The influence of international soybean price shock on domestic soybean price

Abstract

Foods are primary human basic need. Lack of food supply could implicate on social and politic instability. The fluctuation of foods prices influence risk and uncertainty on decision making process. Soybean is primary commodity in Indonesia after rice and corn. The growth of soybean production is lower than its demand so it leads to increasing number of import. High number of imported soybean may indicate a correlation between international and domestic soybean price. The objectives of this study are (1) to analyze the short term correlation between international soybean price and domestic soybean price, (2) to analyze the long term correlation between international soybean price and domestic soybean price, and (3) to determine the impact of international soybean price shock on domestic soybean price. This study used data from Ministry of Trade, Bank of Indonesia (BI), United States Departement of Agriculture (USDA) and Zhengzhou Commodity Exchange (CZCE). International soybean price represented by USA soybean price (world largest exporter) and China soybean price (world largest importer). Those data above were secondary data in monthly time series form collected from 2009 until 2012. The method use in this study is Vector Correction Error Model (IRF, FEVD and pass trough). This study use Eviews 6.0 software. Study show that in the short term, international soybean price (USA and China) influence’s to domestic soybean price were not significant. In long term the USA soybean price has positive significant influence to domestic soybean prices. In contrast, the real exchange rate has negative significant influence. Pass trough analysis conclude that the impact of international soybean price (USA soybean price) shock on domestic soybean price was 1.6 percent.