MAIZE SUPPLY RESPONSE IN INDONESIA

Demand for maize in Indonesia keeps growing due to low maize production, while consumption keep increasing (excess demand). The situation creates scarcity in maize and leads to the commodity’s high price. This study aims to analyze the supply response of maize farmers on the changes of input and output prices. This study also examines the supply response of maize farmers in Indonesia by using Error Correction Model (ECM). The study uses secondary data. Results of the study shows that supply of maize farmers is influenced by price of soybeans, wages of labor, prices of seed, of urea fertilizer, of feed, and of imported maize. Maize farmers are also responsive to changes in maize prices and therefore the policy of maize floor price can be re-applied to support the national food selfsufficiency. In addition the input subsidy and land expansion policies are still necessary to increase maize supply.


INTRODUCTION
Maize's role as a source of second carbohydrates after rice as well as animal feed raw materials, has made it as a strategic commodity.It shows that maize has an important role in the supply of animal protein, and that its production capacity needs to be improved.Domestic market demand and export opportunities of maize is Maize Supply Response in Indonesia, Illia Seldon Magfiroh, Ahmad Zainuddin, Intan Kartika Setyawati | 47 likely to increase from year to year, both to meet the food and non-food needs.In addition, the market prospects for maize production is getting better, because it is supported by better community's awareness of food nutrition and diversification.Maize is used as the main domestic industrial raw material for food processed products such as maize chips, maize wingko.as animal feed raw materials, and for exports.This further creates potential market opportunities for maize farmers and making it very important to increase the quality and quantity of maize production.The description of maize consumption in Indonesia can be seen in Table 1.Source: Pusdatin (2016) Table 1 shows that the largest demand for maize comes from the feed industry, which increases 10.54% annually for feedstock industry demand and increases by 5.99% for the demand of raw material for selffarmers.The direct consumption of maize decreased significantly in 2015 by 7.06%, but demand as raw materials for the food industry shows an increase.This implies that demand for maize will continue to increase as the demand of the feed industry in Indonesia is increasing.
Demand of maize experienced a rapid growth rate for 5 years, during 2012-2016, amounting to 6.16% per year.The demand growth exceeds the growth rate of population with only 2.01% per year in the same period (Kemendag, 2016).Demand for maize for feed, food industry and feed raw materials as well as the future for energy raw materials (bioethanol) will be increasing from year to year.During the period of 2012-2016, data shows that the national maize production is always below the total national maize demand.Therefore, to meet a variety of needs (for food or direct consumption, raw material processing industry and particularly of feed raw materials), imports of maize were made in that period ranging from a total of 1,805 -3,500 thousand tons.
During the period of 5 years (2012)(2013)(2014)(2015)(2016), the growth rate of supply/production of maize was slow (4.89% per year) and fluctuated, while demand grew 3.40% annually.This indicates that there is an increased need to be met by domestic maize production.Table 2 shows that the Indonesian maize consumption is higher than national maize production.
The proportion of maize production from 2012 to 2016 increased and in 2016 the proportion reached 96.34% while corn imports decreased drastically by the proportion of 3.66% in 2016.This indicates that there is an increase in production to meet domestic demand due to an increase corn land area.This has implications for their excess demand to be met.Excess demand is met by maize from imports.
When examined further, the import of In the economic theory, supply is defined as a functional relationship that shows how much a commodity will be offered (for sale) at a certain place and time at various price levels, other factors are constant (Tomek W & Robinson KL, 1990).The supply curve shows a positive relationship between the numbers of commodities to be sold at a price level of commodities (Lantican, 1990).The supply curve above is based on the assumption that producers act rationally, which has always sought to maximize profits.
Based on these assumptions, the theoretical level of production will be pursued until the optimum condition is the condition where the value of the marginal product is equal to the unit price input.(Tweeten, 1992).In response analysis deals on maize will be used the direct approach of the supply function.
