Decomposition of total factor productivity growth: the case of irrigated rice farming in West Java, Indonesia.

The result is that the total factor productivity (TFP) from 1988 to 1992 grew by -50 percent while technological change was -52 percent. The gain in technical efficiency was 2 percent. These results showed that technological change is the primary source of TFP growth. Therefore, to maintain production growth at an annual rate of 2.5 percent, the development of better technology, especially HYVs [high yielding varieties], through rice breeding should be given high priority. In contrast, a sharp decline in TFP growth from 1988 to 1992 pest damage that took place in the 1992 wet season. Pest damage has resulted in a loss in both quantity and quality of the grain and hence, resulting in low value of output. The application of econometric approach showed that pest damage has contributed 28 percent decline in TFP. If this impact is used to compensate for technological change, then the adjusted technological change from 1988 to 1992 was 24 percent, instead of -52 percent. Technical efficiency, had a low contribution to TFP growth in the past. However, its average of 85 percent indicates that there is a 15 percent unexploited yield (as technical inefficiency) that can be exploited in the future. If 50 percent of the technical inefficiency can be eliminated, it will contribute about 8.8 percent growth to irrigated rice production. This study also found that technological change in rice production in the study area has been characterized as being biased toward fertilizer-pesticide- and tractor-using, and seed- and labor-saving. There was substitution of herbicide and tractor for labor. It also found that the rice production technology was in the stage of decreasing return to scale. The proportionate increase in output will be less than proportionate increase in input. Another finding is that fertilizer subsidy showed negative impact, while price support showed a positive effect on technical efficiency. These results imply that price support is a better policy tool than fertilizer subsidy to accelerate productivity growth through improvement in technical efficiency gains.