Incorporating Risk to Technical Efficiency Measurement in Organic Farming: Study in East Java, Indonesia

Abstract

Farmer's risk aversion determines the decision to farming, especially in organic farming. In Indonesia, organic farming still has not shown encouraging progress, whereas movement "Go Organic" has been initiated by the government since 1980 after the green revolution program was stopped. Organic agriculture has the potential failure obstacles in the process of production and farming. International policy, human resources, government supporting, land, water, local seeds, marketing, climate, can be sources of risk in organic paddy farming in developing countries. The farmer’s risk aversion become crucial issues that influencing the production resulting from using a combination of inputs. Purposes of this study are a) analyzing sources of risk in organic farming, b) measuring the risk behavior of farmers and c) analyzing the effect of the risk behavior of farmers to production. The location of this research is purposive with consideration that the location is an organic rice production centres in Malang. The method to determine the respondents is census method. The method used a) quantitative descriptive, b) quadratic utility functions of the Bernoulli principle with technical-NM and c) Stochastic Frontier production function. The study found that the dominant source of the risk faced by organic paddy farmer is local rice seedlings are susceptible to pests and diseases, the behavior of most farmers are risk neutral and there is a positive and significant influence between behavior risk with productivity, causing the efficiency to be 93.31%. It is hoped with this study can be used as a reference for the government in the development of organic farming in the framework of "Healthy Indonesia". Keywords: paddy organic, risk aversion, efficiency, sources of risk