Sources of East Java Economic

1

Analysis of Agriculture & Agroindustry Sector Role in East Java Economy

Under the guidance of Prof. Ratya Anindita, MS., Ph.D. and Dr. Ir. Suhartini, MP.

2

Research Background

3

Indonesia's Economy after 1997/98 Crisis

The increment in national GDP isidentical with commodity exports rate

since 2000 to 2012.(Bank Dunia, 2014)

Indonesia's main commodity exportare CPO, coal, and oil for up to 65%

of total export (abroad) in 2012.

The central government directed thesebenefits to subsidize oil prices forhousehold consumption, leaving

infrastructure conditions as the sameas before 1997/98.

Unpredicted situation where thedemand for commodity products raised

in international market accompaniedwith increasing price (especially

from China and India)

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Comparison of East Java Economy with Several Provinces in Indonesia

Unfortunately, there are only severalprovinces that can accommodate those

kind of commodity for export.

Indonesia cannot lay its economic growthbased on commodity exports. The

proportion of rich value-added exportshould be widened to leverage other growth

potentials.

East Java is one figure which conformableto depict the need of Indonesia to

transform its economy.

5


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00

50,000,000.00

100,000,000.00

150,000,000.00

200,000,000.00

250,000,000.00

300,000,000.00

350,000,000.00

400,000,000.00

450,000,000.00

500,000,000.00

227,861,239.18238,656,137.26250,331,156.55

263,624,241.89278,524,822.22

295,270,543.61312,826,712.76

332,971,254.83353,723,390.53

371,469,499.10395,664,497.61

422,237,210.44449,820,772.61

Total GDP for Several Provinces in Indonesia

Constant Price 2000

Jawa Timur, Prop.DKI Jakarta, Prop.Jawa Barat, Prop.Jawa Tengah, Prop.Sulawesi Selatan, Prop.Sumatera Utara, Prop.Kalimantan Barat, Prop.Bali, Prop.

Year

(Mill

ion

Rup

iah)

6


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

3.76% 3.80%

4.78%

5.83% 5.84% 5.80%6.11% 6.16%

5.01%

6.68%

7.22% 7.27%

GDP Growth Rate among The Big Provinces

NationalJawa Timur, Prop.DKI Jakarta, Prop.Jawa Barat, Prop.Jawa Tengah, Prop.

Year

Rat

e

7


2000 2006 20100.00

20,000,000.00

40,000,000.00

60,000,000.00

80,000,000.00

100,000,000.00

120,000,000.00

23,934,215.36 25,945,907.6228,231,662.67

33,800,590.3738,890,977.92

47,175,579.65

10,618,126.9215,504,939.79

25,076,424.9217,526,903.26

22,048,439.04

30,693,407.48

40,029,137.7046,486,277.60

51,329,548.8349,475,748.74

81,715,963.35

106,229,112.97

Regional GDP of East Java over the Decade of 2000

(Constant Price of 2000)23456791011121314151718191816

Year of Research

(Milli

on R

upiah

)

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.00

50,000,000.00

100,000,000.00

150,000,000.00

200,000,000.00

250,000,000.00

300,000,000.00

350,000,000.00

400,000,000.00

450,000,000.00

500,000,000.00

Comparison of GDP Expenditure on Export (Abroad) among Several Provinces

Jawa Timur, Prop.Jawa Barat, Prop.Banten, Prop.DKI Jakarta, Prop.

Year

(Mill

ion

Rup

iah)

9

Labor Occupation in East Java

Sectoral Occupation 2008 2009 2010 2011 2012Agriculture, Forestry, Husbandry, Fishery 8,242,332 8,287,922 7,939,480 7,520,067 7,472,200 Quarry and Mining 147,792 142,241 133,892 132,588 142,660 Processing Industry 2,412,284 2,385,686 2,482,563 2,665,473 2,834,939 Electricity, water, and household gas 21,403 29,402 25,665 24,399 31,125 Construction 965,771 974,005 894,648 1,158,525 1,251,741 Trading, Hotel, and Restaurant 3,775,810 3,933,109 3,787,780 3,908,294 3,834,312 Communication and Transportation 923,005 993,928 755,583 709,844 674,368 Finance and Corporation Services 224,545 211,302 232,000 362,314 347,672 Public Services 2,169,335 2,347,461 2,446,497 2,458,836 2,492,978

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Research Goals

1. To determine the role change in Agriculture in East Java Economic Structure 2000-2010

2. To determine the role change in Agro-industry in East Java Economic Strucuture during 2000-2010.

3. To determine the source of East Java Economic growth during 2000-2010.

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Research Framework

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Research Framework

Sectoral domination toward East Java regional GDPin 2013

1. Trading, Hotel, & Restaurant (34.85%)2. Processing Industry (25.46%)3. Agriculture (9.82%)4. Other sector (29.87%)

Household consumptionwas the main source

of regional GDP growth

Labor occupation in East Java mostlyBased on agriculture sector

Sources of East JavaEconomic Growthduring 2000-2010

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Research Framework

Source of East Java Economic GrowthDuring 2000-2010

Factor that encourage agriculturesector role

Factor that encourage agroindustrysector role

Incremental in agriculture output(absolute value)

