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ISSN : 1598-7248 (Print)
ISSN : 2234-6473 (Online)
Industrial Engineering & Management Systems Vol.18 No.3 pp.520-529

The Impact of Government Expenditure on Agriculture Marketing and Supply Chain Management: An Application of Two-Stage Least Approaches

Zakiah, Jumadil Saputra*, Fauzan
Faculty of Agriculture, University of Syiah Kuala, Banda Aceh, Indonesia
School of Social and Economic Development, Universiti Malaysia Terengganu, Kuala Nerus, Terengganu, Malaysia
Faculty of Economics, Sekolah Tinggi Ilmu Ekonomi, Lhokseumawe, Indonesia
Corresponding Author, E-mail:
June 3, 2019 June 16, 2019 June 19, 2019


The purpose of this quantitative study is to investigate the role of government expenditure on food security and its model based on the Input Demand Function (IDF). This study uses secondary data collected from the Bureau of Statistics Centre of Indonesia, which consists of 23 regencies/municipalities in Aceh Province for the 2007-2016 period. The data is analysed using Two-Stage Least Square (2SLS). The analysis shows that food security in terms of availability, accessibility, and food utilisation was influenced by the farmers’ decisions regarding production inputs. In order to increase food availability, the government is partially responsible for the costs incurred by farmers for producing food. Furthermore, to raise food accessibility, utilisation, and farmers’ income, food prices need to be regulated such as the price of grain for farmers or the price of rice for producers. To conclude, the government needs to buffer the stock board and ensure controls are in place to stabilise food prices.



    Rice is still the main food for Indonesians for the last five years (2010-2015). It has the largest energy contribution (50.83%) to the body, followed by oil and fat (14.32%), and processed food (11.92%) according to the Central Bureau of Statistic (BPS, 2010-2015). This shows that rice is a very important commodity for Indonesians because it is their main food with no substitute commodities, although diversification programs are being campaigned by the government and local governments, particularly the Aceh government. The availability of local food to fulfil the consumption needs and the quality of the food are indicators of food security. The quality of the food utilisation can be seen from the quality of the food consumed by the people. This is in accordance with the food security concept that is internationally approved in the World Conference on Human Rights in 1993 and the World Food Summit in 1996. Purwantini et al. (2016) explained that food security is fulfilling the nutritional needs in quantity and quality for continued healthy and active living in accordance with the local culture. The quality of food utilisation can be seen from the amount of calories consumed. The energy consumption of the Aceh people from 2010-2015 was below the calorie requirement of 1,964.93 kcal/capita/day, whereas the average need of energy according to the regulation of the Health Minister of the Republic Indonesia Number 75 in 2013 is 2,150 kcal/capita/day, BPS (2010-2015).

    The high price of rice in the domestic market compared to the price in other regions with the same quality has made it difficult for locals to meet their nutritional needs with the need for rice as the main source of people’s energy being unfulfilled. This is caused in part by the low price of grain causing increased land conversion from agriculture to non-agriculture for greater profits. In short, farmers are not interested in planting rice (Ahmadi et al., 2018). If this condition continues, Indonesia will remain an importer of rice thereby putting stress on local consumption needs. The low of capital owned by farmers will result in their inability to buy fertiliser and seed, which are an obstacle in the production process, besides limited infrastructure, limited resources, as well as low skilled human resources and limited knowledge in technology adoption (Sudaryanto and Rusastra, 2006;Sharif and Butt, 2017;Mendonça and Andrade, 2018, Ramli et al., 2018). If the government does not pay serious attention to increasing the farmers’ income, land changes from agriculture to non-agriculture will increase because the farmers are not interested in producing rice. If this happens, Aceh will experience more significant food insecurity in the long-run and be dependent on imported food. Therefore, it is important to strategies how to achieve food security because the use of input will inevitably determine the output.


