Abstract
A decade of strong economic growth and rapid urbanization are transforming Indonesia’s food retail sector. In particular, supermarkets and related modern retail outlets are reorganizing how high value fruit and vegetable supply chains operate, effecting quantities, varieties, quality and prices. Among the agricultural development issues facing Indonesia’s policymakers are efficiency and distributional consequences of these transforming fruit and vegetable markets. This study examines asymmetric price transmission in chili supply chains to assess emerging market failures and potential equity implications for producers and consumers. The Indonesian government recognizes chilies as one of its 10 priority crops. Chilies are produced by more than 400,000 small scale producers and are an essential ingredient in the Indonesian daily diet. Historically, chili markets have exhibited large price fluctuations in Indonesia. Two methods for examining asymmetric price transmission are compared using monthly data over an 18 year period in Java: Houck’s model and the Error Correction Model (ECM). Although commonly believed that modern retail sectors are increasing market power and influencing prices, both models suggest that there is no price asymmetry issue in the chili supply chain in Indonesia. Key word: chili, price, asimetric, transmission
Highlights
For a variety of reasons, including rapid growth of income per capita, liberalization of trade, foreign direct investment and urbanization, modern market chains have penetrated rapidly in to developing countries (Reardon and Berdegué, 2002; Reardon et al, 2004)
In order to assess emerging market failures and potential equity implications for producers and consumers in the chili market, the main purpose of this paper is to investigate asymmetry price transmission between producer and consumer levels in Indonesia
There are three stages applied in testing price asymmetry which based on the stages in Rao and Rao, (2005), Reziti and Panagopoulos (2008) and Capps and Sherwell (2007)
Summary
For a variety of reasons, including rapid growth of income per capita, liberalization of trade, foreign direct investment and urbanization, modern market chains have penetrated rapidly in to developing countries (Reardon and Berdegué, 2002; Reardon et al, 2004). The dramatic increase in supermarket chains has led to a transformation of the supply chains of High Value Agricultural Products (HVAPs) in terms of improving on quality and food safety standard, prices and consistency in supply of HVAPs (Weatherspoon and Reardon, 2003; Reardon et al, 2004) Such situations lead to efficiency issue as well as distributional consequences in the agricultural development in HVAPs. One of important HVAPs in Indonesia is chili that including as 10 priority crops producing by more than 400,000 small scale producers and are an essential ingredient in the Indonesian daily diet (Ministry of Agricultural, cited in AGRINA, 2009). Price asymmetry exists in most agricultural products, no studies confirm the asymmetric price issue in the chili supply chain in Indonesia
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