The linkages and impact of plantation-based sectors on economy and poverty in Jambi province, Indonesia: miyazawa’s input-output model

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The linkages and impact of plantation-based sectors on economy and poverty in Jambi province, Indonesia: miyazawa's input-output model

Universitas Jambi Indonesia

Purpose

Methodology / approach. The method used in this study is the Miyazawa Input Output (I-O) analysis. Foster-Greer-Thorbecke Poverty Index Analysis is used to view poverty as the impact of changes in output in the economic sector and comparative analysis using the Wilcoxon test.

Results. The leading sectors in the plantation-based sectors of Jambi Province are the food and beverage industry sector (CPO processing industry) and the rubber industry sector, materials from rubber. The percentage of poverty (P0) in the plantation sub-sector is lower than the other agricultural sub-sectors, but the poverty depth index (P1) and poverty severity index (P2) in the plantation sub-sector are greater than the other agricultural sub-sectors. Another result is the addition of final requests, impact on output, value added, labor and income in the plantation-based sectors and other economic sectors and income of poor households. The downstream policy of the rubber industry, oil palm replanting and down streaming of the oil palm industry can be done because it has a similar impact on output and additional income for poor households is higher than replanting rubber Originality / scientific novelty. Research using the I-O Miyazawa for Jambi province updated 2015 with the 2010 base year and the System of National Account (SNA 2008). This study recommends an improvement or suggestion in making policy priorities that must be done in the plantation-based sectors, especially in alleviating poverty or increasing community welfare and increasing better quality economic growth.

Practical value / implications. The policy implication that can be done based on the priority scale that has the greatest impact on the output of all economic sectors is by making a policy of down streaming the rubber industry. Likewise with the policy implications that have the greatest impact on the economic impact of all economic sectors and income of poor households is the down streaming of the rubber industry.

Key words: Economics, Plantation, Miyazawa's Input-Output Model, Poverty. economy poverty plantation

Introduction and review of literature. Various issues in agricultural development are related to a decrease in the quality of life, limited availability of facilities and infrastructure, the inability of financial institutions to provide business opportunities, limited employment, and inadequate income. These issues have a relative and absolute impact on poverty. In fact, it is often found linkages of various issues that add to the complexity of the problems faced.

The linkage between agriculture and those aspects is basically inseparable from the multifunctionality of the agricultural sector (in a broad sense). The multifunctionality of the agricultural sector has been recognized and adopted in developed countries, especially the European Union, the United States, and Japan. Multifunctionality of agriculture has been used in these countries as the basis/argument for public policy (large-scale agricultural subsidies) and international trade policy (strict protection). The logic behind the agricultural policies of developed countries, which protect and provide massive subsidies, is the positive externality/public goods produced by the agricultural sector [1-7].

Referring to the multifunctionality of the agricultural sector, studies on agricultural development that are related to various aspects, particularly the economy and poverty, are still important studies to develop models to boost economic growth and alleviate poverty. Anriquez and Stamoulis [8] examined the relationship between agriculture, rural development and poverty. The results of their study found that agriculture is the starting point for rural development, particularly in areas with low levels of development. Yudhoyono [9] in his study discovered that a policy mix between government spending on agricultural development and wage policies is required to decrease poverty, particularly in rural areas. Based on the results of several studies that have been carried out [10-12], it shows the need to develop agricultural sectors to reduce high poverty rates. The development of the agricultural sector can be done in particular through the development of agricultural technology, the supply of materials and means of production, and the provision of markets for agricultural products. Furthermore, it is expected that the agricultural sector will become a more productive sector and be able to improve the welfare of farmers.

In Indonesia, agricultural development has contributed greatly in encouraging both short and long-term economic growth. There are various sub-sectors in the agricultural sector, and one of them is the plantation subsector. The plantation subsector is a mainstay in Indonesia's foreign trade balance due to its contribution to the formation of foreign exchange. Some plantation commodities can only grow in the tropics so that market demand can only be met by several countries. Some of Indonesia's plantation commodities that have comparative advantages like this are coffee, cocoa, rubber and oil palm. With comparative advantage, several plantation commodities have a large potential to contribute to foreign exchange and should be developed [13].

As one of the provinces in Indonesia, the agricultural sector also plays a significant part in the economy of Jambi Province, particularly the plantation subsector. Besides contributing 17.02 percent of the Gross Regional Domestic Product (GRDP), the plantation sector and the plantation processing industry also contributed around 24 percent to the exports of Jambi Province, mainly from the palm oil and rubber processing industries. Labor absorption in the plantation sector in Jambi Province is also quite large, around 42 percent of the total workforce, when compared to other business fields [14].