    2.1 Input Demand Function (IDF)

    The concept of food security is broad. Indicators, ways, and data used by previous researchers to measure food security are varied depending on the purpose and need of the study. Purwantini et al. (2016) identified the indicators of food security as food production, food availability, food expense proportion, main food price fluctuation, food consumption trends, nutrient status, stock ratio with consumption, the score of desired food pattern, the level of government’s reserved food, the ability to provide food stock, the index of the food diversification, and the index of self-sufficient food. Food security can also be seen from the energy consumption rate/ capita/day (Ilham et al., 2006;Baldos and Thomas, 2014;Kendall et al., 1996;Gregory and Coleman-Jensen, 2013;Muhammad, 2018;Farzadnia et al., 2017Abayeva, 2018;Singh et al., 2018). In this study, food security pertains to rice production, rice, and energy consumption. According to Maxwell and Frankenberg (1992), the analysis of the food security should look at four main concepts: 1) sufficiency, 2) access, 3) security, and 4) time. Food security from the sufficiency side can be approached with the Solow’s economic growth theory. It begins with production theory which posits that output is influenced by capital and labour, can be developed into the production function with other variables. Solow’s production model explains how the capital stock (C), labour growth (L), and technology development (A) influence output rate (Y). The production function is described as follows:

    Y = A K α L 1 α

    The production function with maximum profit, besides determining the output choice, will also determine input combination to produce the output (Henderson and Quant, 1980;Hartono, 2002;Jehle and Reny, 1998;Varghese, 2015). Total output from the derivative process shows food security from the availability side. The maximum profit will be achieved in first-order condition (the necessary condition) that is partial derivative equal to zero and second-order condition (the sufficient condition) if the Hessian determinant is bigger than zero. The function that provides the best choice of the output which is the function of input prices is called output supply function, which is the total production as the supplying subsystem of food security (Ahmad & Ahmad, 2018).

    Rice production is highly determined by the farmers’ willingness as the producers to plant rice. If farmers are rational, they want to maximise their profit from production. A combination of inputs would give maximum profit as described through the isoquant curve. The production function with the maximum profit, besides producing the combination of inputs, also determines the output rate. The combination between input and output can be described through the isoprofit and isoquant. The profit line shows the connection of the combination points of input and output which resulted in the same profit. If the profit function is π = Pq.QW.X, where Pq (output price) Q (total output), W (wage) X (total input), so the isoprofit curve is Q = π/Pq + (W/Pq) X. Intercept of the isoprofit curve π/Pq, with the slope is W/Pq. Combination of (Q and X) as long as the isoprofit curve have the same profit. The intercept of the isoprofit and isoquant curves describe the point of best input and output use resulting in maximum profit (Muzaffar Asad, Ahmad, Haider, & Salman, 2018, Hartono, 2002;Jehle and Reny, 1998).

    The combination of input and output can be described through isoprofit and isoquant lines. The isoprofit line shows the connection of the combination of input and output points resulting in the same profit. If the profit function is π = Pq.Q – W.X, where Pq (output price) Q (total output), W (wages) X (total input), so isoprofit curve can be written Q = π/Pq + (W/Pq) X. The intercept of the isoprofit curve π/Pq, and its slope is W/Pq. Q and X are combined as long as the isoprofit curve has the same profit. The intercept of the two isoquant curves describes the point of best input and output use resulting in maximum profit (Hartono, 2002;Jehle and Reny, 1998;Gumel, 2017).

    2.2 Food Demand Function (FDF)

    Consumer demand on a commodity is a decision of consumers to maximise satisfaction with a certain budget (certain satisfaction). A consumer will be at the equilibrium point if the budget allocation (income) spent on consumer goods has given maximum satisfaction. Therefore, the demand theory approach derived from the utility is known as the Marshallian demand function (Henderson and Quant, 1980). The Marshallian demand function is achieved from the derivative of utility maximisation with the income constraint. With no satiation assumption, a consumer will spend all his income (Ik) to buy some goods (n) which can be formulated as follows:

    U = U ( Q , Q A )

    where U (Utility of food consumption), Q (food consumption), QA (other goods consumption). Food price and other goods price influence budget allocation. Thus, if the food price (PQ), and another good price (PA), and budget allocation (I) for the two of the goods are:

    I = P Q . Q + P A . Q A

    The influence of each factor is different. The food demand in this study is rice demand. In this case, consumers will maximise the number of Q and QA with the existing income. Thus, the function will be maximised as follows:

    U = U ( Q , Q A ) + λ ( I O P Q . Q P A . Q A )

    where λ is the Lagrange Multiplier. If first-order for a maximum has been fulfilled, equation 4 can be maximised by finding the first derivative by reducing L from Q, QA, and λ, of each as follows:

    L / Q = Q P Q . Q = 0 o r λ P Q = Q

    L / Q A = Q A ' P A . Q A = 0 o r λ P A = Q A '

    L / λ = I 0 P Q × Q P A × A = 0

    Equations 5 and 6 can be solved as follows:

    λ = Q / P Q = Q A ' / P A

    Thus, the demand function for the consumption of rice demand is formulated as follows:

    Q = f ( P Q , P A , I )

    where PQ (goods price of rice), PA (other goods price), and I (income).


