Managing risks: what poor households in Yogyakarta do to smooth their consumption?

Catur Sugiyanto, Sri Yani Kusumastuti, Duddy Donna, Tiar Mutiara Shantiuli

Faculty of Economics and Business, UGM, INDONESIA

UC-IRVINE

IMTFI’s First Annual Conference for Funded ResearchersNovember 4-6, 2009

Outline

Problem Methodology Initial Findings

Problem Households engage in agriculture in poor countries often

must cope not only with severe poverty, but also with extremely variable incomes. Accumulated wealth can create a buffer for the most vulnerable.

However, a high proportion of the poor in the world has no or extremely low levels of marketable wealth or limited access to financial institution (insurance or credits) to facilitate their income and consumption smoothing activities, Case (1995), Dercon (1996), Zeller et.al (1997), Robinson (2002), CEPPS and Bank Indonesia (2004), (Roog, 2006), among others

The ability of households to smooth consumption over time thus reflects a key dimension of well being, for example Morduch (1995), Kinsey et.al. (1998), Wik (1999), Zeller (2000), Skoufias, (2003), Notten & Crombrugghede, (2006), Laczo (2007).

Although the underlying smoothing mechanisms are similar, the ways in which household smooth consumption are highly contextual, i.e. depend on the particular institutional, social and economic context they live in. So, diversity in asset choice is important in order to allow households to manage risk in any one period (Aryeetey, 2004). Demographic characteristics will exhibit a significant correlation with their choice between financial and other assets.

Specifically, we will

1. describe what practice commonly observed in the poor household to protect against risks;

2. what type of assets held; and

3. analyse factors determine the type of assets held.

Literature Strategy choices

Ex ante Ex Post

Assets choices What types of assets?

Liquid and safe store of value Farm and non-farm assets

What institution? Limited financial markets

Demographic Characteristics Ages: farm (old) non farm (younger) Education: farm-non formal (lower) non farm-formal (higher) Female and non-female headed household: farm and off-farm assets

Types of job Farm and non farm activities

Methodology

Central in this framework is a typology of consumption smoothing strategies which is based on what actions households may take to smooth consumption.

Then, we relate these smoothing strategies to possible institutional smoothing partners and the assets that may be required to follow a particular smoothing strategy

We also investigate whether the observed patterns differ by type of: activities, and areas/regions

Sample: A non-probability with a

purposive sampling because the population is difficult to identify.

We select 125 house holds, representing 25 household in each five

regions and 5 types of jobs

Guided questionaires

UCI

Yogyakarta

Indonesia

Farmer

Fishermen

Uncontracted Worker

Contracted worker

Producers

Street Vendor

125 households

 JobYogyakarta

BantulKulon Progo

Gunungkidul

Sleman Total

Farmers 0 4 4 5 5 18

Fishermen 0 5 5 4   14

Contractedworker

6 4 4 4 5 23

Uncontracted worker

6 4 4 4 5 23

Producers 6 4 4 4 5 23

Street Vendor 7 4 4 4 5 24

Total 25 25 25 25 25 125

Income and Consumption fluctuation

Producer Farmer Street vendor

Fishermen Contracted worker

Uncontracted worker

Income Max 773,636 956,677 733,478 1,125,000 886,429 782,381

Min 467,273 559,444 436,522 439,286 562,857 435,476

Range 306,363 397,233 296,956 346,905 323,572 346,905

Consumption Max 823,333 1042,35 655,455 1,032,143 798,571 782,273

Min 520,714 554,118 420,455 417,857 536,19 460,682

Range 302,619 488,235 235 321,591 262,381 321,591

(Rp)

Sources of income fluctuation

Sources Total Percent

Season 67 53.6

Disaster 10 8

Contract ended 19 15.2

Project ended 19 15.2

Low demand 50 40

Other 39 31.2More than one alternatives chosen

Season Disaster: earthquake Contract ended Project ended Low demand: non holidays Other: cooking oil and fuel price increase,

avian flu

Source of Income fluctuation for different types of jobs

Source Producers Farmers Street Vendor Fishermen Contracted

WorkerUncontracted

Worker

Season 21.62 64 29.55 93.33 12.90 22.92

Disaster 2.70 8 9.09 0.00 0.00 4.17

Contract ended 0.00 8 2.27 0.00 32.26 10.42

Project Ended 2.70 0 2.27 0.00 22.58 20.83

Low Demand 40.54 4 22.73 6.67 16.13 35.42

Other 32.43 16 34.09 0.00 16.13 6.25

Source of Income Fluctuation, by Region

Source Bantul Gunung Kidul

Kulon Progo Sleman Yogyakarta

Season 48 72 76 44 28

Disaster 0 0 32 8 0

Ended Contract 20 16 4 20 16

Ended Project 12 0 8 24 32

Low Demand 32 44 36 48 40

Other 24 16 20 44 52

Ex ante strategy: saving

Type of saving Total Percent (%)Money: in house 71 56.8Money: Formal financial institution 36 28.8Money: Informal financial institution 36 28.8Assets 55 44

