CGPRT No. 3

THE SOYBEAN COMMODITY SYSTEM IN

Bogor Research Institute for Food Crops Central Research Institute for food Crops Agency for Agricultural Research and Development Indonesia ESCAP CGPRT Centre i

FOREWORD

In 1983, the Regional Co-ordination Centre for Research and Development of Coarse Grains, Pulses, Roots and Tuber Crops (CGPRT Centre), the Central Research Institute for Food Crops (CRIFC) and the Bogor Research Institute for Food Crops (BORIF) jointly undertook a socio-economic study on the Soybean Commodity System in Indonesia, at the request of the Director General of the Agency for Agricultural Research and Development (AARD). The study was initiated to shed light on the position of soybean in Indonesia. Presently, the country depends to a great extend on imports, a situation which causes serious concern to the Government of Indonesia. In order to improve the situation, the Government of Indonesia has launched an intensification and expansion program to increase productivity and production of soybean in the country. The study covers aspects of production, marketing, utilization and processing, demand and consumption, and government policy. The conclusions and recommendations intend to serve as a basis for future in-depth studies of the components of the soybean commodity system. We hope that this study will contribute to further improvement of the soybean production in Indonesia, and that this study will be the first of many fruitful collaborative research activities between the CGPRT Centre and Indonesian research institutes aimed at solving problems in Indonesia's agricultural development.

Shiro Okabe B.H. Siwi Director Director CRIFC CGPRT Centre ii

ACKNOWLEDGEMENTS

The study was initiated by Dr. Rusli Hakim, former Director of CRIFC, and would not have been possible without his guidance. Dr. B.H. Siwi, Director of CRIFC, has provided much support. Mr. Shiro Okabe, Director of the CGPRT Centre, supported and encouraged the team during all phases of the study. Dr. Irlan Soejono of the CGPRT Centre contributed. valuable ideas in many discussions. We benefited from comments and suggestions offered by Dr. M. Ismunadji, Director of BORIF. Interactions with other colleagues, including lengthy discussions with Dr. Sadikin Somaatmadja and Dr. Sumarno of BORIF, were vital to the improvement of the study. The staff of the Socio-Economics Department of BORIF and of the Provincial Extension Services (Diperta) provided invaluable assistance during the survey. Our appreciation goes to the co-operators who made great efforts to provide data on their soybean-based economic activities. To all the above, and to many others we express our gratitude and thanks.

The Study Team iii

CONTENTS

Page Foreword Acknowledgements ...... ii

Contents ...... iii

List of Tables and Figures ...... v

Summary, Conclusions and Recommendations...... viii

1. Introduction...... 1 Objectives of the study...... 2 Methodology and scope...... 2 Plan of the report...... 5

2. Trends in Soybean Production ...... 6 Soybean and other palawija crops...... 6 Changes in soybean production...... 7 Regional characteristics of production...... 12 Promotion of soybean farming...... 16

3. Farm Production Practices ...... 17 General characteristics ...... 17 Soybean cropping systems ...... 19 Production technology...... 24 Post-harvest handling ...... 25 Problems and prospects...... 29

4. Input and Output Relations ...... 30 Precondition of input and output analysis ...... 30 Outline of input-output analysis...... 30 Cropping systems in different areas ...... 34 Inter-relationship between input and output...... 35 Cobb-Douglas function for soybean production ...... 39 Interpretation of results ...... 42 Page iv

5. Marketing and Price Situation...... 45 Marketing structure ...... 45 Marketing margins ...... 47 Specialization of traders...... 47 Marketing constraints and problems ...... 50 Role of trader/middleman...... 52 Distribution of imported soybean...... 52 Trend of real price...... 54

6. Utilization and Processing...... 56 Indonesian soybean foods ...... 56 Traditional processing industry...... 58 Function and role of Kopti ...... 60 The feed industry...... 62

7. Demand and Consumption...... 69 Soybean imports...... 69 Food consumption...... 69 Feed consumption ...... 72 Location of consumption...... 72 Demand for cereals...... 72 Expenditure and price elasticities of pulses...... 74 Demand elasticities of soybean...... 76

8. Government Policy, Regulations and Support Programs ...... 77 Bimas and the crash intensification program ...... 77 Seed production and distribution system...... 82 Marketing and floor price policy...... 82 Agricultural extension...... 83 Research for varietal improvement ...... 84

9. Discussion and Conclusion ...... 86 Agro-economic background for study of soybean...... 86 Inter-relationships between micro and macro issues...... 87

References ...... 89

Appendix ...... 91 Abbreviations and glossary...... 92 Members of study team and authors...... 93 v

LIST OF TABLES AND FIGURES

Tables Page

1.1. Balance sheet for major food sources in Indonesia, 1978...... 1 1.2. Provinces, , sub-districts and covered by the soybean commodity study, 1984...... 3 2.1. Changes in soybean area harvested and production in Indonesia, 1969-82 ...... 8 2.2. Changes in soybean yield in Indonesia, 1969-82...... 10 2.3. Total area harvested of non-rice (palawija) crops and area harvested of soybean in Indonesia (average 1969-71 and 1979-81) by province...... 13 2.4. Location quotient of soybean production in Indonesia (average 1969-71 and 1979- 81) by province ...... 14 3.1. Family size and characteristics of 189 soybean farmers by region, 1983/84 ...... 17 3.2. Arable land holding and soybean cultivation per family in sample districts, 1983/84 18 3.3. Percentage of soybean crop area on different land types in sample districts, 1983/84 19 3.4. Percentages of soybean crop grown with different cropping strategies (planting types, land types and cropping times) in sample Soybean commodity system survey, 1983/84...... 20 3.5. Percentage of farmers interviewed participating in Bimas soybean in intensification program Sampled districts, 1983/84 ...... 24 3.6. Rates of inputs application per hectare of soybean cropped in sampled districts, 1983184...... 26 3.7. Costs and returns of soybean production per hectare in sample districts,...... 27 3.8. Rates of input application per hectare for soybean crop production, 1978 ...... 28 4.1. Means of area, yield and input uses of 113 sample farmers in different location...... 31 4.2. Means of area, yield and input uses of 113 sample farmers under different cropping conditions...... 31 4.3. Multiple regression analysis for 113 sample soybean farmers based on unit area and seed use in Indonesia, 1984...... 36 4.4. Multiple regression analysis for sample soybean farmers by region based on unit area in Indonesia, 1984 ...... 37 4.5. Multiple regression analysis for sample soybean farmers by factor (land type, cropping patern and season) based on unit area in Indonesia, 1984...... 38 4.6. Cobb-Douglas production function estimates for 113 sample soybean farmers, Indonesia, 1984...... 41 4.7. Cobb-Douglas production function estimates for sample soybean farmers by region, Indonesia, 1984...... 42 5.1. Percentage of soybean retail price at various trade levels in East , and West Nusatenggara, 1975 —1976...... 49 5.2. Specifications of soybean quality standards before 1984...... 53 5.3. Specifications of soybean quality standards since 1984...... 53 vi

Tables Page

6.1. Amount of soybean processed by a unit industry by three case studies in Indonesia . 59

6.2. Cost and return of tofu and tempe processors (average of 7 cases each) in , 1984 ...... 61

6.3. Economic performance of a tofu and tempe industry (average of 7 cases each) in West Java, 1984 ...... 61

6.4. Kopti members in Indonesia, 1983 ...... 63

6.5. Number of tofu, tempe and kecap processing enterprises in Indonesia, 1979...... 64

6.6. Growth of the Indonesia tempe/tofu industry in 1975-81 (large and medium-scale processors) ...... 65

6.7. Growth of the kecap industry in 1978-81(large and medium-scale processors) ...... 65

6.8. Growth in the use of animal feed components in Indonesia, 1978-82 ...... 66

6.9. Projected consumption of livestock products in 1984-88 (Pelita 4)...... 66

6.10. Changes of domestic production and import of soybean in Indonesia, 1969 — 82... 68

7.1. Consumption of various soybean products in selected provinces in Indonesia, 1974. 73

7.2. Expenditure elasticities of items for Indonesia 1976, S. Arief, Double-log Model ... 74

7.3. Expenditure elasticities of items for Indonesia, 1976, D.D. Hedley, Linear Model... 75

7.4. Expenditure elasticities by crop for Indonesia, 1976, USDA, Double-log Model..... 76

8.1. Targets of soybean production in the Fourth Five Year Plan (Pelita 4), 1984 — 88 .. 79

8.2. Soybean varieties released in Indonesia, 1981-84...... 85 vii

Figures Page

1. Location of districts covered by the soybean commodity system study ...... 4

2.1. Area of major non-rice (palawija) food crops as a proportion of total palawija area harvested in Indonesia, 1969-82 ...... 7

2.2. Changes in soybean area harvested and production in Indonesia 1969-82 ...... 9

2.3. Changes in soybean yield in Indonesia, 1969-82...... 11

2.4. Changes in the location for soybean cropping in selected provinces in Indonesia, 1961/71-1979/81...... 15

3.1. Rainfall distribution and cropping patterns in Jember () and Wonogiri (), 1983 ...... 21

3.2. Rainfall distribution and cropping in Gunung Kidul (Yogyakarta) and Lampung Tengah (Lampung), 1983...... 22

3.3. Percentage by reasons for growing soybean given by farmers in sample districts, Indonesia, 1983/84...... 23

4.1. Means of area, yield and input uses of 113 sample farmers in different locations..... 32

4.2. Means of area, yield input uses of 113 sample farmers under different cropping conditions...... 33

5.1. Marketing channels of soybean grain in Indonesia...... 46

5.2. Changes of soybean price at various trade levels in Ujung Pandang (South ) and Brebes (Central Java), Indonesia, 1977 ...... 48

5.3. Major trading and harvesting months for soybean in Indonesia ...... 51

5.4. Average soybean grain prices at different market levels in Indonesia 1969-82...... 55

6.1. Changes in soybean consumption (excluding feed) in Indonesia 1970-1980 ...... 57

7.1. Changes of domestic production and import of soybean in Indonesia,1969 — 82.... 70

7.2. Consumption of soybean in Indonesia (1970)...... 71

8.1. Targets of soybean production in the Fourth Five Year Plan (Pelita 4),1984 —1988 78

8.2. Changes of realized area and the target of soybean under intensification programs in Indonesia, 1974/75-84/85 cropping years...... 80 viii

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

1. A study on the soybean commodity system in Indonesia was planned by the ESCAP CGPRT Centre at the request of the Government of Indonesia in late 1983, in view of the remarkable rise in the demand for soybean products which has led to increasing dependence on imports during the recent years. In 1984, the study was executed in close co-operation with scientists of the Bogor Research Institute for Food Crops of Indonesia.

2. The objectives of the study are : (i) to review the supply and demand situation of soybean in Indonesia; (ii) to identify, analyse and evaluate constraints to the production of soybean; and (iii) to identify further research needs with a view to expanding soybean production. 3. A comprehensive approach was adopted in order to cover the integration between the various components of the soybean commodity system in Indonesia. The study consists of three major parts : (i) A production survey at farm level. Sites were selected in the four main soybean producing provinces : East Java, Central Java, Yogyakarta and Lampung. The survey included 187 farmers. (ii) A marketing and processing survey in West Java. (iii) A study of government policy using secondary data from various sources.

4. The study is explorative in nature. The scope of the conclusions regarding production is confined to areas known as main soybean producing areas, while the research on marketing processing and policy is basically exploring on a national level.

5. The study indicates that the major constraints of the system are related to domestic production. The use of inputs appears to be fairly high, though yields are still low (600 — 700 kg/ha). Large increases in yields can not be expected from intensified application of inputs with the present farming practices. Because of the large variations in input use and farming practices within the individual soybean producing areas, adoption of the concept of recommendation domain should be carefully evaluated. National and regional research programmes, aiming to develop technological packages for dissemination through extension agents should also take into account the high intra-regional variability.

6. At the present stage, research programmes on soybean should focus on improvement of the present practices of soybean growers. In-depth study needs to focus on incidence of insect attacks and diseases and possible implications for improved pest and disease management. As interaction between insects attacks and nutrients uptake are known to exist, the response to fertilizers and micro nutrients should also be studied. A possible implication of the study points to the need for research in the existing marginal soybean growing areas as well as in the newly developed soybean growing areas, where expanded use of inputs may be required. ix

7. Extension efforts should take fully into account the present farming systems and practices and aim to improve existing practices, in close co-operation with regional and national research agencies.

8. The high variability of input use and farming practices among the soybean growers needs to be studied with a view to identifying the factors which induce the farmer's behaviour, leading to the variation. In conjunction with this study, specific research should also look into the reasons for non-adoption of soybean by farmers in their cropping systems in areas suitable to soybean production.

9. Presently, two relatively separate marketing systems are operating. The traditional marketing system absorbs domestic production and consists of relatively small traders and processing factories, and caters to house­ holds. It markets through small stores and market facilities. The second system in which BULOG plays an important role, imports soybean for processing by relatively large factories, producing animal feed and consumer goods. Since 1974, the CIF price of imported soybean has been lower than the real price of the domestic product. Domestic soybean production is indirectly subsidized through government subsidies on fertilizers and chemicals. The present situation may raise a question of national policy. The cost of production of soybean in Indonesia is recognized to be higher than the present world market prices. This situation could be associated with the matter of the economic viability of the Government's subsidy programme which aims at increased domestic production. It is also important, however, to secure the present soybean production, especially because an important sector consisting of small-scale rural industries is directly connected to domestic production. It is crucial to increase the productivity to prevent the economic costs of the government programme from running too high and becoming a burden to the national economy. It is recommended to look into the economic and financial viability of soybean production policy in Indonesia, using methods such as domestic resource costs and comparative costs in order to determine the optimal policy.

10. The study shows that the private sector performs efficiently in rural trade of soybean, resulting in a proportion received by farmers of the retail prices of about 75070. However, in-depth studies are required in connection with grading, storage and marketing of soybean at village and regional levels with a view to reduced storage losses and prolongued shelf life of the end-products. There are indications that the distribution system of imported soybean compares not favourably to the private sector system. It is recommended to study both systems in order to improve the overall marketing efficiency to the benefit of the producers and the consumers.

11. Soybean is recognized to play an important role in the supply of protein and essential amino acids in the nutritional balance of the rural and urban diet. The high income elasticity of demand for human consumption and the growth of the feed industry further support the view that over-production is unlikely to occur, especially in view of the large potential demand for soybean cake. It will be necessary to develop industrial facilities in the sector. Therefore, the feasibility of industrial processing of domestic and imported soybean grain needs to be further studied. x 1

1. INTRODUCTION

The Government of Indonesia is at present implementing its Fourth Five-Year Development Plan (Pelita 4, 1984 - 88). As with the previous three Five Year Plans (Pelita 1, 1969- 73; Pelita 2, 1974 - 78; and Pelita 3, 1979 -83), Pelita 4 emphasizes the role of agriculture in the provision of an adequate supply of food and raw materials, and in the export of agricultural products. Recently there has been a growing consensus in Indonesia that non-rice ("palawija") crops must be incorporated in a comprehensive national food policy. The government has launched a mass intensification program to increase palawija production, similar to the successful program already implemented for rice production. Special attention has been paid to soybean in response to Indonesia's growing dependence on substantial soybean imports, which have increased markedly in the last 5 years. A commercial newsletter recently reported that imports rose sharply to around 500,000 tons in 1983 from 360,000 tons in 1981. This was due to virtual stagnation in the country's soybean production, and to steadily rising consumption. The slow growth in production may be partly due to the emphasis formerly placed on the improvement of rice, Indonesia's major staple food crop. Soybean has great potential as a major source of protein for the Indonesian people. As an inexpensive protein source, it has long been known and used in a great variety of food products, such as tofu, tempe, tauco and kecap. Soybean provides as much or more protein and calories than animal products (Table 1).

Table 1.1. Balance sheet for major food sources in Indonesia, 1978. Consumption per capita Food Source kg/year g/day cal/day g/protein/day g/fat/day Cereals 1,586 31.97 8.55 ( Rice) 123.35 337.94 (1,237) (21.63) (2.70) Starchy foods 246 1/9 0.32 Sugar 116 0.10 0.03 Pulses & oil seeds 268 8.08 21.42 ( Soybean) 4.85 13.29 (53) (4.66) (1.35) Fruit 23 0.30 0.14 Vegetables 11 0.63 0.11 Meat 19 1.09 1.58 Eggs 4 0.27 0.27 Milk 8 0.40 0.40 Fish 17 2.90 0 49 Vegetable oils 117 13.24

Animal fat 2 0.21 Total 2,417 47.53 46.76 ( vegetable) 2,367 42.87 43 81 ( animal) 50 4.66 2.95 Source: Djuber Pasaribu and J.L McIntosch, 1983. Increasing soybean production trough improved cropping system and management in the tropics. 2

Objectives of the Study This study was initiated to evaluate the present status and future prospects of soybean in Indonesia, in order to allow policymakers to formulate effective programs for increasing production, as stipulated in the Fourth Five-Year Development Plan. A commodity systems approach was used to identify the inter-relationships among the various factors related to the development of soybean.

Our specific objectives are as follows: (i) to analyze and evaluate the current status of soybean marketing and consumption, in connection with the demand for the various end-uses for soybean in Indonesia;

(ii) to identify the factors constraining and encouraging soybean development, including resource availability, production technology, relative prices and related government policies; and

(iii) to predict the potential for future production and for various end-uses of soybean in Indonesia, and to suggest further research and policies necessary to develop this crop.

Methodology and Scope Both primary and secondary data were used in the study. The study consists of three groups of activities: (i) Production and domestic demand: This study covers the end-uses of soybean, and an analysis of supply, including domestic production and imports. It includes current trends in yields and imports, case studies of farmers' soybean productions and their levels of technology, the production cost structure, and unit cost.

(ii) Marketing of soybean: This includes a study on the agencies involved at various levels in the production the consumption chain, the market organization and channels, the marketing function of various institutions, cost and profit margins and prices, marketing technology, and the problems and prospects of soybean marketing.

(iii) Government policy: This study covers government regulation, including the current crash program for soybean intensification (Bimas program), the Food Logistics Board (Bulog) regulations, floor prices, and research and development activities.

We collected information and data from various sources.

These include: (i) Primary data from survey respondents and interviews with groups of informants, including soybean farmers, traders, and processors.