If the supply curve describe the relationship between price and quantity assuming ceteris paribus or assume all other factors remain unchanged, deals response illustrates the output response to price changes by not holding other factors constant.In the economics, the supply response is defined as a variation of agricultural output and crop area in relation to price changes (Ghatak & Ingersent, 1984).
Most of previous research focuses on price and its effect on agricultural supply response.(Abebe, 2005) measures supply response with respect to own price and cross price of cereals in Ethiopia.(Mamingi, 1997) and (Nyairo et al, 2013)

RESEARCH METHODS
The research uses secondary data.
In to obtain a stationary data, data variance are not too big and has a tendency to approach the average value (Enders, 1995).(Widarjono, 2012)

b) Determination of Optimum Lag
Further, to determine the optimal lag number used in the Stationary test, according to (Enders, 1995).The

RESULTS AND DISCUSSION
The supply response analysis of maize farmer toward price changes can  3.  Rice prices have no effect on the response toward maize crop area.This looks at the probability value that indicates a value of -0.259 (greater than 15% significance level).This is according to research (Siregar, 2009) which states that the price of grain has no effect on the planting area of rice due to differences in the cropping seasonal pattern between maize and rice, where maize will be planted during the dry season (planting III) while the rice will be planted in the rainy season (planting season I or II).Maize is often grown in dry land in the rainy season.
In rain fed areas, the maize planted Rainfall is not a determinant variable for farmers to increase or Irian Jaya, the increase in land conversion will lead to a decrease in the area of maize.
Variable of area of the previous year has a positive effect in accordance with the theory even though the variable is not significant.This is because each year, the maize crop area is likely to fluctuate.Maize is an annual plant that can compete with other commodities so that the area planted with maize also fluctuates.
Therefore, the previous year's crop area of maize is not the standard for farmers to determine the next year's crop area of maize because the changes can be responded quickly by the farmer in the same year.
After the discussion about the supply response of maize based on harvested area of maize, the next to be discussed is the supply response of maize in Indonesia based on the productivity of maize in Indonesia.The supply response based on the maize productivity can be seen in Table 4. Based on supply response estimation using the ECM model, there are several variables that influence maize productivity which are the price of maize, the price of seed, the price of feed, rainfall and labor costs.While the variable price of fodder and maize productivity in the previous period does not affect the productivity of maize.
Table 4 shows that the variable of maize price is affecting the productivity of maize in Indonesia.It is known based on coefficient value of 1.095 with a confidence level of 1%.
The coefficient values indicate that an increase in the maize price by 10% will increase maize productivity by 10.95%.This is consistent with the theory, that an increase in the corn pricewill give farmers an incentive to increase production by encouraging an increase in productivity of maize.Farmers will try to manage the farm with the best corn when corn prices are relatively high in order to get better income.
The price elasticity of supply is However, the results of this study contrast with the results of Suryani's et al (2015) study which shows the effect of changes in rice prices on rice supply was more elastic than maize supply.This is expected due to the influence of government purchasing price (HPP) for rice commodities, while for maize commodity, the selling price of the product fully follows the market price.
There is no government intervention that regulates the selling price of maize.
The elasticity of input supply to the input price (seed and urea fertilizer) Variable price of urea has a negative sign and not significant at the 90% confidence level.Urea fertilizer price elasticity is equal to -0.248.This value is consistent with the theory that there where if an increase in the price of urea fertilizer, farmers will respond by reducing the amount of urea used and will have implications on the resulting decline in maize productivity.
The main input prices fertilizer prices is an important variable that determines the productivity of maize.Facts on the field shows that the price of urea relatively high with the rare availability.
This condition make the maize farmer reduce the urea usage that can be imply the decreasing of productivity.wages by 10%, then the productivity of maize will increase by 0.73%.This happens because most of the relatively small scale of maize farming, which is less than 0.5 hectares per family in Java and over 1 hectare per family outside of Java (Susilowati & Maulana, 2012;Suryani et al. 2015).In addition, maize cultivation is not labor intensive so that the increase in wages was able to increase the productivity of maize.
