Abstract
The international food crisis from 2007 to 2010 impacts the fluctuation of world's food prices. Indonesia is one of the developing countries that are vulnerable to volatility in food prices because food is a necessity that is still partly imported and hence impactingdomestic prices. This problem has been excerbated by tthe fact that domestic fresh milk production made a relatively small contribution to the availability of milk to meet Indonesia's consumption. This study aims to analyze the volatility of fresh milk prices in three largest milk producer regions in Indonesia, namely East Java, West Java, and Central Java, from June 2015 to December 2018. The study used ARCH GARCH model. The results of this study shown that fresh milk prices in West Java was volatile and it was influenced by the volatility of the previous period. Climate change and feed prices yielded positive responses on the volatility of fresh milk price in West Java. Subsequently, it achieved a stable price level in the long run. In the short run, the highest response of the milk price volatility shock was shown by the West Java's fresh milk price volatility itself.Keywords: ARCH-GARCH, fresh milk prices, VECM, volatilityJEL Classifications: Q54, O13DOI: https://doi.org/10.32479/ijefi.9184
Highlights
Since 2008, food and financial crisis has drawn a significant attention in policy making, due its impacts on political stability and economic development ([FAO] World Food and Agriculture Organization, 2013)
Data stationarity test results are Augmented DickeyFuller (ADF) t-statistic values of all variables smaller than the data critical value at the level of 5%. These results indicated that the data processed in East Java has been stationary in the first difference and does not contain unit roots, while for data processed in West Java and Central Java it has been stationary at the level and does not contain unit-roots
The results using the autoregressive conditional heteroscedasticity (ARCH)-GARCH method on the price of fresh milk in the three provinces of the largest dairy producers in Indonesia shows that fresh milk price volatility only occured in West Java province, and was affected by the fresh milk price volatility on the previous period
Summary
Since 2008, food and financial crisis has drawn a significant attention in policy making, due its impacts on political stability and economic development ([FAO] World Food and Agriculture Organization, 2013). The short run food price fluctuations has lead to a high food price volatility (Gilbert and Morgan, 2010), affecting the state of the food security, financial markets and trade flows (Miguez and Michelena, 2011). The food price volatility has been empirically found to be more volatile than the manufacturing products as the demand characteristics of the food is inelastic and highly dependent on external forces such as climate, pest and other factors (Anindita, 2004). As a net importing country of milk and dairy products, has been facing substantial risks of international price volatility. Increase in the international milk prices increase was transmitted to domestic prices (Hardjanto, 2014). The price transmission risk occurs due to the fact that the domestic fresh milk production made a relatively small contribution to meet Indonesia’s demand
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
