The effect of Market structure on the integration of rice prices with paddy prices and its impact on farmers family income in the Kroya district, indramayu regency, Indonesia

Abstract

One way to increase the paddy farmers family incomes is to increase the rice price. This is based on the assumption that the increase in the rice price will subsequently increase the paddy price, which, in turn, will increase the family incomes of paddy farmers. This assumption is valid when there is integration between the rice and paddy prices; such integration occurs within a free and competitive market structure. This study aims to find evidence that the market for farmers with small areas of land is not a “free and competitive market” but a “monopsony”, in which increases in rice prices will not increase the farmers family incomes. This is an important scientific finding for suggestion in food policy. The research method is survey, with proportional stratified random sampling. The objects research is small farmers, medium farmers and large farmers in Kroya subdistrict, Indramayu Regency, Indonesia. The reason for choosing this area is this area is ultimate producers paddy in Indonesia. After calculation from minimum number sample formula, then number sample for small farmers is 48, for medium farmers is 39, and large farmers is 16 farmers. The analysis for rice price integration with paddy price is regression analysis, if regression estimate is significant it can be concluded the paddy price is influenced by rice price. Paddy price to farmers family income impact Analysis is done by a difference test, between the rice prices, before and after the increases in the prices. If farmers income is different it be concluded the rice price have an impact to farmers family income. The research finding is, for the small farmers, their paddy price is not influenced by the market rice price. The market structure for small farmer is a near monopsony. The paddy price influenced by the rice price is only for middle and large farmers. The free and competitive market structure is only for the large farmers. It is only large and middle farmers feels the impact of rice price to farmers family income; In another hand, the increase of rice price do not have such an impact for family incomes of the small farmers. The reason for it, is because revenue from the increasing paddy price do not cover the increasing of family expediture from the increasing rice price. The policy implication from this research sugest is, the policy of increasing rice price to increasing farmer’s family income is a bad policy. This is because the policy increasing rice don’t affect for small farmer’s family income. The increasing rice price only affect for middle and larger farmer’s family income. According BPS (2014), 57 percent farmer’s in Indonesia is a small farmers, that mean increasing rice price only increasing less a half number of farmer’s family income income in Indonesia.