This paper reports the assessment of what factors determines farmer’s decision to convert their farm land (rice field) into other uses, especially business and residential. We sampled 40 farmers in Sleman Regency, Yogyakarta as a case. In addition to their social characteristics, we asked them the willingness to accept for their land if someone else wants to buy and convert it into other uses (residensial or business) and how much the compensation their asked if the regency of Sleman ask them to preserve it. Based on the farmers expected return from their farming and their social characteristics, we found that farmers tend to preserve their land. This decision is supported when they have other sources of income, farm their own land, have larger size of land, and the further from the urban. Such information is useful to the Regency of Sleman once it needs to preserve its farming area to increase the water catchment and the reduce of the green house effect of converting the farm land (rice field) into residential or business. This is true to the fields close to the urban areas.land conversion, future price, farming, and sustainable farm land

Nugroho, Dwi

Sugiyanto, Catur

English

Research Papers in Economics

 
Land Conversion and Farmers Preference
1 
 
Catur Sugiyanto  
Professor, Faculty of Economics and Business, UGM 
and  
Dwi Nugroho 
Alumni, Magister of Economic Development UGM and the Officer of Sleman Regency 
 
                                                
1 This paper is part of Nugroho’s Master of Economic Development thesis at UGM 2010 with Sugiyanto’s served as the thesis advisor. 
As usual, we responsible for any errors and omission. This paper was presented at the RCE Conference in UGM, February 2011. 
Correspondence: catursugiyanto@yahoo.com  
Abstract 
This  paper  reports  the  assessment  of 
what  factors  determines  farmer’s 
decision to convert their farm land (rice 
field) into other uses, especially business 
and residential. We sampled 40 farmers 
in  Sleman  Regency,  Yogyakarta  as  a 
case.  In  addition  to    their  social 
characteristics,  we  asked  them  the 
willingness  to  accept  for  their  land  if 
someone else wants to buy and convert it 
into other uses (residensial or business) 
and  how  much  the  compensation  their 
asked if the regency of Sleman ask them 
to preserve it. 
  Based  on  the  farmers  expected 
return from their farming and their social 
characteristics,  we  found  that  farmers 
tend to preserve their land. This decision 
is  supported  when  they  have  other 
sources of income, farm their own land, 
have larger size of land, and the further 
from  the  urban.  Such  information  is 
useful to the Regency of Sleman once it 
needs  to  preserve  its  farming  area  to 
increase  the  water  catchment  and  the 
reduce  of  the  green  house  effect  of 
converting the farm land (rice field) into 
residential or business. This is true to the 
fields close to the urban areas.  
 
