Journal of Economics and Sustainable Development ISSN (Paper) ISSN (Online) Vol.4, No.1, 2013

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1 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne Producton and Cost Effcency Analyss Usng Fronter Stochastc Approach, A Case on Paddy Farmng System Wth Integrated Plant and Resource Management (IPRM Approach In Buru Dstrct Maluku Provnce Indonesa Ismatul Hdayah 1, Nuhfl Hanan 2, Ratya Anndta 2, Bud Setawan 2 1. Doctoral student of Agrculture Scence Program, Major n The Economc of Agrculture, Brawjaya Unversty, Malang, East Java, Indonesa/Researcher at Indonesan Agency for Agrcultural Research and Development (IAARD. 2. Lecturers n The Agrculture Faculty Brawjaya Unversty, Malang, East Java, Indonesa. * E-mal of the correspondng author: smatul_h@yahoo.co.d Abstract The purpose of ths study was to determne the level of producton and cost effcency on paddy farmng system wth ntegrated plant and resource management (IPRM approach n Buru Dstrct Maluku Provnce. Maxmum Lkelhood Estmaton (MLE method was used to estmate parameters n both fronter stochastc models. 120 respondents was determned by usng smple random samplng method. The emprcal fndng shows that the vares of the error term n both models are mostly nfluence by neffcency factors (γ producton= 0.933; γ cost = rather than stochastc factors. The average techncal effcency s and 75.83% respondent already operates n ths level of effcency. The average cost effcency s 0.86 and 80% of respondent already acheve ths level of cost effcency. These fndngs ndcate that rce farmng system wth ntegrated plant and resource management approach n the research area are effcent and proftable. Keyword: Rce, Producton effcency, Cost effcency, IPRM approach, Indonesa, Stochastc fronter 1. Introducton Rce s the staple food for Indonesa det. 94% of the energy consumpton are based on vegetable food wth the hghest proporton are cereals (Purwantn and Aran, Accordng to the ASEAN Food Securty Informaton and Tranng Center (2009, the mnmum food securty rato must be 20% of the domestc need to acheve steady food securty. Whle, the current food securty rato of Indonesa s only 4.38% (Hanan, Therefore, t needs more effort to ncrease the natonal producton of rce to acheve the food securty. Snce the domestc producton stll not optmal yet, the producton optmzaton of rce farm s one of the strategy to ncrease the natonal rce producton. Besde, the ntroducton of new technology wll gves a larger opportunty for farmers to ncrease ther ncome. Integrated plant and resource management s one of the well-known approach whch s consdered capable to ncrease the productvty. The mplcaton of ths approach wll be adapted wth the specfc condton of the locaton. Ths method s one of the soluton to ncrease the farmers ncome through sustanable agrculture system (Kartaatmaja and Fag, In order to accelerate the applcaton of ths program, government launched the feld school named to mprove farmer s knowledge and skll to mantan all avalable resources (plant varetes, land, water and producton tools ntegrated based on the locaton characterstc to reach the effcency of farmng system. The effcency of farmng system are ncludng the technology management whch s related to the farmer s capacty and capablty to manage t. When farmer s manageral capacty and capablty ncrease, the ablty to manage the nput of producton wll mprove and affect the ncreasng of producton effcency. As the result, the producton wll ncrease to the maxmum level. Factors that nfluence the farmng system effcency can be dstngushed as controlled (farmer s manageral skll and uncontrolled factors (natural factors, prce, and agrculture nsttuton. The ntegraton of all of the varables together, wll create the level of effcency that can be acheved. The productvty of rce n the lowland n Waeapo Dstrct are vares between 2 to 5 ton/ha wth the average producton are 4.23 ton/ha. Comparng wth the result of the research and assessment held by the Agrculture Insttuton, the real average rce producton that can be acheved are 6.76 ton/ha. Ths result shows that farmers stll could not acheve the maxmum productvty whch s caused by the neffcency of producton. One of the government programs to optmze the producton of rce n the low land s by organze feld school to 78