    The food security approach in this study was based on input from the side of demand production input through profit maximisation. Baroughi and Matin (2013), Henderson and Quandt (1980), Jehlef and Reny (1998), and Hartono (2002) argued that maximum profit derivation determines the best output and determine the best input combination (input demand function) to be used to produce the output. The number of food obtained from the derivative process shows food security from the side of availability. The production function used in this study is as:

    Q = f ( C , L , R )

    where Q, refer to total production, C is total capital, L is a number of labours, R is number of other resources (fertiliser), respectively. Other resources in this study were fertiliser (F), thus, the production function on equation 10 becomes:

    Q = f ( C , L , F )

    where F refers to a number of fertiliser use. If we differ the capital into two kinds, namely private capital, which is the farmer’s capital influenced by interest, and the government capital, which is an autonomous variable, the production function in equation 11 becomes:

    Q = f ( C g o v , C p r i , L , F )

    where Cpri refers to the private capital and Cgov is the government capital (the government expenditure). If it is assumed to maximise the profit of the farming business, in the short-run, the profit is the difference between the total revenue is subtracted by the total variable cost (Labadarios et al., 2011). Thus, the production cost can be formulated as input prices are multiplied by the total input use. Therefore, the profit function is formulated as follows:

    Π = T R T C

    Π = P Q Q ( I n t . C p r i + W a g e . L + P f F )

    Π = P Q f ( C g o v , C p r i , L , F ( I n t . C p r i + W a g e . L + P f F )

    If the production function is assumed as the Cobb Douglas production function with input constraint, thus equation 15 can be solved as follows:

    Π = P Q a C g o v , C p r i α , L β , F γ ( I n t . C p r i + W a g e . L + P f F )

    where Pq is paddy price, a is a constant, and Q, Cpri, Cgov, Wage, Int, Pf, L, and F refesr to production, private capital, government capital (government expenditure), wage, interest, fertiliser price, number of labourers, number of fertiliser, respectively. Thus, when FOC condition needs to maximise the profit, and the partial derivative is equal to zero, thus the equation 16 can be derived as follows:

    π C p r i = P Q a C g o v , C p r i α 1 , L β , F γ I n t = 0

    π L = P Q a C g o v , C p r i α , L β 1 , F γ W a g e = 0

    π F = P Q a C g o v , C p r i α , L β , F γ 1 P f = 0

    The first derivation shows that the marginal product for each factor (Pq . f'(i) should be equal to the input factor price, or Marginal Physical Price (MPP) is equal to the input price ratio and the product price. Further, by substituting the three equations above, the values of L*, Cpri* and F* are obtained as follows:

    F * = α a C g o v P f 1 a ( W a g e ( β + γ ) β β P Q α ( 1 + β + γ ) I n t β ) 1 ( a β + γ 1 )

    L * = ( α C g o v W a g e ( 1 + β + γ ) β β P Q α ( 1 + β + γ ) I n t β P f γ ) 1 ( a β + γ 1 )

    C p r i = α C g o v I n t β ( W a g e ( 1 + β + γ ) β β P Q α ( 1 + β + γ ) I n t β P f ) 1 ( a β + γ 1 )

    Thus, labour demand input, fertiliser, and capital are influenced by Int (interest), Wages (labour cost), Pf (fertiliser price) and Pq (output price). The level of input use was best input use. Thus, Qg* was function of L*Cpri*F* , which is obtained by;

    Q g * = ( α P Q C g o v α ( 1 + β + γ ) g W a g e γ 1 I n t 1 β P f 1 α ) 1 / ( α β + γ 1 )

    Farmers’ best output on the maximum profit is influenced by Int (interest), Wages (labour cost), Pf (fertiliser price) which is input price, and Pq (output price). Then, the equation of the rice production identity is as follows:

    Q b t = K X Q g t

    where K is 62.74%. Qbt is Rice production, and Qgt is Grain production. Thus, the models can be simplified as follows:

