Shifting from Green Revolution to environmentally sound policies: technological change in Indonesian rice agriculture

Abstract

This study analyses technological change in Indonesian rice agriculture. An analysis of data compiled by the Indonesian Central Bureau of Statistics shows that rice agriculture has undergone technological progress with non-neutral technological change that has been capital and labour saving and chemical intensive. Recent agricultural policy reforms, which include the dissemination and implementation of environmentally friendly technology, however, appear to have been successful in reducing chemical use.

Keywords:

• rice economy
• biased technological change
• Green Revolution
• chemical-intensive technology
• environmentally friendly policy

JEL classifications:

• Q18
• O13
• O33
• C51

Acknowledgements

The authors would like to thank Prof. Tim Coelli from the University of Queensland, for kindly allowing the use of his software FRONTIER v.4.1, and Prof. Peter Warr from The Australian National University, for providing access to data for this study, which originates from the Indonesian Central Bureau of Statistics.

Notes

^aSignificant at 0.01.

^bSignificant at 0.05.

^cSignificant at 0.1.

1. There is a strong criticism that an econometrically estimated production function will not provide unbiased estimators because of simultaneous bias resulting from endogeneity of inputs use (Kumbhakar 1988a, 1988b). This is particularly true if the output is fixed because of quotas or other restrictions, such that under the assumption of profit maximisation, the producer will choose a level of input for a given level of fixed output. In this case, the use of inputs is endogenous. This condition mostly happens in developed countries where the agricultural production quotas apply. However, it is unlikely to be the case in developing countries because agricultural production is not rationed. Furthermore, on small-scale farms, farmers produce as much output as they can for a given level of inputs. In this case, output is endogenous because the level of output is determined by the use of inputs. Zellner et al. (1966) argue that when output is uncertain such that farmers maximise expected profit, there is no constraint in estimating the production function because the use of inputs is no longer endogenous, meaning that estimating the production function econometrically will give unbiased estimators. The nature of agricultural production very well fits with the condition of expected profit maximisation, since output is strongly affected by the natural conditions such as weather and pest outbreaks. Coelli (2002) provides technical evidence that the use of the production function can provide unbiased estimators under the assumption of expected profit maximisation regardless of the measurement of inputs. There is no need to cope with endogeneity of inputs as suggested by economists (e.g. Widawsky et al. 1998, Savvides and Zachariadis 2005) in estimating the production function or to convert the value of inputs into indices (e.g. Hadri and Whittaker 1999).

2. The data used in this study cover provinces, which are not the direct target of dissemination of technology. The technology had been disseminated in 12 of 27 provinces at the time.

3. This is an indication that the rice farm was very intensive. The sum of elasticity with respect to all inputs is less than 0.1. As mentioned before, the production function is assumed to exhibit constant return to scale, and the elasticity of rice production with respect to land is more than 0.9, which is very high. This result suggests that if the same level of inputs is applied into 2 ha of land, the rice production increases by 98%, or almost double. In some cases, agricultural output elasticity with respect to land was likely to be very high in Indonesia (Trewin et al. 1995, Sumaryanto et al. 2003), the Philippines (Villano and Fleming 2006), China (Yao and Liu 1998) and Ivory Coast (Sherlund et al. 2002). But for the case of Vietnamese rice agriculture, the highest output elasticity was not with respect to land (Che et al. 2001) but with respect to material inputs (Che et al. 2006).