(ii) Secondary data from government agencies at the national and regional levels, such as the Central Bureau of Statistics (CBS), the Directorate of Food Crops Production, Bulog, and local agricultural offices. 3

Due to budget and time constraints, we concentrated on compiling primary data from four of the five largest soybean producing provinces in Indonesia: East Java, Central Java, Yogyakarta, and Lampung. In each province we selected two districts (kabupaten) representing the main producing areas (Table 1.2 and Figure 1). We then chose two subdistricts (kecamatan) in each selected district and then one village in each subdistrict. At each stage we selected the areas with the highest acreage of cultivated and harvested soybean.

Table 1.2. Provinces, districts, sub-districts and villages covered by the soybean commodity system study, 1984.

District Sub-district Province Village (Kabupaten) (Kecamatan) East Java Ponorogo Kauman Semanding Badegan Menang Jember Balung Karang Duren Wuluhan Glundengan

Central Java Wonogiri Pracimantoro Putat Baturetno Duwet Grobogan Purwodadi Putat Toroh Tambirejo

Yogyakarta Gunung Kidul Ponjong Tanggul Angin Karangmojo Ngawis Lampung Lampung Tengah Bangunrejo Bangunsari Jabung Gunung Mekar 189 sample farmers were interviewed by the survey team

From each sample village, we interviewed 10 farmers individually and also 5 to 10 farmers as a group. We based our analysis of marketing on information from the soybean traders in the areas we surveyed. We interviewed a total of 16 village or subdistrict grain traders in our sample areas in Central Java and Yogyakarta. We surveyed processing institutions in three districts in West Java, namely, Garut, and . Many tofu and tempe factories are found in these districts. We used the case study method for this part of the investigation. We are aware that our choice of the main producing areas as the major basis of our study means that our findings will not be representative of the soybean commodity system in Indonesia as a whole. Rather, they reflect the conditions in the areas where soybean has been most successful. We chose this method of sampling so we could obtain as much useful information as possible within one year and with the available personnel and resources. 4

INDONESIA

Lampung

Jakarta

Grobogan Bandung

Wonogiri Wonosari Jember Ponorogo

Figure1.Location of districts covered by the soybean commodity system study. 5

Our results therefore serve two purposes : as a guide for the successful development of soybean in other areas of Indonesia; and as a preliminary basis for future in-depth studies of individual parts of the soybean commodity system. Such in-depth studies will be necessary to identify in detail the constraints — both bio-physical and socio-economic — preventing farmers from attaining the yields obtained by researchers on experimental farms.

Plan of the Report This report presents the results of our study. Chapter 2 outlines the trends in soybean production in Indonesia as a whole. Chapter 3 reports the general results of the survey of soybean production in the main producing districts of Java Lampung. Chapter 4 deals with input and output relations at the farm levels covered by our survey.

soybean marketing system. Chapter 6 deals with soybean utilization and processing, and is based mainly on information gathered during our studies in West Java. Chapter 7 covers the demand and consumption of soybean in Indonesia, while Chapter 8 describes government policies, regulations and support programs, including research to improve yield levels and to encourage expansion of the cropped area. 6

2. TRENDS IN SOYBEAN PRODUCTION

The agricultural sector contributed 25% of Indonesia's gross domestic product in 1981 (CBS 1983). Its contribution has fallen from around 40% in 1972, indicating the rapid development of non-agricultural activities. Food crops account for more than 50% of the total contribution by the agricultural sector.

Despite its decline, agriculture continues to play a vital role in the supply of provisions to the nation. It is thought that about 75% of Indonesia's population is directly dependent on agriculture for its livelihood (Department of Agriculture, 1983). About 60% of the labour force is engaged in agricultural activities. In addition, the high rate of population growth indicates the steady increase in the demand for food.

In order to attain national self-sufficiency in food, the Indonesian government has provided various types of support as part of its Five-Year Development Plans (Pelitas) since 1969. During Pelitas 1— 3, the supply of the main staple food, rice, was significantly improved (Mears 1984). For Pelita 4 (1984 - 88), a mass intensification programme to increase the production of palawija (non-rice) crops has been launched. This implies that attention is now being focussed not only on carbohydrate content, but also on protein-rich foods. In this connection, pulses in particular soybean are recognized as high protein food and feed crops. The following will review the trends in soybean production at both national and regional levels in Indonesia during the period from 1969 to 1982/83.

Soybean and Other Palawija Crops Food production in Indonesia is characterized by the concentration of population and production in Java, and by the rapid growth of the population. Java accounts for only 7% of the total area of the country but supports about 60% of the total population. Hence, 60% of Indonesia's 17.4 million farm householders cultivate less than 0.5 ha of farm land, and 5% are landless farmers. The government is attempting to solve this problem through its transmigration programme, which aims at moderating the population pressure in Java and expanding the agricultural production area outside Java.

On the other hand, infrastructures such as irrigation, drainage, farm roads and other transportation facilities, are not yet well developed, especially outside Java. In 1980.. the irrigated area was about 5.4 million ha, or 28% of the total 19.5 million ha of arable land (Singh, 1983). The irrigated area could be increased by 2.2% each year, but such expansion would be costly. This suggests that most of the arable land will remain as rainfed or dryland areas.

Farmers usually plant rice as their main crop on wetland under rainfed conditions, and follow with palawija crops after the rice harvest. Dryland cropping systems are based on palawija crops, including soybean. Irrigated rice land must be multicropped, and legumes are usually planted after the rice harvest. Legumes are especially adaptable to various land types wetland and dryland by virtue of their nitrogen fixation and soil 7 improving properties. With the current low levels of fertilizer application, legumes are recognized as the best choice to follow the major crop. Soybean plays an important role as an intercrop in the rotation systems as commonly practiced by Indonesian farmers.

Figure 2.1 shows the relative changes in the area harvested to six major palawija crops (maize, cassava ,sweet potato, soybean, peanut and mungbean) from 1969 to 1982. This figure shows that coarse grains (maize) account for about 50% of the palawija area, root crops (cassava and sweet potato) about 30%, and pulses (soybean, peanut and mungbean) the remaining 20%.

Although it is not indicated in Figure 2.1 the area harvested to maize, cassava and sweet potato is tending to decline, while there are marginal increases in the areas of soybean and peanut. It has been reported that land previously under cassava and sweet potato tends to shift to rice; this is due to he higher profitability of rice, which includes political supports such as input subsidies and price controls (Mears, 1984).

Figure 2.1. Area of major non-rice (palawija) food crops as a proportion of total palawija area harvested in Indonesia, 1969-82.

100 Mungbean

90 Peanut

80 Soybean

70

60 Cassava 50

40

30 Corn 2C

10

1969 70 71 72 73 74 75 76 77 78 79 80 81 82

PELITA I PELITA II PELITA III

Changes in Soybean Production Soybean is widely grown throughout the densely populated island of Java, where 80% of Indonesia's total soybean area is concentrated (Table 2.1). A similar proportion of the country's total soybean production is also in Java. Most of the major producing areas in Java are located in the drier part of the island, in districts receiving 1,500-2,100 mm of rain each year, and with 5 to 6 months with less than 100 mm of rain. The wet season is normally from November/Desember to March/April. Soybean is often planted in paddy fields in April after the main rice harvest, and is harvested in early July. The main rice crop is then planted in December (Naito, et al. 1983). Sumarno (1984) estimates that 60% of the soybean planted in Java is grown on wetland after rice, and the remaining 40% is grown on dryland. 8

Table2.1. Changes in soybean area harvested and production in Indonesia, 1969-82 Area harvested (1,000 ha) Production (1,000 t) Outside Outside Java Total Java Total Java Java 1969 476 78 554 341 48 389 70 597 98 695 429 69 498 71 581 99 680 452 64 516 72 582 116 698 447 71 518 73 598 146 744 439 102 541 74 612 156 768 457 132 589 75 601 151 752 468 122 590 76 499 147 646 406 116 522 77 517 129 646 418 105 523 78 594 139 733 509 108 617 79 620 164 784 545 135 680 80 586 146 732 529 124 653 81 653 157 810 579 125 70*') 82 462 146 608 403 118 521 Source: Directorate General of Food Crops and CBS statistics. Sihombing, D.A. 1983. Prospek dan kendala pengembangan kedelai di Indonesia. (Prospect and constraints of soybean development in Indonesia). Kedelei. AARD and CRIFC. *) Data were recalculated from the original source.

In 1982 about 42% of the country's soybean areas outside of Java were concentrated in . In the Lampung and provinces of Sumatra, soybean is a major crop, and is planted three times a year.

Figure2.2. shows annual changes in the soybean area harvested within and outside of Java during the period of Pelitas 1 to 3 (1969-82). Although the total area harvested has tended to increase, it has varied widely between years. A variety of factors has caused this instability : in particular, the weather and the unpredictable rains, natural hazards such as droughts and floods, and the vulnerability of the crop to pests and diseases.

There has also been uncertainty in the supply of key inputs such as fertilizers and pesticides. For example, in 1972 and 1975, some soybean areas were attacked by armyworms, fungi and mice. In 1982, a longer than usual dry season prevented many farmers from planting soybean, and caused the crop to fail in many areas (Somaatmadja and Siwi, 1983). The production of soybean shows a similar trend to the area harvested (Figure 2.2). During the years 1969 - 82 the correlation coefficient between the harvested area and production was 0.869. 9

Table 2.2. and Figure 2.3. compare soybean yields in the first three Pelita periods. The average yield increased steadily from 0.7 t, /ha in 1969 to around 0.9 t/ha in 1981. As can be inferred from this figure, the coefficient of variance of yields outside Java (27.3%) was larger than that in Java (13.8%). This implies that yields were more unstable outside Java, reflecting lower levels of cultivation technology, unstable climatic conditions, natural disasters and more dryland cultivation.

Indonesia has the potential to increase its soybean production. More soybean (and other legumes) can be produced by (1) planting in the off season under non-traditional systems, (2) intercropping, and (3) cropping in marginal areas where other crops fail to perform satisfactorily. These methods may be combined in some areas; however intercropping is indicated mainly for Java, and the other methods for areas outside Java. (1.000t)

Production

700

Total

500 Outside Java

300 Java

100

( 1.000 ha )

Area harvested Total

700 Outside Java

500

Java

300

100

1969 71 73 75 77 79 81

Pelita I Pelita II Pelita III

Figure 2.2. Changes in soybean area harvested and production in Indonesia, 1969 - 82. 10

Table 2.2. Changes in soybean yield in Indonesia, 1969-82 *) Yield (Kg/ha ) Java Outside Indonesia (Index) Java 1969 716 615 702 (100) 70 719 704 717 (102) 71 778 646 759 (108) 72 768 612 742 (106) 73 734 699 727 (102) 74 747 846 767 (109) 75 779 808 785 (112) 76 814 789 808 (115) 77 809 814 810 (115) 78 857 777 842 (120) 79 879 823 867 (124) 80 903 849 892 (127) 81 887 796 869 (124) 82 872 808 858 (122) 11

Yield ( kg/ha )

900

Average

800 Java

Y = 6891 + 14.3 X 700 ( r = 0.954 )

Outside Java

600

500

1969 70 71 72 73 74 75 76 77 78 79 80 81 82

Pelita I Pelita II Pelita III

Figure 2.3. Changes in soybean yield in Indonesia, 1969 - 82. 12

Regional Characteristics of Production As mentioned above, most of Indonesia's soybean is produced in Java, with relatively little grown on the other islands (Table 2.1). The reasons for the sparsity of the crop outside Java are various : (1) soybean is not part of local diets; (2) farmers are not willing to grow soybean because it is a new crop and requires intensive management; (3) soils are often too acid for growing soybean; and (4) local markets have not been established (Sumarno, 1984). However, farmers who have transmigrated from Java have begun to expand the soybean areas, especially in Sumatra and Sulawesi.

East Java accounted for 49-66% of the total soybean output in 1969 - 82, although its relative importance as a center of production is declining. The relative importance of West Java, and as centers of production is also declining, while Yogyakarta, , Lampung and especially Aceh have improved their position within the last 15 years (Table 2.3.).

The characteristics of soybean production by province can be examined in more detail by using the location quotient method. The location is a statistical measure of the extent to which a particular economic activity is comparatively over- or under-represented in the economy of a region, compared to its presentation in the economy as a whole. The location quotient (LQ) is calculated as : LQ = E / E it ir in where, E ir is the percentage of the total economic activity in the region r accounted for by activity i, and E in is the percentage of the total national economic activity accounted for by activity i. Where the quotient is 1.0, activity i is equally represented in the regional and national economies; where the quotient exceeds 1.0, the region can be regarded as relatively specialized in that activity. Since the area of arable land is different in each province in Indonesia, the rates of concentration of certain crops are also diverse. Provinces with more arable land may have a greater potential for soybean production than those with less arable land.

Table 2.4. indicates the location quotients of soybean of Indonesia's 27 provinces in 1969/71 and 1979/81. During both of these periods, Yogyakarta, West Nusatenggara, and East Java had the highest quotients. These provinces are major production centres with a long history of soybean cultivation. Central Java held the sixth highest location quotient in 1979 — 81, and is still a major soybean producer. The location quotients have increased rapidly in some provinces (e.g., Lampung and Aceh), while those in other provinces have been comparatively stable or have decreased marginally.

Figure 2.4. illustrates some of these changes. In Java, where soybean production is already established, the changes have been minimal. Yogyakarta is an exception to this. The generally stable quotients in Java imply that the additional areas where soybean could be cultivated are somewhat limited.

On the other hand, several provinces outside Java show considerable changes between the two periods. Lampung and Aceh have shifted to almost the same level as Central and East Java, while the quotients of and Irian Jaya also show a rapid increase. Although the area harvested outside Java is less than 20% of the total, these changes point to the strong potential for the crop outside Java. 13

Table2.3. Total area harvested to non-rice (palawija) crops and area harvested to soybean in Indonesia (average 1969-71 and 1979-81) by province. (in ha)

Total palawija area Soybean area Province harvested harvested (average) *) (average) **) 1969-71 1979- 81 1969-71 1979- 81 1. East Java **) 3,421,061 3,653,516 377,792 380,059 2. Central Java 2,413,008 2,610,218 122,825 159,203 3. Yogyakarta 374,864 358,206 24,862 50,940 4. West Nusatenggara 336,913 337,668 43,824 40,243 5. Lampung 342,602 459,812 14,068 37,894

6. West Java 2,219,057 2,276,023 25,789 28,577 7. Aceh 230,281 279,299 1,739 19,171 8. South Sulawesi 899,801 1,048,640 6,069 16,896 9. B a 1 i 264,084 309,504 11,604 10,109 10. North Sumatra 607,382 663,987 7,645 7,842

11. North Sulawesi 150,306 163,774 382 6,331 12. 377,645 408,341 794 5,031 13. 126,324 117,109 109 1,844 14. 285,336 306,940 735 1,815 15. West 339,276 335,479 826 1,784

16. Irian Jaya 33,506 47,365 35 1,676 17. 899,801 1,048,640 990 1,580 18. East Nusatenggara 392,630 496,036 328 1,318 19. 49,006 92,242 138 1,151 20. 85,067 76,574 249 951

21. 235,345 332,255 471 620 22. R i a u 165,392 143,685 72 380 23. 131,633 160,525 179 312 24. M a l u k u 43,136 68,215 1,022 181 25. 115,914 135,015 1 171 26. 23,135 19,913 27. East Timor *) Total area harvested of palawija crops (maize, cassava, sweet potato, soybean, peanut and mungbean). **) According to the average size of soybean area harvested by province in 1979 - 81. 14

Table 2.4. Location quotient of soybean production in Indonesia (average 1969-71 and 1979-81) by province. Province*) 1969-71 1979-81 1. Yogyakarta 1.43 2.75 2. West Nusatenggara 2.80 2.31 3. East Java 2.37 2.01 4. Lampung 0.88 1.59 5. Aceh 0.16 1.33

6. Central Java 1.09 1.18 7. North Sulawesi 0.05 0.75 8. Irian Jaya 0.02 0.68 9. Bali 0.94 0.63 10. South Sulawesi 0.14 0.31

11. Southeast Sulawesi 0.02 0.30 12. West Java 0.25 0.24 13. Bengkulu 0.06 0.24 14. South Sumatra 0.05 0.24 15. East Kalimantan 0.06 0.24

16. North Sumatra 0.27 0.23 17. Central Sulawesi 0.17 0.18 18. West Sumatra 0.06 0.11 19. 0.05 0.10 20. 0.51 0.05

21. East Nusatenggara 0.02 0.05 22. 0.01 0.05 23. South Kalimantan 0.04 0.04 24. Jambi 0.03 0.04 25. Central Kalimantan 0.00 0.03

26. Jakarta 27. East Timor ') According to the value of location quotient by province in 1979-81. 15

Increase / stability 3 Decrease 3

2

C. Java 1 1

W. Java

1969 - 71 1979-81 1969-71 1979- 81 Java Outside Java

Figure 2.4. Changes in the location for soybean cropping in selected provinces in Indonesia, 1969/71 -1979 - 81 16

Promotion of Soybean Farming The government is showing great interest in soybean production. Since 1974, intensification schemes have been initiated within the Bimas (mass guidance) and Inmas (mass intensification) programmes. The most important component of these intensification schemes is the supply of good quality seed, insecticides and fertilizers to farmers. Under the Bimas program the government provides credit for these inputs. To encourage soybean cultivation and to promote its marketing, the floor price of soybean has been fixed since 1979. In December 1984, the floor price paid to farmers by village cooperatives for soybean was set at Rp. 300/kg.

In addition to the Bimas and Inmas programs, the government has initiated Insus (special intensification) and Inmum (general intensification) programmes for soybean farming. The differences between these four intensification programs are summarized as follows:

Intensification Extension Credit Farmers* program service facility *) group Bimas (mass guidance) Yes Yes No Inmas (mass intensification) Yes No No Insus (special intensification) Yes Yes Yes Inmum (general intensification) Yes No Yes *) Credit covers the cost of living and materials (fertilizers, pesticides and seed).

In addition, a programme was initiated in 1983 to provide lime for the improvement of acid soils. This program is expected to be especially beneficial for soybean cropping. All these schemes will be discussed in detail in Chapter 8 of this report. 17

3. FARM PRODUCTION PRACTICES

This chapter reports the general findings of our survey of farm production practices in 12 villages of Indonesia's four main soybean producing provinces. Analyzing the management of soybean cropping on small farms is complicated due to the variety of cropping patterns, especially in dryland and highland areas. We encountered these complications particularly in our Lampung Tengah and Gunung Kidul samples. Our samples in Grobogan and Ponorogo districts were the most homogenous, while those from Jember and Wonogiri were moderately complex.