    F t = γ 0 + γ 1 C g o v t + γ 2 W a g e t + γ 3 I n t t + γ 4 P f t + γ 5 P q t + γ 6 F t 1 + e 1

    L t = δ 0 + δ 1 C g o v t + δ 2 W a g e t + δ 3 I n t t + δ 4 P f t + δ 5 P q t + e 2

    Q q t = θ 0 + θ 1 C g o v t + θ 2 W a g e t + θ 3 I n t t + θ 4 P f t + θ 5 P q t + θ 6 Q q t 1 + e 3

    Q b t = 62.74 % X Q g t

    This study used rice production as an approximation of the rice supply because stock and import data of rice were not available in every district. From the food demand side, this study learned how rice demand behaviour influenced energy consumption as a food security indicator. The consumption function derived from the Marshallian demand function is as follows:

    P b . D b + P 1 . D 1 = I s

    Utility U = U ( D b . D 1 )

    The maximisation of the utility can be solved by the Lagrangian method as follows:

    g = U ( D b . D 1 ) + λ ( Y k P b . D b P 1 . D 1 )

    The first derivation is equal to zero (0) against Db, Dl, and λ as follow:

    g D b = D 1 λ P b = 0

    g D L = D b λ P 1 = 0

    g λ = Y k P b . D b P 1 . D 1 = 0

    From the equation 32 to 33, λ value is obtained:

    λ = D 1 P b

    λ = D b P L

    By making λ value is equal:

    λ = D b P b = D 1 P L

    Or it can also be written:

    λ = D 1 D b = P 1 P L

    Equation 38 can be rewritten:

    D 1 . P 1 = D b . P b

    By substituting the value of Db or Dl obtained from equations 39 and 34, the Marshallian demand function for goods of Db and Dl can be obtained as follows:

    D b * = D b M ( Y k 2 P b )

    D 1 * = D 1 M ( Y k 2 P L )

    Thus, the rice demand equation (Db) is influenced by the rice price (Pb) and income (Yk). It is also influenced by the substitution goods price, i.e. corn (Ps). Based on equation 40 can be derived from the equation of the rice demand variable operation as follows:

    D b t = ϕ 0 + ϕ 1 Y K t + ϕ 2 P b t + ϕ 3 P j t + ϕ 4 D b t 1 + e 4

    where Dbt refers to Rice demand, Ykt Income per capita, Pbt ice prices, Pst Corn price, Dbt-1 Last year rice demand, and e4 is error term.

    The food security will be achieved if the minimum food availability is the same, or greater than the food utilisation, or the total consumption. Therefore, it is assumed that the market is on equilibrium, where the demand of rice is the same with the rice supply, while the approximation of the rice supply is the rice production, so the equation of the rice market equilibrium between production and rice demand can be written as follows:

    Q b t = D b t

    Q b t = ϕ 0 + ϕ 1 Y K t + ϕ 2 P b t * + ϕ 3 P j t + ϕ 4 D b t 1

    Q b t = φ d 0 + φ d 1 Y K t + φ d 2 P b t * + φ d 3 P j t + ( 1 φ ) D b t 1

    Q b t = φ d 0 φ d 1 Y K t φ d 2 P b t * φ d 3 P j t ( 1 φ ) D b t 1 = 0

    P b t = ( 1 φ d 2 + φ d 0 ) + φ d 1 Y K t + φ d 3 P j t + ( 1 φ ) ( D b t 1 Q b t

    Equation 47 can be rewritten as follows:

    P b t = ( 1 φ d 2 + φ d 0 ) + φ d 1 Y K t + φ d 3 P j t + ( 1 φ ) D b t 1 + φ d 4 Q b t

    Equation 48 is the rice price equation derived from the rice market equilibrium by inversing variable of Pbt*.


    ( 1 φ d 2 + φ d 0 ) = Ω e 0 ; φ d 1 = Ω e 1 ; φ d 3 = Ω e 2 ; ( 1 φ ) = Ω e 3 ; φ d 4 = ( 1 Ω )

    So the equation 48 can be simplified to:

    P b t = Ω e 0 + Ω e 1 Y K t + Ω e 2 P j t + Ω e 3 D b t 1 + Ω e 3 Q b t + ( 1 Ω ) P b t 1

    P b t = Φ 0 + Φ 1 Y K t + Φ 2 P j t + Φ 3 D b t 1 + Φ 4 Q b t + Φ 5 P b t 1 + e 5

    where Ωe0 = Φ0 ; Ωe1 = Φ1 ; Ωe2 = Φ2 ; Ωe3 = Φ3 ; Ωe4 = Φ4 ; (1-Ω) = Φ5 and Pbt*, Pbt, Dbt, Qbt, Pjt, Pbt-1, e5 refer to wanted rice price, rice price of year t, rice demand, production, corn price, previous rice price, error term, respectively.