2 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne ntroduce the ntegrated plant and resource management approach whch had been launched n The goal of feld school s to ncrease the farmer s knowledge and manageral skll to apply an ntegrated plant and resource management approach n order to ncrease ther producton effcency. In order to measure the producton effcency of low land rce n Waeapo dstrct after the extensve of feld school, ths research am to estmate the stochastc producton and cost fronter model, to estmate the producton and cost effcency of rce farmng system n Buru Dstrct. 2. Method 2.1 Theoretcal Framework The measurement of producton (techncal and cost effcency can be done by estmatng the stochastc fronter functon of both models. The comparson from the actual and the fronter functon wll represent the farmer s effcency. The stochastc producton fronter frstly ntroduced separate by Agner, Lovell and Schmdt (1977 and Meeusen and Van den Brooeck (1977 separately. Further, ths models develop by Kumbhakar et al., (1991; Bettese and Coell (1992 and 1995; Coell et al., (1999; Kumbhakar and Lovell (2003; Coell et al., (2005 and Ghosh and Raychaudhur (2010. A sngle equaton for stochastc producton fronter functon represent by equaton 1 Y The transformaton of equaton 1 to the natural logarthm functon shows by equaton 2. ( V U lny = β 0 + β lnx + (2 A sngle equaton for stochastc cost fronter functon represent by equaton 3 = X β + ( V U ( P ; + V U C = CY, β + (3 The transformaton of equaton 1 to the natural logarthm functon shows by equaton 4. ( C = lnc ( Y, P; β + V + U ln (4 Accordng to the equaton 1 to 4, we can see that the error term consst of two components, U dan V.. The frst component U represent the unmeasured varables such as weather, walkout, epdemc, and other varables whch s undefned n the producton functon. The second component V. s the random shock varable whch s dentcally normal dstrbuted wth the value of mean (µ s 0; the varance s constant or N(0, σ v 2 ; symmetry; and there s no U nterventon. U s a non-negatve varable and assumed normally dstrbuted wth one of the dstrbuton pattern such as eksponensal, truncated normal,and half-normal. U also defne how far dd frm operated above the fronter, especally for the fronter cost functon. The mportant of Maxmum Lkelhood Estmaton (MLE s not only to estmated parameters β 0, β and µ, but also the two varances of V.and U. The value of varances can be used to measure the value of γ whch s the contrbuton of the techncal and cost effcency of the total resdual effect. Therefore the value of γ are between zero and one (0 γ 1. Techncal effcency defne as the rato between observe producton and the producton output from the fronter producton functon. The formula of techncal effcency defne by equaton 5 (1 TE y = exp( x β + v exp( xβ + v u = exp( xβ + v = exp( u (5 where 0 <TE< 1 The measurement of cost effcency explan by equaton 6 CY CE = (, P; β.exp{ U } C 79 (6

3 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne where CE s the possble mnmum cost rato wth specfc neffcency level toward actual total cost. When the C = C (P Y ;β.exp(u, the CE wll equal to 1 whch s mean frm/farmng system n the full effcency condton n the tme. In the other hand, when the actual cost bgger than the mnmum estmated cost (0 CE <1 the farmng system are neffcent. 2.2 Locaton Determnaton Ths research held n the Waeapo Sub Dstrct, Buru Dstrct, Maluku Provnce wth the consderaton that Buru dstrct s the bggest rce producer n Maluku provnce. Besdes that, the ntegrated plant and resource management program already ntroduced to the farmers snce 2004 by Counselng Agency for Agrcultural Technology. Furthermore, the mplcaton of feld school program already held snce 2009 tll now wth total area ha whch covered 16 vllages, and appled by 220 farmer groups. 2.3 Samplng Technques and Data Collecton The samplng technque used Smple Random Samplng. Sample farmers as the prmary data source was 120 respondents. Secondary data also gathered from any related department such as Agrculture Department, Natonal Bureau of Statstc, and Local Government Insttuton. Prmary data was collected from Aprl to June 2012 by usng the ntervew technque. 