General Characteristics The average family in our household samples consists of 4.5 people (Table 3.1). On average, 64% of the family members work on farms. Farm households in Gunung Kidul (Yogyakarta) have the smallest proportion of family members working on farms (44%), although the opportunities to work in off-farm and non-farm jobs are slight (less than 10%) in this area. In Wonogiri and Grobogan (Central Java) household members are more active in non­ farm jobs (14%). Our findings confirm that farm production is still the main source of income in these areas even though the land resources are limited.

The average arable land holding of our samples is 0.92 ha per family though the average holding ranges from 0.55 ha in Gunung Kidul to 1.53 ha in Jember (Table 3.2). Most of the arable land in the Java districts is wetland. Gunung Kidul is the exception, where the arable land is dryland because of the hilly terrain in the area. In Lampung Tengah, nearly 60% of the arable land is also dryland.

Table 3.1. Family size and characteristics of 198 soybean sample farmers by region, 1983/84. % of family Number of % of income % of income members District persons per from from working family off-farm * *) non-farm * *) on farm ') East Java Ponorogo 11.6 54 8 8 Jember 11.0 77 8 8 Central Java Wonogiri 4.2 57 6 14 Grobogan 3.7 78 5 14 Yogyakarta Gunung Kidul 4.9 44 7 4 Lampung Lampung Tengah 5.4 87 8 8 All Samples 4.5 64 7 9 *) Percentage of family members involved in on-farm activities. **) Based on total sample of farm families. Off-farm work means work on farms belonging to others; non-farm means non-agricultural activities such as trading, carpentry, etc, 18

Table 3.2. Arable land holding and soybean cultivation per family in sample districts, 1983/84. (in ha.) All arable land Wetland Dryland Homeyard Total East Java Ponorogo 0.62 0 0 0.62 Jember 1.29 0.24 0 1.53

Central Java Wonogiri 0.69 0.04 0 0.73 Grobogan 0.65 0.04 0 0.73

Yogyakarta Gunung Kidul 0.14 0.33 0.08 0.55

Lampung Lampung Tengah 0.35 0.80 0.25 1.40 Average 0.62 0.24 0.06 0.92

Soybean crop area Land planted Soybean crop area to soybean (one year) East Java Ponorogo 0.62 0.62 Jember 1.53 1.94

Central Java Wonogiri 0.73 1.35 Grobogan 0.70 0.75

Yogyakarta Gunung Kidul 0.40 0.65

Lampung Lampung Tengah 1.05 1.66

Average 0.84 1.16 19

Soybean Cropping Systems Wetland accounts for over 90% of the soybean areas in the sample districts in Java (Table 3.3). In the highland and dryland districts of Gunung Kidul and Lampung Tengah, nearly 80% of the soybean crop is grown on dryland, where the farmers show their ability to get optimal use of their land. In most of the districts, the soybean crop area is larger than the area cultivated; this indicates that the farmers cultivate soybean more than once a year on some of their land (Table 3.2). In Jember, the soybean crop area is almost twice the cultivated land area.

Just over half of the soybean is grown as a monocrop; the remaining 46% is intercropped with other food or perennial crops (Table 3.4). Figures 3.1 and 3.2 illustrate the most common soybean cropping systems in the six areas studied. Legumes are primarily a monocrop in Ponorogo, Wonogiri and Jember, but are intercropped in Grobogan, Gunung Kidul and Lampung Tengah (Table 3.4). When monocropped on wetland, soybean is usually planted in June and July, in the dry season after the second rice crop. Soybean which is monocropped on dryland, however, is planted in February to April. Most of the soybean intercrops are planted in October and November, both on dryland and wetland.

A farmer must evaluate many factors in running his farm and choosing which crops to plant. These include his family's multiple goals, his resources, the many constraints he faces, the technology options available, and marketing. The farmers' reasons for choosing soybean as a component of a cropping pattern are shown in Figure 3.3. The highest proportion of farmers report that they grow soybean in order to increase their income. At the same time, farmers in Wonogiri and Grobogan are aware of the profitability of soybean. In Jember, Wonogiri and Gunung Kidul, soybean has been grown for a long time, and the crop has become part of the farmers' tradition.

Table 3.3. Percentage of soybean area on different land types in sample districts, 1983-84. Wetland Dryland Homeyard Total East Java Ponorogo 87 13 100 Jember 100 0 100

Central Java Wonogiri 95 5 100 Grobogan 93 100

Yogyakarta Gunung Kidul 5 77 18 100

Lampung Lampung Tengah 11 79 10 100 All areas 72 25 3 100 20

Table 3.4. Percentage (%) of soybean crop grown with different cropping strategies (planting types, land types, and cropping times) in sample districts, 1983/84. East Java Central Jaya Yogyakarta Lampung *) All areas Ponorogo Jember Wonogiri Grobogan G. Kidul L. Tengah Share of area 10.6 18.0 23.8 15.9 15.3 16.4 100 in the total survey area

Monocrop Wet land Oct.-Dec. 33 100 Feb.-Apr. 29 5 6 Jun.-Jul. 100 50 36 28

Dry land Oct.-Dec. 9 2 10 4 Feb.-Apr. 9 2 24 3 6 June.-Jul. 10 2 Sub-total 100 97 78 10 24 13 54 Intercrop •*) Wet land Oct.-Dec. 11 70 14 Feb.-Apr. June.-Jul. 9 3 3

Dry land Oct.-Dec. 41 52 16 Feb.-Apr. 2 10 35 22 9 Jun.-Jul. 3 7 13 4 Sub-total 3 22 90 76 87 46 Total 100 100 100 100 100 100 100

*) Dry land in Lampung Tengah including homeyards. **) Intercropping on wet land mostly with maize; on dry land with maize (39%), cassava (26%), upland rice (23%) and other crops (12%). 21

mm Jember 400 Rainfall (East Java )

300

200

100

0 O N D J F M A M J J A S

Wetland Rice Soybean Soybean

Rice Soybean Wetland Rice

Dry land Corn Soybean

Dry land Corn Soybean Soybean

mm Wonogiri (Central Java) Rainfall 300

200

100

0 0 N D J F M A M J J A S

Wetland Soybean Rice Soybean

Wetland Soybean Rice Soybean Peanut Corn

Corn Rice Corn Wetland Soybean Soybean Sorghum Sorghum

Dryland Soybean Soybean

Figure 3.1. Rainfall distribution and cropping patterns Figure 3.1 Rainfall distribution and cropping patrens 22

mm Rainfall 400 Gunung Kidul ( Yogyakarta I 300

200

100

0 0 N D J F M A M J J A S Dryland Rice Soybean Rice Dryland Soybean Soybean Cassava

Rice Dryland Cassava Soybean

Rice Dryland Peanut Soybean Soybean Soybean Corn Dryland Cassava

mm 400 Rainfall Lampung Tengah 300 ( Lampung )

200

100

0 0 N D J F M A M J J A S Rice Cassava Dryland Soybean Corn

Corn Dryland Soybean Cassava

Soybean Soybean Soybean Dryland Corn Corn Corn

Dryland Soybean Corn

Figure 3.2. Rainfall distribution and cropping patterns in Gunung Kidul (Yogyakarta) and Lampung, , (Lampung Tengah), 1983. 23

6 No response

5 Others 6

4 4 High yield

1 To increase Ponorogo/ Whole area farm income 1 3 Efficient use Jember of land 3

2

2 Tradition/custom

5 4 4

1 2

Grobogan 3 Wonogiri

2 1

6 6

1

4 Gunung Lampung 5 1 Kidul Tengah 3

2 2

Figure 3.3. Percentage by reasons for growing soybean given by farmers in sample districts; Indonesia, 1983/1984. 24

Production Technology Only 30% of the farmers we interviewed participate in the Bimas intensification programme for soybean (Table 3.5). Many farmers are not involved in the programme because their land is fertile and they have sufficient funds of their own. However, this observation should be regarded with caution because an appreciable number of the farmers did not respond to our question on the subject.

Fertilizer: More than 80% 0 of the farmers use fertilizer and pesticide for their crops. Most apply urea and TSP fertilizer. while some use ammonium sulphate and KCI. About half (49%) of the farmers we questioned applied urea once during the crop season, between 15 and 30 days after planting. As expected, the majority of farmers apply TSP only once, at planting time. More than 700% of farmers apply N fertilizer by broadcasting, and about 60% broadcast P fertilizer.

Pesticide: A wide range of pesticide chemicale are available; we noted at least 14 brands during our survey. Almost 80% of the farmers exercise pest control 2 to 4 times, mainly in the period from 15 to 45 days after planting (72% of cases). Fifty-seven (57) percent of the farmers who use pesticide apply it regularly. The remaining farmers use it only when felt necessary, i.e., when pests are expected to reduce yield. The retailers or suppliers of these inputs can be found near the farmers' homes, at village co-operatives (KUD) and other co-operatives, and at markets.

Seed: Seed is one of the important factors in successful crop production. In selecting soybean seed, farmers look for full, shiny, unbroken, dry, clean, and sufficiently large seeds. About 30% of our farmers use their own seed. The KUD village co-operatives and production input shops provide seed for 160% of the farmers, and the market supplies another 16%. This leaves about 11% of the farmers who buy seed, probably of recommended varieties, from the local agricultural service (Diperta), Government Seed Centers, Bimas, and Pertani (State Company, providing commercial agricultural inputs).

Table 3.5. Percentage of farmers interviewed, participating in the Bimas soybean intensification program. Sampled districts, 1983/84. % of farmers % of farmers % of farmers District in Bimas using fertilizers using pesticides East Java Ponorogo 10 55 60 Jember 5 79 100

Central Java Wonogiri 25 95 80 Grobogan 29 95 100

Yogyakarta Gunung Kidul 64 100 100

Lampung Lampung Tengah 45 50 83

All areas 30 80 47 25

Sowing: Most farmers plant the seed in rows; About 50% use a plant spacing of 20 x 20 cm. Only 11% of the farmers (but particularly those in Jember) broadcast their seed. The method of planting, whether as monoculture or intercrop, and whether in rows or not, influences the weeding practices. In Jember, where most farmers broadcast their seed, only a small number (24%) weed their crop. In other areas, more than 80% of farmers weed their crop. Farmers generally weed twice in Lampung Tengah, Wonogiri, and Grobogan; in Gunung Kidul and Ponorogo, only one weeding is usual. In the former areas, farmers usually weed 10-15 days and again 30-35 days after planting; in the latter areas, they weed 10-15 days or 20— 25 days after planting.

Current and labour inputs: Table 3.6 shows the rate of inputs applied per hectare, while Table 3.7 shows the costs of these inputs. The seeding rates are lower for intercrops (which are usual on dryland) than for monocrops. The seeding rates on dryland are thus generally lower than those on wetland, except in Grobogan when soybean is intercropped with maize on wetland, and where the seeding rate is only 34 kg/ha.

The fertilizer application rates in Lampung are the lowest, while farmers in Grobogan and Gunung Kidul apply the highest rates (126 —154 kg/ha and 164 kg/ha respectively). Farmers in Wonogiri apply the highest dosages of pesticides (4 — 8 kg or liters/ha). The amount of fertilizer used on soybean in Gunung Kidul and Grobogan was high, yet the yield obtained in Gunung Kidul/Yogyakarta was low. The amount of seed used in Ponorogo (70 kg/ha) is questionable, particularly because the farmers in Ponorogo grow a small seeded variety.

If we compare the rates of input applications in the CBS 1978 study with our findings (Table 3.9), we can see that soybean farmers now use much more fertilizer and pesticide. The seeding rates are still comparable because the proportion of monocrops and intercrops has remainded the same. We should treat such comparisons with caution, however, because of the different natures of the two studies, and because we surveyed only the most successful producing areas.

Farmers use animal traction or manual labor to perform farm operations. In Wonogiri, all of the farmers prepare their land by hand. Farmers in Grobogan, on the other hand, use mostly animal traction, but not for their soybean crop alone, because most soybean in this area is intercropped. Family members and neighbours working on an exchange basis, perform more than 7O% of the work in Lampung Tengah and Wonogiri, but only about half in Ponorogo and Jember. Gunung Kidul and Grobogan fell between these two extremes.

Post Harvest Handling Soybean is ready for harvesting when more than 6O% of the leaves have fallen off and the bean pods have dried. Twenty (20) percent of the farmers harvest 70 — 89 days after planting; another 21% harvested after 90 days. The remaining 59% of our farmers were unable to report specific harvesting times. Most farmers harvest with a straight blade or sickle; however, many farmers in Lampung and a few in Gunung Kidul and Jember still pull the crop up by hand. Harvesting with a sickle increases the seed quality because the grain is less likely to contain soil impurities. 26

Table 3.6. Rates of inputs application per hectare of soybean cropped in sample district, 1983/84. ______Current Inputs______Seed Fertilizer Pesticide (kg/ha) (kg/ha) (kg or 1/ha) Homeyard Lampung Tengah 25 3.32

Wetland Ponorogo 1) 70 1174) 5.3 Jember 65 42 4.4 Wonogiri 2) 49 138 8.2 Grobogan 3) 34 154 5.2

Dryland Jember 52 96 2.63 Wonogiri 48 60 4.50 Grobogan 25 126 0.30 Gunung Kidul 56 164 2.70 Lampung Tengah 31 38 3.02 cont.

Labour Inputs (workda/ha) animal Total Workdays % of family/ (animal days) (workdays) exchange labour ) Homeyard Lampung Tengah 225 100

Wetland Ponorogo 8 147 42 Jember 7 79 64 Wonogiri 152 82 Grobogan 7 162 60 Dryland

Jember 1.2 110 47 Wonogiri 156 100 Grobogan 8.4 154 66 Gunung Kidul 6.8 138 69 Lampung Tengah 1.2 89 72 1) The remaining days will be worked by hired laborers. 2) Only one pattern : rice - rice - soybean 3) Mostly soybean - rice - soybean 4) Only soybean + maize - rice - maize 5) Percentage of total work days contributed by family members or by neighbours on an exchange basis 27

Table 3.7. Costs and returns of soybean production per hectare in sample districts, Indonesia 1983/84.1) (Rp. 1,000) Paid-out Costs Seed Fertilizer Pesticide Wages Homeyard Lampung Tengah 12.5 5.3 6.8

Wetland Ponorogo 63.0 11.9 9.0 60.3 Jember 29.2 8.6 11.0 29.0 Wonogiri 24.5 12.4 15.2 34.4 Grobogan 19.5 13.5 12.4 49.6

Dryland Jember 23.4 11.9 6.8 37.2 Wonogiri 24.0 5.4 13.0 13.8 Grobogan 14.4 11.0 0.5 75.0 Gunung Kidul 25.2 14.8 4.8 45.6 Lampung Tengah 15.5 3.2 6.1 19.0

Total Gross Value VA costs return 2) added (VA) Ratio Homeyard Lampung Tengah 24.6 238.0 213.4 8.67

Wetland Ponorogo 144.2 400.5 256.3 1.78 Jember 77.8 324.0 246.2 3.16 Wonogiri 86.5 367.2 280.7 3.25 Grobogan 95.0 553.2 458.2 4.82

Dryland Jember 79.3 244.8 165.5 2.09 Wonogiri 56.2 275.4 219.2 3.90 Grobogan 100.9 447.2 346.3 3.43 Gunung Kidul 90.4 193.1 102.7 1.14 Lampung Tengah 43.8 244.8 201.0 4.59 1) This analisys does not treat the different cropping patterns separately. 2) Average price per kg soybean grain received by farmers; Lampung Tengah Rp. 340; Grobogan Rp. 461; Jember Rp. 360; Gunung Kidul Rp. 431; Wonogiri Rp. 459; and Ponorogo Rp. 445. 28

Table 3.8. Rates of input application per hectare for soybean production, Indonesia, 1978. Seed Fertilizer Pesticide (kg/ha) (kg/ha) (kg/ha)

Java West Java 57 11 1.0 Central Java 27 16 0.5 East Java 38 27 0.4 Yogyakarta 44 19 1.3 Java/Madura 39 19 1.0

Outside Java Sumatra 38 7 0.3 Kalimantan 53 Sulawesi 28 4 0.1 Bali/Nusa Tenggara 37 2 0.2

Indonesia 1979 38 16 0.8 1980 45 38 1.5 Source: Struktur ongkos usahatani padi, palawija 1979, Central Bureau of Statistics. 29

The crop is then sun-dried on bamboo mats or a drying floor, or on the ground. After the grain pods have dried, the farmers hit them repeatedly until all the grains are unshelled. They then separate the grain from the broken pods and other impurities, and store the clean grain in plastic sacks. We found no signs of improvement on this traditional method of processing.

Some farmers sell all their grain immediately if they require cash for their next crop or for other urgent needs. If not, they sell part at a time, depending on their need for cash. None of the farmers sell their crop before harvest.

Farmers rarely store grain for a long time, except for the 5 —10% which is used for seed. The formers reported that they could store good quality grain for one-and-a-half months, at the most.

Problems and Prospects Farmers reported that several pests damage their soybean crop: these included armyworm (Spodoptera inclusa), podborer (Etiella zinckenella), and stinkbug (Nezara viridula). We surveyed only some of the main soybean production areas in Indonesia, and so it is not surprising that there are no problem soils in these areas. In other areas, especially those where the crop may be introduced in the future, high soil acidity (pH 5.5) may constrain production. The government is attempting to improve such soils through a major program of liming, further details of which can be found in Chapter 8.

Rhizobium inoculation is normally necessary for successful cropping on soil where soybean has never planted before. Rhizobium inoculation particularly benefits local varieties. The government is sponsoring inoculation practises, using the commercial inoculum "Legin". Further details of this are also given in Chapter 8. Researchers are seeking the optimum liming and rhizobium inoculation rates and methods for different soils.

Farmers can raise their yields further if they use more seed per hectare, and if they plant one of the high-yielding varieties recommended by the Ministry of Agriculture. They must take care, however, to apply the proper soil and crop management practices for these varieties. Eighty (80) per cent of the farmers plant local varieties of soybean. Several factors influence their choice of local or high-yielding varieties (HYVs). Local varieties generally have low yield potential and produce grain of poor quality and low uniformity, leading to grading problems. The grain of local varieties is usually smaller in size than that of HYVs, however, and farmers in some areas prefer smaller grains for processed products such as tempe. Some farmers feel that selling local variety grain is easier, although traders we spoke to denied this. Local varieties are usually more tolerant than HYVs to pests and diseases, and require fewer inputs to produce a yield-albeit a low one. Some farmers in Jember regard local varieties as more tolerant to drought and flooding. Despite these perceived disadvantages of HYVs, it is clear that many more farmers would plant improved varieties if they could obtain seed. The low availability of HYV seeds is thus a major constraint to increasing soybean yields, and requires urgent attention. 30

4. INPUT AND OUTPUT RELATIONS

The present discussion focuses specifically on the determinants and correlates of several variations in productivity among farmers in these areas. The objective is to know the response of output to productive inputs under the different cropping conditions in the survey area.

