1 Impact of Macroeconomic Shocks on the Economic Efficiency of Small Farmers? The Case of Wetland Rice Farmers in Indonesia1

copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. A CARD-BPS Paper for presentation to the Ministry of Agriculture, Indonesia, 2004. 2 This study examines the impact of macroeconomic shocks on the efficiency of small fanners. We estimate single- and multiple-factor efficiency measures for Indonesian rice farmers in years before, during, and after the country's macroeconomic crisis. We find that productive efficiency declined by 7 to 22 percent during the crisis; largely because of a decline in technical efficiency and a relatively large volatility in efficiency (the coefficient of variation was larger by a factor of 1.87). Allocative efficiency, on the other hand, increased slightly and offset part of the decrease in technical efficiency. The magnitude of the impact on efficiency depended on farmers ' input adjustments. Factors associated with higher levels of technical and allocative efficiency include larger-size farms and higher education levels for the farm owners. The predicted efficiency measures disaggregated by type (technical and allocative), by specific factor (fertilizer and labor), and by specific location (province and farm level) can be used in designing and targeting interventions to improve the economic efficiency of farms