Research on World Agricultural Economy

Do International Oil Prices, Exchange Rates and Agricultural Credit Matter for Farmers’ Term of Trade in Indonesia? Empirical Evidence of Multiple Thresholds and Asymmetric Effects

Arintoko Arintoko

Department of Economics and Development Studies, Faculty of Economics and Business, UniversitasJenderal Soedirman, Purwokerto 53122, Indonesia

Herman Sambodo

Department of Economics and Development Studies, Faculty of Economics and Business, UniversitasJenderal Soedirman, Purwokerto 53122, Indonesia

Rakhmat Priyono

Department of Economics and Development Studies, Faculty of Economics and Business, UniversitasJenderal Soedirman, Purwokerto 53122, Indonesia

DOI: https://doi.org/10.36956/rwae.v6i1.1305

Received: 15 November 2024 | Revised: 24 November 2024 | Accepted: 26 November 2024 | Published Online: 23 December 2024

---

Abstract

Farmers still survive as a livelihood for some of the Indonesian population as the dominant economic sector shifts from agriculture to industry and services. This study investigates the influence of international prices of crude oil, fertilizer, and animal feed ingredients, as well as exchange rates, domestic inflation, agricultural credit, and food production indices on farmers' terms of trade (TOT). The study applies a Nonlinear Autoregressive Distributed Lag model with multiple thresholds. The data used are monthly data for the period January 2010 to October 2023. Through multiple thresholds, the negative impact of world oil prices is significant in the middle level of changes in oil prices on farmers' TOT. Fuel subsidies to farmer households allow the impact of significant changes in oil prices to dampen farmers' TOT. Depreciation of the rupiah exchange rate significantly reduces farmers' TOT. Conversely, appreciation significantly increases farmers' TOT. Domestic inflation has significantly pressured farmers' TOT in the short run, while agricultural credit significantly increased farmers' TOT. The food industry production index significantly encourages an increase in farmers' TOT. The subsidy programs, especially fuel and fertilizer subsidies directly to farmers, are the action to reduce the impact of rising prices of imported crude oil and fertilizer.

Keywords: Farmers’Terms of Trade; Nonlinear Autoregressive Distributed Lag Model; Multiple Thresholds; Asymmetric Effects; Fuel and Fertilizer Subsidies

---

References

[1] Riptanti, E.W., Irham, M., Suryantini, A., 2022. The Sustainability Model of Dryland Farming in Food-insecure Regions: Structural Equation Modeling (SEM) Approach. International Journal of Sustainable Development and Planning. 17(7), 2033–2043. DOI: https://doi.org/10.18280/ijsdp.170704Do

[2] Fedirko, O., Zatonatska, T., 2020. Development Strategies for National Economies after Covid-19 Pandemic. Ekonomika. 99(2), 92–103. DOI: https://doi.org/10.15388/Ekon.2020.2.6

[3] Zammit, K., Howden, M., 2020. Farmers’ Terms of Trade: Update to Farm Costs and Prices Paid. ABARES Research Report. Canberra. DOI: https://doi.org/10.25814/5e339b991ce73

[4] Setiawan, A.B., Yusuf, M., Prajanti, S.D.W., et al., 2024. Unraveling the Interplay Among Inflation, Rice Prices, and Farmers Terms of Trade in Central Java, Indonesia. Agro Ekonomi. 35(1), 1–17. DOI: https://doi.org/10.22146/ae.86078

[5] Pinilih, M., Rakhmawati, D., Rosyidi, R., 2021. Farmers’ Terms of Trade in Indonesia: An Overview during Pandemic COVID-19. IOP Conference Series: Earth and Environmental Science. 746, 012012. DOI: https://doi.org/10.1088/1755-1315/746/1/012012

[6] World Bank, 2022. The World Bank Supports Indonesia’s Agriculture Sector to Become More Resilient and Inclusive. Available from: https://www.worldbank.org/en/news/press-release/2022/09/09/the-world-bank-supports-indonesia-agriculture-sector-to-become-more-resilient-and-inclusive.print (cited 13 August 2024).

