Does soybean production in indonesia still have competitiveness advantages? a policy analysis matrix approach

The soybean production in Indonesia still faces several challenges causing production depended on import supplies. This paper aims to assess the competitiveness advantages of soybean production. Policy Analysis Matrix (PAM) was used to examine its competitiveness using secondary data and deliberating results of previous studies. The results of the study in 2015 showed that domestic production still could afford private and social prices. Soybean nearly did not show competitiveness advantages reflected from the ratio of DRC and PCR that were almost one. The government interventions brought various impacts, for instance farmers paid cheaper inputs by 26.67% and there was inefficiency of government policy towards the output. The government policy to assure profit in the long term was also insufficient reflected from the EPC (1.03) and PC (0.06). From the SRP variable, it described that the government not all farmers received a benefit from the government policy. The sensitivity analysis resulted: (i) the combination of increasing soybean price + procurement price at 8,000 IDR/kg and (ii) the increasing import tariff by 5% + procurement price at 8,000 IDR/kg provided the most favorable impacts.


Introduction
Soybean plays an important role in Indonesia since it supplies food and feed production, source of income for farmers and agro-industries (tofu, tempeh, soya sauce production) [1,2]. Soybean production, conversely, does not fulfill the demand so that Indonesia is highly dependent on imports. In 2018 the domestic production was 967,870 ton whilst the domestic consumption reached 2.26 million ton. The average growth of productivity tended to stagnant by 0.25%/year in 2014-2018 [3], therefore the farm production is still far from its potential.
Aside from these obstacles, there are opportunities to increase soybean production by raising the competitiveness of domestic soybean mentioned by [4,5,6,7] and the study of soybean' competitiveness is still interesting. An approach namely Policy Analysis Matrix was used to answer those questions. This method is claimed as one of the quantitative policy analysis methods with several advantages. It allows to investigate the effect of policy on competitiveness and farm-level revenues, the influence of investment policy on economic efficiency and comparative as well as the impact of policy on agricultural technologies development [4,8,9]. These benefits are also confirmed in other studies. PAM is able to disaggregate loss and profit identification at various levels [10,11]. It combines measurement 2 of comparative and competitive advantages (economic and financial analysis) [12,14]. It offers a simple yet powerful tool to translate government policy and externalities in a quantitative and systematic way [15,16,17], and it does not require a high cost on calculation [18]. This method also provides information and a description of how policy interventions and market failures bring distortions toward a production system [19,20]. This paper aims to assess the competitiveness of soybean production in order to formulate the proper strategy of soybean development in Indonesia. What are the factors influencing the competitiveness of soybean production in Indonesia and to what extent can soybean production is developed in Indonesia.

Research location, sources, and types of data
The research used the soybean production system in 2015 in Indonesia as a case study. All the sources of research data were gathered from secondary data using documentation methods raised from relevant literature. Data were obtained from the Indonesian Bureau of Statistics at the national level, the National Development Planning Agency (BAPPENAS), the Indonesian Ministry of Agriculture, the Indonesian Ministry of Trade, Food and Agriculture Organization (FAO), World Bank Organization, and results of previous research studies. Types of secondary data included panel data of cost structure of soybean, productivity, production, harvested area, consumption, supply and demand of soybean, import and export soybean released by Indonesian Bureau of Statistics and Food and Agriculture Organization (FAO) from 2005 -2014. Equally, data of cropping system, total output, capital, labor, prices (private and social prices), direct costs and indirect costs were also compiled to meet the question of research.
Social costs were calculated to show the economic value of inputs and output used in soybean production (economic analysis). Economic analysis basically was measured using shadow prices or opportunity costs regardless policy intervention (taxes and subsidies). To estimate the economic values of tradable inputs, it used world market price as a comparison, which were determined at the border price. Since tradable inputs for soybean production consisted both of imported and exported components, then it was necessary to differentiate between them. The imported inputs were valued using cost, insurance and freight (c.i.f) price whilst the exported goods were appraised by free on board (f.o.b) price. The shadow price and calculation of tradable inputs-ouputs was represented in table 2 while the  cost and income structure of soybean farming both at private and social price was shown in table 3.