Preconditions of input and output analysis Before describing the results of the survey, some words of caution are necessary. The first relates to the limited sample size. Our interview survey covered six districts with a total of 189 farms. However, only 113 questionaires could be used for detailed analysis on input and output relations. Replies from one site in East Java, Ponorogo, with only seven respondents, were pooled with those from Jember, also in East Java. Further regrouping was not attempted in view of the large differences in cropping conditions between the sites. Since at each site, soybean may be grown in different land types (lowland/upland), cropping seasons (wet/dry) and cropping systems (mono-versus inter-cropping), it is clear that the sample size is not adequate for a precise evaluation of the effect of the various factors considered at the area level.

A second issue is the accuracy of farmers' answers. For example, their knowledge of the cropped areas is regarded as particularly questionable, and limited because of variations in land utilization under inter- or mixed cropping systems. In many cropping systems in Indonesia, soybean is one of the choices for inter-cropping in rotation systems commonly practiced by the farmers. Cropping systems in lowland areas under well-irrigated and/or rainfed conditions are primarily based on rice. However, even when they monocrop soybean, farmers do not always plant this crop over the entire paddy field. Under rainfed conditions, Indonesian farmers usually grow soybean along with several other crops. A socio-economic survey on secondary crops therefore involves a number of complex and difficult factors.

Third, some doubts were raised concerning the sampling method, because the average size of the 113 sample farms as reflected by the area of soybean fields is much higher than the average size in the survey areas. This may affect our conclusions not only on the area cropped, but also on input use, if large farms have easier access to inputs and credit. Another explanation is that only farmers with relatively large holdings may devote a significant part of their area to soybean, while small farmers concentrate on vital food crops.

Outline of Input-output Analysis A brief description of the combination of cropping conditions the average input uses and the related results for each site is given in Table 4.1. However, careful interpretation of the data is necessary because of different sample sizes and classifications. Figure 4.1. shows that there are large variations among input and output factors for soybean production at the farm level from region to region. Means of area, yield and input uses under different cropping conditions are also given in Table 4.2. and Figure 4.2. 31

Table 4.1. Means of area, yield and input uses of 113 sample farmers in different locations East Java Central Java Yogyakarta Lampung Ponorogo/ Wonogiri Grobcgan Gunung Lampung All 1) Jember Kidul Tengah areas Area harvested (ha) 1.2 0.55 0.64 0.34 0.72 0.67 Yield (kg/ha) 810 1,000 1.870 520 810 990 Seed yield 2) 13.6 16.7 36.3 10.2 33.4 21 (kg/kg) 3) Labour (md/ha) 86 209 188 226 150 163

Current inputs Seed (kg/ha) 65 70 52 57 25 55 Fertilizerv(kg/ha) 44 208 280 217 93 165 Pesticidev(kg/ha) 1.5 2.6 6.3 0.75 1.1 2.4 Sample sizev(n) 32 21 21 20 15 113 1) Ponorogo (7 respondents) and Jember (25 respondents). 2) Yield of soybean per kg of seed. 3) md : Manday.

Table 4.2. Means of area. Yield and input uses of 113 sample farmers under different cropping conditions. Land type______Cropping pattern______Season Lowland Upland Mono­ Inter­ \Vet Dry crop crop Season Season Area harvested (ha) 0.82 0.47 0.81 0.55 0.55 1.45 Yield (kg/ha) 1,210 680 960 1,010 1,000 930 Seed yield (kg/kg) 21.8 20.4 17.7 23.3 22.2 15.2 Labour (md/ha) 157 171 147 178 175 93

Current inputs (/ha) : Seed (kg) 62 45 63 48 53 68 Fertilizer (kg) 171 156 121 204 182 65 Pesticide (kg) 3.4 1.1 1.8 3.0 2.6 1.6 Sample size (n) 66 47 53 60 97 16 32

Whole Sample ( 0,7 ha ) yield Ponorogo/ Jember ( 1,2 ha ) Pesticide Labour P L (MD) (kg) 5 300 4 200

1 100 Fertilizer 0,5 1,5 Yield F Y (kg) 200 100 ( t) 25 10

20

75 30

Seed Seed yield S Sy (kg ) (kg)

Wonogiri ( 0.6 ha) Grobogan ( 0.6 ha ) L P L P

0,5 1 1,5 F Y F Y

S Sy S Sy

Gunung Kidul (0.3 ha) Lampung (0.7 ha) P L P L

F F Y Y

S sy S Sy

Figure 4. 1. Means of area, yield and input uses of 113 sample farmers in different location 33

Land Type Lowland ( 0.8 ha ) Upland ( 0.5 ha ) Pesticide Labour P L ( kg) (MD) 5 300

4 200

1 100s 05 1 15 Fertilizer Yield F Y (kg) 300 200 100 (t) 25 10

50 10

75 30

Seed Seed Yield S Sy (kg) (kg)

Cropping Pattern Monocrop ( 0.8 ha ) Intercrop ( 0.6 ha )

P L P

F Y F Y

S Sy S Sy

Season Wet season ( 0.6 ha ) Dry season (1.5 ha )

P L P L

F Y F Y

S Sy S Sy

Figure 4.2. Means of area, yield and input uses of 113 sample farmers under different cropping conditions. 34

Based on the above data source, a linear-type multiple regression model was applied to soybean production by region and/or cropping conditions in order to examine input and output relationships. Inputs in the soybean yield response function are : labour input in terms of man days per ha; amount of current inputs per ha comprising seed, fertilizer and pesticide; and dummy variables for land type (wet or upland), cropping pattern (mono- or inter-crop) and season (wet or dry season). The results are summarized in Tables 4.3 - 4.5.

Cropping System in Different Areas Cropping systems and inputs In East Java (Ponorogo - Jember), most soybean is mono-cropped in lowland, following one or two rice crops in the late wet or the dry season. Fertilizer and labour use are particularly low, but seed rates are rather high (65 kg/ha). These practices would appear justified since the response to inputs is small and not significant except for seeds. The yield is low (0.8 t/ha) compared with other regions.

In Wonogiri (lowland, wet season), input use is also high and yield is relatively good, but no input factor appears significant on yield. In Grobogan (lowland, inter-cropping, wet season), fertilizer and pesticides are used liberally, and yields are highest. Only seed rate (52 kg/ha in average) is significantly related to yield, with a large response by seed yield (36 kg yield/1 kg seed).

In Lampung (upland, inter-cropping in wet season), the yield is close to average, but the input use is lower, and response to inputs is weak (negative for fertilizer) and not significant, except for pesticides. The seed rate is particularly low (unfortunately there is no record concerning the density of other crops mixed with soybean) and the seed yield is high (33 kg/kg).

Adaptation to cropping conditions

Land type (lowland/upland) : Yields are much higher in lowland than in upland areas (1.2 t/ha versus 0.7 t/ha). Among the inputs, pesticide use is high in lowland areas. There is no difference in fertilizer and labour use between Grobogan, a productive lowland system, and Gunung Kidul, a low-yield upland system. There are intensive systems in both lowland (Central Java) and upland (Gunung Kidul, and extensive systems also in both lowland (East Java) and upland (Lampung). "Intensive" relates here to input uses, not to productivity.

Yield response to inputs is higher (and more significant) in lowland areas. Only pesticides seem to have some consistent effect in upland areas, although this is not significant. It is interesting to note that seed use is higher in lowland areas, and could apparently still be increased (positive and significant response), while the maximum may have been already reached in upland areas (negative and non-significant response). Since seed yield is similar in both situations, the difference in yield per unit area could be to some extent explained by the apparently stronger plant competition in upland conditions. 35

Cropping patterns; Monocropping and Intercropping: There is no linkage between cropping pattern and land type. Average yields and input use do not differ much between monocropping & intercropping; however, as may be expected, the seed rate is higher in mono­ cropping (63 versus 48 kg/ha). Fertilizer and pesticide application are appreciably higher in inter-cropping. The difference in fertilizer rates may be explained as a compensation for increased plant competition in inter-cropping. However, the response in both cases is weak and not significant.

There is no obvious agronomic reason to account for the differences in pesticide application rates - in fact, higher infestations could be expected in mono-cropping — so the reason can probably be attributed to sample bias. Pesticide levels are much higher in Grobogan, where inter-cropping is the rule, than in any other location. It must be noted, indeed, that response to pesticides is highly significant in inter-cropping, but not significant in mono­ cropping.

Season (wet/dry season): The comparison between wet and dry season has little value, since all dry season samples are from East Java and therefore reflect the characteristics of that area alone. Dummy variables have been used to account for the environmental variations in the regression analysis for the whole sample. The response to these variables is almost zero, except in the case of cropping patterns (mono-cropping would give a weak yield advantage of 110 kg/ha). The use of these environmental variables does not improve the coefficient of determination. nor does it modify the computed response to inputs.

Inter-relationship between Input and Output Response of yield Respone of yield to input

Fertilizer application is high i165 kg average) and in common use; 82010 of the farmers in the sample use it. However. the response to fertilizer application is almost always small: 1.2 kg of additional yield for 1 kg of fertilizer. It is certainly profitable at present prices : soybean = 350 to 450 Rp/kg; fertilizers = approximately 100 Rp/kg.

In regressions made on the sub-samples (Iocation and environmental conditions), fertilizer has a highly significant effect only in the lowland and in the wet season sub-samples (Table 4.5). Its effect is greatest in lowland, where it reaches 2.8 kg/kg; however, this is still low.

Pesticide use is just as common (81% of farmers) as fertilizer use. but rates are small except in Grobogan. Location-wise, response is small and inconsistent, except in Lampung. For the whole sample, the response is highly significant and sizeable : 153 kg of additional yield per kg (or liter) of pesticide. In the sub-sample analyses, response is particularly clear (highly significant) in lowland, in inter-cropping and in the wet season.

Average seed rates are high (50 to 70 kg/ha), except in Lampung. Despite this, it appears that there is still generally a positive and significant response to increased rates. The response is generally on the order of 7 kg/ha, but may reach 36 kg/ha (Grobogan). However ,it is weak or negative in orther parts of Central Java/Yogyakarta and in Lampung, and in upland or mono­ cropping. 36

Table 4.3. Multiple regression analysis for 113 sample soybean farmers based on unit area and seed use in Indonesia, 1984. Case 1 Case 2 Case 31) Intercept 153.822 117.080 10.667 (594.672) (600.642) (13.596) Labour -0.759* -0.718 1.429** (0.437) (0.450) (0.620) Current inputs Seed 7.009***2) 6.311*** (1.900) (2.104) Fertilizer 1.224*** 1.278* * * 0.023 (0.388) (0.399) (0.374) Pesticide 153.065*** 155.019*** 90.786*** (18.895) (20.498) (20.410) Dummy :3) Up-f lowland 0.545 0.936 (1.356) (2.995) Mono-/inter-crop 2.049 (95.102) Wet/dry season 113.606 (134.228) R3 0.696 0.698 0.304

1) Dependent variable in case 3 is set for "Seed yield". In this case inputs are given per kg of seed instead of per unit area (ha). 2) * * * coefficient significant at 0.01 level; ** at 0.05 level; and * at 0.10 level. Standard error in parentheses. 3) Dummy variables are land type (lowland 1. /upland 0), cropping pattern (mono-crop 1/inter-crop 0), and cropping season (wet 1/dry 0), respectively. 37

Table 4.4. Multiple regression analysis for sample soybean farmers by region based on unit area in Indonesia, 1984. East Java Central Java Yogyakarta Lampung Ponorogo/ Gunung Lampung Wonogiri Grobogan Jember Kidul Tengah Intercept 12.669 685.490 -94.207 194.027 824.020*** (257.723) 1) (581.300) (761.889) (327.639) (250.153) Labour 1.279 0.712 -1.744 0.779 0.451 (0.783) (1.203) (3.042) (0.848) (1.281) Current inputs Seed 8.704*** 2) -2.804 29.364" 2.181 -10.590 (2.595) (5.052) (12.861) (2.524) (15.334) Fertilizer 0.430 1.843 1.460 0.452 - 0.441 (1.018) (1.724) (1.380) (0.655) (0.589) Pesticide 73.747* -9.045 56.110 -93.556 200.621*** (42.078) (40.308) (61.473) (156.533) (71.336) R2 0.470 0.460 0.892 0.246 0.552 n 32 21 21 20 15 1) Standard error in parentheses. 2) *** coefficient significant .05 level: and * at 0.10 level. 38

Table 4.5. Multiple regression analysis for sample soybean farmers by factor (land type, cropping pattern and season) based on unit area in Indonesia 1984.

Land type Cropping pattern Season LowlandUpland Mono-crop Inter-crop Wet season Dry season Intercept 123.090 640.212* 387.445 273.216 151.066 281.244 (662.180) 1) (325.175) (480.017) (633.287) (637.399) (258.585)

Labour -1.174** 2) -0.510 0.229 I.617 0.730 --0.307 (0.582) (0.542) (0.559) (0.982) (0.494) (1.080) Current inputs Seed 7.064** -0.361 5.191* 4.559 6.739**' 6.809** (2.972) (1.896) (2.849) (2.746) (2.288) (2.796)

Fertilizer 2.821* 0.388 1.050* 1.061 ' 1.236* * * 0.620 (0.679) (0.317) (0.618) (0.5.77) (0.432) (1.246)

Pesticide 102.785* * * 78.518* 46.804 199.632 ***' 153.966** * 107.099 (27.388) (40.211) (30.491) (2.6.140) (20.881) (65.084)

R2 0.763 0.152 0.460 0.790 0.699 0.411 n 66 47 53 (60 97 16 1) Standard error in parentheses. 2) * * * coefficient significant at 0.01 level; ** at 0.05 level; and * at 0.10 level. 39

Labour use is high in Central Java/Yogyakarta (200 mandays/ha), medium in Lampung, and low in East Java (86 mandays). There is no significant response to labour utilization, except in lowland areas where it is negative.

Strategies in input use The variability in input use is high, especially for fertilizer and pesticides, where coefficients of variation are usually above 100%. In fact, the variability within a geographical site or within a given environment is usually much higher than between different sites or between different environments.

We have only a few clues to understanding such variability. As already mentioned, correlations between input levels and the area of soybean fields are weak. For example, correlation coefficients of land to fertilizer, pesticide, seed and labour are estimated at -0.2, - 0.19, -0.07 and -0.08 respectively. They are all negative, suggesting that small farmers tend to give more care (including cash inputs) to their soybean plots than farmers with more land.

Correlations between the levels of different inputs give weight to the idea that farmers who apply more fertilizer will also tend to apply more pesticides, and seeds, and to spend more time on their soybean crop. Labour, for example .is generally well correlated with other inputs, especially with fertilizer (r = 0.70).

It my be hypothesized that input level is not so much linked to capacity of the farmer to by inputs as it is to the attention the farmer gives to this soybean crop.

Cobb-Douglas Function tor Soybean Production In the previous relationships between input and output variables using a linear regression equation. In that case, the production function was specified as yield equation with output. labour and current inputs standardized in per-hectare units. In addition to this, we also applied a Cobb-Douglas production function to sample soybean farmers. This allows several comparisons for scaling the economy and the inter-regional resources productivity. The number of samples and input uses are the same as in the preceding regression analysis.

In general, farm data involve close correlations between independent variables. In case of the 113 soybean sample farmers, for example, the correlation coefficient between the natural logarithms of the amount of seed sowed was 0.789. This implies that severe multi-collinearity may exist in the sample analysis. However, land and seed variables were retained in the model because both play an important role in soybean farming, particularly in Java. Because of the possible influence of multicollinearity between land and other factors, the results shown in Table 4.5 and 4.6 must be interpreted with caution. Incidentally, correlation coefficients between land, labour and the remaining variables, except seed, are considerably lower : r G 0.3, in all cases. 40

Elasticity coefficients and scale returns

When fitted to the entire sample of 113 farmers, the soybean function took the form of the following equation (Case 1 shown in Table 4.6) :

P = 4.6 LA.419 LB.177 CS.322 CF-.018 CP.061 (.137) (.098) (.111) (.011) (.017) where : P = the total amount of soybean production per farm LA = the area used for soybean production during the season LB = the labour use for soybean production, measured in terms of 8 hours per day in the soybean field CS = amount of soybean seed sowed CF = amount of fertilizer used CP = pesticide used

The standard errors are in parentheses.

The analysis suggests that a 1% increase in labour use leads to an 60010 of the variation in soybean production was associated with changes in input quantities. All of the individual elasticities except fertilizer were significantly greater than zero at the 1% level of probability. The analysis suggests that a 1% increase in labour use lead to an average increase of only 0.177 in the amount of soybean produced.

The sum of elasticities of Case 1, 0.961 for soybean production, means that if on average all inputs are increased by 1%, the amount of output will rise by only 0.961%; and diminishing returns will result. As examined earlier in this Chapter, there are no serious problems in terms of the amount of inputs used by our sample farmers. The results derived from the Cobb-Douglas function support this view. However, constant returns to scale might well exist even if increasing returns are not realized.

Statistical fitness A number of dummy variables were included in the equations in order to measure the effects of regional differences (set equal to 1 for the indicated survey area); types of land (1 for lowland), cropping patterns (1 for monocrop), and seasons (1 for day season). As shown in Case 3 (Table 4.6), regional variables support the former discussion with regard to the differences of productivity in each district. The results show that the production function of East Java (Ponorogo/Jember) holds the upper shift compared with both Grobogan and Lampung Tengah, while Gunung Kidul and Wonogiri are opposite (negative). In Case 3, the coefficient of determination, R2, was improved from 0.627 to 0.756 due to regional dummy variables.

