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.
1

Research Background

Indonesia's Economy after 1997/98 Crisis

Unpredicted situation where the
demand for commodity products raised
in international market accompanied
with increasing price (especially
from China and India)

The central government directed these

benefits to subsidize oil prices for
household consumption, leaving
infrastructure conditions as the same
as before 1997/98.

Indonesia's main commodity export

are CPO, coal, and oil for up to 65%
of total export (abroad) in 2012.

The increment in national GDP is

identical with commodity exports rate
since 2000 to 2012.
(Bank Dunia, 2014)

Comparison of East Java Economy with

Several Provinces in Indonesia
Unfortunately, there are only several
provinces that can accommodate those
kind of commodity for export.

Indonesia cannot lay its economic growth

based on commodity exports. The
proportion of rich value-added export
should be widened to leverage other growth
potentials.

East Java is one figure which conformable

to depict the need of Indonesia to
transform its economy.

Comparison of East Java Economy with

Several Provinces in Indonesia
Total GDP for Several Provinces in Indonesia
Constant Price 2000
500,000,000.00
449,820,772.61
422,237,210.44
395,664,497.61
400,000,000.00
371,469,499.10
353,723,390.53
332,971,254.83
350,000,000.00
312,826,712.76
295,270,543.61
278,524,822.22
300,000,000.00
263,624,241.89
250,331,156.55
238,656,137.26
227,861,239.18
250,000,000.00

(Million Rupiah)

450,000,000.00

200,000,000.00

Jawa Timur, Prop.

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

150,000,000.00
100,000,000.00
50,000,000.00
0.00
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Comparison of East Java Economy with

Several Provinces in Indonesia
GDP Growth Rate among The Big Provinces
8.00%
7.22%
6.68%

7.00%
5.83%

6.00%

Rate

5.84%

5.80%

6.11%

6.16%

5.01%

4.78%

5.00%
3.76%
4.00%

7.27%

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

3.80%

3.00%
2.00%
1.00%
0.00%
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Comparison of East Java Economy with

Several Provinces in Indonesia
Regional GDP of East Java over the Decade of 2000
(Constant Price of 2000)
120,000,000.00
106,229,112.97
100,000,000.00
81,715,963.35
(Million Rupiah)

80,000,000.00

60,000,000.00
49,475,748.74
40,000,000.00

40,029,137.70
33,800,590.37

38,890,977.92

17,526,903.26
10,618,126.92

20,000,000.00

30,693,407.48
25,076,424.92

28,231,662.67
22,048,439.04
15,504,939.79

25,945,907.62

23,934,215.36

51,329,548.83
47,175,579.65

46,486,277.60

2
3
4
5
6
7
9
10
11
12
13
14
15
17
18
19
1
8
16

0.00
2000

2006

2010

Year of Research

Comparison of East Java Economy with

Several Provinces in Indonesia
Comparison of GDP Expenditure on Export (Abroad) among Several Provinces
500,000,000.00
450,000,000.00
400,000,000.00

(Million Rupiah)

350,000,000.00
300,000,000.00

Jawa Timur, Prop.

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

250,000,000.00
200,000,000.00
150,000,000.00
100,000,000.00
50,000,000.00
0.00
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year

Labor Occupation in East Java

Sectoral Occupation
Agriculture, Forestry, Husbandry, Fishery
Quarry and Mining
Processing Industry
Electricity, water, and household gas
Construction
Trading, Hotel, and Restaurant

2008

2009

2010

2011

2012

7,939,480

7,520,067

7,472,200

142,241

133,892

132,588

142,660

2,412,284 2,385,686

2,482,563

2,665,473

2,834,939

8,242,332 8,287,922
147,792
21,403

29,402

25,665

24,399

31,125

965,771

974,005

894,648

1,158,525

1,251,741

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

2,169,335 2,347,461

2,446,497

2,458,836

2,492,978

Public Services

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.

