Changes in Farmer Terms of Trade and Agricultural Net-Barter Terms of Trade:An Emprical Analysis

Abstract

In line with the Prebisch-Singer hypothesis, it is found that the Indonesian farmer terms of trade in aggregate followed a negative trend. Spatially, this tendency was mainly the case for the Western Part of Indonesia, whereas in the Eastern Part of the country, especially in some Sulawesi and Kalimantan provinces, the farmer terms of trade increased significantly. This shows a potency to properly expand the agricultural sector in these provinces without risking the relative welfare of farmers to decline. Thus more agricultural development efforts should be devoted to these regions. The net barter terms of trade for agriculture, which may be seen as a proxy of relative welfare of farmers with some accesses to exportlimport markets, on the other hand, generally depict a non-negative trend. This suggests that in average this group of farmers, or perhaps a group of agricultural exporters, was less severely affected by the crisis or crisis-like events than the peasant farmers. Therefore, systematic development program, which should be more than a rescue-short-term-demand-side program, is needed with a main aim to stabilize the relative welfare of the peasants. The analysis also suggests that lndonesia agricultural exports are supply determined, which means that eliminations of supply bottlenecks and technological advancement leading to a lower unit cost relative to price received are necessary to undertake.