2.4 Emprcal Model The emprcal model used n ths research s Cobb-Douglas stochastc fronter model. The producton stochastc fronter functon and the cost stochastc fronter functon wll be explaned by equaton 7 and 8. lny = 0 + 1lnX1 + 2 lnx lnx8 ( V U β β β β + (7 where Y s rce producton (kg/ha, X 1 s the total seed ( kg/ha, X 2 s total of fertlzer N (kg/ha, X 3 s total of fertlzer P (kg/ha, X 4 s total of fertlzer K (kg/ha, X 5 s total of pestcde (lter/ha, X 6 = s total of herbcde (lter/ha, X 7 = total labor ncludng famly, worker, anmal husbandry, and machne (workng hours/day/ha, dan X 8 = s total of organc fertlzer (kg/ha. ln( C / w = + α1ln( Px1 / w α6ln( Px6 / w + α7lny + ( V + U 0 α (8 where C s Total producton cost (IDR, Px 1 s seed prce (IDR/kg, Px 2 s fertlzer N (Urea prce (IDR/kg, Px 3 s fertlzer P prce (IDR/kg, Px 4 s fertlzer K prce (IDR/kg, Px 5 adalah s pestcde prce (IDR/ltter, Px 6 s herbcde prce (IDR/lter, W s wage (IDR/HOK and Y s producton output (kg. Both producton and cost stochastc fronter models are estmated by usng Fronter 4.1 software whch s the most approprate tools to estmate the stochastc fronter functon. 3. Emprcal Result 3.1. The Analyss of Stochastc Producton Fronter Functon and Producton Effcency Accordng to Table 1, most of coeffcents have postve value except herbcde under both OLS and MLE estmaton. The value of R-square s 0.667, ndcatng that all nput varables smultaneously nfluence the vares of producton as much as 66,7%, whle 33.3% nfluence by varables exclude n the model. Partally, there are only four varables that sgnfcantly nfluence the producton, such as fertlzer N, fertlzer K, labor and organc fertlzer. The mplcaton of ths result s the ncreasng use of fertlzer N, fertlzer K, labor and organc fertlzer by 10% wll ncrease the rce producton each 0.9%, 2.26%, 7.0% and 0.2%, ceters parbus. 80

4 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne Table 1. The statstcal result of average producton and stochastc producton fronter functon Parameter OLS estmaton ML estmaton Coeffcent Standard error Coeffcent Standard error β *** *** β β * *** β β ** ** β β β *** *** β ** *** sgma-squared(σ *** Gamma(γ *** Coeffcent functon R F-statstc 27.80*** - log lkelhood functon LR test Note: ***Sgnfcant at α=1%, ** Sgnfcant at α=5%, * Sgnfcant at α=10% Accordng to Table 1, coeffcent functon of MLE estmaton s 1.11 whch explan that the stochastc producton fronter functon has the characterstc of ncreasng return to scale. It means that the ncreasng use of nputs proportonally wll ncrease the output producton to acheve the maxmum proft. The value of γ s and sgnfcant at the level of 1%. Ths value shows that 93% of the random error vares are mostly nfluence by and neffcent factor, nor the stochastc varables whch s not consdered n the model. Therefore the producton fronter possble to acheve through the mprovng on farmng system management. The value of γ whch approachng 1 also reman one sde error, where U domnated the symmetry error dstrbuton from V. The explanaton of one sde error also strengthen by the value of lkelhood rato. Accordng to the table 1, we can see that the value of observe LR s whch s greater than the gven LR (χ 1 2 = Snce the observe LR are greater than the gven LR, we can conclude that the assumpton that all of the rce farmng system whch held by farmers n Buru dstrct 100% effcent, s unproven. Okoruwa and Ogundele (2006 whose research about stochastc producton fronter of local rce varetes n Negera also found the value of γ are and Another researches held by Abedullah et al. (2007, Mnh & Long (2009, Ojogho and Alufoha (2010 also observe the value of γ whch approachng 1. Ths mples that most of researches on stochastc producton fronter are one sde error. Accordng to Table 2, we can see that the average techncal effcency of stochastc producton fronter model s 0.855, wth the mnmum value s and maxmum value s The mnmum value shows the most neffcent farmers and vce versa. If the neffcent farmers (mnmum enable to acheve the the maxmum level of effcency, the cost they may save are up to 41.05% ( / Wth the smlar formulas, the normal farmers wll enable to save 12.49% of ther usual producton cost ( / Table 2. Techncal Effcency Dstrbuton of Rce Farmng System n Buru Dstrct Effcency Techncal Effcency (TE Effcency Level range Frequency Relatve Frequency (% Statstcal Descrptve Value Mean Mn Max Standard Devaton Total Based on the techncal effcency dstrbuton accordng to Table 2, we can see that 75.38% farmers n the 81