    Furthermore, it can be seen that energy consumption (kcal/capita/day) is an indicator to measure the level of food security in a region. The energy consumption is in the same direction as the rice consumption. Therefore, in this study, the energy consumption was influenced by variables, which also influenced rice consumption, besides total rice consumption. Thus, the operational equation of the total energy consumption can be derived as follows:

    Q e t = π 0 + π 1 Y k t + π 2 D b t + π 3 P b t + π 4 Q e t 1 + e 6

    where Qet, Pbt, Ykt, Dbt, Qet-1, and e6 refer to energy consumption year t, rice price, people income, rice consumption, last year energy consumption, and an error term, respectively. To achieve the purposes of this study, secondary data were used in the form of panel data, namely time series for the years 2007-2016 and cross-section data of the 21 agricultural districts in Aceh Province.


    Fertiliser demand is positively influenced by government expenditure, wages, and lag of fertiliser demand, and negatively influenced by interest, and the ratio of fertiliser to grain price. The regression of coefficient showed that everyone billion increase in the government expenditure would increase 0.028 tonnes of the fertiliser demand. Increasing government expenditure, besides improvement in infrastructure and input subsidy, also for the tools and machine aid, as well as creating new rice fields will create opportunities for the farmers to increase their production by increasing fertiliser use. Labour cost is positively influenced by the fertiliser input demand. Every Rp. 1,000 increase in labour cost will increase 0.08 tonnes of fertiliser demand. Due to the increase in labour cost, the farmer’s income will also increase, and with an elasticity value of 1.05%, it means the response of the fertiliser use is elastic to the change of wages. It shows that if wages increase nu 1%, the fertiliser use will increase by 1.05%. If the farmers’ income increase, their capital will also increase. Then, the farmers will increase their grain production by increasing fertiliser use. The result of this study is different from the finding of Kumar et al. (2010) and Mailena et al. (2013) who found that wages have a negative correlation to fertiliser demand.

    Interest is the price of the capital spent by the farmers. In this study, interest has a negative and significant correlation to the farmers’ fertiliser demand. If the interest rises, the farmers’ willingness to invest or to plant paddy will decrease. Therefore, to push the farmers’ willingness to plant paddy, the government should provide capital aid or loan to the farmers with low interest, in order, so they have the willingness to invest. However, the ratio of the fertiliser price to the grain price has a negative value but is not significant to the fertiliser demand. The insignificant influence of the fertiliser ratio to the grain price on the equation of the demand fertiliser, labour, as well as grain production indicates that the farming activity is not only profit oriented, but also consumption oriented. Nevertheless, when the grain selling price decreases, the farmers will plant paddy, although it is in a smaller area and smaller input use.

    From labour, demand is an analogy from the labour absorption. Government expenditure has a positive and significant influence on the fertiliser input demand. The elasticity value shows every 1% increase in government expenditure will increase by 0.02% of the labour demand in the agricultural sector. The significance of the government expenditure to the labour demand in the agricultural sector is due to a larger job opportunity in response to infrastructure improvement, technology development, or training and other programs. Wages are an incentive for labour as a higher rate of wage will increase the number of labourers involved in the sector. This is in accordance with the result of Pakasi (2005), Kumar et al. (2010), and Mailena et al. (2013) who found that wages and labour absorption in the agricultural sector have a positive correlation. If the elasticity value is 0.99%, the labour absorption of agriculture sector is relatively responsive to the increase of wage compared to other variables. The elasticity value is bigger than the result of Mailena et al. (2013) who found that wages are not elastic to the labour absorption of the agriculture sector.