Dummy variables for cropping conditions were not significant except for those for mono-/inter-cropping systems. The production function under mono-cropping tended to shift when soybean was cultivated along with other crops. Within districts, the results are more mixed for the independent variables. All are less significant in the separate equations than in the overall model (Table 4.7). This indicates that variations in input quantities are greater among districts. 41

Table 4.6 Cobb-Douglas production function estimates for 113 sample soybean farmers, Indonesia, 1984. Case 1 Case 2 Case 3 Case 4 Intercept 4.6007*** 4.8680*** 3.8646*** 3.3840*** P (0.6276) 2) (0.6058) (0.5835) (0.5394) Land 0.4195*** 0.4707*** 0.2159* 0.2177* (0.1317) (0.1280) (0.1156) (0.1118) Labour 0.1778* 0.1363 0.1664* 0.2228** (0.0982) (0.0948) (0.0908) (0.0898) Current inputs Seed 0.3220*** 0.2879*** 0.5058*** 0.4870*** (0.1111) (0.1094) (0.1095) (0.1087) Fertilizer -0.0180 -0.0059 -0.0056 (0.0119) (0.0111) (0.0108) Pesticide 0.0616*** 0.0558*** 0.0416*** 0.0386*" (0.0176) (0.0173) (0.0150) (0.0152) Dummy : Gunung Kidul -0.6317*** -0.4542** (0.1690) (0.1976) Wonogiri - 0.1431 - 0.0968 (0.1532) (0.1546) Grobogan 0.493S*** 07553*** 0.1637 (0.1845) Lampung 0.3295 0.5586" 0.2008 !0.22651 Up-/lowland - 0.0100 (0.1722) Mono-/inter-crop 0.3889*** (0.1268) Wet/dry season 0.0158 (0.1297) Rz 0.6275 0.6195 0.7569 0.7811 1) * * * coefficient significant at 0.01 level: ** at 0.05 level; and * at 0.10 level 2) Standard error in parentheses. 42

Table 4.7. Cobb-Douglas production function estimates for sample soybean farmers by region, Indonesia, 1984. East Java Central Java Yogyakarta Lampung Tengah Ponorogo/Jember Wonogiri Grobogan Gunung Kidul Lampung Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Intercept 3.5188*** 3.7213*** 3.4586* 1.9284 2.1746 2.2965** 5.9060** (1.0316) 1), 2) (1.1461) (1.6622) (1.4981) (1.7129) (0.8798) (2.5970) Land 0.3355 0.3929 0.2568 -0.0465 -0.1218 -0.3287 0.6235 (0.2321) (0.2429) (0.2819) (0.2602) (0.2559) (0.2457) (0.6036) Labour 0.2558** 2) 0.2136* 0.0262 0.2249 0.2627 ((.1403 0.0870 (0.1016) (0.1074) (0.2613) (0.2303) (0.4229) (0.2568) (0.3499) Current inputs Seed 0.5226* * 0.4976* * 0.7273* 0.7720* * 0.094 ) 0.61017** 0.0441 (0.2098) (0.2158) (0.3540) (0.3165) (0.3566) (0.2158) (0.6827) Fertilizer 0.0153 0.0102 0.0315 0.0771* 0.6014 (1 ;?.95" (1.(1343 (0.0125) (0.0129) (0.0424) (0.0392) (0.)S(18) (0.1477) (0.0261) Pesticide 0.0245 0.0092 0.0847* 00,182 0.11;0 0.0716' 0.0551 (0.0194) (0.0197) (0.0415) (0.0378) (0.0992) (0.0)76) (0.0334) Dummy : Up-/lowland - 0.1863 - 0.3433 (0.2240) (0.4796) Mono-/inter 0.3571 0.6944** crop (0.2906) (0.2433) Wet-/dry season -0.3161 (0.1528) R2 0.8857 0.9084 0.6758 0.8016 0.7289 0.6669 0.8011 n 32 32 21 21 20 16 15 1) * * * coefficient significant at 0,01 level; * * at 0.05 level; and * at 0.10 level. 2) Standard error in parentheses. 43

In almost all cases, the factor share of seed is unexpectedly large. We must consider that this is partly caused by multicollinearity and errors in measurement. Although the results are not presented here, additional reformulation of the production function failed to produce more satisfactory results.

Limited research has been done on applying production functions using upland farm data in Indonesia. Roche applied the Cobb-Douglas function to cassava production systems in Java and Madura (Roche, 1983). In this study, he also faced with the statistical problem of variable land and labour conditions.

Soybean presents different problems than cassava because of its shorter growing period. As examined early in Chapter 3, the soybean crop area is larger than the area cultivated in most of our districts. This indicates that farmers cultivate soybean more than once during the year. In Jember, the soybean crop area is almost twice that of the cultivated land area. Since farmers plant soybean along with other crops under inter- and mixed-cropping systems, the area sowed may be too variable for accurate reporting.

Farmers find it difficult to procure good quality soybean seeds. Researchers and extension workers frequently stress the importance of seed supply for improving the present situation of soybean farming. The factor share of seeds may implicitly support this view. The Cobb-Douglas production function used for this study is not based on :he value :term. From an economic point of view, the value term is more meaningful because farmers change the amount of current inputs depending on the relative prices of inputs and output.

Interpretation of Results Some conclusions can be drawn on the response to inputs used by the 113 sample farmers in the five districts. Input use is generally already high. Although we found some positive responses to increased use, the responses are more often low. Seeding rates are variable, and often higher than recommended. The high seeding rates are caused by the such of the farmer to counter-balance the often low germination rate of the seed and the slow plant development. Slow plant development, and the consequent need for high plant density, could be caused by a number of factors, such as : nutrient deficiencies, pests and diseases at an early stage.

Further research is needed in order to arrive at definite recommendations on seeding rate and plant density.

The production functions indicate that no improvement can be expected from an increased utilization of fertilizers. Present utilization would appear to be already beyond reasonable levels. A better knowledge of the nutrients required is obviously needed. Reduced N- rates would probably not affect yields, while other nutrients may be needed to raise the productivity. 44

According to both linear and double-log-type production functions, pesticide is the input that could possibly have a significant impact on soybean Productivity. However, experience proves that indiscriminate use can only be counter-productive. Farmers seem to be uninformed about the major pests and their control.

A tentative conclusion would therefore be that with present knowledge, little can be done to improve soybean productivity in the surveyed areas. Inputs are already used in large amounts, and the main issue appears to be how to improve their efficiency, not how to increase their use.

Another important finding is that variability in input utilization and in yields obtained is usually much higher within the selected cropping areas, or within the broad environmental types, than between them. Whether such variability is linked to socio-economic factors or to specific environmental characteristics remains to be seen; the implication is that the validity of concepts such as the "average farmer", or homogeneous recommendation domains, should be carefully examined in further research and development work. 45

5. MARKETING AND PRICE SITUATION

Sixteen (16) traders from Central Java and Yogyakarta were interviewed and the primary data thus obtained are supplemented by data from various secondary sources.

Marketing Structure The marketing channels of soybean grain are shown in Figure 5.1. We drew this figure after interviewing farmers, village traders, subdistrict collectors and district wholesalers in Central Java and Yogyakarta, and gathering information from several members of the tempe and tofu producers' co-operative (Kopti) in West Java. We also used information from several reports and the magazine, Business News.

Farmers can choose from several channels in which to market their soybean. They normally sell the grain to traders who can give them a good price. Most trading is done in the market (more than 50%) and in the village (25-30%). About 4 - 7% of the farmers sell to a shop in the district capital if they have a large amount of grain. If not, they sell it to a middleman from the farmgate.

In Gunung Kidul the buyer might be the representative of a tempe processing industry. Buyers never provide credit or payment; they always pay in cash in immediate exchange for the grain. There are interesting differences between the amounts sold in Ponorogo. Jember and Grobogan on one hand, and Wonogiri, Gunung Kidul and Lampung Tengah on the other. Farmers in the former areas sell 80% of their crop, while those in the latter areas sell only 60%. Winarno, et al. (1976) found that soybean farmers sold the bulk of their crop. From their average production of 861 kg per farm, they reserved 25 kg for seed and only 21 kg for home consumption. They sold the remainder of their product directly on the market.

In areas such as Grobogan, the soybean supply is so great that some district collectors we questioned sell the grain to traders in other big towns in Central Java such as Surakarta, , Purwokerto and Yogyakarta. District wholesalers can sell the commodity to traders in other provinces, such as Jakarta and West Java, and Banyuwangi in East Java. A survey conducted by the Bogor Agricultural University (IPB) in 1976 (Winarno, 1976) defined the following characteristics of traders :

(1) The village level traders handle from 3.33 to 41.5 tons of soybean per year; traders in the main producing regions, like East Java, handle the most grain.

(2) Farmers sell their produce locally in West Java, Bali, Lampung, and West Nusatenggara; in Central and East Java some transactions occur at the buyer's premises. 46

Special Unit (Satgas) Food Logistics Board Depot Distributer Importer Village Cooperative (KUD) (Dolog/Subdolog)

Private Processing plant Processor Coo-perative (Kopti) Middleman Farmer

Retailer

Whole saler Wholesaler Subdistrict District Farmer village trader in big towns in other collector whole saler in the province province

Hypothetical flow Reported flow

Figure 5. 1. Marketing channels of soybean grain in Indonesia, 47

(3) Subdistrict merchants buy some grain directly from farmers. These merchants handle from 8.3 to 81.7 tons a year. Payment is mostly in cash, with some paid in advance.

(4) Traders at the district and provincial levels buy from 14.4 to 118.7 tons a year. The volumes that these two types of traders handle suggest that these two categories are not distinct. This is also true for the subdistrict traders.

Marketing Margins We do not present the marketing margins associated with the channels of Figure 5.1 because our findings are inconsistent for the farmers' and various traders' levels. We therefore present secondary data in Figure 5.2 and Table 5.1 in order to give some idea of the situation.

Table 5.1 offers a general picture of marketing margins in Ujung Pandang (South Sulawesi) and Brebes (Central Java) in 1977 at various levels of transactions : farm-gate, subdistrict, district, and retail. At that time the farm gate price was around 75% of the retail consumer price in both places. The farm price is close to the retail price because of the low marketing costs and margins at each level in the marketing chain.

In January 1984, the c.i.f. (cost, insurance & freight) price of imported soybean was Rp. 280/kg. and the retail price was Rp. 450; kg. This means the c.i.f. price was only 62% of the retail price. The marketing margin for imported soybean is thus thought to be too high. as it is larger than he total margin for domestically produced grain, as shown in Figure 5.2.

The floor price for domestically produced soybean was Rp. 280/kg in January 1984, lower than the current farm gate price, indicating that the floor price was not effective at that time. This is confirmed by the fact that Bulog did not need to support the soybean price by purchasing grain between December 1983 and July 1984 (Business News, 1 August 1984). In December 1984, the floor price was raised to Rp. 300; kg.

The marketing margins shown in Figure 5.1 are appreciable larger than those in Figure 5.1. However, East Java, Lampung and West Nusatenggara (Table 5.1) are larger soybean producers than Brebes (Central Java) and Ujung Pandang (South Sulawesi), and therefore the farmgate prices are lower.

Specialization of Traders Soybean traders often trade in other commodities, as well. Winarno quotes the following percentages of traders dealing in soybean:

Soybean only 56.7% Soybean and other pulses 23.4% Soybean and other agricultural commodities 19.9% 48

Ujung Pandang Brebes (South Sulawesi ) (Central Java! Farm gate price 122.50 160.00 (72) (77)

Margin of 9.25 500 village trade

Marketing 13.25 8.00 cost

Sub-district price 145.00 173.00 (85) (83)

Margin of 7.05 15.60 sub-district trader Marketing 2.95 10.30 cost

District price 155 .00 198.90 (95)

Margin of 11.00 6.50 district trader

Marketing 4.00 3.50 cost

Retail price 170.00 208.90

(100) (100) Source: Directorate General of Food Crops. Vademekum pemasaran 1978/79

Figure 5.2. Changes of soybean price at various trade levees in Ujung Pandang (South Sulawesi) and Brebes (Central Java), Indonesia, 1977. 49

Table 5.1. Percentage of soybean retail price at various trade levels in East Java, Lampung and West Nusatenggara, 1975-1976. East Java Lampung W. Nusatenggara 1975 1976 1975 1976 1975 1976 Farmers 60.6 80.9 69.7 69.2 57.2 64.5 Subdistrict 88.2 77.2 72.7 District 84.0 93.2 77.0 86.5 74.7 Province 92.8 94.6 87.9 88.9 85.5 89.7 Retailer 100.0 100.0 100.0 100.0 100.0 100.0 Source: Vademekum Pemarasan, Departemen of Agriculture, 1976. 50

More traders specialize in soybean in Central Java (65.4%), followed by West Java (60.8%), Bali (56.5%), and East Java (41.7%). Most soybean traders conduct private enterprises (87.7 %); however, some are associated with co-operatives (10.31%).

One probable reason that traders deal in several commodities is seasonality, which in turn depends on the regional cropping characteristics. In East Java the soybean trade is a year­ round activity, with planting and harvesting extending over a long period of the year. But the peak harvest time is concentrated within a shorter period. as shown in Figure 5.3.

Marketing Constraints and Problems From our 1983 survey, we can reach the following conclusions on marketing constraints: (i) Soybean production is concentrated in small pockets spread out at relatively large distances from each other:

(ii) Quality control is difficult to apply;

(iii) The seasonality and combination of activities make economic evaluations difficult.

These constraints indicate that the production and marketing systems are closely interdependent. The distribution of production in small pockets means that it is difficult to provide efficient transportation and marketing services. The development of marketing systems should parallel the development in the production systems. The marketing system can be improved when production achieves a larger scale.

For similar reasons, it is often quite difficult for Bulog to implement its floor price policy. The procurement costs will remain extremely high until the production system shows improvement. Yet it is also true that greater production depends on the availability of necessary services, including marketing. The soybean transaction system in the village is quite simple: (1) Village traders, who in our curve" areas in Java are usually women, receive some advance payment from the district traders (up to about Rp. 2 million);

(2) The traders travel by bicycle throughout the village, and buy directly from house to house;

(3) Periodically, usually weekly, they deliver the soybean to the district traders by using public transportation; and

(4) Quality is evaluated visually and is based on moisture content, size of grain, and amount of impurities.

At current production levels, this trading system is probably the most efficient marketing system that can be realized. The advance payment is made based on personal relations and mutual reliance, developed through long experience. This kind of credit system cannot be substituted by a formal banking system. 51

Month Province J FM A M J J A S O N D

Lampung

West Java

Central Java

East Java

Bali 1

W. Nusatenggara

1) Information on major harvesting months in Bali is not available Source: Directorate General of Agriculture, Jakarta,

Figure 5.3. Major trading and harvesting months for soybean in Indonesia. 52

Role of Trader/Middleman Most of the district trade is part of family enterprises, and it is very difficult to assess their economic performance by formally estimating economic parameters. Soybean traders require a large amount of capital to operate. Seven out of our 16 trader respondents receive credit from banks or from their partners. District traders gather information on prices, and those with telephones can check prices frequently with traders in consuming areas. However, lower-level traders incur more price risk due to the low frequency of communication with their buyers.

Most traders grade the grain by inspecting them visually while negotiating the transaction. This is especially true for the wet season produce. Most traders use three grades, but some use four. It appears that the quality standards applied by traders, Bulog, and the Directorate of Food Production are different. Bulog recognizes two standard qualities, and in principle it buys only grain of Quality grade I. The old soybean quality standards used by the Directorate are given in Table 5.2. These standards were replaced by a Ministry decree in August 1984, specifying three standard qualities (Table 5.3).

Domestically produced soybean in the market is of low quality because of improper post-harvest handling by farmers and traders. Traders are reluctant to re-process the grain to upgrade its quality, or to store it, because the market price is uncertain, and because the investment needed is rather targe relative to their turn-over.

Distribution of imported soybean The increases in domestic demand have forced Indonesia to import large amounts of soybean grain, cake and oil. Bulog holds a monopoly on imports of soybean cake and grain. while the import and distribution of soybean oil are still unrestricted. Bulog is exempt from import fees and sales tax in its soybean trading. It has assigned the Association cf Wholesalers of Imported Raw Materials for Feed (Asbimti) to co-ordinate ti e distribution of about 40% of the soybean cake imports. The remaining 60010 of the imported soybean cake is distributed directly by Bulog to large feed mills.

Asbimti distributes its share of cake imports to small and medium feed mills via its members in Medan, Surabaya, Jakarta, West java, and Lampung. To limit the possibility of speculation and to stabilize the soybean price, Asbimti's selling price includes the cost of transportation to the feed producer. In December 1983, Asbimti sold soybean cake at Rp. 320/kg to its wholesaler members. Asbimti wholesalers in turn sell the cake to feed producers, at a price determined by the trade relationship and the mode of payment used (cash-in-hand or delayed payment): the highest price was Rp. 375/kg.

The level of monopoly for imported soybean grain is more advanced than for cake; not only the importation but also the distribution of the grain is now monopolized. Since October 1983 the activities of the soybean wholesalers have been severely limited. Bulog has assigned P.T. Berdikari to import the grain; Inkud [ the Central Office of the KUD (Village Co-operative Units) ] distributes grain to co-operatives; while PT Watraco (a subsidiary of PT Berdikari) distributes to other buyers. 53

Table 5.2. Specifications of soybean quality standards before 1984. Quality Grades 1 2 3 4 Minimum weight (kg/100 1) 70 68 66 63

Maximum limit (To)

Water 13 14 16 18 Mis-formed seed 2 3 16 18 Impurity 1 2 3 5 Seed color 1 2 5 10 Broken 2 3 5 10 Source : Directorate of Food Crops Production, 1974.

Table 5.3. Specificatinos of soybean quality standards since 1984. Quality grades 1 2 3 Maximum limit (8z) Water 13 14 16 Mis-formed seed 0 5 8 Impurity 1 2 5 Seed color 0 5 10 Broken 1 3 5 Split 2 3 5 Source: Directorate of Food Crops Production, 1984. 54

The recent changes in the distribution arrangements have not stabilized the price of soybean, although Bulog imported for this purpose. The monopoly has distorted the price of imported soybean, since P.T. Watraco has linked the distribution of soybean with the promotion of tapioca marketing (produced by a co-operative institution in Central Java). Traders who bought 10 tons of soybean at Rp. 430/kg in February 1984 (or ar Rp. 450 in September 1984) were required to buy one ton of tapioca flour, at a price of Rp. 270/kg. In April 1984, this was revised to 0.5 ton of tapioca, but in September 1984 the required quantity was again set at 1 ton.

This tapioca price is higher than the market price for tapioca flour. To compensate for the losses they incur in buying tapioca, traders attempt to sell the soybean grain at a higher price. In January 1984, the Jakarta soybean wholesale price was Rp. 500/kg; in February it fell to Rp. 455; but it had risen again to Rp. 490 — 495 in April and Rp. 495 — 500 in May (Business News, 1984).