 
Keywords: land conversion, future price, 
farming, and sustainable farm land 
 
 
1. Introduction 
 
Research on Agriculture Use Value 
has  been  done  for  years.  Shi  et  al. 
(1997:94)  for  example,  found  that 
income  from  farming,  capital  gain  and 
the  impact  of  urban  growth  determine 
the  farm  land  value  in  West  Virginia. 
The expected future development of land 
was  applied  in  Orange  County, 
California,  (Plantinga  dan  Miller 
(2001:58).  The  value  of  land  may  be 
derived  from  the  expected  flow  of 
income  from  farming  and  from  non 
farming  activities.  The  difference 
between  the  optimal  value  of  the  land 
and the income flow from farming is the 
Value Development Right. Livanis et al. 
(2005:3)  developed  further  the  VDR 
including  the  capital  gain  if  land  is 
converted  into  the  urban.  Hailu  and 
Brown (2007:151) employed the Growth 
Equilibrium  Model  showed  that  the 
population growth, employment and per 
capita income from the neighboring farm 
land  determine  the  farm  land  value  in 
Maryland,  Pennsylvania  and  West 
Virginia.  Variation  in  the  factors 
influence the land value and the method 
of estimating them indicate that there is 
no single factor and method that can be 
applied  to  any  farm land.   Research  in 
this area is important to the fast growing 
region with high farm land conversion.  
As experience in the other growing 
cities,  Sleman  regency  also  has  a  high 
land conversion rates. Between 2005 and 
2008  the  land  conversion  rate  was  2 
percent. The number of land conversion 
application was also ranked the highest 
in  2008  (204),  with  the  wetland  farm 
land size up to 81,762 meter square and 
8,324 meter  squares dry land.  
Undervaluing  the  land  is  the 
common  factor  determines  the  high 
conversion rate. The failure to internalize 
the  externalities  and  the  growth  of  the 
urban area raise the farmland conversion, 
(Hailu  dan  Brown,  2007:149).  Even  if 
the government set the area be the land 
conservation  area,  incomplete 
information  about  compensation  also 
keep the land conversion rate increasing.  
This  paper  reports  the  assessment  of 
what  factors  determines  farmer’s 
decision to convert their farm land (rice 
field) into other uses, especially business 
and residential. We sampled 40 farmers 
in  Sleman  Regency,  Yogyakarta  as  a 
case.  In  addition  to    their  social 
characteristics,  we  asked  them  the 
willingness  to  accept  for  their  land  if 
someone else wants to buy and convert it 
into other uses (residential or business)  
and  how  much  the  compensation  they 
ask if the Regency of Sleman ask them 
to preserve it.  
In general the size of the land, the 
distance between the land and the closes 
road,  education,  age,  share  of  income 
from farming,  and  the  number of  child 
determine  the  level  of  willingness  to 
accept and the compensation. Moreover, 
based on their expected return from the 
farming  and  their  social  characteristics, 
we  found that  farmers  tend  to preserve 
their  land.  This  decision  is  supported 
when they have other sources of income, 
they  are  getting  older,  have  smaller 
number  of  child,  and  have  higher 
education. Such information is useful to 
the Regency of Sleman once it needs to 
preserve its farming area to increase the 
water  catchment  and  the  reduce  of  the 
green house effect of converting the farm 
land  (rice  field)  into  residential  or 
business. This is true to the fields close 
to the urban areas.  
One  difficulty  the  farmers 
experience  are  how  to  determine  their 
expected  income  (return)  from  their 
farming. This is because of their limited 
information on future prices. Moreover, 
the  monopsonist  practice  in  buying  the 
paddy limit the option the farmers have 
in  setting  their  selling  prices  that  limit 
the  value  of  income  stream  from  their 
land.  
We  propose  that  should  the 
Regency  of  Sleman  and  other  need  to 
preserve their farm -lands, they could do 
so  by  increasing  the  opportunity  of 
young farmers generation to obtain better 
education and out of farm jobs. In short, 
providing better information about price 
to farmers and improve the competitive 
market of paddy can increase the farmers 
expected  income  and  the  likelihood  to 
preserve their land. 
This paper  is  outlined as  follows. 
Next,  we  discuss  the  methodology 
followed  by  the  data  used  for  this 
research.  Section  four  discusses  the 
estimation  results  and  the  last  section, 
section 5, concludes. 
 
2. Methodology 
One way to assess the acceptability 
of  a  program  is  the  Random  Utility 
Model. This model can be used to elicit 
the choice or decision of the land owner 
on what the highest value to their land to 
respond  the  land  conversion  program 
(discrete  choice  model  Miller  et  al. 
2008:4  also  Lancaster  2008:).  The 
decision made by the land owner will be 
the maximum, minimum, or any value of 
their land. In their model, the preference 
of individual (i) on choice a is written as  
 
 explicit characteristics of the farmers 
 random factors.  
The RUM model thus is  
 
V be  factors  determine  the  land  owner 
decision to maximize their utility. These 
include  land  characteristics,  social-
demographic  and  also  other  personal 
characteristics.   
Thus, the decision to conserve or not to 
conserve or acceptance to the program is 
model in a logistic function. (Miller et al. 
2008:5 dan Dorfman et al. 2009:125). 
 
 
  
 
where : 
1.   be  the  log  odd 
ratio  to  accept  the  conservation 
program (1= accept the program, 0= 
not to join the program) 
2.  α constant be the minimum log odd 
ratio  
3.  Luas be the land size (meter squares)  
4.  Jarak distance between the farmland 
and  the  main  road  Yogyakarta-
Godean (kilometer)  
5.  Usia age (year)  
6.  Edu  education    (Elementary=6, 
Secondary=9,  High  school=12, 
Diploma=15 and  Bachelor=17)  
7.  Porsi  share  of  farm  income  to  the 
total farm income  
8.  Garap  a dummy vaiable = 1 if the 
farmer farms his own land =0 if the 
farmer farms other people’s land. 
9.  Anak  number  of  children  in  the 
family 
10. ε random error 
 