Incremental of export in agroindustry

Incremental of export in agriculture

Incremental of agrindustry output(absolute & proportional value)

Incremental of outputin supporting sectors (services &

trading sectors)

Export potentials forEast Java

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Methodology

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Research Methodology

X=12 L( f 0+ f 1)

1st term

+12(L0+L1)( f )

2nd term

+[(1 /2)L1( A2)L0]( f 0+ f 1)+...+(1 /4)(L0+L1)( f )B0d0+B1d1

+(1/4 )(L0+L1)[ f 0( B)d1+ f 1( B)d0]

+(1/4 )(L0+L1)( f 0B0+ f 1B1)( d)

X=[(1/2)L1( A0)L0](f 0+ f 1)+[(1/2)L1( A1)L0](f 0+ f 1)

Main Decomposition Equation (additive)

Technology effect Final demand level-effect

Final demand distribution-effect

Final demand mix-effect

The Elements in Decomposition Equations

F(n xp)

t=[f 1t ... f p

t ]=[f 1Ct f 1Gt f 1St f 1 EPt f 1ELt f 1 Ivt f nCt f nGt f nSt f nEPt f nELt f nIvt ]y t=(i ' F t)'=[ y1ty pt ]d

( px1 )

t=[dkt ]=(1/ f t) y t=[ y1t / f ty pt / f t]

Bt=[bikt ]=(Ft)( y^ t)1

Final demandmatrix

Final demand based on categoriesRow vector

Ratio of final demand based on categories toward total final demand (column vector)

Ratio of final demand based on itsrespective categories.

A is technical coefficient matrix based on primary input matrix

L is the Leontief inversed matrix

16

Results and Discussion

17

Results & Discussion

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

-50,000,000.00

0.00

50,000,000.00

100,000,000.00

150,000,000.00

200,000,000.00

250,000,000.00

300,000,000.00

Constant Price 2013

2000-20062006-2010

Sector Code

Out

put (

Milli

on R

upia

h)

Sector Code Sector Name1 Staple Food Crops2 Plantation3 Horticulture4 Livestock5 Forestry6 Fishery7 Food and Beverages Industry8 Tobacco Industry9 Other Agro-Industry10 Other Industry11 Transportation12 Finance13 Service Industry14 Construction15 Trading16 Mining and Petroleum

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Table 1. Decomposition Results for period 2000-2006

Sector Name Output Lev-Effect Mix-Effect Dis-Effect

Staple Food Crops 47,350,231.95 42.39% 13.87% 29.63% 14.11%Plantation 2,494,479.61 752.02% -895.81% 305.10% -61.32%Horticulture 3,179,122.67 113.83% 0.64% 26.23% -40.70%Livestock -11,968,724.24 111.32% -92.96% -12.24% -106.12%Forestry -6,363,527.50 56.75% -61.63% -2.65% -92.46%Fishery 18,834,316.29 37.27% 72.41% 7.02% -16.70%Food and Beverages Industry 4,632,703.16 684.97% -733.43% 31.75% 116.70%Tobacco Industry 37,605,925.28 97.61% -1.25% 45.79% -42.14%Other Agro-Industry 15,503,940.05 242.69% -30.57% -62.62% -49.51%Other Industry 71,904,297.24 109.32% -18.00% -22.91% 31.59%Transportation 33,991,692.95 52.82% 91.20% -2.59% -41.43%Finance 36,011,880.36 17.78% 25.00% -0.01% 57.24%Service Industry 140,271,982.69 46.81% 25.88% -2.50% 29.80%Construction -1,754,882.43 771.36% -574.34% -785.11% 488.09%Trading 99,409,200.04 50.53% 28.37% -7.08% 28.17%Mining and Petroleum 6,181,941.08 144.64% -174.79% 27.71% 102.44%

Tech-Effect

1. Almost all non-service sector haveNegative tech-effect, especiallyagriculture sectors.

2. Food and beverages sector alongsidewith other industry sector were theonly industrial sector with positivetechnology-effect.

3. Services along with finance andtrading seem to be the only sectorwhich were able to adapt positivelyits production structure in respect forraised fuel price in 2005.

4. The dominant sources of growth werebased from service & trading sectors,followed by other industry & staplefood crops sector.

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1. Output growth in 2000-2006 wasbased on export among provinces.

2. Household consumption was alsoplayed high role for East Java regional growth.

3. The ratio of household consumptionincreasing output up to Rp 10 trillion.But, its variation in productconsumption decreased up to minus Rp 353 billion.