As an illustration, human labor to manage maize farming in a dry land area is 64 HOK men and 45 HOK women per hectare (Djulin, Syafa'at, & Kasryno, 2002).Therefore, the increase in wages will not reduce the amount of labor used.With the amount of labor that is relatively fixed despite the wage is raised, then the peasants will be more active or more have an incentive to plant more corn intensive.both the short and long term.Table 5 shows that the elasticity of the corn harvest area and productivity of the maize price in the short term and the long term have a positive sign.That is, the increase in corn prices will increase crop acreage and productivity of maize in the short term and in the long term.
The value of long-term elasticity has a relatively greater value than the value of the short-term elasticity.The value of elasticity out of maize area in a short term tends to be inelastic but in a long term is elastic.In addition, the elasticity of maize productivity tends to be more elastic than the elasticity of land area.

b. Corn Productivity Enhancement (Intensification)
In addition to applying the basic price of the return policy, the analysis result shows that the elasticity of short-term and long-term response to the productivity of maize prices is positive.
Therefore, Itcan be used as the basis, that when the corn price increases, efforts to increase the maize supply In addition, the extensification of crop area can be done in the forestry government area (Perhutani) with maize planted between the main crop (tree) and extenfication can be done by using sub optimal land area (peat land and swamp area) and other unproductive land.
maize from 2012 to 2016 has increased significantly.Imports of maize are needed by Indonesia to be a buffer in making maize available when the domestic maize production decreases.It aims to reduce domestic price volatility of maize (maize price stabilization), which is caused by the excess demand.Maize import activity is still ongoing over time, despite the trend of national maize production showed an increase.Import is done in particular by the animal feed industry, with some reasons, among others: (1) security of supply and the ease of obtaining raw materials.Industry has difficulties in keeping track of existing excess production stock; (2) the production of maize in the country is not continuous throughout the year.Maize harvest usually takes place twice a year from February to April and July to September, so there is a vacuum of supply during October-January and May-June.On the other hand, the demand of maize for feed mill continues throughout the year; the national need, it is necessary for the government to provide stimulus to farmers such as stabilising the maize price at the farm level.The success to increase production could not be separated from the output policy where the central government has always encouraged local governments to accommodate the production of maize growers so that the price of maize at the farm level does not fall during harvest.Since 1990 the maize price was not set through the mechanism of the basic price, due to its ineffectiveness.The implication is that corn marketing follows the market mechanism, so that the maize price is determined by market forces, where the farmers' bargaining position is weaker than traders.Therefore, this study aimsat evaluating the response of maize farmers to changes in the consumer and import prices.
order to analyze the supply response of maize toward the change of domestic and import prices, the annual time series data from 1980 to 2016 is used.The annual data type such as production data, the harvested areas, the price of domestic maize kernel, the price of imported maize, price of rice, the price of urea, wage of labor, animal feed prices and the number of imported maize.The method used in analyzing the supply response is ECM.The analysis procedure is as follows: a) Stationeritas or Unit Root Test The first step that should be taken in the estimation of the economic model with time series data is the stationary data test, which is also known as stationary stochastic process.Stationary is needed to avoid spurious regression.An equation is said to be stationary if it has a mean, variance and covariance that constant at any lag and does not contain a unit root.Test stationary in this data can be done by using Augmented Dickey-Fuller (ADF)to the same degree (level or different) explains that the function of the ADF test is to see whether there is a trend in the movement of data to be tested.ADF test consists of a regression calculation which is formulated as follows: ...............................................................................(1) ......................................................................(2) .............................................................(3 following are the criteria used: Akaike Information Criterion (AIC): T log | Σ | + 2 N ................................................ (4) Schwarz Bayesian Criterion (SBC): T log | Σ | + N log (T) .......................................parameters to be estimated in determining the optimal lag by using the information criteria, the selected criteria are criteria that have a number of AIC and SBC is the smallest among the different lag is recommended.When the smaller value of these criteria, the expected value generated by a model would be closer to reality.Whereas if several criteria are used then there are additional criteria are adjusted R 2 , VAR system.Long optimal inaction occur if the adjusted R 2 is the highest.Determination of the interval or lag optimal an important stage in the ECM approach.The length of the interval or optimal lag of variables needed to capture the influence of other variables(Widarjono, 2012).c)Johansen Cointegration TestThe aims of cointegration test to determine whether the variables are not stationary cointegrated or not.Cointegration concept proposed by Engle Granger as a linear combination of two or more variables are not stationary and yield variables are stationary.This linear combination is known as cointegration equation and can be interpreted as a long-term equilibrium relationship between variables (Firdaus, 2011).Cointegration testing in this study using the approach of the Johansen test.Johansen test is conducted by comparing the value of the trace statistic with the critical value and a maximum eigenvalue with critical value at 5% significance level.If the trace statistic or the maximum eigenvalue is greater than critical value, the indicates that the system of equations there is a long-term relationship or cointegration.The test will be done is trace test which measures the number of cointegration vectors in the data using rank cointegration matrix Test expressed as follows (Enders, 1995): ................(6) ...................(7) where: λt : the value of alleged root characteristic (eigenvalues) are obtained from estimation matrix π T : number of observations r : rank which indicates the number of vector co-integration In the λ trace test, H0 is the number of co-integration vectors missing ≤ r as a common alternative.If the λ trace < λ table then accept H0, which means co integration occurs at rank r.While at λ max test, H0 is the sum of co-integration vector = r is the alternative of co-integration vector r + 1 (Enders, 1995) In the use of Eviews 7, decision-making is done by looking at the value of the trace statistic and critical value.If the trace statistics > alternative hypothesis H1 = cointegration.If the trace statistics > critical value, then reject H0 or accept H1, which means there is cointegration.If there is no cointegration between variables we used the model VARD (VAR in difference), whereas if the data Supply response for certain commodities in this study was approached by the response of harvest area and productivity.The reason is that the use of crop area and productivity as dependent variables can be easily determined or controlled by the farmer(Nerlove, 1956);(Askari & Cummings JT, 1977).Furthermore, the farmer's decision in determining the harvest area and the level of productivity is a direct reflection of farmers' response to price changes.The independent variables were used to predict the supply response of maize, based on the research of(Adnyana, 2000), in response to the area of the rice harvest, it is stated that the price of rice is influenced positively by the rice harvest area, negatively by competitors' commodity price (maize) andextensive conversion of land, Maize Supply Response in Indonesia, Illia Seldon Magfiroh, Ahmad Zainuddin, Intan Kartika Setyawati | 57 positively by the area under irrigation, positively by rainfall and harvest area of the prior period.For productivity responses, it is stated that the price of rice has positive influence on the productivity of rice, fertilizer use has a positive effect, input prices (wages) have negative effect, and the productivity of the prior period has positive effect.(Puspadewi, 1998) analised how much is the influence of the increase in maize price, alternative commodity prices and input prices as well as differences in location and technology trends on the response of area harvested and productivity of maize in East Java and Central Java by using a partial adjustment model Nerlove.Research (Siregar, 2009) analised the supply response of maize in Indonesia using Nerlove models.Variables that affect the maize crop area are the maize price, prices of competitors (rice, soybean, cassava and peanuts), the growth rate of land conversion, the total growth of irrigated areas, rainfall and harvest area of earlier period.Due to its advantages in combining the effects of short-term and long-term, the ECM become a model that can explain the explanatory variables.ECM equation to estimating harvest area are: DlnLJGt = α + β1LnPJGt + β2LnPMJt+ β3LnPPDt+ β4LnPPAKt+ β5LnPKDt + β6LnPUKt + β7LnKLt + β8LnCHJ + γ LnLJGt-1 + et Where: DLn LJGt : distinction first acreage of maize (Ha) Ln PJGt : price of maize (Rp/kg) Ln PMJt : price of maize imports (Rp/kg) Ln PPDt : price of rice (Rp/kg) Ln PPAKt : price of feed (Rp/kg) Ln PKDt : price of soybean (Rp/kg) Ln PUKt : price of cassava (Rp/kg) price of maize (Rp/kg) Ln