Saving money In house: in the wallet, under the mattress, Formal financial institution: bank, licensed

cooperative Informal financial institution: non licensed

cooperative, arisan (rotated saving) Assets: gold (jewelry), livestock (duck, goat,

chicken), motor cycle, inventory, electronic appliances

Saving Preference by Types of Jobs (%)

Producers Farmers Street Trader Fishermen Contracted

WorkerUncontracted

Worker

In house 11.2 8 9.6 3.2 12 12

formal financial

institution6.4 1.6 6.4 6.4 2.4 5.6

informal financial

institution4.8 3.2 7.2 0 5.6 6.4

assets 7.2 9.6 7.2 4 8.8 7.2

Saving Preferences by region (%)

Bantul Gunung Kidul

Kulon Progo Sleman Yogyakarta

In house 28 44 68 52 92

formal financial institution 60 24 24 20 16

informal financial institution 24 4 28 48 40

assets 36 60 32 80 12

Ex post: what they do when their income decrease?

Total Percent(%)

Looking for additional job 49 39.2Reschedule working load 36 28.8Borrowing money 79 63.2Transfer from relatives/family members 34 27.2Selling assets 55 44Obtaining poor food subsidy 60 48

May choose more than one options

Looking for additional job: un-contracted worker in the city (temporary migrant)

Reschedule work load: decreasing the work load Borrowing money

formal financial institution (bank, licensed cooperative), non formal financial institution (neighbors, relatives, non

licensed cooperative, moneylenders) Transfer from relatives/family member Selling assets: gold (jewelry), livestock (duck, goat,

chicken), motor cycle, inventory, electronic appliances

Obtain poor food subsidy (rice for the poor) or food from neighbors

What people do when their income decrease?

Producers Farmers Street Trader Fishermen Contracted

WorkerUncontracted

Worker

Finding another job 4.8 5.6 2.4 8.8 6.4 11.2

Reschedule working load

7.2 1.6 4.8 4.8 1.6 8.8

Borrowing money 12.8 8 14.4 5.6 12 8.8

Transfer from relatives/family members

5.6 7.2 4 2.4 2.4 4.8

Selling assets 5.6 10.4 7.2 2.4 8.8 9.6

Obtaining poor food subsidy

8 6.4 11.2 2.4 10.4 9.6

What people do when their income decrease?

Bantul Gunungkidul

Kulon Progo Sleman Yogyakarta

Finding another job 36 44 56 28 32

Reschedule working load 24 0 44 36 40

Borrowing money 56 72 56 68 64

Transfer from relatives/ family members 48 28 16 32 12

Selling assets 24 56 48 72 20

Obtaining poor food subsidy 68 4 52 40 76

Source of Consumption fluctuation

Total Percent (%)

New School Year 63 50.4Family member illness 82 65.6Moslem Eid Celebration 91 72.8Contribution to neighbours (baby born, funeral, wedding, social contributions)

87 69.6

Other 13 10.4

Source of Consumption fluctuation for different jobs (%)

Producers Farmers Street Trader Fishermen Contracted

WorkerUncontracted

WorkerNew School Year 9.6 5.6 8.8 4.8 9.6 11.2

Family member illness

12 9.6 16 3.2 12 12

Moslem Eid Celebration 12.8 7.2 13.6 8.8 14.4 15.2

Contribution to Neighbors 13.6 8 13.6 7.2 14.4 12

Other 0.8 0.8 3.2 2.4 0 2.4

Source of Consumption

fluctuation for different regions (%)

Bantul Gunung kidul

Kulon Progo Sleman Yogyakarta

New School Year 60 28 60 56 48

Family member illness 20 96 52 76 84

Moslem Eid Celebration 36 88 84 72 84

Contribution to Neighbors 60 36 76 88 88

Other 20 12 4 0 16

Demographic Profile

Head holders Job status Total

Male jobless 1

have a job 39family member has a job 38

Female jobless 2have a job 19family member has a job 26

Total 125

Surplus of Income

Gender

Saving money

Assetsin house Formal financial

InstitutionNon Formal Financial

Institution

Male 55.13 28.21 25.64 51.28

Female 59.57 29.79 34.04 31.91

Lack of Income

Gender Male Female

Looking for additional job 51.28 19.15

Reschedule working load 35.90 17.02

Borrowing money 57.69 72.34

Transfer from relatives/family members 26.92 27.66

Selling assets 50.00 34.04Obtaining poor food subsidy and othersubdidies 43.59 55.32

Thank you

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