4. Export abroad was declined makingEast Java output to fall for minusRp 63 trillion, due to narrowedratio of export abroad in final demand categories.

Table 2. Final Demand Decomposition Period 2000-2006Final Demand Category Level-Effect Mix-Effect Dis-Effect TotalHousehold Consumption 164,581,911.29 -353,676.84 10,203,053.04 174,431,287.49

Government Consumption 17,589,790.60 631,451.93 6,921,894.41 25,143,136.94Gross fixed capital formation 39,194,265.20 -3,190,031.11 -48,784,377.31 -12,780,143.22

Inventory change 17,312,874.81 4,728,501.03 39,075,356.60 61,116,732.44Export (abroad) 56,277,702.29 6,591,081.04 -125,896,613.95 -63,027,830.61

Export (inter-provincial) 118,850,684.28 5,921,707.31 109,662,968.95 234,435,360.53Total 413,807,228.48 14,329,033.35 -8,817,718.25 419,318,543.57

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1. Production structure in East Javaimproved with positive tech-effect, Especially for agriculture sectors &Agroindustry sectors.

2. The dominant sources of growth werebased on food & beverages industry,other industry, & construction.

3. Services trading sectors were stillplayed major role the source of East Java growth, but with decreasedoutput relative to the initial period.

Table 3. Decomposition Results for Period 2006-2010

Sector Name Output Lev-Effect Mix-Effect Dis-Effect

Staple Food Crops 69,194,774.48 71.03% -31.65% 2.29% 58.33%Plantation -4,729,157.35 513.06% -576.66% -206.09% 169.69%Horticulture -493,822.47 1079.12% -1362.30% 120.21% 62.96%Livestock 18,144,291.05 95.60% -6.41% 29.57% -18.76%Forestry 6,894,835.04 63.21% 24.17% -20.57% 33.19%Fishery 22,974,056.96 74.52% -15.38% 0.95% 39.91%

187,293,944.36 38.34% 49.50% -4.52% 16.69%

Tobacco Industry -14,940,626.32 361.15% -250.52% -233.86% 23.23%Other Agro-Industry 16,292,205.32 329.88% -195.23% -158.70% 124.04%Other Industry 244,377,164.93 64.69% 38.19% -5.29% 2.42%Transportation 13,404,501.47 250.50% -210.93% 13.50% 46.93%Finance -5,236,576.78 300.58% -138.40% 15.64% -277.82%Service Industry 78,319,215.82 166.83% -17.78% 14.10% -63.14%Construction 166,064,301.89 26.42% 26.50% 42.54% 4.54%Trading 67,472,110.82 147.34% -74.52% 19.46% 7.72%Mining and Petroleum 49,251,716.74 40.86% 17.18% -1.45% 43.41%

Tech-Effect

Food and Beverages Industry

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1. Household consumtpion was the mainsource of output growth for up toRp 470 trillion.

2. Export among provinces collapsewith negative contribution for outputgrowth up to Rp 40 trillion.

3. Export abroad was increased butwas unable to balance the declined ofexport among provinces. Total exportlagged relative to the initial period.

Table 4. Final Demand Decomposition Period 2006-2010Final Demand Category Level-Effect Mix-Effect Dis-Effect TotalHousehold Consumption 353,042,078.35 4,018,896.13 113,715,705.53 470,776,680.00

Government Consumption 36,882,738.62 0.00 2,179,267.79 39,062,006.41Gross fixed capital formation 97,749,762.42 8,452,700.02 193,448,606.09 299,651,068.52

Inventory change 28,814,866.56 565,028.27 -81,433,487.26 -52,053,592.43Export (abroad) 75,778,582.48 -13,138,539.46 40,207,225.00 102,847,268.02

Export (inter-provincial) 206,275,394.75 10,694,630.80 -256,978,360.44 -40,008,334.88Total 798,543,423.18 10,592,715.77 11,138,956.71 820,275,095.66

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Conclusion & Suggestion

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Conclusions & Suggestions

Conclusions:1. Agriculture sectors already improved its production structure in the second period after failed to improve

its production structure in the initial period. Output growth in the initial sector were pure from final demandstrucuture.

2. Agroindustry sector emerged as the main source of output growth in the second period along with otherindustry and construction sector due to its improved production structure and high demand in final demandstructure.

3. Sources of output growth for East Java during the initial period was based export among provinces, but thissituation changed in the second period where output growth was based on household consumption.

Suggestion:1. Export need to be promoted as the source of economic growth, especially for agroindustrial products.2. Raising in export will induce growth for another sector, mainly industry and also trading and services sectors.3. Government need to maintain the production structure effect on output growth to stay positive, especially

for agriculture sectors as suggested by Mellor (1969), Nitisastro (2010), Nafziger (2006), and Jacob (2003).

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