BNH : price of seed (Rp/kg) Ln PURt : price of urea (Rp/kg) Ln UTKt : wage of labor (Rp/HOK) Ln CHJt : average annual rainfall (mm/yr) Ln PPAKt : price of feed (Rp/kg) be seen from both the response of harvest area and the response of maize productivity in Indonesia.The result of model estimation of ECM is the best model that is obtained with economic and econometric criteria consideration.Economic criteria refers to the sign coefficient which has been in accordance with economic theory.While the criteria for evaluating econometric statistical constraints by using statistical tests.Based on the statistical test result that this model has a coefficient of determination (Adj R 2 ) in order to measure the good of fit.The regression results 0.801 for crop area of maize and 0.894 for maize productivity response.As for the other criteria like symptoms multi collinear and auto correlation not occur in the model.The estimation result of crop area of maize can be seen in Table prices have a real influence on the level of 99%.The price of maize has a positive sign of 0.935.This shows that if there is an increase in the price of maize by 10%, farmers will respond by increasing the crop area of maize by 9.35%.The value of supply elasticity of area to the price of maize is positive dan inelastic, but is the most elastic if compared to another variables.The value of supply elasticity of price indicates that the response of maize farmer to the price is very large.The price of maize could be the benchmark for the farmeres in allocating cropping areas.The higher price of maize will encourage farmers to increase maize planting area, which in turn will expand the maize harvest area.This is in accordance with the research bySiregar (2009);Agustian and Hartoyo (2012);Natsir (2015),Sitinjak (2015);Madlul et al (2017) which stated that the price of maize could become a benchmark for farmers to increase the area.
before and after rice, and maybe after that planted maize again.While on irrigated land is usually done cropping paddy-rice-maize.This indicates that the price of grain does not affect changes in crop area of maize.Soybean prices showed a negative influence with a confidence level of 95% with a value of -0.401.This value indicates that soy is a commodity competitors or substitutes for maize.A value of -0.401 indicates that if there is an increase in soybean prices by 10% it will be responded by farmers to reduce the crop area of maize amounted to 4.01%.The value is inelastic which showed that despite greater increase in soybean prices, not all farmers respond by allocating land for planting soybeans.Facts on the field shows that farmers prefer to plant maize compared to soybeans for the production and the income derived from the cultivation of maize is higher than soybean cultivation.The price of import maize also affects maize harvest area in Indonesia.This is indicated by the value of elasticity of 0.076 and the real effect on the confidence level of 90%.This value indicates that the elasticity value is positive, meaning that if there is an increase in the price of maize imports by 10%, then the farmers will respond by increasing crop area by 0.76%.This happens because the rising price of imported maize will reduce the amount of maize being imported, thus farmers will respond by increasing the crop area.Animal feed prices have a positive effect with the elasticity of 0.375 at the 95% confidence level.This value indicates that if there is an increase in feed prices by 10% farmers will respond by increasing the maize crop area by 3.75%.Maize products are cultivated by farmers mostly to be used as input or feed, if the animal feed prices rise, farmers will try to increase its production by increasing the planted acreage.The price of livestock feed is inelastic to the response of maize area because maize is not only used for livestok feed, but also as an alternative food for rice.
elastic and most elastic compared to other variables.This indicates that the response of maize farmers to price changes is very strong.Therefore, Maize Supply Response in Indonesia, Illia Seldon Magfiroh, Ahmad Zainuddin, Intan Kartika Setyawati | 63 changes in maize prices will largely determine the policy of maize development in Indonesia.This result is consistent with Agustian and Hartoyo's (2012) and Onono's et al (2013) research indicating that the elasticity of maize supply to price itself is elastic indicating that farmers are highly responsive to changes in maize prices in order to increase maize supply.
is inelastic and negatively indicated, respectively -0.311; -0.248.Seed input prices have a significant effect on maize supply.Prices of maize seeds in Indonesia tend to be expensive that can reach the of Rp. 60.000/kg to Rp. 100.000/kg.The increasing price of seeds in maize farming, caused by the multinational corporations that control the maize seed in Indonesia.The influence of negative input prices in accordance with the Research ofSuryani et al (2015) andAgustian and Hartoyo (2012) Changes in input prices affect negatively to the supply of rice, maize, and other crops.
