The Impact of Agricultural Institutions in Production Risk of Turmeric Farming: A Two-Stage Risk Function Analysis in Indonesia
Abstract
Background: Turmeric has strong potential to drive economic growth; however, turmeric farming in Indonesia still faces various constraints affecting production and productivity, particularly high production risk occurring from the pre-production to post-harvest stages, which may significantly reduce yields. Strengthening agricultural institutions is considered a potential solution for mitigating these risks.
Purpose: This study aims to analyze the effects of various forms of institutional arrangement partnerships with state-owned enterprises (SOEs), regionally owned enterprises (ROEs), private firms, cooperatives, farmer groups, assistance-providing institutions, and financial institutions on the production risk of turmeric farming.
Design/methodology/approach: This study uses secondary data from the 2013 Agricultural Census, comprising 1,311 respondents, because it is the most recent dataset with accessible detailed farm-level institutional information required. The analysis employs a two-stage risk function analysis model with a log-linear mean production function, as follows:
Finding/Result: The estimation results reveal that assistance-providing institutions significantly reduce production risk. Conversely, business partnerships (partnerships with state-owned enterprises (SOEs), regionally owned enterprises (ROEs), and private firms) and farmer groups were positively associated with production risk. Partnerships with village unit cooperatives (KUD), other cooperatives, and financial institutions show no statistically significant effect on production risk.
Conclusion: Institutional roles vary in influencing production risks. Institutions directly involved in the production process are the most effective in reducing risks. Assistance-providing institutions are the most effective in mitigating production risk because they directly support and participate in the production process.
Originality/value (State of the art): This study examines multiple types of agricultural institutions and finds that not all institutions are effective in reducing production risks. Some institutional forms are identified as risk-increasing factors.
Keywords: agricultural institutions, production function, production risk, turmeric farming, two-stage risk function analysis
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