Analysis of efficiency and competition of soybeans farming system in Jember

Soybean consumption in Indonesia increased from approximately 2.0 million tons in the beginning of the 1990s to 2.4 million tons in 2002. At the same time, production declined from 1.86 million tons in 1992 to 0.87 million tons in 2001, following a more than 50 percent decline in harvested area. At least part of the decline in production is due to a decrease in the soybean import tariff that was reduced from 20 percent in 1998 to 5 percent in 2001. Farm groups have argued that this tariff should be reinstituted despite the negative effects that it would have on consumers. The present study, using the Policy Analysis Matrix methodology, demonstrates that, even at the current levels of productivity, soybeans yield a profitable return to land and management at both private and social prices. Farmers who have switched to the new seeds developed by Indonesian researchers have been able to increase productivity (and profits) substantially. This finding suggests that government efforts to reintroduce import tariffs on soybeans would be undesirable and would lead to inefficiencies in the use of domestic resources. Government investments in soybean production that are likely to have a high benefit-cost ratio are extension activities that educate farmers on the proper seed bed preparation and planting procedures for the new varieties as well as cold storage facilities that hold seeds at the proper temperature before planting. General improvements in credit facilities that make it easier for farmers to innovate would also be desirable