[7] Adom, P.K., 2014. Determinants of Food Availability and Access in Ghana: What Can We Learn Beyond the Regression Results? Studies in Agricultural Economics. 116(3), 153–164. DOI: https://doi.org/10.7896/j.1423

[8] Brunelle, T., Dumas, P., Souty, F., et al., 2015. Evaluating the Impact of Rising Fertilizer Prices on Crop Yields. Agricultural Economics. 46, 653–666. DOI: https://doi.org/10.1111/agec.12161

[9] Komarek, A.M., Drogue, S., Chenoune, R., et al., 2017. Agricultural Household Effects of Fertilizer Price Changes for Smallholder Farmers in Central Malawi. Agricultural Systems. 154, 168–178. DOI: http://doi.org/10.1016/j.agsy.2017.03.016

[10] Signor, F.R.P., Signor, A.A., Feiden, A., et al., 2018. Organic Soybean Meal in Diet for Nile Tilapia. Revista Agrarian. 11(42), 352–362. DOI: https://doi.org/10.30612/agrarian.v11i42.6983

[11] Miranda, M.S., Arcaro, J.R.P., Saran Neto, A., et al., 2019. Effects of Partial Replacement of Soybean Meal with Other Protein Sources in Diets of Lactating Cows. Animal. 13(7), 1403–1411. DOI: https://doi.org/10.1017/S1751731118002926

[12] Galkin, V., Vorobyova, N., Chichaeva, V., 2020. Efficiency of Using High-protein Soybean Meal in Feeding Broilers of Cross-breed ROSS-PM3. BIO Web of Conferences. 27, 00102. DOI: https://doi.org/10.1051/bioconf/20202700102

[13] Weremczuk, A., Malitka, G., 2022. Influence of Changes in the Prices of Fertilizers and Fuels on the Profitability of Production of Selected Agricultural Crops. Problems of World Agriculture/Problemy Rolnictwa Światowego. Warsaw University of Life Sciences. 22(3), 43–55. DOI: https://doi.org/ 0.22630/PRS.2022.22.3.12

[14] Fukuda, Y., 2024. Impact of Increasing Oil Prices on Agricultural Production Costs. Journal of Food System Research. 30(4), 297–302. DOI: https://doi.org/10.5874/jfsr.23.30.4_18

[15] Budhi, M.K.S., Yasa, I.N.M., 2019. The Impact of Rice Field Size and Rice Price on Farmers Welfare in Indonesia. International Journal of Science and Research. 8(10), 1793–1798.

[16] Wibowo, B., 2019. Bank Loan, Inflation, and Farmer Welfare: Data Analysis by Province in Indonesia. Asian Development Policy Review. 7(1), 22–30. DOI: https://doi.org/ 10.18488/journal.107.2019.71.23.30

[17] Sulaksana, J., 2020. Analysis of Factors Affecting the Farmers’ Terms of Trade of Fruit Farmers. IOP Conference Series: Earth and Environmental Science. 466, 012017. DOI: https://doi,org/10.1088/1755-1315/466/1/012017

[18] Qodri, L.A., Ismail, M., Ekawaty, M., et al., 2022. How Macroeconomic Performance Affects Farmers’ Terms of Trade: Evidence from East Java Province, Indonesia. Journal of Socioeconomics and Development. 5(2), 237–248. DOI: https://doi.org/10.31328/jsed.v5i2.3796

[19] Farida, Y., Hamidah, A., Sari, S.K., et al., 2023. Modeling the Farmer Exchange Rate in Indonesia Using the Vector Error Correction Model Method. MATRIK: Jurnal Managemen, Teknik Informatika, dan Rekayasa Komputer. 23(2), 309–322.

[20] Arintoko, A., Badriah, L.S., Rahajuni, D., et al., 2023. Asymmetric Effects of World Energy Prices on Inflation in Indonesia. International Journal of Energy Economics and Policy. 13(6), 185–193. DOI: https://doi.org/10.32479/ijeep.14731

[21] Arintoko, A., Badriah, L.S., Kadarwati, N., 2024. The Asymmetric Effects of Global Energy and Food Prices, Exchange Rate Dynamics, and Monetary Policy Conduct on Inflation in Indonesia. Ekonomika. 103(2), 66–89. DOI: https://doi.org/10.15388/Ekon.2024.103.2.4

[22] Statistics Indonesia, 2022. The Progress of Farmers’ Terms of Trade and Paddy Producer Price. Official Statistics News, No. 77/11/XXV. Available from: https://webapi.bps.go.id/download.php?f=jYbly3goWAR4A5I2K7mczCxSQbUmszrQsGCYj7mGGCeuXoIut2vNxRLCdyc+pqDyLTEsAN4GNRZbSTL/3wK7JfgZM/9AMam/xvl/iXJe8xU6c+/cNnX5DKSswQZdNEpvAGbXMt2IrHg7H2e5FhwGBGLKVOh64idXE19S61sVXkamIdNt0gEn6zqD5vzlBDILN1AsSmK3374zsTpXavXQObk+6fwHVe1HpD43ejQVNZzoruyV4Czre4211PKd/XXSH/TfRIPIWkm2y09nIHoVCFBfuDqlm4RVuiL1mXYkJkk= (cited 26 July 2024).