5 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne research area already operate n the effcent level of producton. The value of standard devaton also qute small ndcatng the effcency gap among farmers s qute small. Ths result mples that ntegrated plant and resource management approach successfully ncrease the techncal effcency of farmng system n Buru Dstrct. 3.2 The Analyss of Stochastc Cost Fronter Functon and Cost Effcency Accordng to Table 3, we can see that four varables, such as producton, prce of fertlzer N, prce of fertlzer K and prce of pestcde are sgnfcant through Maxmum Lkelhood Estmaton, whch s ndcate the ncreasng of those varables wll ncrease the total cost of producton. Ths condton reflects that the rce farmng system n the research area s very senstve wth the swtch n producton and nput prce. The value of α 1 s , ndcatng that the ncreasng 1% n producton wll caused the ncreasng 0.8% of total cost. Snce the ncreasng of producton are bgger than the ncreasng of total cost, the unt cost wll be decrease as the result of ncreasng n total output produce. Table 3. The statstcal result of average cost and stochastc cost fronter functon Varable OLS estmate ML estmate Coeffcent Standard error Coeffcent Standard error α *** *** α *** *** α α *** *** α α ** α *** *** α sgma-squared *** Gamma *** log lkelhood functon LR test Note: ***Sgnfcant at α=1%, ** Sgnfcant at α=5%, * Sgnfcant at α=10% Accordng to Table 3, the value of parameter γ s and sgnfcant at the level of 1%, whch s mply that the vares of random error are 94.8% nfluence by an neffcency factors. Ths statstcal result means that the dfferent between the real cost and the mnmum stochastc cost fronter caused by the dfferent of cost effcency. The result of observe LR also bgger than the gven LR (14,6649 > χ 1 2 = 3,84146 whch s mply that the assumpton that all of the rce farmng system whch held by farmers n Buru dstrct 100% effcent, s unproven. Accordng to Table 4, the result of effcency analyss shows that the cost effcency ndex s 0.86, wth the mnmum effcency s 0.53 and maxmum effcency s If neffcent farmers (mnmum effcency could acheve the maxmum effcency, the addtonal proft they can earn s 46% (1-[0.53/0.98]. As well as the mnmum effcent farmers, the average effcent farmers can earn addtonal proft up to 12.2% f they can acheve the maxmum effcency. Therefore, farmers should mprove ther farmng skll n managng the use of nput to acheve the mnmum cost effcency. Table 4. Cost Effcency Dstrbuton of Rce Farmng System n Buru Dstrct Effcency range Cost Effcency (CE Effcency Level Frequency Relatve Frequency (% Statstcal Descrptve Frequency Mean Mnmum Maxmum Standard devaton Total

6 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne Accordng to Table 4 the dstrbuton of the cost effcency, 80% off farmers n the research area have been operate n the effcent level (> 0.80 whle the rest are between 0.50 to Ths result shows that the lowland rce farmng system n Waeapo Dstrc wth ntegrated plant and resource management approach are effcent n cost. Further, we can conclude that ntegrated plant and recourse management approach enable to ncrease farmer s proft. 4. Concluson and Suggeston 4.1 Concluson Rce farmng system n Buru Dstrct are n the condton ncreasng return to scale (RTS > 1 where the ncreasng use of nput proportonally wll ncrease the output untl t can acheve an optmal level of output. Accordng to the producton and cost effcency, the rce farmng system effcent n techncal and cost. ths s supported by the results whch showed percent and 80 percent of rce farmers study area operate at effcency levels of producton (techncal and cost above Ths result ndcates that the performance of feld school to ntroduce ntegrated plant and resource management program successfully transfer knowledge and skll to the farmers. As the result, farmers n the research area enable to ncrease ther productvty and proft. 