Data analysis
Policy analysis matrix (PAM) was employed in this paper using the concept developed by Monke and Pearson [8]. This method covers comparative advantage calculated from shadow prices (economic analysis) and competitive advantage valued using private prices (financial analysis) (table 1). Notes: Private profit = P4 = P1 -(P2 + P3); Social profit = S4 = S1 -(S2 + S3); D1 (output transfers) = P1 -S1; D2 (input transfers) = P2 -S2; D3 (factor transfers) = P3 -S3; D4 (net transfers) = P4 -S4 or D4 = D1 -(D2 -D3) To get on overall overview of analyses from this approach, several indicators were derived: (i) Private and social profitability: P 4 and S4. The production is privately profitable when the value of P4 > 0 whilst production can earn a positive social profit when S4 > 0. (ii) Efficiency of soybean production: (a) Comparative advantage/Domestic Resource Cost Ratio (DRCR): S3/(S1-S2). Comparative advantage = DRCR < 1 and comparative disadvantage = DRCR > 1 and (b) Competitive advantage/Private Cost Ratio (PCR): P 3/(P1-P2). Competitive advantage = PCR < 1 and competitive disadvantage = PCR > 1. (iii) Effects of government policies in soybean production consisting of: Nominal Protection Coefficient Output (NPCO): P1/S1. NPCO > 1 = government protects domestic outputs (output price received by farmers greater than price without government intervention) and NPCO < 1 = government does not protect domestic outputs (output price received by farmers smaller than price without government intervention). Nominal Protection Coefficient Inputs (NPCI): P 2/S2. NPCI < 1 = government subsidies tradable inputs and NPCI > 1 = government does not subsidy tradable inputs. Effective Protection Coefficient (EPC): (P1 -P2) / (S1 -S2). EPC > 1 = government implements protection or provides incentives to farmer and EPC < 1 = government does not implement protection or disincentives to farmers. Profitability Coefficient (PC): P4/S4. PC > 0 = effect of net transfers on private profit so it exceeds social profit (government provides incentives for producers). Subsidy Ratio to Producers (SRP): D 4/S1. SRP > 0 = government policy carries positive impacts for farmers and SRP < 0 = government policy implies negative impacts for farmers. Add costs of (i) local seaport charges in seaport, (ii) local transport and marketing from to wholesalers, (iii) local transport and marketing from wholesalers to retailers, (iv) transport, marketing and local storage cost (price at farm gate) Sensitivity analysis was constructed using some variables to examine the effects on PAM indicators. This analysis covered (i) the change of soybeans at the world market, (ii) the trend of fertilizer prices, (iii) the effect of increasing import tariff and (iv) the movement of exchange rate towards DRC ratio, PC ratio, NPCO, NPCI, EPC and SRP indicators.

Results and discussion
3.1. The profitability of soybean production One of the important indicators in PAM analysis is private and social profitability. It measures the profit received by soybean farmers in private costs drawn from financial analysis whilst social profitability reflects the profits earned at social prices. Based on the calculation, soybean production in Indonesia was still profitable as pointed out by positive profitability both at a private and social price. The private profitability of soybean was 65,809 IDR/ha/season. Thus, soybean farmers had an opportunity to develop their enterprises at the current market prices. Nevertheless, in real value, the profit earned was relatively small and the benefit-cost ratio (BCR) at the private price was 1.01.
It also reveals that the benefit was very close to the cost. For social profitability, each hectare of soybean economically was able to produce profit about 1,013,939 IDR/ha/season. Since social profit was estimated using opportunity cost, the positive gain from soybean production reflected the positive efficiency of its production, thus soybean production might be still attractive farmers. However, there was dissimilarity between the value of private and social profitability. The total private cost was higher than social cost reflecting when even the policy supports are presence, farmers still should compensate a greater cost. These divergences caused farmers paying input production at higher prices, so it reduced their profits. The negative transfer output was about 104,633 IDR/ha/season demonstrating the government policies had not fully provided the optimal incentives for supporting soybean production (table 4).

