Price formation of red chili in producer level to maintain the sustainability of chili farmer’s farming business

Abstract

Red chili is a commodity contributes to inflation. The high price fluctuations of red chili resulted in large marketing margins and low prices received by farmers. Low prices make farmers switch to growing profitable crops. This condition is closely related to an inefficient market because price information and its formation occur in a non-transparent manner. This research objective to analyse components that impact the prices arrangement of red chili producers. The data used is secondary data on farmers level of red chili prices, wholesalers, consumers, Cayenne prices and fuel prices for 2016-2020. The analysis utilized is Error Correction Model (ECM) to see the factors that influence the formation of red chili prices in long and short time. Results showed that the factors that influence the price formation in producer level of red chili in the short time are wholesale prices, consumer prices, prices of cayenne and fuel prices. Within the long time it will be influenced by the price of cayenne and producer prices from the previous month.