10

Research Framework

11

Research Framework
Sectoral domination toward East Java regional GDP
in 2013
1. Trading, Hotel, & Restaurant (34.85%)
2. Processing Industry (25.46%)
3. Agriculture (9.82%)
4. Other sector (29.87%)
Household consumption
was the main source
of regional GDP growth

Labor occupation in East Java mostly

Based on agriculture sector

Sources of East Java

Economic Growth
during 2000-2010

12

Research Framework
Factor that encourage agriculture
sector role

Source of East Java

Economic Growth
During 2000-2010

Incremental in agriculture output

(absolute value)

Incremental of export in agriculture

Export potentials for
East Java

Incremental of output
in supporting sectors (services &
trading sectors)

Incremental of export in agroindustry

Factor that encourage agroindustry

sector role

Incremental of agrindustry output

(absolute & proportional value)

13

Methodology

14

Research Methodology
X=

L(f 0 +f 1) +

The Elements in Decomposition Equations

(L0+ L1)( f )

2
2

st

1 term

2 term

Main Decomposition Equation (additive)

1

X=[(1/ 2) L ( A ) L ](f + f )+[(1/ 2)L ( A ) L ](f + f )

+[(1 /2)L1 ( A2 ) L0 ]( f 0 + f 1 )+...+(1 /4)( L0 + L1) ( f ) B0 d 0 + B1 d 1
Technology effect
0

Final demand level-effect

+(1/4 )( L + L )[ f ( B) d + f ( B) d ]
Final demand distribution-effect
0

+(1/ 4 )(L + L )(f B +f B )( d)

[
[]

f 1 C f 1 G f 1 S f 1 EP f 1 EL f 1 Iv
F =[f ... f ]=

(n xp)
f tnC f tnG f tnS f tnEP f tnEL f tnIv
t

nd

t
1

t
p

y t1
y t =(i ' F t )' =
y tp

Final demand based on categories

Row vector

[ ]

y t1 /f t
d =[d ]=(1/ f ) y =
( px1)
y tp /f t
t

t
k

Final demand
matrix

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

Ratio of final demand based on

categories toward total final
demand (column vector)

Ratio of final demand based on its

respective categories.

A is technical coefficient matrix based on

primary input matrix
L is the Leontief inversed matrix

Final demand mix-effect

15

Results and Discussion

16

Results & Discussion

Constant Price 2013
300,000,000.00

250,000,000.00

Output (Million Rupiah)

200,000,000.00

150,000,000.00
2000-2006
2006-2010
100,000,000.00

50,000,000.00

0.00
1

-50,000,000.00

10

11

12

13

14

15

16

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

Sector Name
Staple Food Crops
Plantation
Horticulture
Livestock
Forestry
Fishery
Food and Beverages Industry
Tobacco Industry
Other Agro-Industry
Other Industry
Transportation
Finance
Service Industry
Construction
Trading
Mining and Petroleum

Sector Code

17

Results & Discussion

1.

Table 1. Decomposition Results for period 2000-2006

Sector Name
Staple Food Crops
Plantation
Horticulture
Livestock
Forestry
Fishery
Food and Beverages Industry
Tobacco Industry
Other Agro-Industry
Other Industry
Transportation
Finance
Service Industry
Construction
Trading
Mining and Petroleum

Output
47,350,231.95
2,494,479.61
3,179,122.67
-11,968,724.24
-6,363,527.50
18,834,316.29
4,632,703.16
37,605,925.28
15,503,940.05
71,904,297.24
33,991,692.95
36,011,880.36
140,271,982.69
-1,754,882.43
99,409,200.04
6,181,941.08

Lev-Effect Mix-Effect Dis-Effect

42.39%
752.02%
113.83%
111.32%
56.75%
37.27%
684.97%
97.61%
242.69%
109.32%
52.82%
17.78%
46.81%
771.36%
50.53%
144.64%

13.87%
-895.81%
0.64%
-92.96%
-61.63%
72.41%
-733.43%
-1.25%
-30.57%
-18.00%
91.20%
25.00%
25.88%
-574.34%
28.37%
-174.79%

29.63%
305.10%
26.23%
-12.24%
-2.65%
7.02%
31.75%
45.79%
-62.62%
-22.91%
-2.59%
-0.01%
-2.50%
-785.11%
-7.08%
27.71%

TechEffect
14.11%
-61.32%
-40.70%
-106.12%
-92.46%
-16.70%
116.70%
-42.14%
-49.51%
31.59%
-41.43%
57.24%
29.80%
488.09%
28.17%
102.44%

2.

3.

4.

