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ABSTRACT
This paper estimates farmers’ investment response to food price spikes using household panel data collected before and after the 2007/08 food price crisis in Indonesia. We found that an increase in farmers’ terms-of-trade allowed relatively large crop-producing farmers to increase their investments at both extensive and intensive margins. Food price spikes had a significant income effect among farmers whose production surplus is large for market sales. During the food price crisis, large farmers particularly increased machine investments, which saved some labour inputs, pointing to the importance of complementarities between land and machine investments.
Acknowledgements
We would like to thank Elisabeth Sadoulet, Luc Christiaensen, Quy-Toan Do, Emanuela Galasso, Christopher Adam, seminar participants at the World Bank, International Food Policy Research Institute, and the Agricultural and Applied Economic Association Meeting 2013, and anonymous referees for their useful suggestions and comments. We are grateful to the Japan International Cooperation Agency and the Indonesian Center for Agriculture Socio Economic and Policy Studies (ICASEPS) for collaboration. We thank Sony Sumaryanto for sharing agricultural commodity price data, and Dini Inayati for collecting additional price data. The views expressed herein are those of the authors and should not be attributed to the IMF, the World Bank, their Executive Boards, or their managements.
Disclosure statement
No potential conflict of interest was reported by the authors.