprogo Regency Yogyakarta Indonesia
Susanawati Hilmi Priliadi Department of Agribusiness UMY
Introduction
◉ There are four regions producing red chili in the Special Region of Yogyakarta (DIY), i.e. Kulonprogo Regency, Sleman, Bantul, and Gunungkidul. During the period of 2011-2015, Kulonprogo Regency makes the highest contribution to the total production of red chili in the Special Region of Yogyakarta, which amounted to 168,280 quintals, equivalent to 71.95% of total production
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Regency Year
2011 2012 2013 2014 2015
Kulonprogo 107.226 115.816
109.208 125.075 168.280
Sleman 27.855 28.599 41.938 36.157 44.307
Bantul 5.251 16.702 17.651 12.244 19.693
Gunungkidul 3.369 3.453 2.538 2.124 1.599
Introduction
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◉ During 2011-2015 the production of red curly chili in Kulonprogo Regency fluctuates although it is not so significant.
Year Harvest Area (Ha)
Production (Quintal) Productivity (Quintal/Ha)
2011 1.278 107.226 83,90
2012 1.324 107.226 81,00
2013 1.341 108.459 80,85
2014 1.532 125.039 81,62
2015 1.380 114.816 83,20
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Curly red chili is a vegetable that often
experiences price fluctuations
When the price of chili falls, curly red chili farmers will be harmed
Market integration analysis is needed to see whether changes in
product prices at the retailer's level will affect
changes in market prices at the farm level.
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◉ This study aims to determine the price behavior at the producer market in Kulonprogo Regency and the consumer market in Pasar Induk Kramat(PIKJ), and the vertical integration between the two markets.
Objectives
Methodology
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◉ The basic method used in this research is descriptive to find out the description of the data to analyze
◉ The type of data used in this study is secondary data in the form of monthly prices of curly red chili at the producer level in Kulonprogo Regency and the consumer market in PIKJ during the period of 2011-2015.
◉ The behavior of curly red chili prices is analyzed using a graphical and mathematical approach. Graphic analysis is used to describe the monthly prices of curly red chili during 2010-2015 displayed in graphical form.
◉ Graphical analysis is done using Microsoft Excel software. Mathematical analysis is done using Coefficient of Variation (CV) to determine the fluctuations in the price of curly red chili.
◉ The CV formula is as follows:
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◉ Information:
s = standard deviation
x = the average price of curly red chili n = number of samples
CV = coefficient of variation
◉ The vertical integration between the producer market in Kulonprogo Regency and the consumer market in PIKJ is analyzed using the Index of Market Connection (IMC) model. The IMC model using the
Autoregressive Distributed Lag Model approach is formulated as follows:
Pit = b1 (Pit-1) + b2 (Pat - Pat -1) + b3(Pat -1)
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◉ Information:
◉ Pit = the price of curly red chili in the producer market in the month t
◉ Pit-1 = the price of curly red chili in the producer market in month t-1
◉ Pat = the price of curly red chili in the consumer market in the month t
◉ Pat -1 = the price of curly red chili in the consumer market in month t- 1
◉ bi = regression coefficient
◉ IMC Values are:
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◉ Information:
b1 = regression coefficient of Pit-1 b3 = regression coefficient of Pat-1
Information Short Term Long Term
Strong integration
IMC is close to 0 IMC < 1
b2 is close to 1 (> 0.5)
Weak integration IMC >1 b2 is close to 0 (<0,5)
No integration High IMC b2 is very close to 0
Result and Analysis
The price of curly red chili at the producer level in Kulonprogo Regency
fluctuates every month during 2010-2015. During 2010-2015, the price of curly red chili was the highest in December 2014, which was Rp. 72,100 per
kilogram and the lowest price occurred in July 2011, which was Rp. 3,300 per kilogram. The low prices occur due to the harvest of curly red chili from May to July in which the peak harvests occur in July.
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In December 2014 the price was very high but the production was also quite high during that time. The price of curly red chili in December 2014 was at the highest price, i.e. Rp. 72,100 and Rp. 65,214 in the consumer market with the total production of 12,809 quintals. In addition, there was a low production followed by a low price as happened in December 2012 in which the
production was only 1,996 quintals while the price of curly red chili touched the figure of Rp 8,775 in the producer market and Rp 9,214 in the consumer
market.
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The combination of production and prices of curly red chili in Kulonprogo Regency
during 2010-2015
There is a significant price gap in certain months. The highest price occurred in December 2014 at a price of Rp 65,215 per kilogram while the lowest price occurred in July 2011 at a price of Rp 5,454 per kilogram.
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Price behavior of curly red chili in the consumer market during 2010-2015
It can be seen that when the prices in the consumer market are high, the prices in the producer market in Kulonprogo Regency will also be high. The price movements that occur in the market of producers in Kulonprogo Regency are in line with the price movements that occur in the consumer market.