Comparative and competitive advantage of soybean production (domestic resource cost ratio and private cost ratio)
The comparative and competitive advantage of soybean was measured by the domestic resource cost ratio (DRCR) and private cost ratio (PCR). The value of DRCR was less than 1 or soybean production in Indonesia still had comparative advantages which indicated the domestic soybean production requiring less input production (cost and quantities) than imported soybean. To produce one hectare of soybean in the domestic country needed 90% of total imported soybean. It was equal to 10% of foreign exchange that can be reserved for the national budget instead of relying on imported supplies. Despite its comparative advantage, the DRC ratio was close to one in which was susceptible to alterations of peripheral factors. The price-output good was subjective to the price volatility in the world market. With the import dependency ratio is more than 80% [3], the increase of soybean price at the international market allowed a larger revenue at the social price; whilst the currency devaluation would alter the increasing cost of tradable inputs. These changes in particular affected the total revenue and the structure of cost ratio. With the tendency of slowly absorption in the developing countries to overcome volatilities [21], the dynamics of prices would possible to adjust the comparative advantage. DRC ratio would tend diverse over time due to the changes in related component costs and prices [22]. The comparative advantage of soybean was also related to the characteristics of regions including agroecosystem and local policies. Soybean production ought to consider the dissimilarities of potencies and challenges in each region. Some previous researches [4,5,7,23-25] had exposed various DRCR of soybean production between different regions. PCR value was 0.994 describing every single IDR only entailing 0.994 IDR of inputs for managing production. Domestic production had a competitive advantage because it was able to pay the domestic costs as a charge of the utilization of existing resources or it could compete at the current market price. Similar with DRCR, PC ratio revealing the domestic soybean production almost had not a competitive advantage. To increase its competitiveness, it would require the consistency of domestic policy, in particular, solving the market distortion caused by an incentive of the output price. In support, it will require better management to increase the efficiency of production like optimizing non-tradable expenditures.

Nominal Protection Coefficient Output (NPCO) and Nominal Protection Coefficient Inputs
(NPCI) Nominal protection coefficient output (NPCO) represents the efficiency of government protection by comparing tradable private (input) costs and tradable social (input) costs. Based on the calculation, NPCO of soybean production was 0.991 reflecting farmers receiving the lower price of their soybean than social price due to the weakness of government protection towards the price. This result illustrates the government's trade-restrictive policy causing the private price decreasing by 0.9%. The efficiency of government protection in output production also affected the interest and passion of farmers to grow soybeans. When the government could not afford to protect farmers then it will influence the sustainability of agricultural production.
Meanwhile, nominal protection coefficient inputs (NPCI) figure out how far the government policy brings an effect on inputs paid by farmers. The NPCI was 0.733 or farmers paid 26.67% cheaper inputs than social prices. The disparity of input price between private and social prices was caused by government incentives through input subsidies, which were fertilizers and seed. This protection helped farmers enhancing their access to input production both quantity and the price. NPCI of seed was 0.964 or farmers obtained lower prices by 3.6% for seed than without subsidy. Nonetheless, examining the percentage, it was realized that only a small number of farmers who profoundly received the impact of such protection policy, which was possibly triggered by the obstacles in seed subsidy; whereas NPCI of fertilizers was 0.487 means that farmers paid a lower price of fertilizers by 51.3% than without the involvement of the government.

Effective protection coefficient (epc) and profitability coefficient (pc)
The effective protection coefficient is the ratio of a difference between revenue and tradable input costs on private price and social price as a description of whether the government policy brings impact on tradable inputs and output. EPC was 1.03 or the government policy brings the net impact by allowing the production system to obtain a higher value-added at 3%. This indicator describes the aggregate effect of two policies from inputs transfer and output protection. Referring to the previous result of output protection, general protection is more contributed to the positive effect of input protection. The coefficient of protection is below the average of producer protection in the agricultural sector. The producer protection in Indonesia from 2010 to 2014 was about 1.165 -1.310 with an increasing trend of 1.03% every year or it is above the rate of protection in soybean production [26]. Thus, in general, the incentive for soybean producers was not assigned as the main priority by the government policy.
The profitability coefficient describes the assistance from the government to the producers through incentive policy by adjusting the difference between producers' profit at the market price and the profit received by farmers at a social price. The result of the PC analysis was positive (0.06). It reveals that the government still provides an incentive to farmers; yet, it might be not sufficient to assure the sustainability of progressive profit in the long term. This indicator is important because it expresses whether market distortion bringing a positive impact to farmers.

