Profit function approach in estimating input demand, output supply and economic efficiency for rice farming in Indonesia
1995
Rusastra, I.W.
Price support policy is the best alternative in increasing rice production and generating employment in rural areas, indicated by the least cost per unit rice produced and employment generated. Technology had negligible effect on output supply in Java, and even negative outside Java. The implementation of the said price support policy will have wide policy implications in the future. The government should set the domestic rice price approaching its parity price in the world market. Rice growth rate should also be determined broadly in line with the rate of domestic consumption. By doing so, the cost of import, buffer stock, and export subsidy will be minimized. In addition, input subsidy can be gradually and then completely phased-out. Therefore, the country can give more attention to other food crop commodities and subsector to diversify agricultural production and consumption. In Java, the intertemporal direction of economic inefficiency of wetland rice decreased substantially for the last five years (1987-1991), and even disappeared in Yogyakarta and East Java. Outside Java, 20 years after the introduction of new rice technology, the economic inefficiency was still large and varied among provinces, ranging from 2.0 percent-52.9 percent. For dryland rice, the productivity potential of the current technology was almost completely exhausted for both regions. Outside Java, the inefficiency performance was below five percent, decreased over time, and most of these disappeared for the last five years. These findings imply that immediate generation of new technology is very urgent in order to have a greater economic gain in wetland rice development in Java. For dryland rice farming, no substantial economic gain can be achieved through increasing economic efficiency.
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