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Price behavior of curly red chili in the producer market and consumer market during 2010-2015
Vertical Integration between Producer Markets in Kulonprogo Regency and Consumer Market in PIKJ
• Two markets are said to be integrated if the price changes in a market are responded to the changes in prices in other markets. This is because
changes in prices in a market are partially or totally transmitted to the prices in other markets, both in the short and long term.
• The calculation results is obtained using EViews Version 10 through the regression of price variables in the market of Kulonprogo Regency in the current period (Pit), prices in the market of Kulonprogo Regency in the previous period (Pit-1), the current prices in PIKJ consumer market (Pat), prices in the market in the previous period of PIKJ consumers (Pat-1) and the difference in prices in the current PIKJ consumer market (Pat) with the previous period (Pat-1)
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The regression results of the factors that influence the price of curly red chili in the
producer market in Kulonprogo Regency
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Variable Regression
Coefficient Std. Error t-Statistic Prob.
The previous period of curly red chili price in the producer market in Kulonprogo Regency
0,465991 0,110398 4,221018 0,0001*
The difference in prices of curly red chili in PIKJ consumer market in the current period with the previous period
0,795348 0,088089 9,028895 0,0000*
The previous period consumer level price of curly red chili
0,525002 0,109170 4,809018 0,0000*
R-squared 0,756664 Mean dependent var. 16540,42
Adjusted R-squared 0,745768 S. D. dependent var 10915,98
S. E. of Regression 5503,990 Akaike info criterion 20,11902
Sum squared resid 2,03E+09 Schwartz criterion 20,24650
Log likelihood -710,2253 Hannan-Quinn criter. 20,16972
F Statistic 69,44642 Durbin-Watson stat 1,943451
Prob (F-statistic) 0,000000
• The Prob T value shows the difference in price of curly red chili in PIKJ consumer market at the present period with the previous period of 0.0000 which is smaller than α 1%. It means that the difference in price of curly red chili in PIKJ consumer market in the previous period has a significant effect on the variable price of curly red chili in the market of Kulonprogo Regency at the current level of trust 99%.
• Prob. T for the variable price of curly red chili in PIKJ consumer market in the previous period is 0.0000 which is smaller than the value of α 1%.
Thus, at the 99% confidence level, the price of curly red chili prices in the previous period of PIKJ consumer market has an effect on the variable price of curly red chili in the market of Kulonprogo Regency in the present period
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The regression results of the factors that influence the price of curly red chili in the
producer market in Kulonprogo Regency
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After testing the model, the IMC model is calculated using the equations obtained from the regression results as follows:
Pit = 0,465991(Pit-1) + 0,795348(Pat-Pat-1) + 0,525002(Pat-1)
Based on the regression equation above, it can be seen that the value of b1 is 0.465991 and the value of b3 is 0.525002. The calculation is done by entering the regression coefficients b1 and b3 into the following formula.
Short Term Vertical Integration
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• based on the IMC value, it can be seen that there is a strong integration in the short term between the prices in Kulonprogo Regency producer market and prices in PIKJ consumer market. It is seen from the index of marketing connection (IMC) value 0.89 (<1)
• The strong degree of market integration in the short term in Kulonprogo Regency shows that the flow of information between farmers and PIKJ
consumer market is so smooth that the prices among farmers are affected by prices in PIKJ consumer market.
Long Term Vertical Integration
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• Long-term vertical integration is related to the relation between price
changes in the reference market transmitted to the local market in the long term. It can be seen from the coefficient value of b2. The analysis is on farmers' markets in Kulonprogo Regency as a producer market and PIKJ as a consumer market. Based on the regression equation, it can be seen that in the long run the prices in the market of the producer of Kulonprogo Regency have strong integration. It is indicated by the b2 coefficient of 0.795348 (> 0.5), which means that the price of curly red chili in the
market of Kulonprogo Regency is influenced by the price of curly red chili in PIKJ consumer market
Conclusion
◉ The behavior of curly red chili prices in the market of Kulonprogo Regency and PIKJ consumer market tends to fluctuate with the same pattern of movement
◉ The integration between the producer markets in Kulonprogo Regency and PIKJ consumer market in Kramat Jati Central Market occur both in the short and long term. There is a strong integration in the short term between the prices in Kulonprogo Regency producer market and prices in PIKJ consumer market which can be seen from the index value of marketing checks (IMC) of 0.89 (<1).
◉ It shows that the changes in the price of curly red chili in PIKJ consumer market at the previous time affect the price of curly red chili in the market of Kulonprogo Regency producer at the present time. In the long run, the value of b2 indicates that the increase in the price of curly red chili of Rp. 1,000 in the consumer market PIKJ will increase the price of curly red chili Rp. 795,348 in the market of the producer of Kulonprogo Regency.
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