PRICE EFFICIENCY OF A COMMODITY IN THE DOMESTIC MARKET:A STUDY OF CINNAMON PRICE POLICY IN INDONESIA

Abstract

This study aims to analyze the efficiency of marketing price of export commodity cinnamon in the domestic market from 2015 to 2020. For that purpose, it is necessary to analyze a price relationship from exporter to middlemen traders and then to farmers during 2015-2020. Buying prices imposed at each level of marketing chains are considered independent variables, while farmers' buying prices are considered a dependent variable. Using Multiple Linear Regressions (MLR) supported by Error Correction Model (ECM), the study results show that exporters of cinnamon tend to impose the buying price for the cinnamon commodity in the domestic market in the manner of monopsony behavior. Therefore, the buying price received by farmers is relatively low and too far different from the export priceof cinnamon. This condition is not fair because any increasing and decreasing price in the international market is not transmitted proportionally to the buying price of raw cinnamon at the farmer’s level. It indicates that the exporters tend to practice the monopsonistic power in buying raw cinnamon bark either from intermediaries or directly to cinnamon farmers.Such conditions are considered one of the main reasons that have caused the poverty of cinnamon farmers that never ended in Kerinci, Indonesia. This study provides two breakthrough policies to improve the buying prices of cinnamon at the farmer’s level, namely institutional innovation and entrepreneurial innovation. In this case, Regents and Mayors, as the government of the top policymaker intheir regions, should be the main actor and take full responsibility for the successful implementation simultaneously of these two major policies.