Trend of Real Price The actual price of soybean at rural markets at the district level and on the Jakarta wholesale market has risen very quickly (Figure 5.4). However, the Jakarta price has risen more slowly than the rural market price. The rural price has increased by Rp. 28.90 each year (estimated by linear regression); the Jakarta price has increased by only Rp. 24.97 per year. In terms of time elasticity, the price of soybean in the rural market has increased by about 1.15% for every 1% of the period from 1969 to 1982. On the other hand, the Jakarta soybean price has increased by only 1.07010.

These figures look different if we account for inflation by using deflated prices (Figure 5.4). The deflated soybean price at rural and district markets has been virtually static. This means that during the last 14 years farmers have not realized any gain from the increased soybean price. It seems that farmers have earned their extra income (if any) from increased production, and not because of higher prices.

We should note that since 1975 the actual Jakarta wholsale price has been lower than the rural market price. This is probably because the soybean imported since 1974 has been cheaper than the domestically produced grain, and so has held the Jakarta price down. The deflated Jakarta price shows another interesting phenomenon. In the first half of the 1970s the real price increased, while in the second half of the decade it decreased. The decrease may have been induced by imports, which began in 1974. Imports appear to depress the domestic price, thereby discouraging farmers from increasing production. 55

Soybean Price (Rp/kg) Rural market actual price 400

District market actual price Jakarta wholesale actual price 300

200

Jakarta wholesale deflated price

100 District market deflated price

Rural market actual price 0

1969 71 73 75 77 79 81 82 Rural and .;Jakarta wholsale market prices: Central Bureau of Statistics. District market prices Vademekum Pemasaran, 1974, 1977, 1979 and 1981, Departement of Agriculture. Deflated prices: 1) rural market, based on price index of 12 agricultural food materials in rural markets of Java and Madura 1969 = 100 2) district market, based on price index of 9 essential commodities in rural markets of Java and Madura (1971=100 ); and 3) Jakarta wholesale market, based on wholesale price index of agricultural sector; 1975 = 100.

Figure 5.4. Average soybean grain prices at different market levels in Indonesia, 1969 - 82. 56

6. UTILIZATION AND PROCESSING

Soybean has many uses in Indonesia : for human consumption, animal feed, and seed. The Food Balance Sheets of the Central Bureau of Statistics shows that 90 per cent of the soybean in the country is used for food (Figure 6.1); however, these reports do not include of the use for animal feed. Soybean for consumption is available in a variety of popular processed forms : tempe, tofu, tauco and kecap; and in a number of less popular foods : beansprouts, sere in Bali, yuba, and soybean milk (see below). A smaller, but increasing, amount of soybean is used for animal feed, especially for the burgeoning poultry industry. Usually only imported soybean cake is used for feed, due to its low price.

The following three sections describe the utilization and processing of soybean for human consumption, while the final section in this chapter deals with the feed industry in greater detail.

Indonesian Soybean Foods Soybean has been an important source of protein, fat, and flavor for oriental people for thousands of years. The large variety of foods which have been developed from soybean can be classified into two groups : fermented and non-fermented foods. The development of fermented foods, which depend on the use of rather sophisticated microbiology, was a remarkable achievement in the early history of China.

The main fermented soybean products in Indonesia are tempe, oncom, tauco, and kecap. Non-fermented products include tofu (tahu), soybean sprouts tauge), soybean milk, fried beans (eaten as a snack), beans boiled in the pod (also a snack), and beans cooked as a vegetable or as an ingredient in soups.

Fermented products Tempe is made from soybean cake fermented with Rhizopus bacteria. The beans are soaked in water for 12 hours, then hulled and boiled for 2 hours. The cooked beans are spread out to dry and are drained and cooled. They are then inoculated with Rhizopus, wrapped in plastic or banana leaves and allowed to ferment at room temperature for 2 days. During the fermentation process, the beans become covered and bound together by white mycelium.

Various improvements in the method of tempe preparation have developed from both laboratory studies and the experience of tempe manufacturers. Most tempe is made from yellow or green soybean. Tempe has been consumed in Indonesia for many years; some sources suggest that it has been made here since 1875.

Oncom (pronounced "onchom") is also a fermented product made from soybean or peanut cake. It is popular in West Java as a substitute for meat or as a snack. The first step in its production is to add starch to the soybean cake. The starch improves the activity of the Neurospora mold. The cake is steamed, cooled, and then inoculated with Neurospora sitophila (laru oncom) and incubated for I day. 57

Domestic Use ( 1. 000 t )

800

700

600 Waste Seed 500

400

300 Food

200

100

1970 1975 1980

Figure 6.1. Changes in soybean consumption use (excluding feed) in Indonesia, 1970 -1980. 58

Tauco ("towcho") is a relish prepared as follows : first the beans are roasted, hulled and cooked. After draining. the cooked beans are laid out on a flat woven bamboo tray and fermented with Aspergillus (spp.) for about a week in a fermentation room. The fermented beans are then spread out on another flat tray and dried in the sun. The dried mass is soaked in a salt brine and again placed in the sun for 1 to 6 weeks until it forms a thick paste. The next step is to boil the paste with water and to add palm sugar as desired. Tauco is an important ingredient in many Indonesian dishes.

Kecap ("kechap") is a sauce made from a water extract of plant and animal tissue wixed with salt, sugar and spices. Soybean kecap is made from a water extract of fermented soybean, mixed with salt and sugar. Sometimes other ingredients such as spices, fish extract and bouillon are added. Kecap is used a relish similar to tomato ketchup, a sauce whose name is derived from kecap.

Non-fermented products Tofu (tahu in Indonesia) is a traditional non-fermented soybean product which has been consumed for thousands of years in oriental countries. Due to its high protein and fat contents, tofu makes a substantial contribution to nutrition as a supplementary food or as a substitute for fish and meat.

Tofu is a protein precipitate obtained from the water extraction of ground soybean. It is usually made from yellow or green soybean. The process begins with soaking the beans, followed by grinding while adding small quantities of water. The resulting slurry is heated to nearly boiling and is then filtered to produce a milk. Calcium sulphate is added to this milk to coagulate it into curd. This is then cut into small pieces which can be wrapped individually. Like tempe, tofu can be cooked in a variety of ways, such as fried, boiled, or added to soup. Tofu contains 88.8% moisture, 6% protein and 3.5% fat, while tauge (soybean sprouts) contains 93.8% moisture and only 3.0% protein and 0.1% fat. Tauge consists of the sprouts of soybean. It is made by soaking the soybeans in water and keeping the moistened beans in a dark room at a temperature of 22 to 23 degrees Celcius. The beans begin to sprout within 24 hours. After 5 days the sprouts are harvested.

Only one factory in Indonesia (Sari Husada, in Yogyakarta) produces soybean milk. This is enriched with dried skimmed milk, vitamins, and minerals. Traditional Processing Industry

Current situation of small-scale home industry Tofu, tempe, kecap, tauco and oncom processing is primarily done in small factories. Three studies have been made on the size of these factories and the quantities they process : by Winarno, et al., in 1976; as part of the 1974 Industrial Census of the Central Bureau of Statistics; and by the present study team in the Garut area of West Java. The findings of these three studies are presented in Table 6.1. 59

We should be cautious in comparing their results, however, because of biases in the collection of the information. The CBS study, for instance, was part of an industrial census, which divided processors into two categories small-scale (5 —19 labourers), and home industry (1— 4 labourers, some of whom may be family members). On the other hand, we obtained our West Java data from the local soybean processors' association (Kopti), which is likely to have information on only the larger processors. There may also be wide variation in the industry in different parts of the country.

Despite these limitations, it seems that the volume of soybean processed by each unit has increased appreciably, probably reflecting a favorable growth of the industry. Yet the number of labourers per unit has remained small,

Table 6.1 Amount of soybean processed (t/year) by a unit industry by three case studies in Indonesia. Tempe Tofu Kecap Tauco CBS, 1974 Small-scale 12.3 15.2 3.7 6.3 industry (5-9)1) (5-19) (5-19) (5 - 19) Home 1.8 3.8 0.8 4.7 industry (1 - 4) (1-4) (1-4) (1-4)

Winarno, et al., 5.9 10.8 13.3 49.2 1976 (2-3) (4-5) (10-11) (2-3)

Study team of SCS 2), 58.6 44.5 1984 (4-5) (3-4) 1) Figures in parentheses are average number of worker/labourer per a unit industry. 2) Study team of Soybean Commodity System (SCS). The interview survey was conducted in Garut, West Java. and is probably diminishing. This may be because of the increasing use of mechanical crushers of hullers for both tempe and tofu production.

From our sample of 7 tofu processors in West Java, we can estimate some of their economic parameters (Table 6.2). We see that 80.7% of the total cost is for purchase of the soybean, and 13.7% is for processing, labour excluded. These two components comprise 94.407o of the total operation cost. The labour outlay is quite low, as part of the force consist of unpaid family members. The transportation cost is also small as some of the transactions are made in the factory, so often only the loading or unloading costs are accounted for. No account is made for capital depreciation, taxes and losses, so that the net return must be much lower than the figure shown in Table 6.2. A small part of the revenue comes from the tofu residue (4.3%). 60

Characteristics and some problems The main characteristics of the small scale tofu industry are shown in Table 6.3. This table shows the low manual labour wage of Rp. 20,000 per month and the long working day of 10 hours. This probably indicates the so-called informal sector of the economy, where employers determine how much to pay employees and under what conditions. The scarcity of employment may force labourers to accept whatever employment is available, and also makes it easy for employers to find replacement workers. Unskilled workers have difficulty obtaining job security elsewhere.

Similar data is shown in Table 6.2. for our sample of 7 tempe processors. The working hours per day in the tempe industry are appreciably fewer than in the tofu industry, namely only 5.5 hours, but the wage rate is also lower (Rp. 14,000/month/laborer). The processing costs excluding labour are also much lower, because tempe processing is much simpler. The transportation costs for tempe are higher, indicating that transactions are made outside the factory. The remaining characteristics are almost the same as for tofu.

More details of these traditional processing industries are listed below : (1) All 14 of the businesses we surveyed were personally owned enterprises.

(2) Most had no credit account with the bank, and only two had received loans from the bank. This does not mean that they did not need credit, because one of the problems mentioned in our interviews was the lack of capital.

(3) The processors' co-operative (Kopti) can supply only about 40% of total soybean needs at a price of Rp. 452/kg. (This price is higher than the quoted price of Rp. 400, probably to pay for transportation to the co-operative members, and including Rp. 20/kg required saving). Processors obtain the remaining 60% of their soybean from the free market, at the higher price of Rp. 523/kg.

(4) Some problems frequently mentioned by our respondents were :

a. low quality and insufficient quantity of Kopti soybean; b. lack of capital; c. increasing soybean price; d. limited working space; and e. difficulties in obtaining the license required when the business processes more than 25 kg of soybean per day. Function and role of Kopti To co-ordinate and improve the economic viability of the small tempe and tofu producers, a co-operative system, called Kopti (Koperasi Produsen Tempe dan Tahu Indonesia : Indonesian Tempe/Tofu Processors' Co-operative) was founded in 1979. In the Bandung district where our survey was carried out, 500 processors were members of Kopti in 1983, representing, about 10% of the total 5.700 members (Table 6.4).

The main function of Kopti is to procure and distribute soybean to its members. The total daily soybean requirement is about 30 tons in the Bandung district alone. At present, however, Kopti cannot supply the total quantity demanded. It can provide only 40% of the supply for larger processors who handle over 100 kg of soybean per day. These members 61

Table 6.2. Cost and return of tofu and tempe processors (average of 7 cases each) in West Java, 1984. Tofu Tempe Per unit % Per unit % (Rp. 1,000/ of total (Rp. 1,000/ of total month) cost month) cost Investment 1,225 53.7 1,107 4.51

Cost component

Soybean 1,839 80.7 2,180 88.8 Transportation 40 1.7 35 1.4 Processing 313 13.7 87 3.5 Labour 73 3.2 66 2.7 Marketing 15 0.7 88 3.6

Total cost 2,281 100.0 2,456 100.0 Gross revenue 3,138 137.8 3,461 140.9 Net return 857 37.8 1,005 40.9 Source : Study team of SCS.

Table 6.3. Economic performance of a tofu and tempe industry (average of 7 cases each) in West Java, 1984. (Rp. 1,000) Tofu Tempe Investment capital (Rp.) 1,225 1,107 Operating capital (Rp.) 1,839 2,456 No. of Labourers 7.6 4.6 Male (4.3) (2.6) Female (3.3) (2.0) Wage per month/labourer (Rp.) 20 14 Hours working/labourer/day (hours) 10 5.5 Investment per labourer (Rp.) 343 242 Operating capital/labourer (Rp.) 515 537 Volume of soybean/year (tons) 44.5 58.6 Source : Study team of SCS. 62 have to purchase the remainder at a higher price on the free market. For the smaller processors, Kopti usually supplies 100010 of the required quantity.

Kopti buys soybean from Bulog for Rp. 365/kg, and sells it to its members for Rp. 400/kg. The Kopti Bandung branch receives about Rp. 9.5 million per month from its members in the form of a Rp. 20 surcharge on each kilogram of soybean supplied. The surcharge is used as working capital to buy soybean directly from farmers' co-operatives in the neighborhood. By May 1984, it is expected that about 16,000 ha of soybean will be harvested in the district.

In Sumedang, to the east of Bandung, Kopti manages a 45 ha seed garden in co­ operation with local farmers. The seed produced is used in the soybean intensification program. The variety planted is CK 63 (Paris).

Kopti distributes soybean to its members through its sub-district (kecamatan) terminals, also called "area working units". In Bandung there are 22 such units at the kecamatan level. From these terminals, the soybean is channelled to local co-operative members. At present, Kopti membership extends to seven major areas : Jakarta, West Java, Central Java, Yogyakarta, East Java, Sumatra, and Kalimantan (Table 6.4). Kopti is now a large organization consisting of 85 primary co-operatives throughout Indonesia. Each primary co-operative is further subdivided into 288 "Working Units". It is further subdivided into 610 "Production Groups". The numbers of individual enterprises are also given in Table 6.4. To serve these members, Kopti has to procure and distribute 33,930 tons of soybean per month, or 407,160 tons per year.

According to data collected by the Central Bureau of Statistics (CBS), the number of tofu and tempe processors is much smaller than the number of Kopti members (Table 6.5). In 1979, CBS found 5,944 small and large-scale tempe/tofu processors (4,958 in Java and 986 outside). We can thus see that the Kopti membership of tempe/tofu factories is much larger than the CBS statistics indicated in 1979.

The growth of the tempe/tofu and kecap industries is shown in Tables 6.6 and 6.7. The relative proportions of tempe and tofu production in Table 6.8. probably do not reflect the real proportions because the samples are biased toward tofu production. The output-input ratio is higher for the kecap industry; this is easy to understand if we consider the nature of the processing in the kecap industry. All these data suggest a relatively high growth rate in the soybean processing industry, and hence a growing responsibility for Kopti.

The Feed Industry Indonesia's recent economic growth has increased the demand for livestock products such as eggs, meat, and dairy products. This in turn has encouraged growth in the animal feed industry, as can be seen in Table 6.8. Soybean cake is a major ingredient in animal feedstuffs, and because of limited domestic soybean production, Indonesia has been forced 63

Table 6.4. Kopti members in Indonesia, 1983. No. of No. of No. of No. of Members Primary Working Production Tempe Tofu Others Coops Units Groups Central Java 32 83 177 3,201 2,558 10 West Java 24 130 288 3,243 2,424 33 East Java 6 8 33 9 Jakarta 5 24 119 2,064 558 1 Yogyakarta 5 39 77 1,513 753 2 Sumatra 12 3 7 484 156 75 Kalimantan 1 1 2 1 29 Total 85 288 610 10.539 6,487 121

No. of No. of Soybean needed Region Members Manpower (t) Total Day Month Central Java 5,769 7,293 373 10,534 West Java 5,700 11,055 354 10,591 East Java 42 1.392 70 2,104 Jakarta 2,623 4,256 212 6,488 Yogyakarta 2,268 7,022 110 3,144 Sumatra 715 944 38 1,231 Kalimantan 30 51 1 30 Total 17,147 32,013 1,158 33,930 Source : Kopti Report, 1983. 64

Table 6.5 Number of tofu, tempe and kecap processing enterprises by scale in Indonesia, 1979. No. of small No. of large scale enterprises ( % ) scale enterprise ( % ) Tofu/tempe industry Java Central Java 1,990 33.7 6 17.7 West Java 1,410 23.9 3 8.8 East Java 1,328 22.5 17 50.0 Yogyakarta 98 1.7 1 2.9 Jakarta 98 1.7 7 20.6 Sub-total 4,924 83.3 34 100

Outside Java Lampung 746 12.6 N. Sumatra 84 1.4 Others 156 2.7 Sub-total 986 16.7 Total 5,910 100 34 100

Kecap industry Java West Java 93 31.1 2 5.3 East Java 64 21.4 Central Java 52 17.4 12 31.6 Yogyakarta 5 1.7 14 36.8 Jakarta 21 7.0 4 10.3 Sub-total 23.5 78.6 32 84.2

Outside Java Riau 21 7.0 W. Kalimantan 13 4.3 Others 30 10.1 6 15.8 Sub-total 64 21.4 6 15.8 Total 299 100 38 100 Source : Central Bureau of Statistics. 65

Table 6.6 Growth of the Indonesian tempe/tofu industry in 1975/81 (sample of large- and medium-scale processors). (Rp. million) 1975 1980 1981 No. of samples 17 38 35 Input Soybean 351 2,127 2,832 Others 2 18 43 Sub-total 353 2,145 2,875 Output Tofu 375 2,634 3,852 Tempe 55 109 Others *) 5 38 57 Sub-total 435 2,781 3,909 Output/input ratio 1.23 1.30 1.40 Source :Central Bureau of Statistics (simplified), 1983. (*) Including tauco, oncom and residue.