[23] Yu, Y., Peng, C., Zakaria, M., et al., 2023. Nonlinear Effects of Crude Oil Dependency on Food Prices in China: Evidence form Quantile-to-quantile Approach. Journal of Business Economics and Management. 24(4), 696–711. DOI: https://doi.org/10.3846/jbem.2023.20192

[24] Mathur, S., Waswani, H., Singh, D., et al., 2022. Alternative Fuels for Agriculture Sustainability: Carbon Footprint and Economic Feasibility. AgriEngineering. 4(4), 993–1015. DOI: https://doi.org/10.3390/agriengineering4040063

[25] Maino, M.R., Emrullahu, D., 2022. Climate Change in Sub-Saharan Africa Fragile States: Evidence from Panel Estimations. International Monetary Fund Working Paper No. 2022/054.

[26] Mirzabaev, A., Olsson, L., Kerr, R.B., et al., 2023. Climate Change and Food Systems. Science and Innovations for Food Systems Transformation. 511.

[27] Ngarava, S., Zhou, L., Nyambo, P., et al., 2023. Aquaculture Production, GHG Emission and Economic Growth in Sub-Sahara Africa. Environmental Challenges. 12, 100737. DOI: https://doi.org/10.1016/j.envc.2023.100737

[28] Alexander, P., Arneth, A., Henry, R., et al., 2023. High Energy and Fertilizer Prices are More Damaging than Food Export Curtailment from Ukraine and Russia for Food Prices, Health and the Environment. Nature Food. 4, 84–95. DOI: https://doi.org/10.1038/s43016-022-00659-9

[29] Fahmid, I.M., Jamil, A., Wahyudi, et al., 2022. Study of the Impact of Increasing the Highest Retail Price of Subsidized Fertilizer on Rice Production in Indonesia. Open Agriculture. 7, 348–359. DOI: https://doi.org/10.1515/opag-2022-0087

[30] Arif, Y.N. Isnaniyah, N.F., Pramono, A., et al., 2022. The Effect of Complete Feed Containing Protected Soybean Groats on the Production of Javanese Thin-tailed Male Sheep Carcasses. Buletin Peternakan. 16(1), 16–22. DOI: https://doi.org/10.21059/buletinpeternak.v46i1.70685

[31] Gale, F., Arnade, C., 2015. Effects of Rising Feed and Labor Costs on China’s chicken Price. International Food and Agribusiness Management Review. 18(Special Issue A), 137–150.

[32] Alvarez, R., Shoja, A., Uddin, S., et al., 2019. Daily Exchange Rate Pass-through into Micro Prices. Applied Economics Letters. 26(6), 440–445. DOI: https://doi.org/10.1080/13504851.2018.1486972

[33] Manasseh, C.O., Abada, F.C., Ogbuabor, J.E., et al., 2018. The Effects of Interest and Inflation Rates on Consumption Expenditure: Application of Consumer Spending Model. International Journal of Economics and Financial Issues. 8(4), 32–38.

[34] Obayelu, A.E., Wintola, A.O., Oluwalana, E.O.A., 2022. Households’ Rice Demand Response to Changes in Price, Income and Coping Strategies during Food Inflation in Nigeria: Evidence from Oyo State. Italian Review of Agricultural Economics. 77(2), 61–75. DOI: https://doi.org/10.36253/rea-13602

[35] Tupamahu, M.K., Hanoeboen, B.R.A., Rijoly, J.C.D., 2021. The Effect of Inflation and Economic Structure Changes on Farmer Exchange Value (NTP) in Eastern Indonesia. Jurnal Citra Ekonomi. 15(1), 33–42.