Effectiveness of input subsidies (subsidy ratio to producers)
The implementation of the subsidy is below the objective in which means not all targeted farmers have received the subsidy. The higher price of fertilizers on the market is the main issue arisen from the shortage in certain season (planting season). The SRP indicator showed a negative ratio by minus 0.08. It describes that the government policy has not yet brought a significant benefit to all soybean farmers. The divergences due to inputs subsidies could not levitate the profit received by the producers, and it refers to the inefficiency level of the implementation. It also realized that the leverage power of the intervention does not constantly osculate entire farmers. There are 8% of soybean farmers who are disadvantaged by the government strategy.

Sensitivity Analysis
The additional examination can be drawn to provide more information on how the dynamics and changes of some related government interventions might alter the important indicators in PAM analysis particularly the comparative advantages, the competitive advantages and effectiveness of various protections. The result of the simulation is presented in Table 5. Instead of analysing a single policy, for example calculation the economic impact of increasing price of soybean at the farmer level and soybean import tariff [7] or decreasing of soybean tariff, increasing prize of fertilizers and increasing of exchange rate [22], in this analysis there are four combinations, which are (i) increasing price of soybean + procurement price, (ii) changing price fertilizers + procurement price, (iii) increasing exchange rate + procurement price and (iv) import tariff (5% and 10%)+procurement price. As drawn in Table 3, those mix policies and market distortion generate alterations. Looking for the most favorable impacts indicated by the improvement on PAM indicators, the combination of the change price of soybean at the international market and the minimum price of soybean received by farmers (8,000 IDR/kg) creates a positive inducement including augmenting the comparative advantage roughly 2.6%. The competitive advantages coefficient has correspondingly upgraded by 7.8%, so to earn the same profit than before, it requires less cost of production about 7.8 IDR/ha. It also permits the increasing of output price by 5% which allows farmers to enjoy more profit. The positive signs, additionally, are reflected from the EPC and SRP indicators. The number of farmers who are disadvantaged by government policy declined by approximately 71%. Nonetheless, this policy incentive might be tough to be implemented. Reckoning the world market price is difficult to be controlled by a domestic intervention.
In contrast, the adoption of import tariff and procurement price policy is more sensitive to be taken. Implementation 5% import tariff of soybean, as an illustration, is under the agreement of bounded tariff, and it will not change the parity price noticeably. The notable advantages are also shown by improving most of the indicators. The comparative advantage will improve by three percent; whereas the competitive advantages increased by about 7.7%. Farmers then could afford more profit due to a higher output price approaching 3.4% excluding the improvements of the NPCI indicator, which remains constant. The positive inducement is also shown through the coefficient of protection (increasing by 3.8 percent) as well as the SRP indicator. It presents a slightly higher ratio nearly two times than the prevailing attainment. If the profitability to cultivate soybean in the domestic country is getting better and the government interventions can postulate incentive for farmers, these improvements then expected can encourage farmers to continue and maintain their production.

Conclusion
Using PAM analysis, soybean production still has a promising prospect as indicated by positive revenue. In spite of the product generates a lower profit at the private market price. Due to the government policies and market distortion, there is a gap between revenue in these two prices. Using DRCR and PCR indicator, it additionally can be seen that domestic production only provides comparative not the competitive advantages. It implies that the soybean produced from Indonesia faces challenges to compete in the international market.
The objective of reducing quantities of import recently only affords to obtain the contribution of the social profits whilst not all soybean farmers receive the benefits from the government intervention. The fact that comparative and competitive indicators in the current phase are dissimilar with the previous studies and varied for specific regions indicating the dynamics of related aspects, in particular, the supporting policies and the world market of soybean. Examining government intervention, it has objectives to support the domestic production and farmers, yet not all the implementation of the policies shows positive impacts. It is also strengthened by the distribution of subsidies where some farmers do not receive these supports. The sensitivity analysis PAM related to a combination of government policies provided a positive change toward its indicators. Thus, a single policy might not be effective to improve the competitive advantages of soybean production.