    The variable of lag of labour demand also has a negative influence on the labour demand. This is due to the declining labour demand in the agricultural sector. 49.68% of labourers worked in the agricultural sector in 2007, whereas the percentage declined to 46.53% in 2013. The decreasing market labour in the agricultural sector can be seen from the push-factor and pull-factor. According to Ahmad (2018), if the push-factor is more dominant, it means there is poverty in the agricultural sector. 72% of the agricultural labourers have education only up to the elementary school level that caused low productivity and income. It is one of the reasons that make young generations not interested in working in the agricultural sector. The significant factors that influenced the grain productions are government expenditure, interest, and the lag of grain production. The interest has a negative influence on grain production, whereas the government expenditure and lag of grain production have a positive influence. The price ratio of grain and fertiliser have a negative influence on grain production, but it is not significant. In summary, Table 1 shows the influence of the factors on food security in Aceh Province as follows:

    On the other hand, government expenditure has a positive and significant influence on grain production. Everyone million increase in government expenditure will increase 1.49 tonnes of grain production. It is in accordance with the result of Gaiha et al. (2012), who found that the development expenditure of the agricultural sector is a stimulus to increase production at the condition that the average of government expenditure on agricultural sector is only 3.65% (for the period from 1993-2015). If it is compared to the total rural population who are farmers living in poverty, total expenditure in this sector is still relatively small. The percentage of agricultural expenditure for every economic sector should be determined based on the potential of each sector. Wages have a positive and significant influence on increasing production. This is because wage increase is an incentive for the farmers, so the farmers’ productivity will increase. Thus the grain production will also increase. An increase in wages is elastic to the increase of the grain production because an increase in wages have a direct impact on the farmers’ income, whereas the government expenditure has no direct impact on their income. Every 1% increase in wages in the agricultural sector will increase by 1.07% in grain production. It is different from the results of Mailena (2013) who found that the increase in wages will decrease rice production in Malaysia, with the elasticity value of -0.972.

    The influence of wage in this study is very significant. It shows that wages are a very important factor that determines the willingness of farmers to produce. If the farmers earn low incomes, it will lead to grain scarcity because the farmers are not interested in producing, plus the increase of land conversion from agriculture to nonagriculture, and the farmers have limited production infrastructure. Interest has a significant negative influence on grain production because if it increases, the farmers’ willingness to invest will decrease along with grain production. The significant influence of the interest shows that the amount of capital owned by farmers highly determines the level of production. Most farmers face capital obstacles. Low capital plus limited infrastructure, knowledge, and skill of the farmers cause low production.

    In terms of elasticity value, the influence of an increase in the interest is inelastic to the response of the grain production in the short-run. The response of production to the interest tends to be more elastic in the long-run. Therefore, to increase the investment in various sectors, including the agricultural sector, the government should be wiser in determining the interest rate, especially the interest for investment and working capital for small-scale businesses. To assist farmers in facing capital constraints, the government can provide soft loans with low interest such as KUR (Credit for People Business), KUK (Small Business Loan), KKP (Food Security Loan), KKPE (Food Security and Energy loan) and other soft loans. The distribution of those loans should be monitored to avoid abuses. Rice consumption is one of the measurements of food utilisation. The price of rice and corn, the income of people, and the lag of rice consumption have a direct impact on rice consumption. As for elasticity value, the rice consumption to the rice price is relatively inelastic at 0.87. The inelasticity of the rice price shows that rice is still the main food in Aceh and there are no substitution goods. Thus, the change in rice price decreased a small amount of rice consumption. This is in accordance with the result of (Ghani et al., 2019;Timmer, 1995;Pinstrup-Andersen, 2009;Sudaryanto and Rusastra, 2006;Shariff et al., 2008) who found that rice demand is relatively not responsive to the change in rice price. People’s income has a positive correlation with rice consumption with the elasticity value of 0.09. It shows that rice is still a normal good. The increase in wages is still used to increase rice consumption but in a small portion. The elasticity value is relatively small if compared to the result of Sudaryanto and Rusastra (2006), which is around 0.132 and 0.25. Pinstrup- Andersen (2009) found that the elasticity of income for low-income groups in the village is lower than people in the city.

