Elasticities of Output Supply and Input Demand of Indonesian Foodcrops and Their Policy Implications: Multi-input Multi-output Framework*)

Abstract

It is a commonly practiced that agricultural economists frame their analyses within the single commodity (multi-input single-output) framework. The problem with this framework is that this seems to be inappropriate because most agricultural production systems are characterized by multi-product farms. Motivated by this problem, this paper is aimed at providing a brief explanation on the multi-input multi-output (MI-MO) framework and applying the framework on the Indonesian food crops subsector. Based on this framework, an econometric model is specified and then estimated using the restricted seemingly unrelated regression method. Estimated cross-price elasticities obtained from the model suggest the significance of cross-effects of input or output prices on input demand or output supply, justifying the MI-MO nature of the crops. The most notable policy implication from this study is that a price policy on either outputs or inputs may not be effective. If, however, such a policy were politically desirable, it should be applied on inputs rather than on outputs because the magnitudes of the elasticities are in absolute term higher in input demands than in output supplies