Table 6.7. Growth of the kecap industry in 1978-81(sample of large and medium-scale processors) (Rp. million) 1975 1980 1981 No. of sample 32 38 38 Input Soybean 88 553 648 Others 251 1,723 2,149 Sub-total 339 2,276 2,797 Output Kecap 608 3,686 4,519 Others 17 325 375 Sub-total 625 4,011 4,894 Output/input ratio 1.84 1.76 1.76 66

Table 6.8. Growth in the use of animal feed components in Indonesia, 1978-1982. (1.000 t) Feed component 1978 1982 Growth/year (%) Maize 122 315 26.8 Coconut cake 176 243 8.5 Rice bran 863 1,201 8.6 Maize bran 152 199 7.0 Soybean cake 56 167 31.2 Fishmeal 22 65 30.9 Gaplek/cassava chips 328 425 6.7 Sago 63 91 9.8 Others 174 247 9.2

Source : Directorate General of Animal Husbandry Table 6.9. Projected consumption of livestock products in 1984-88 (Pelita 4). (1,000 t) Livestock product 1984 1988 Growth/year (%) Meat 706 895 6.1 Cattle/buffaloes 345 446 6.6 Sheep/goats 68 87 6.1 Pigs 67 81 5.1 Poultry 224 280 5.7 Eggs 270 350 6.7 Milk Domestic 710 869 5.2 Imported 557 390 -8.6 Source : Directorate General of Animal Husbandry. 67 to import large quantities of the cake (Table 6.10). The same is true for other non-rice (palawija) commodities, since production of most these crops has not increased as fast as the demand.

In the current Five-Year Plan (Pelita 4, 1984 - 88), the rapid rise in the consumption of livestock products is expected to continue (Table 6.9). To satisfy this increasing demand, modern systems of animal husbandry must be introduced, the feed industry has to expand, and domestic palawija production has to rise. Poultry farms have been developing rapidly, mainly in and near the main towns. Traditional farmers in rural areas keep only local breeds of poultry that require no special feeding. The number of all types of animals kept in the traditional manner tends to decrease, however, further underlining the necessity for a strong focus on livestock and feed production in this and future Five-Year Plans.

The large quantities of soybean and cake imported in recent years have spurred the government to embark on a comprehensive feed production program. Two processing units are being planned that can produce soybean oil and cake; these plants will have a total capacity of 2,200 tons of grain per day. It is therefore not surprising that foreign investors, such as Cargill and Charun Pokphand, are willing to invest in the Indonesian feed industry. Large domestic companies have also emerged in the feed and livestock industries: examples are Cipendawa. Shinta Farm, and Indonesia Pelletizing Company. It is interesting to note that, in contrast with the kecap, tofu and tempe small-scale industries. the feed industry seems to be the domain of large-scale corporations. with which smaller enterprises can in no way be competetive. 68

Table 6.10. Changes of domestic production and import of soybean in Indonesia, 1969-82. Domestic use Production 1) Import (1,000 t) (1,000 t) (1,000 t) Grain2) Cake 3) eq. Grain 4) (1) (2) (3) (4) (1) + (2) + (4) (Index) 1969 389 389 (100) 70 498 498 (128) 71 516 516 (133) 72 518 518 (133) 73 541 541 (139) 74 589 589 (151) 75 590 18 1 2 610 (157) 76 522 172 8 11 705 (181) 77 523 89 10 13 625 (161) 78 617 130 21 27 774 (199) 79 680 137 28 37 854 (220) 80 653 248 27 35 936 (241) 81 704 361 170 223 1,288 (331) 82 521 361 114 150 1,032 (265) Source : 1) See Table 2.1. 2) Directorate General of Food Crops and CBS Statistics. Sihombing, D.A. 1983. Prospek dan kendala pengembangan kedelai di Indonesia (Prospect and constraints of soybean development in Indonesia). Kedelai. AARD and CRIFC. 3) FAO Trade Yearbook. 1974-82 4) Conversion rate of cake to soybean grain is 76 : 100 Both (3) and (4) data are rounded. 69

7. DEMAND AND CONSUMPTION

This chapter provides an overview of the recent soybean demand situation and related consumption patterns in Indonesia based on secondary data and various research findings. In Indonesia, soybean is highly valued from the following three points of view : (i) it may be possible to raise domestic production to meet the national needs; (ii) soybean is a high-protein food which can improve the nutrition levels of the Indonesian people; and (iii) it is a cash or commercial crop for dryland farmers, including farmers in transmigration areas. The last of these points relates mainly to the supply of technological aspects, both in terms of improving or maintaining the soil fertility and the raising of farm income. In this paper we will refer to the first two points in discussing the demand/consumption situation and reviewing some of the problems which have been encountered since 1970.

Soybean Imports Imports of soybean have tended to increase since 1975 despite a general rise in domestic production (Figure 7.1). In 1981, imports accounted for more than 30% of all soybean consumed. It is reported that some 360,000 tons of soybean were imported during 1981 (Bulog 1983), while a larger demand for imports has also been predicted (Darmawan and Rusastra 1984). Recent drastic increases in soybean imports indicate that domestic production has been lagging behind the demand. The USA has become the major exporter of soybean to Indonesia. Of the 100,900 tons of soybean imported in 1983 (CAER draft report), 94% was from the USA and 5% from Canada. The two main reason for this rapid increase are the increasing consumption of soybean as food, and the rising demand for animal feed.

Food Consumption Indonesia food policy has primarily been focussed on rice, which is widely preferred by consumers, and provides more that 50% of the calorie requirements of the population (CBS 1980). The non-rice palawija crops, including soybean, collectively supply over 30% of the national calorie intake. In the first two Pelita periods (1969 - 78), however, a significant change in food consumption paterns accompanied an overall improvement in the national economy. The yearly rice consumption increased by about 25%, from 96 kg to 120 kg per person, while the per capita consumption of the non-leguminous palawija crops, such as maize and cassava, has declined.

Consumption of soybean, on the other hand, has risen rapidly since the end of the 1970s, and soybean plays a significant role in the supply of protein and in nutritional balance. In accordance with the increases in demand and imports, greater attention is now being given to local production of palawija crops, particularly soybean. 70

( 1,000 t )

1300

1100 Soybean Cake

900 Imports

700 Soybean

500

300 DOMESTIC PRODUCTION

100

1969 71 73 75 77 79 81

Pelita I Pelita II Pelita III Source : See Table 6.10.

Figure 7.1. Changes of domestic production and import of soybean in Indonesia, 1969 - 82. 71

Aceh N Sumatra

N. Sulawesi E. Kalimantan

Riau W. Kalimantan

W Sumatra Jambi C.Kalimantan C Sulawesi Maluku S Sumatra Bemgkulu S E Sulawesi Irian Jaya Lampung S. Kalimantan S. Sulawesi Jakarta W Jawa C. Java E.Java Bali E. Nusatenggara Yogyakarta E. Timor W. Nusatenggara 0 -1.0 1.1 -3.0 3.1 - 5.0 5.1 - 7.0 7.1

Figure 7.2. Consumption of soybean in Indonesia (1970 ) kg/capita/year. 72

Feed Consumption Soybean meal/cake is imported for animal feed, because soybean is the best source of protein in feed formulations. Bulog (the National Logistics Agency )holds the monopoly of soybean imports. A recent Bulog annual report (1983) emphasized that domestic procurements of palawija staples have, on the whole ,declined significantly. With continuous increases in demand, especially for maize and soybean for the feed industry, substantially higher quantities of these staples had to be imported in 1982.

Data on the amount of soybean cake vary from the statistical sources. According to FAO Trade Yearbooks, the amount rapidly increased from around 30,000 tons in the end of the 1970s to 114,000 tons in 1982. In 1981, 170,000 tons of soybean cake was imported. Assuming that the cake to soybean ratio is 0.76, the amount is equivalent to 223,000 tons of grain. The Directorate General of Livestock Production has recently estimated that the rate of growth of demand for soybean cake will be 12.8% per annum to match the planned targets of livestock production (Hidajat, 1984). However, the quantity of protein supplied in animal feed by soybean is low compared to the demand for it. This is because the soybean cake allocation is still insufficient.

Location of Consumption In Indonesia, Java is the main producer of grain legumes, including soybean. Data for the past decade show that more than 80% of Indonesia's soybean is produced in Java. The production index increased from 100 in 1969 to 170 in 1981. During the same period, the index for outside Java rose from 100 to 260. Despite the larger index of growth, however the proportion of production outside Java remains below 20% (Table 2.1). Most of Indonesia's grain legumes are consumed in the areas where they are produced. A survey conducted in 1970 (Hakim 1976) showed that each person consumed around 5 kg of soybean per year in Java, but less than 1 kg in the rest of the country (Figure 7.2). An exception to this occurs in West Nusatenggara, where local consumption habits mean each person consumes around 14 kg of soybean a year. In Japan ,by comparison, where soybean is also a primary food in the daily diet, consumption is reported to be around 15 kg (Yuize 1971). Tempe is the most important soybean product in the Indonesian diet (Table 7.1), though the quantities consumed of this and other soybean products vary greatly between provinces. A further survey is required to explore recent changes in the levels and location of soybean consumption.

Demand for Cereals Personal income in Indonesia is expected to grow by around 4 — 7% a year. If growth continues to be rapid, consumption patterns will change as more and better quality foods are in increasing. The estimation of income or expenditure elasticity is therefore particularly important to forecast future demand of pulses, including soybean. 73

By applying income elasticities to the rate of growth of per capita income, we can predict the rise in demand for soybean as incomes increase. The demand for staple foods usually increases at a slower rate than the growth in income. This means that as incomes rise, people tend to spend a smaller proportion of their income on food. In other words, the demand for food is inelastic, and we can expect its income elasticity coefficient to be less than one (1). Incidentally, since no data are available on consumer incomes in this report, we assume expenditure elasticities to be the same as income elasticities.

With special reference to rice, a number of researchers have made estimates based on the cross-sectional data collected by Susenas (the National Socio-Economic Survey) collected in 1976. Research results have suggested income/expenditure elasticities for Indonesia ranging from 0.5 to 0.7 (Tyers and Rochman 1981, Dixon 1982).

Table 7.1. Consumption of various soybean products in selected provinces in Indonesia, 1974. Gram/person/day Product Lampung Yogyakarta East Java Tempe 18.33 4.63 20.08 Tempe gembus 0.25 0.53 Oncom 2.34 Tofu 3.30 4.24 1.83 Tofu residue 0.03 Sprouts 6.51 3.05 1.57 Soybeans 0.29 1.07 0.35 Source : Center for Nutritional Research, 1982.

Mears, et al. (1981), showed an expenditure elasticity estimate of 0.32 for rice using an average income (private expenditure) for the country over the period from 1968 to 1979. In comparing different research results, they noticed that elasticity estimates made from cross­ sectional studies in Indonesia have generally been somewhat higher than those derived from time series studies.

Although expenditure elasticities for rice have been estimated by various approaches, case studies of palawija, particularly for soybean, are limited. This is due mainly to a lack of data on the household distribution of food and on the quantities of nutrient rich food such as pulses which are eaten with cereal crops. 74

Expenditure and Price Elasticities of Palawija We examine the strength of the demand for pulses based on research findings by Arief (1978). He used Engel elasticities to analyze data published by Susenas in 1976. As with other studies, the elasticities of pulses are not calculated separately in Arief's study. However, data sources and the concept, computation procedures, and statistical fitness are reported in detail by 7 forms of Engel function for 15 commodity items by several categorized regions. In particular, double-log forms indicate highest fitness.

Table 7.2. shows that : (1) expenditure elasticities of vegetable and fruits/ "peas" are higher than those of cereals/cassava; and (2) the expenditure elasticity of meat has the highest value, followed by eggs/milk. In terms of eating habits, pulses, including soybean, are generally similar to vegetables and "peas". We assume here that by "peas" Arief means either mungbeans legumes, mungbean, soybean, peanut, and cowpea.

Table 7.2. Expenditure elasticities of items for Indonesia, 1976. S. Arief : Double-log Model 1) Java Outside Java Indonesia Cereals & cassava 0.50 0.77 0.62 Vegetables 0.75 0.87 0.81 Fruits & peas 2) 1.18 1.17 1.22 Fish & seafood 1.22 1.07 1.26 Meat 2.41 2.06 2.40 Eggs & milk 1.75 1.66 1.71 Alcohol & tobacco 0.97 0.98 1.00 Other foods 0.89 1.04 0.93

Total foods 0.82 0.94 0.88 Housing & utility 1.10 1.04 1.04 Clothing 1.44 1.30 1.41 Other non-foods 1.31 1.10 1.21

Total non-foods 1.37 1.24 1.30 Source: Sritua Arief. 1978, Consumption Patterns in Indonesia, An Econometric Study, Sritua Arief Associates. 1) Model: Log e Yi = ai + bi log e Xo Yi = Average household expenditure on the i-th item Xo = Total average household expenditure ai, bi = Constant coefficients 2) We assume here that by "peas" Arief means either mungbeans, or legumes : mungbean, soybean, peanut, etc. 75

From a nutrition standpoint, on the other hand, pulses can partly substitute for fish, meat and eggs. Combining both views, we can expect the, expenditure elasticity of pulses to be between those of cereals and other non-vegetable protein foods. In another study, Hedley (1978) made estimates based on the Susenas 1976 survey using a linear expenditure system. Soybean is not reported separately but is included in the vegetables, pulses and fruits category (Table 7.3). For the animal products category, the estimated expenditure elasticities were 1.33 (urban) and 1.65 (rural Java), and 1.18 (urban) and 1.23 (rural outside Java); elasticities of cereals ranged from 0.23 to 0.69 in the two areas. In the case of cereals, rural elasticities were considerably higher (0.56 - 0.69) than urban ones (0.23 -0.38). A similar tendency is evident for pulses in Java. However, urban and rural areas outside Java are not significantly different. This suggests that the consumption of pulses per capita will increase in response to higher income, but more so in the whole of Indonesia than in urban areas in Java.

Table 7.3 Expenditure elasticity of items for Indonesia, 1976. D.D. Hedley: Linear Model Java Outside Java Urban Rural Urban Rural Cereals 0.23 0.56 0.38 0.69 Meat, fish, milk and eggs 1.33 1.65 1.18 1.23 Vegetables, pulses and fruits 0.85 1.02 1.11 1.09 Other foods 0.94 0.88 0.99 0.95 Total foods 0.82 0.88 0.85 0.93

Housing & utility 1.24 0.97 1.28 1.04 Clothing 1.04 1.28 1.10 1.17 Other non-foods 1.31 1.43 1.36 1.14

Total non-foods 1.28 1.39 1.33 1.26 Douglas D. Hedly, 1978. Supply and Demand for Food in Indonesia. Paper presented at the Workshop on Research Methodology, Bogor Agricultural University. The elasticities were derived from a linear expenditur system model using data from Susenas (May - August) 1976. Source : John A. Dixon. 1982. Food Consumption Patterns and Related Demand Parameters in Indonesia: a Review of available Evidence, (Working Paper No. 6), International Food Policy Research Institute. 76

Only a few estimations of soybean price elasticity have been made. Boediono (1978) obtained a complete elasticity matrix for 41 commodity groups in Indonesia using the Frish technique. His findings on expenditure elasticity are almost the same as the two cases already mentioned. He calculated price elasticities for vegetables and fruits of -0.97, and for rice of - 0.63. Thus if pulses are similar to the vegetable group, consumers would appear to be much more responsive to the price of soybean than that of rice: i.e., they will buy much less soybean if its price rises, but will continue to buy rice even if it goes up in price.

Demand Elasticities of Soybean The report of the Joint Indonesia-American Team on palawija Crops (1979) gives rough estimates for expenditure elasticities of demand for some of the major food crops in Indonesia (Table 7.4). The estimates are calculated by USDA based on cross-sectional data from the 1976 Susenas survey : Consumption figures of soybean and peanut were available only in value term, and the expenditure elasticity estimates for these commodities are probably biased upwards since consumers normally shift to higher quality products with increased income.

Both peanuts and soybean, which are preferred consumption items on nutritional grounds, have highly positive income/expenditure elasticities. On the other hand, maize and cassava have negative elasticities. This implies that the demand for cereal crops such as maize and cassava will be depressed by higher incomes as consumers switch to preferred consumption items, while demand for them will increase with population growth. By contrast, if peanut and soybean suppliers expand production, the markets or these pulses in processed form or for indirect human consumption as animal Feed will have .to be expanded. Table 7.4. Expenditure elasticities by crop for Indonesia. 1976. USDA : Double-log Model Elasticity Cereals Rice 0.46 Corn 1.5 Shelled corn -0.42

Root crops Cassava 0.18 Dried cassava -0.55 Sweet potato 0.49

Pulses Soybean 0.92 Peanut 1.5 Source: Bulog. 1979. Report of a Joint Indonesia-American Team on Palawija Crops. Mimeograph. 77

8. GOVERNMENT POLICY, REGULATIONS AND SUPPORT PROGRAMS

In developing countries the role of the government in agricultural development is important, especially where smallholder farming is concerned. The colonial authorities in Indonesia made little effort to develop smallholder agriculture, except in irrigation for rice production. To maintain the low wage policy it was necessary to keep basic food prices low, and hence to maintain a relatively large supply of rice,

It has proved difficult for the Indonesian government to initiate a large scale development program in smallholder agriculture, due to the inadequate education of farmers, the proliferation of land holding in small land parcels, poor infrastructure and marketing facilities, the poor quality or non-existence of supporting services such as credit and extension, and the inefficient distribution of land or crop areas, preventing the realization of economies of scale.

For rice, irrigation construction has provided a basic infrastructure; irrigation often coincides with the development of systems, which results in large continous areas planted to rice. In spite of the proliferation of small parcels of ownership, it is thus relatively easy to apply economies of scale to services for rice. It is therefore easy to understand how Indonesia's massive rice intensification program had achieved a high standard of performance by the end of the 1970s. Yet we should not forget the difficulties encountered in this program in the early 1960s before the arrival of the new high-yielding semi-dwarf rice varieties (HYVs).

Bimas and the Crash Intensification Program The demand for soybean in the domestic market is rapidly increasing (see Figure 7.1 in Chapter 7). The rate of increase in production is somewhat unsteady; this is indicated by the drop to 514,000 tons in 1982 from 704,000 tons in 1981. Consumption is increasing more steadily, due to the incraesing demand for soybean as a raw material for animal feed, and the higher demand for soybean products due to their positive income elasticity.

To reduce the gap between production and consumption, the government has launched a massive program in Pelita 4 for soybean production. The targets of this program are shown in Table 8.1.

The general palawija (non-rice) crops intensification program started in 1972/73. The existing support system for rice intensification is being used for palawija, together with the Inmas and Bimas systems. The soybean area that has been intensified under these programs since 1972/73 is shown. in Figure 8.2. Maize and soybean are the major components in the palawija intensification program.

Following the success of the Insus (Special Intensification) program foi rice, an Insus program was introduced for soybean in 1980. The main difference from the conventional Bimas program is the emphasis on group 78

Area harvested Production ( 1.000 ha ) ( 1.000 t )

1.300

1.100

Area harvested 1.100

900

900

Production 700

700

500

500

Yield ( kg/ha )

1.200

1.000

800

1980 82 84 86 88

Source: Directorate General of Food Crops.

