An assessment of farm-level input demands and production under risk on rice farms in the Cimanuk River Basin, Jawa Barat, Indonesia

This research is an attempt to gain some insights into farm-level production decision-making. Two separate analyses are performed and implemented on the data from a survey of rice farms in the Cimanuk River Basin, Jawa Barat, Indonesia. The first analysis is an economic analysis of farm-level input demand by considering seed selection as an endogenous variable dictated by the perceived potential cost that has to be borne by the farmer in his actual state of action. Therefore, the total input demand consists of the input demand effect and the seed selection effect in line with the induced-innovation hypothesis in part of farm producers. The second analysis is an investigation of whether the application of inputs causes some effect on production risk perceived by peasant farmers where risk is measured by the variance of output;By applying the two-stage probit procedure in the first analysis, it is found that seed price is not a major factor in determining its selection and fertilizer price has a negative effect on the probability of selecting modern seed varieties. The model also suggests that seed selection is significant in affecting the total cost of production. Furthermore, results from the estimation also suggest that elasticities of demand for inputs upon considering the possibility of seed selection bias cannot be determined a priori as always greater than those of elasticities in the absence of seed selection bias. Nevertheless, the responses are generally inelastic and there is a tendency for them to decline between 1977 and 1983 based on the two data samples;The results of the second analysis suggest that nitrogen fertilizer is no longer a critical element in the production process as a contributor to net production yield. In addition, nitrogen fertilizer, phosphorous fertilizer, and insecticide or pesticide expense are shown to be risk-inducing factors but labor input is shown to have a risk-reducing effect. Furthermore, the implication suggested by the model is that farmers are risk-averse with respect to nitrogen fertilizer and labor inputs.