3. Data 
 
Primary sample data is used in this 
research. First,  all  of  the  famers  in  the 
farm  land  block  are  given  an  open 
question  about  their  opinion  on  land 
conservation  and  the  size  of  land.  We 
then selected the first class land and plan 
to do a simple random sampling on these 
farmers having the  first class land. But 
not  all  of  the  farmers  can  answer  the 
question.  We  finally  interview  only 
farmers  who  can  answer  the  question. 
We  start  with  the  head  of  the  farmers 
group followed by the most experienced 
farmers.   
We visit farmers two times. At the first 
stage, we  collect  information  necessary 
to estimate the value of their land. Then, 
we revisit them to  ask their willingness 
to join the program.  
  The  distribution  of  the  selected 
farmers is as follows: in the block Bulak 
Kruwet there are 6 (six) farmers, block 
Bulak Sumberan 8 (eight) farmers. Block 
Bulak Ngentak Ponggok 8 (eight) person, 
Bulak Sumbersari 14 (fourteen) person, 
and Bulak Kaliurang 5 (five) persons. So 
that  the  total  respondents  is  40  (forty) 
persons. All of the farmers are in the sub 
regency of Moyudan Kabupaten Sleman.   
 
4. Results and Discussion 
 
As mentioned, the analysis consists 
of  three  stages:  first,  we  estimate  the 
optimum land value and the land value it 
self.  Based  on  these  calculation,  we 
define  the  different  is  the  value 
development right. Then, we ask farmers 
if  they  would  joint  the  conservation 
program  by  using  the  value  of 
development  right  as  a  base  for 
compensation.  Finally,  we  characterize 
who will accept the offer price, the value 
development  right,  as  a  base  for 
compensation. The results are as follows. 
First,  we  estimate  the  optimum 
land value. We use the average projected 
farm income of all 40 farmers. We found 
that the income share only 39 percent of 
the  optimum  land  estimate  by  farmers. 
Thus,  the  61  percent  attributed  to  the 
non-agricultural use. The distance to the 
city opens  the  possibility  of  converting 
the  farm  land  into  residential  and 
business.  
As  Plantinga  and  Miller  (2001) 
mentioned, the Non-Agriculture Use also 
fall into the Value Development Right. In 
this  research,  we  calculate  the  value 
development  right  is  the  different 
between the land value and the optimal 
land value. The optimal land value is the 
owner expected value based on the best 
alternative  land  use  under  the  current 
information  available  to  the  farmer.  In 
practice, such calculation is difficult task 
to  farmers,  therefore  we  use  the  offer 
price as if some one will buy the land. 
We assume  that  the  buyer will use  the 
land for  non  farming  activities,  but  for 
residential  of  business.  The  estimated 
coefficients are as follows: 
 
Table 1. The Percentage Land 
Value per Block 
No  Block  The 
Average  
Land 
Value 
The 
Average 
VDR 
The 
Optimum  
Land 
value 
1  Kruwet  29  61  100 
2  Sumberan  40  60  100 
3  Ngentak  30  70  100 
4  Sumbersari  48  52  100 
5  Kaliurang  27  73  100 
Source: author estimation based on the survey. 
These complete estimation can be obtained from 
the authors upon request. 
 