Figure 8.1. Targets of soybean production in the Fourth Five Year Plan (Pelita 4), 1984 - 88. 79

Table 8.1. Targets of soybean production in the Fourth Five Year Plan (Pelita 4), 1984-88. Area Production Yield (1,000 ha) (1,000 t) (kg/ha) Average (1980-82) *) 717 626 873

Target predicted 1983 808 734 908 84 913 904 990 85 979 1,018 1,040 86 1,026 1,180 1,150 87 1,062 1,253 1,180 88 1,100 1,375 1,250

Average increase per year 10% 4.1% 5.2% *) See Table 2.1. Source : Directorate General of Food Crops. 80

Area ( 1.000 ha )

835

Bimas

Inmas 474

Insus/lnmum

385

325 Target

250

180

105

70

1974/ 75/ 76/ 77/ 78/ 79/ 80/ 84/ 75 76 77 78 79 80 81 85 Source: Satuan Pengendali Bimas.

Figure 8.2. Changes of realized area and the target of soybean under intensification programs in Indonesia, 1974/75 - 84/85 cropping years. 81 decisions to achieve concerted action and timeliness, and also to apply the principle of economies of scale. The Insus program uses more fertilizer and employs a greater extension effort, and so results into higher yields than the Bimas program.

In 1982, groups of farmers applied improved production technologies collectively in a joint program covering 103,000 ha (Somaatmadja and Siwi 1983). This program succeeded in raising the average yield from 0.6 ton/ha to 0.9 ton/ha (Bimas 1982).

Three alternative packages of technology are recommended by the Department of Agriculture as part of the intensification program:

Package 1: - adapted local varieties - improved seed quality - rhizobium inoculant - intensive weeding (twice) - 4 - 6 liters/ha of effective insecticides - fertilizer (NPK) at the recommended dosages for each region.

Package 2: - As package 1, except for : - the local varieties in Package 1 are replaced by improved varieties - soil cultivation for dryland fields

Package 3:

As Package 2, plus: - liming at the rate of 2 to 4 tons/ha for the first four years, and 500 kg per hectare per year from the fifth year onward. Package 3 is designed for acid soils.

From 1983 onwards, liming and rhizobium inoculation will be supported by the government (Somaatmadja and Siwi 1983). In the 1984/85 cropping season, around 18,000 hectares scattered over a number of provinces will be cropped with soybean to demonstrate the advantages of liming, and it is planned to increase this area to 100,000 ha in the following years. In these areas around 2.5 t/ha of lime will be applied. Liming is expected to double yields to 1.2-1.5 t/ha on certain soils. The rhizobium inoculant "Legin" will be applied to 200,000 hectares of soybean at a quantity of 150 g/ha. The inoculant is recommended for areas never previously planted to soybean.

One of the problems in increasing soybean production is the lack of good seed. To overcome this problem the government has promoted the formation of farmers' seed networks (Jaring benih antar lapang, or jabal). Under this scheme, one group of farmers will plant the seed from a crop newly harvested by another group. This will prevent extended periods of seed storage, which result in low viability. 82

The high target for soybean production in Pelita 4 can only be realized if adequate support systems can be provided. These include:

1. The production, procurement and distribution system of good quality HYV seeds; 2. Credit and marketing services; 3. Agricultural extension; 4. Participation of farmers (this is conditional on the quality of services provided); and 5. Research.

Seed Production and Distribution System The responsibility to establish and improve the seed production and distribution system lies with the Directorate General (DG) of Food Crops. Operationally the DG is assisted by various seed gardens managed by farmers and supervised by extension workers, and also by various agencies, such a; P.T. Pertani, Perum Sang Hyang Sri, P.T. Patra Tani, and the Agency foi Seed Control and Certification.

Local seed gardens, supervised by extension workers, produce extension seed for distribution to producing areas within each province. Because the times of planting and harvesting differ from area to area, a system of seed distribution must be properly planned and managed (the jabal farmers' seed networks).

Recently, a seed farm was established in Jambi province in co-operation with the EEC. In 1983 the project supplied 3 tons of soybean seer to South Sulawesi, 7.2 tons to West Java, 4.3 tons to Riau, 1.4 tons to the Directorate of Food Crops Production, and 23 tons to Jambi itself. In Southeast Sulawesi, soybean production has developed through the nucleus estate system managed by P.T. Kapas Indah since 1979/80. From the initial area of 113 ha in 1979/80, the soybean area increased to 3,20C ha in 1983/84. The target in Pelita 4 is 100,000 ha. P.T. Kapas Indah a semi-government company, is responsible for providing farm inputs (including lime), land preparation costs, and seeds.

Many improvements to the seed production system are still needed. Seed is often of poor quality and is not available at the right time. These( problems must be solved if the Pelita 4 production target is to be achieved

Marketing and Floor Price Policy Bulog is responsible for providing the necessary marketing services anc for maintaining the soybean floor price policy. For the intensification program the floor price is guaranteed by Bulog, though cases are reported when the floor price policy cannot be implemented. Every year the DG of Fooc Crops proposes a new floor price level based on (1) farm incomes and the IBC ratio, (2) the terms of trade, and (3) the economic impact on inflatior 83 and rates of subsidy. The proposal is then compared with a similar proposal developed by Bulog to arrive at a national consensus.

Bulog is assisted in the implementation of this pricing policy by the village (KUD) co­ operatives. The quality is specified at 14% moisture content. The farmers selling soybean receive the floor price of Rp. 280/kg from the KUD. Bulog pays the KUD Rp. 293/kg; the KUD thus has a marketing margin of Rp. 13/kg.

Our survey found, however, that this floor price is lower than the current market price, making it ineffective. If we compare this with the retail price of imported soybean of Rp. 484 — 500/kg in January 1984 (Business News), we find that the current floor price is too low. Yet, when transportation costs and marketing margins are taken into account, the low floor price level can probably be justified, reflecting the high marketing cost for domestic farm produce. The c.i.f. (cost, insurance & freight) price of American soybean was Rp. 280/kg in January 1984, which was the same as the floor price set by Bulog. In December 1984, the soybean floor price was raised to Rp. 300/kg.

Agricultural Extension Agricultural extension for palawija crops is integrated with the extension system for rice, and uses the same institutional framework.

(1) Extension workers are not directly subordinated to the regional agricultural office, but to the Agency of Agricultural Education, Training and Extension (AAETE). Operationally, however, they should follow the guidelines of the regional agricultural office (Dinas Pertanian/Diperta).

(2) AAETE has established the following extension institutions : a. Agricultural Technology Centres (ATC), one of which serves several districts (kabupaten). The role of the ATC is to monitor and plan extension activities within the district, through training programs, discussions, and field trials. b. Agricultural Information Centres (B alai Informasi Pertanian/BIP), one in each province, where various agricultural development and extension materials are filed and distributed. c. Rural Extension Centres (B alai Penyuluhan Pertanian/BPP). The role of the BPP is to provide direct assistance to the field extension workers (petugas penyuluhan lapang/PPL) in its area. The BPP plans and controls the activities of the PPLs, which include visits, demonstrations, and so on. (3) These extension institutions are geared to support the agricultural development programs in their regions ,especially the Bimas, Inmas and Insus intensification programs; they are co-ordinated and supervised by the regional agricultural offices.

(4) Each ATC is managed by an extension specialist (petugas penyuluhan specialis/PPS). usually a university graduate with an Tr Ir degree. 84

BPP is managed by a senior extension worker, usually a college graduate (BSc) or an experienced agricultural high-school graduate. The lowest level extension worker is the field extension worker (PPL).

(5) Every PPL is assigned to a working area (called "wilkel"), with an area of about 600 ha in Java. Each PPL is assisted by several "contact farmers" in each group. Each farmer group covers an area of about 50 ha.

The framework has proved effective for rice intensification, because rice is planted by all farmers at almost the same time. However, problems arise when the program is extended to palawija production. Examples of such problems are:

(1) Not all farmers are able to grow palawija crops: the lack of concentration of palawija production presents difficulties in reaching various locations. (2) Growing palawija after rice involves additional work on soil, drainage and moisture conditions. (3) The problem of "polyvalent" extension is a serious one : an extension worker must have expertise in the production technologies of several crops. (4) The shift from single crop technology to the more complicated cropping and farming systems is hard to realize with the present extension staff. (5) When palawija intensification is carried out in dryland areas, the problems of infrastructure and technology become manifest. Dryland farming is, in all respects, poorly developed compared to wetland farming.

Research for Varietal Improvement In order to promote soybean production, the Indonesian government has endeavored to breed and distribute high yielding varieties, expand the area planted, intensify existing production and improve cropping systems. In 1974 the Agency for Agricultural Research and Development (AARD) was set up within the Ministry of Agriculture. AARD became the sole agricultural research organization in the country responsible for developing new technology such as high-yielding varieties. AARD's Central Research Institute for Food Crops co-ordinates the national soybean breeding program. Researchers develop new varieties at field experiment stations by selecting and testing various lines and testing their adaptability. The seeds are multiplied at seed centers, after which they are distributed to farmers. Fourteen high-yielding soybean varieties have been released in Indonesia since 1919 (Table 8.2). The first of these was developed from a variety introduced from the Republic of China which was used for line selection; from this the varieties No. 27 and No. 29 were bred and recommended for planting. These varieties mature within 100 to 110 days. Subsequent efforts have been made to develop early-maturing varieties. Ringgit is a progeny of a cross between No. 27 and a local variety called Cirebon. It matures within 80 — 90 days and is high yielding, but is susceptible to rust. In 1965, the early-maturing. large-seeded variety Davros was developed through line selection from the hybridization of the Wakashima variety, from the Republic of China, and a local variety called Garut. Subsequently, a Taiwanese variety called TK 5 was developed from Orba, which is rust­ resistant. More recently, Galunggung, Lokon, Guntur, and Wilis, which all mature early at 78 — 85 days, have been released. The most recent release is Dempo which also resists rust disease. 85

Table 8.2 Soybean varieties released in Indonesia, 1918-84. Year Maturity Average Variety released (days) yield Reaction to rust (t/ha) Before Pelita Otau 1918 95 1.1 - 2) No. 27 1919 100 1.1 - No. 29 1924 105 1.2 MR Ringgit 1935 90 1.2 S Sumbing 1937 85 1.2 S Merapi 1938 85 1.0 - Shakti 1965 85 1.2 MR Davros 1965 85 1.2 S

Pelita 2 Orba 1974 90 1.5 MR

Pelita 3 Galunggung 1981 85 1.5 MS Lokon 1982 76 1.1 - Guntur 1982 78 1.1 - Wilis 1) 1983 88 1.6 MR

Pelita 4 Dempo 1984 90 1.5 R 1) Moderately resistant to virus disease. 2) Remarks: R = resistant MR = moderately resistant MS = moderately susceptible S = susceptible Pelita : Five Year Plan Source: Central Research Institute for Food Crops. 86

9. DISCUSSION AND CONCLUSION

Agro-economic Background for Study on Soybean The low productivity levels of soybean in Indonesia and the steady increases in soybean imports strongly suggest that the major problem in Indonesia's soybean commodity system lies in production aspects.

A general study on the commodity system can hardly be expected to provide strong recommendations for solutions to fundamental questions. Moreover, soybean is grown in Indonesia in a wide range of environments, and can be found, even within the same area, on lowland and dryland, with and without irrigation, at almost any time of the year, and grown both as a sole crop or in association with other crops. Cultural practises, as well, may differ within the same area. With these factors, it will difficult to provide a miracle package of improved techniques that will be successful in each situation.

These are serious grounds for questioning the efficiency of mass intensification programs in meeting their targets since general recommendations may not be finely tuned to the various growing conditions. In its Fourth Five-Year Plan (Pelita 4, 1984 —1988), the Indonesian Government has set an ambitious target of a 10% yearly increase in soybean production. With the above in mind, this target will be hard to reach.

We are aware that our choice of the main producing areas means that our findings will not be representative of the soybean commodity system in Indonesia as a whole. They reflect the conditions in the areas where soybean has been relatively successful. In these areas, soybean farmers liberally apply fertilizers and pesticides, and neither input distribution nor credit availability are viewed as constraints. This also has implications for the design of intensification programs in which these aspects usually receive considerable emphasis.

For example, the majority of farmers in our study sites pointed out that lack of HYV seeds and low pH soils are the major factors in low productivity. In fact, seeds play an important role for shifting the soybean production function to a more profitable direction. However, it is not clear to what extent this is a constraint to yields in present farmers' conditions; some farmers view local varieties as more tolerant to pests and diseases or to drought and flood.

In the same way, low pH was not examined in the surveyed area. Low pH characterizes areas where soybean cultivation is still marginal. In other words, low pH appears- as a constraint to the extension of the crop into new areas, not as a factor explaining present low yields.

The tentative conclusion would therefore be that with present knowledge, little can be done to improve soybean productivity in the survey areas. Inputs are already used in large amounts, and the main issue appears to be how to improve their efficiency, not how to increase their use. 87

Another important finding is that the variability in input use in yields obtained is usually much greater within each cropping area or broad environmental type than between them. Whether such variability is linked to socio-economic factors or to specific environment characteristics remains to be found. However, homogenous domains should be carefully examined in future research studies.

Inter-relationships between Micro and Macro Issues Apart from the production aspect, it is difficult to say how marketing and utilization of soybean in the major producing areas can be improved by government programmes. It seems reasonable to state that no particularly serious problems in marketing and production utilization exist in these areas. In other areas, soybean production is limited because of the small economic scale. Larger amounts of the crop could be grown in such areas. In this respect, it seems that Indonesia has a high potential for increasing soybean production, particularly outside Java.

In relation to beneficiaries of intensification programs the study indicates that most farmers did not depend on the Bimas program for obtaining fertilizer and pesticide, except in Lampung and Gunung Kidul. It also seems that this is consistent with the large farm size in the survey sites. The effectiveness of the intensification programmes should be examined.

As already indicated in this report, the average size of the sampled farms is probably much higher than the average in the survey areas. Only farmers with a relatively large holding may devote a significant part of their area to soybean cultivation, perhaps because small farmers will primarily concentrate on vital food crops.

If this hypothesis is true, we must be careful especially when comparing trends with other studies with a different sampling bias. We suggest that this disparity could be corrected with quick supplementary surveys in at least one of the survey areas, and/or through supplementary analysis of available data.

The marketing structure is not yet analyzed in depth in this study. Further study is needed on the complex pattern of transactions from soybean farmers to the market via middlemen and traders, and the flow of soybean in marketing channels.

The question of import policy has another interesting component. Inports are made available in the international market at much lower prices than on the domestic level. This is said to depress the domestic price of soybean. The retail price of imported grain does not seem to be much lower than that of domestic grain though, while there is no levy against soybean imports. Hence, a comparison of marketing of imported soybean with the market efficiency of the private sector for the domestic market may be necessary, in order to clarify the mechanism of price determination.

A comparison of price trends over the past 10 — 20 years with other commodities such as rice and maize would be extremely useful. The problem 88 of competition with other crops deserves greater attention. In view of the high domestic price, it is probably an exaggeration to claim that imports have discouraged production.

In general, much less effort has been directed to research on soybean and other non-rice crops than to research on rice; the same is true for the regional program implementation services. The main purpose of this study is to serve as a preliminary basis for future in-depth studies of individual parts of the soybean commodity system. Such in-depth studies will be necessary to identify in detail the constraints preventing farmers from attaining the yields obtained by researchers on experimental farms. 89

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APPENDIX 92

ABBREVIATION AAETE Agency for Agricultural Education, Training and Extension AARD Agency for Agricultural Research and Development ASBIMTI Assosiasi Bahan Impor Makanan Ternak Indonesia (Association of Wholesalers of Imported Raw Materials for Feed) ATC Agricultural Technology Centres BIMAS Bimbingan Masal (Mass guidance) BIP Balai Informasi Pertanian (Agricultural Information Centres) BPP Balai Penyuluhan Pertanian (Rural Extension Centres) BPS Biro Pusat Statistik (Central Bureau of Statistics) BORIF Bogor Research Institute for Fodo Crops BULOG Badan UrusanLogistik (Food Logistic Board) CBS Central Bureau of Statistics (Biro Pusat Statistik) CGPRT Centre Regional Co-ordination Centre for Coarse Grains, Pulses, and Tuber crops, UN/ESCAP. CAER Centre of Agro-Economic Research CRIFC Central Research Institute for Food Crops DIPERTA Dinas Pertanian (Agricultural Office) ESCAP Economic and Social Commission for Asia and the Pacific, United Nations INKUD Induk Koperasi Unit Desa (The Central Office of the KUD) IPB Institut Pertanian Bogor (Bogor Agricultural University) INMAS Intensifikasi Masal (Mass intensification) INSUS Intensifikasi Khusus (Special intensification) INMUM Intensifikasi Umum (General intensification) JABAL Jalur Benih Antar Lapang (Farmers seed networks) KUD Koperasi Unit Desa (Village Unit Co-operatives) KOPTI Koperasi Produsen Tempe dan Tahu Indonesia (Tempe/Tofu Processors Co-operatives) PELITA Pembangunan Lima Tahun (Five Year Development Plan) PIR Perkebunan Inti Rakyat (Nucleus Estates) PPL Petugas Penyuluhan Lapang (Field Extension Workers) PT. BERDIKARI Perseroan Terbatas BERDIKARI (Berdikari Ltd.) PT. WATRAW (Subsidiary of BERDIKARI Ltd.) SUSENAS Survei Sosial Ekonomi Nasional (National Socio-Economic Survey) WILKEL Wilayah Kelompok (Working Area)

GLOSSARY Desa Village Kabupaten District Kecamatan Sub District Palawija Secondary crops or non-rice crops Rp. (Rupiah) Indonesian currency. As of 1984, Rp. 1,000 equals to $ US ] 93

MEMBERS OF STUDY TEAM SOYBEAN COMMODITY SYSTEM IN INDONESIA — Alphabetical Order —

Bogor Research Institute for Food Crops (BORIF) AMAN, Djauhari * BAMBANG, Rachmanto CUCU, Sunarsih HURUN, Aten M. KIROM, A. Nainy KRESNANINGSIH ITI, Machsunah SULTONI, Arifin * TAMBUNAN, M.S.M. ZAKARIA, Amar Kadar

Centre for Agro-Economic Research (CAER) HIDAJAT, Nataatmadja *

ESCAP CGPRT Centre DAUPHIN, Francois * MOROOKA, Yoshinori * RACHIM, Abdul *

BOTTEMA, TACO, Chief Editor

* Authors of the report.