While the price of corn feed and productivity of the previous year did not affect the productivity of corn at this time.High feed prices neither have no direct influence on the productivity of maize, meanwhile, the productivity of maize fluctuates nor a standard to improve the productivity of maize in the next period.In order to discuss the supply response of maize in Indonesia, it is first necessary to calculate the value of maize in Indonesia supply elasticity in Maize Supply Response in Indonesia, Illia Seldon Magfiroh, Ahmad Zainuddin, Intan Kartika Setyawati | 65 As the response elasticity of the maize harvest area is positive in the short and long term, efforts to increase maize production can be done through the extension.In order to attain selfof planting area.Expansion of the maize planting area can be done by optimizing the raw comprehensive and addition of dry land both in Java and outside Java.In addition, the extensification of crop area can be done in the forestry government area (Perhutani) by planting maize between the main crop (tree), and extensification can be done by using sub optimal land area (peat land and swamp area) and other unproductive land.Maize Supply Response in Indonesia, Illia Seldon Magfiroh, Ahmad Zainuddin, Intan Kartika Setyawati | 67 maize has a positive sign on the crop harvest area and the commodity's productivity.The price of maize can be a reference for farmers in allocating the planting area.The higher the price of maize, it will encourage farmers to expand the planting area which will eventually expand the harvest area.In addition, if there is an increase in the price of maize, then farmers will have an incentive to increase production of maize.If the price of maize is relatively high, there are opportunities for farmers to get better income, so usually they will try to manage their maize farms as well as possible.The price of soybean commodity also affects the planting area for maize.The increase in soybean price will cause the reduction of corn area although relatively small.The price of imported maize will be responded positively by the farmers, if the price of maize increases, farmers will increase the area of maize.While the price of poultry feed is also a determinant factor of corn planting area because most of the corn produced will be used as inputs of animal feed.In addition to the price of maize, other factors that affect the productivity of maize are the price of seed, urea fertilizer and labor wage.The price of seed and urea fertilizer are negatively responded by farmers.The increase of seed and urea fertilizer price will reduce the use of seed and urea fertilizer which has implication on decreasing mazie productivity.Labor wages are positively responded by farmers because corn farming is not a labor intensive and though labor costs increase, the use of permanent labor could still increase maize productivity .productivity of corn, therefore the basic price policy can be re-introduced to increase the motivation of farmers to cultivate corn.The government's efforts to improve maize supply is to increase the price of maize in Indonesia or by imposing the floor price policy.Although input prices such as seeds, fertilizers and labor wages increase, but if output prices increase, the production of maize can still increase.Because of this, it requires price stability policy and increase of maize price.However, to encourage enhancement of maize supply, it is necessary to apply the subsidy policy for farmers in the form of input subsidy or subsidy of interest on venture capital, considering that the majority of maize farmers in Indonesia are marginal with small land area and limited capital.In order to attain self-sufficiency, especially maize, the government could expand the maize planting area (extensification).Extending the plant is to increase production of a commodity through the expansion or addition of planting area.Expansion of the maize planting area can be done by optimizing the raw comprehensive and addition of dry land both in Java and outside Java.

Table 3 . Estimated Response Area of Maize in Indonesia
Pusdatin (2016)n (2016), processed Note : Specification table:* significant at the 10% significance level, ** significant at the 5% significance level, and *** significant at 1% significance level Based on the analysis of the ECM in table 3 that domestic maize

Table 4 . Response Estimation Results Productivity of Maize in Indonesia
Source : Media Center, 2016 (processed) Note : Specification table:* significant at the 15% significance level, ** significant at the level of real 10%, and *** significant at 1% significance level