Almost all non-service sector have

Negative tech-effect, especially
agriculture sectors.
Food and beverages sector alongside
with other industry sector were the
only industrial sector with positive
technology-effect.
Services along with finance and
trading seem to be the only sector
which were able to adapt positively
its production structure in respect for
raised fuel price in 2005.
The dominant sources of growth were
based from service & trading sectors,
followed by other industry & staple
food crops sector.
18

Results & Discussion

1.
Table 2. Final Demand Decomposition Period 2000-2006
Final Demand Category
Level-Effect
Mix-Effect
Household Consumption
164,581,911.29
-353,676.84
Government Consumption
17,589,790.60
631,451.93
Gross fixed capital formation
39,194,265.20 -3,190,031.11
Inventory change
17,312,874.81
4,728,501.03
Export (abroad)
56,277,702.29
6,591,081.04
Export (inter-provincial)
118,850,684.28
5,921,707.31
Total
413,807,228.48 14,329,033.35

2.
Dis-Effect
10,203,053.04
6,921,894.41
-48,784,377.31
39,075,356.60
-125,896,613.95
109,662,968.95
-8,817,718.25

Total
174,431,287.49
25,143,136.94
-12,780,143.22
61,116,732.44
-63,027,830.61
234,435,360.53
419,318,543.57

3.

4.

Output growth in 2000-2006 was

based on export among provinces.
Household consumption was also
played high role for East Java
regional growth.
The ratio of household consumption
increasing output up to Rp 10 trillion.
But, its variation in product
consumption decreased up to
minus Rp 353 billion.
Export abroad was declined making
East Java output to fall for minus
Rp 63 trillion, due to narrowed
ratio of export abroad in final
demand categories.
19

Results & Discussion

Table 3. Decomposition Results for Period 2006-2010
Sector Name
Staple Food Crops
Plantation
Horticulture
Livestock
Forestry
Fishery
Food and Beverages
Industry
Tobacco Industry
Other Agro-Industry
Other Industry
Transportation
Finance
Service Industry
Construction
Trading
Mining and Petroleum

Output

Lev-Effect Mix-Effect Dis-Effect

69,194,774.48
71.03%
-31.65%
2.29%
-4,729,157.35 513.06% -576.66% -206.09%
-493,822.47 1079.12% -1362.30% 120.21%
18,144,291.05
95.60%
-6.41%
29.57%
6,894,835.04
63.21%
24.17% -20.57%
22,974,056.96
74.52%
-15.38%
0.95%
187,293,944.36

38.34%

-14,940,626.32
16,292,205.32
244,377,164.93
13,404,501.47
-5,236,576.78
78,319,215.82
166,064,301.89
67,472,110.82
49,251,716.74

361.15%
329.88%
64.69%
250.50%
300.58%
166.83%
26.42%
147.34%
40.86%

49.50%

-4.52%

TechEffect
58.33%
169.69%
62.96%
-18.76%
33.19%
39.91%
16.69%

-250.52% -233.86%
23.23%
-195.23% -158.70% 124.04%
38.19%
-5.29%
2.42%
-210.93%
13.50%
46.93%
-138.40%
15.64% -277.82%
-17.78%
14.10% -63.14%
26.50%
42.54%
4.54%
-74.52%
19.46%
7.72%
17.18%
-1.45%
43.41%

1.

2.
3.

Production structure in East Java

improved with positive tech-effect,
Especially for agriculture sectors &
Agroindustry sectors.
The dominant sources of growth were
based on food & beverages industry,
other industry, & construction.
Services trading sectors were still
played major role the source of
East Java growth, but with decreased
output relative to the initial period.

20

Results & Discussion

Table 4. Final Demand Decomposition Period 2006-2010

Final Demand Category
Level-Effect
Mix-Effect
Household Consumption
353,042,078.35
4,018,896.13
Government Consumption
36,882,738.62
0.00
Gross fixed capital formation
97,749,762.42
8,452,700.02
Inventory change
28,814,866.56
565,028.27
Export (abroad)
75,778,582.48 -13,138,539.46
Export (inter-provincial)
206,275,394.75
10,694,630.80
Total
798,543,423.18
10,592,715.77

1.
Dis-Effect
113,715,705.53
2,179,267.79
193,448,606.09
-81,433,487.26
40,207,225.00
-256,978,360.44
11,138,956.71

Total
470,776,680.00
39,062,006.41
299,651,068.52
-52,053,592.43
102,847,268.02
-40,008,334.88
820,275,095.66

2.
3.

Household consumtpion was the main

source of output growth for up to
Rp 470 trillion.
Export among provinces collapse
with negative contribution for output
growth up to Rp 40 trillion.
Export abroad was increased but
was unable to balance the declined of
export among provinces. Total export
lagged relative to the initial period.

21

Conclusion & Suggestion

22

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 demand
strucuture.
2. Agroindustry sector emerged as the main source of output growth in the second period along with other
industry and construction sector due to its improved production structure and high demand in final demand
structure.
3. Sources of output growth for East Java during the initial period was based export among provinces, but this
situation 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).
23