[36] Yuni, D.N., Agbanike, T.F., Chukwu, A.B., et al., 2022. Access to Credit for Rice Farmers and Its Impact on Productivity: the Case of Ebonyi State, Nigeria. Studies in Agricultural Economics. 124(1), 37–43. DOI: https://doi.org/10.7896/j.2236

[37] Channa, A., Lakhan, G.R., Channa, S.A., et al., 2020. Credit Constraints and Rural Farmers’ Welfare in an Agrarian Economy. Heliyon. 6(10), e05252. DOI: https://doi.org/10.1016/j.heliyon.2020.e05252

[38] Stavytskyy, A., Prokopenko, O., 2017. Investments in Agricultural Machinery and Its Efficiency in Ukraine. Ekonomika. 96(1), 113–130. DOI: https://doi.org/10.15388/Ekon.2017.1.10667

[39] Murdy, S., 2017. Do Prices Affect Farmers’ Terms of Trade in Indonesia? Jurnal Manajemen and Agribisnis. 14(3), 264–272. DOI: https://doi.org/10.17358/jma.14.3.264

[40] Aida, T., 2023. Integrating Agricultural and Industrial Development. In: Estudillo, J.P., Kijima, Y., Sonobe, T. (eds.). Agricultural Development in Asia and Africa. Emerging-Economy State and International Policy Studies. Springer: Singapore. pp. 305–316. DOI: https://doi.org/10.1007/978-981-19-5542-6_22

[41] Kinkpe, T., Luckmann, J., Grethe, H., 2021. Improving livelihoods in Agriculture-based Economies through Processing Sector Development: A CGE Analysis on Benin. Proceedings of the 24th Annual Conference on Global Economic Analysis (GTAP); 23–25 June 2021. Available from： https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=6319 (cited 22 August 2024).

[42] Gouk, S., 2012. Linkages between agriculture and food industry, and food processing by farmers in Korea. Journal of Rural Development. 35(2), 103–118.

[43] Shin, Y., Yu, B., Greenwood Nimmo, M., 2014. Modelling Asymmetric Cointegration and Dynamic Multipliers in A Nonlinear ARDL Framework. In: A Festschrift in Honour of Peter Schmidt. Springer: New York, NY, USA. pp. 281–314. DOI: https://doi.org/10.1007/978-1-4899-8008-3_9

[44] Li, Y., Guo, J., 2022. The Asymmetric Impacts of Oil Price and Shocks on Inflation in BRICS: A Multiple Threshold Nonlinear ARDL Model. Applied Economics. 54(12), 1377–1395. DOI: https://doi.org/10.1080/00036846.2021.1976386

[45] Gong, X., Chang, B.H., Chen, X., et al., 2023. Asymmetric Effects of Exchange Rates on Energy Demand in E7 Countries: New Evidence from Multiple Thresholds Nonlinear ARDL Model. Romanian Journal of Economic Forecasting. 26(2), 125–142.

[46] Setiawan, A.C., Mursinto, D., Haryanto, T., 2021. Direct Fertilizer Subsidies on Production and Household Income in Indonesia. Trikonomika. 20(1), 1–10.

[47] Nasrin, M., Bauer, S., Arman, M., 2018. Assessing the Impact of Fertilizer Subsidy on Farming Efficiency: A Case of Bangladeshi Farmers. Open Agriculture. 3, 567–577. DOI: https://doi.org/10.1515/opag-2018-0060

[48] Pope, M., Borg, B., Boyd, R.D., et al., 2023. Quantifying the Value of Soybean Meal in Poultry and Swine Diets. Journal of Applied Poultry Research. 32(2), 100337. DOI: https://doi.org/10.1016/j.japr.2023.100337

[49] Ramadhanu, R., Ginting, R., Ayu, S.F., 2021. Analysis of Factors Affecting Farmer Exchange Rate in North Sumatera Province. IOP Conference Series: Earth and Environmental Science. 782, 022050. DOI: https://doi.org/10.1088/1755-1315/782/2/022050

[50] Haryanto, T., Wardana, W.W., Jamil, I.R., et al., 2023. Impact of Credit Access on Farm Performance: Does Source of Credit Matter? Heliyon. 9, e19720.

[51] Ali, E., Awade, N.E., 2019. Credit Constraints and Soybean Farmers’ Welfare in Subsistence Agriculture in Togo. Heliyon. 5, e01550. DOI: https://doi.org/10.1016/j.heliyon.2019.e01550

[52] Effendy, Antara, M., Muhardi, et al., 2022. Effect of Socio-economic on Farmers' Decisions in Using Lowland Rice Production Inputs in Indonesia. International Journal of Sustainable Development and Planning. 17(1), 235–242. DOI: https://doi.org/10.18280/ijsdp.170123