The  above  value  indicates  that 
Sumbersari  experiences  the  least  threat 
from the urban growth because its land  
value is about the same as the VDR. The 
higher the VDR indicates that the farmer 
has  high  expectation  (value)  on  non 
farming type of land use. Consequently, 
the  higher  the  VDR  the  higher  the 
compensation  requested  by  farmer  to 
conserve their farmland.  
Second,  the  land  value  based  on 
the Agriculture Use Value and the Value 
Development Right are used to offer the 
farmer  would  their  join  the  land 
conservation  program.  In  this  case  we 
use simple contingent valuation, offering 
a  discrete  choice  to  the  farmer  with 
single  bounded  /  take  it  or  leave  it 
method whether to joint or not to joint 
the  program.  We  ask  the  farmer  three 
questions: 
1. will the farmer joint the conservation 
program  even  if  the  income  from 
farming  is  lesser  than  that  of  other 
income? 
2. will the farmer joint the conservation 
program  even  if  the  income  from 
farming is not as good as that of other 
income  and  the  government 
compensation to those who joint.  
3. those who joint the program, will he 
change his mind if the offering is set 
between the minimum and maximum 
VDR forever.   
From the above scenarios then we 
ask the farmers if they would accept the 
offer price. All of the farmers agree to 
conserve their land but when it comes to 
the  compensation  they  have  different 
opinion.  Those  who  decide  to  join  the 
program means accept the offer price but 
those  who  refuse  means  asking  higher 
price. From 40 farmers, 21 of them agree 
to  accept  the  VDR  as  a  base  for 
compensation  while  the  19  farmers 
asking for higher price.  
  Finally,  the  Logistic  model  is 
used to estimate the probability (the odd 
ratio)  of  willingness  to  accept  the 
program in relation the characteristics of 
the  farmers.  The  summary  of  the 
estimated parameters are reported in the 
following table.  
Table 2. Estimated parameters of the 
Farmers Willingness to Accept the 
Program 
 
1 Konstanta 1.881507 5.696991 0.330263 0.7412
2 Luas 0.002137 0.001058 2.020695 0.0433
3 Jarak -0.000759 0.000489 -1.550985 0.1209
4 Usia -0.042977 0.075173 -0.571717 0.5675
5 Edu -0.029217 0.190776 -0.153149 0.8783
6 Porsi -5.387334 2.155851 -2.498936 0.0125
7 Garap 2.908922 1.581772 1.839027 0.0659
8 Anak -0.141493 0.328977 -0.430099 0.6671
Mc.Fadden R² 0.499512
LR 27.64884 0.000255
Prob No Variabel Koefisien Std.Error Z Statistik
Notes: To save some space we do not include the 
detail of the estimation results. These can be 
obtained from the author upon request.  
 
We found that the size of the land (Luas), 
the  proportion  of  farm  income  to  the 
total (Porsi), and Garap which represent 
whether the owner or somebody else do 
the farm determine the likelihood of the 
farmer  to  joint  the  program.  Other 
variables,  distance  (Jarak),  farmers 
education  (Edu),  number  of  children 
(Anak), and the  farmer’s age (Usia) do 
not significantly influence the likelihood 
of the farmer to joint the program.   
  The  higher  the  size  of  the  land 
increases  the  probability  for  farmer  to 
accept the program. The larger the land 
size the higher the land value that may 
increase the portion of the land value to 
its  total.  Therefore  the  value 
development  right  will  be  small  that 
increase the probability of accepting the 
program since the alternative (the offer) 
is not so appealing. Also those who has 
small  land  size  maybe  the  farming 
income is also a small portion to the total 
income.  Selling the  small land  size  for 
non  farm  type  of  use  will  benefit  the 
most.    We  confirm  that  the  higher  the 
portion of the income from the farming 
(Porsi) the  higher the compensation the 
farmer  want,  if  they  have  to  conserve. 
When farmer do the farming, they tend 
to keep them or will likely to conserve.   
 
  
5. Conclusion 
   
This  paper  reports  the  assessment  of 
what  factors  determines  farmer’s 
decision to convert their farm land (rice 
field) into other uses, especially business 
and residential. We sampled 40 farmers 
in  Sleman  Regency,  Yogyakarta  as  a 
case.  In  addition  to    their  social 
characteristics,  we  asked  them  the 
willingness  to  accept  for  their  land  if 
someone else wants to but and convert it 
into other uses (residensial or business) 
and  how  much  the  compensation  their 
asked if the regency of Sleman ask them 
to preserve it. 
  Based  on  the  farmers  expected 
return from their farming and their social 
characteristics,  we  found  that  farmers 
tend to preserve their land. This decision 
is  supported  when  they  have  other 
sources of income, farm their own land, 
have larger size of land, and the further 
from  the  urban.  Such  information  is 
useful to the Regency of Sleman once it 
needs  to  preserve  its  farming  area  to 
increase  the  water  catchment  and  the 
reduce  of  the  green  house  effect  of 
converting the farm land (rice field) into 
residential or business. This is true to the 
fields close to the urban areas.  
 
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Konversi Lahan dan Pilihan Petani

Konversi Lahan dan Pilihan Petani

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