The contribution of plantations in the Jambi economy has fluctuated in line with the movement of plantation commodity prices on the international market. This is because market demand for plantation-based industries is still limited to upstream industries, such as Crude Palm Oil (CPO) and bokar (people's rubber processed materials), which have low added value. As a result, productivity remains very low and vulnerable to world or international price fluctuations, as well as hampering the level of welfare of plantation farmers. This is illustrated by the Jambi Province Subsector Farmers' Exchange Rate which is still relatively low, below 100. BPS - Statistics of Jambi Province [15] states that Farmer Exchange Rates (FER) are obtained from a comparison of the price index received by farmers against the price index paid by farmers (in percentage), is one indicator to see the development of the ability/purchasing power of farmers in rural areas. The FER number also shows the term of trade of agricultural products with goods and services consumed and for production costs. The higher the FER, the stronger the ability / purchasing power of farmers and the lower the value of FER, the lower the ability / purchasing power of farmers.

Low income of plantation farmers will reduce the level of welfare, exacerbate the level of poverty and deepen the gap of inequality that can ultimately cause social conflict that is very detrimental to regional development. According to the BPS- Statistics of Jambi Province, in March 2015, the number of poor people in Jambi Province was 300.71 thousand people or around 8.86 percent. Rural areas have the highest number of poor people, which amounts to 181.17 thousand people, while urban areas have only 119.54 thousand poor people.

Based on the facts that the role of plantation sector is important in the economy in Jambi Province and there is still low productivity of plantations which has an impact on low income and high levels of rural poverty (especially farming communities), studies on the linkages and impacts of plantation-based sectors on economy and poverty in Jambi Province are necessary.

The purpose of the article. The main purpose of this article is to analyze the impact of the plantation-based sectors on the economy and poverty in Jambi Province. Analysis of the impact of the plantation-based sectors on the economy such as output, value added, labor, income and the linkages between the plantation-based sectors and other economic sectors. The plantation-based sectors studied in this article only cover rubber, oil palm, annual plantation crops, annual plantation crops, food and drink industries (CPO processing), and the rubber industry.

Data collection in this study uses available data or non-survey data such as Jambi Province Output Output Tables and Indonesian Input Output Tables by BPS and also uses 2015 GRDP data. Non-survey methods in data preparation or processing are by updating Input Output table with RAS and iteration methods. The economist who first introduced how to create an Output Input Table using the RAS method was Richard Stone of Cambridge University in 1961 [16].

The Miyazawa I-O model was first introduced by Kenichi Miyazawa in 1968 and rewritten in 1976. This model generalizes the Keynesian income multipliers into the form of an inter-relational income multipliers matrix. Miyazawa's I-O model is a further development of the Leontief I-O model. The advantages of Miyazawa's I-O model compared to other I-O models, this model has included household income groups in the model. According to West [17], the transactions used in the preparation of Input Output tables are based on the assumptions of homogeneity, proportionality, additivity.

Analysis of the Foster Greer Thorbecke Poverty Index (FGT) is an analysis used in looking at poverty as the impact of changes in economic sector output. The poverty indicators used in this study are:

where, y_i = the average value of the i-per capita individual expenditure in the household;

n = the total population;

q = the number of poor population;

z = the poverty line.

Value a = 0, states the headcount index (P0) which is the percentage of the poor population to the total population. Value a = 1, states the poverty gap index (P1), which is the size of the expenditure gap of each poor population against the poverty line. Value a = 2, namely poverty severity index (P₂) [18].

National socioeconomic survey data in Jambi province is used to analyze poverty using the FGT method.

Results and discussion. The discussion in this section includes an analysis of the linkages of the plantation-based sectors, poverty in the plantation sector, the impact of the plantation-based sectors on the economy, and the impact of the plantation-based sectors on poverty.

Plantation-based sectors Linkages. Sjafrizal [19] explained that an interesting analysis in the input output technique is that it can show direct and indirect economic linkages between sectors in terms of inputs which are commonly called backward linkages and in terms of output which is commonly called forward linkages.

The strategic role of a sector is not only seen from the contribution to output growth, the growth of gross added value, an increase in community income and employment, but what is equally important is whether the sector has strong support or linkages to the upstream sector downstream sector (forward linkage).

The backward linkage and forward linkage index is a measure used to view leading sectors based on the I-O model. The leading sector is determined by the higher values of the index of power of dispersion and sensitivity degree index above 1.

By looking at index of power of dispersion and sensitivity degree index which have more than 1 (one) value (Table 1), there are 2 superior commodity/commodity groups in the plantation-based sectors in Jambi Province. The two plantation-based commodity/commodity groups are food and beverage industry, and rubber industry, rubber and plastic materials. By encouraging an increase in the two leading sectors, this can spur economic growth in the plantation-based sectors and the economy in Jambi Province.

Table 1

The spread of index power and an index degrees sensibility according to sector plantation based in Jambi province