    Factors that significantly influenced the rice price are income, the ratio of total production to the consumption and the corn price as substitution goods. The lag of rice price has a positive influence, but not significant to the rice price. People’s income has a positive and significant influence on the rice price. It is in accordance with the economic phenomenon that often happens, where if there is an increase in income, for instance, the rise of the employee’s salary, it will be followed by the rise of prices in the market. As for the elasticity value, the rise is relatively inelastic. This is because rice is a basic need so that the government should stabilise prices stabilisation, either by conducting a market operation or rice distribution to the poor (Raskin) which is now known as rice for pre-welfare family (rastra) to fulfil the need for rice among the poor. The ratio of total rice production to rice consumption has a significant negative influence on the rice price. If the production increases, rice availability in markets will be in surplus, and the price will decrease. And if there is a decrease in consumption, the rice price will also decrease. This is different from the result of Ahmad (2018) who found that rice production is not significant to the rice price. The significant influence of the rice production variable to the rice price in this study means the government should intervene to maintain price stabilisation. The intervention can be done via markets operation. The farmers’ bargaining position in trading and the ability of grain stocking is weak, farmers do not prefer trading and processing, and the distribution system and post-harvest are inefficient. The stabilisation policy of rice price is important to ensure that enough rice stock can be accessed by all those in need. Also, the stabilisation policy of price is a guarantee for the farmers to get a reasonable selling price and reachable price for the consumers.

    Energy consumption is a derivative of the rice consumption that can be used as an indicator for measuring food security from the food utilisation in a region. The income per capita has a positive correlation with energy consumption. It shows that, if income is increased, energy consumption will also increase. As for the elasticity value of income, the energy consumption is a normal good, because the elasticity value is less than one (1). It shows that energy consumption is in the same direction as the rice consumption. However, elasticity less than one (1) also shows that besides rice, people also consume other food as the source of energy. The inelasticity and insignificance of the income variable to the energy consumption shows that Acehnese people are indifferent to the quality of the food they eat. The increase in income is used more to fulfil the consumption of other goods than to fulfil the energy consumption that matches with the health standard which is 2.150 kcal/capita/day based on the regulation of the Health Ministry of Indonesia no. 75 the year 2003.

    The rice price has a significant negative influence on energy consumption. This is because rice provides the biggest contribution to energy consumption to the Acehnese people. That is why every 1 rupiah/kg will decrease the energy consumption of 0.01 kcal/capita/day. However, when seen from the elasticity value, the decrease in energy consumption is not responsive to the increase in the rice price. However, although the price increases, the people keep consuming rice although in fewer amounts. Therefore, the attention of the government is needed to control the stabilisation of the rice price, mainly for the consumption of the poor. Market operations, Raskin policy, or Rastra are alternatives for the government to assist the poor to fulfil their need for rice consumption. Rice consumption has a significant positive influence on the energy consumption because the contribution of rice to the energy source of the Acehnese people is very big namely 50.83% if compared to another 12 kinds of food which contribute 49.17% of the energy consumption. Up to this moment, the Acehnese people still highly depend on rice as their main food and energy source.


    Food security, either from the side of availability, accessibility, or food utilisation is highly influenced by the farmers’ decision in using inputs for their production activity. The government expenditure for the sub-sector of food or subsidy of fertiliser has a positive influence on fertiliser demand and labour absorption, as well as wages and the grain price. Finally, these factors are also influenced the rice production (food availability). Interest has a negative influence on the fertiliser input demand and labour absorption, which also has a negative influence on grain production (food availability). While the rice price has a negative and significant influence on rice consumption (food utilisation), whereas the price of the substitution goods and people’s income have a positive influence on rice consumption. From the result of this study, rice price is one of the indicators of the people’s ability to buy rice (food accessibility) which is negatively influenced by the production ratio to rice consumption. It shows that an increase in food availability will increase food accessibility. Other than that, energy consumption as an indicator of food utilisation is positively influenced by the people’s income and the total rice consumption, and negatively by the rice price. It means that with an increase in food accessibility, quantity, and quality, the rice utilisation will also increase.

    To increase the accessibility and food utilisation as well as the farmers’ income, there needs to be price stabilisation, either the stabilisation of the grain price on the farmer’s level or the producer’s level. Therefore, the role of Bulog should be returned as the buffer stock and as the controller of the food price stabilisation. Bulog should also buy rice from the farmers, not from the rice miller. In this case, Bulog can organise a task force, or empower the farmers by developing farmer groups to function the field contractors or collectors. Other than that, to increase the capital aid to the farmers, especially the poor ones, the government can be responsible for a part of the farmers’ production cost to produce food. In this case, there needs to be cooperation with banks and other financial institutions in providing working capital aid in the form of funding or special programs like that conducted by Agro Bank.



    The factors influence the food security in Aceh province


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