4.2 Suggeston Manageral fxes farm accordng ntegrated plant and resource management approach wll mprove productvty further mprove techncal effcency, development of farmers through feld school need to contnue and mprove the effectveness of learnng n a group. Selecton and use of nputs n proporton as recommended (based on need on the ntegrated plant and resource management approach wll boost proft due to cost savngs. Acknowledgments The authors would lke to thank the Indonesan Agency for Agrcultural Research and Development (IAARD for ther support for the doctoral scholarshp program. The authors also thank to Professor Nuhfl Hanan, Professor Ratya Anndta and Professor Bud Setawan as mentors who have provded valuable nput on ths artcle, furthermore thank to the farmers and agrcultural extenson at Buru dstrct who have provded many nformaton about rce farmng n the study area. References Abedullah., Kouser, S. & Mushtaq, K. (2007. Analyss Of Techncal Effcency Of Rce Producton In Punjab (Pakstan Implcatons for Future Investment Strateges. Pakstan Economc And Socal Revew, 45(1, Agner, D.J., Lovell, C.A.K. & Schmdt, P. (1977. Formulaton and Estmaton of Stochastc Fronter Producton Functon Models. Journal of Econometrcs, 6, Battese, G. E. & Coell, T. J. (1992. Fronter Froducton Functons, Techncal Effcency and Panel Data: wth Applcaton to Paddy Farmers n Inda. Journal of Productvty Analyss, 3(1/2, Battese, G. E. & Coell, T. J. (1995. A Model for Techncal Ineffcency Effects n a Stochastc Fronter Producton Functon for Panel Data. Emprcal Economcs, 20(2, BPS Maluku. (2009. Fgures Maluku Provnce n BPS Maluku. Ambon. Indonesa. Coell, T.J. (1996. A Gude to FRONTIER Verson 4.1: A Computer Program for Stochastc Fronter Producton and Cost Functon Estmaton. Center for Effcency and Productvty Analyss, Unversty of New England, Armdale. Coell, T. J., Perelman, S. & Romano, E. (1999. Accountng for Envronmental Influences n Stochastc Fronter Models: wth Applcaton to Internatonal Arlnes. The Journal of Productvty Analyss, 11(3, Coell, T. J., Rao Prasada, D. S., O Donnell C. J. & Battese, G. E. (2005. An Introducton to Effcency and Productvty Analyss (2nd ed.. New York: Sprnger. Ghosh, C. & Raychaudhur, A. (2010. Measurement of Cost Effcency n the Case of Rce Producton n West Bengal and Andhra Pradesh. The IUP Journal of Agrcultural Economcs, VII (1&2, Mnh, G. K. & Long, G. T. (2009. Effcency Estmates for The Agrcultural Producton n Vetnam: A 83

7 Journal of Economcs and Sustanable Development ISSN (Paper ISSN (Onlne Comparson Of Parametrc and Non Parametrc Approaches. Agrcultural Economcs Revew, 10(2, Hanan, N. (2009. Donatons Thought Food Securty Development Drecton. Paper presented at the Round-Table Dscusson "Strategy for Food Securty and Poverty Allevaton Farmer" on the date June 23, 2009 n Surabaya. Kartaatmadja, S. & Fag, A. (2000. Integrated Crop Management: Concepts and Applcaton. Concepts and strateges Increased Food Producton. Food Crop Research Symposum IV. Bogor 22 to 24 November Kumbhakar, S.C., Ghosh, K. S. & McGuckn, J. T. (1991. A Generalzed Producton Fronter Approach for Estmatng Determnants of Ineffcency n US Dary Farms. Journal of Busness and Economc Statstcs, 9(3, Kumbhakar, S. C. & Lovell, C. A. K. (2003. Stochastc fronter Analyss. New York: Cambrdge Unversty Press. Meeusen, W. & Van den Broeck, J. (1977. Effcency Estmaton from Cobb-Douglas Producton Functons Wth Composed Error. Internatonal Economc Revew, 18, Ojogho, O. & Alufoha, G. O. (2010. Economes Of Scale And Producton Effcency In Small-Scale Rce Farmers In Ngera: Emprcal Approach For Hybrd And Local Rce. Global Journal Of Agrcultural Scences, 9 (1, Okoruwa, V.O. & Ogundele, O.O. (2006. Techncal Effcency Dfferentals In Rce Producton Technologes In Ngera. Afrcan Economc Research Consortum, Narob. Aerc Research Paper, 154. Purwantn, T. B. & Aran, M. (2008. Food Consumpton Pattern In Rce Farmer Households. Natonal Semnar: Dynamcs of Agrculture and Rural Development; Challenges and Opportuntes for Improvng the Welfare of Farmers; Bogor, 19 November Economc and Socal Analyss Center Agrcultural Polcy. IAARD. Bogor. 84

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