Vertical Market Integration of Curly Red Chili in Kulonprogo Regency Yogyakarta Indonesia Susanawati Hilmi Priliadi Department of Agribusiness UMY

Introduction There are four regions producing red chili in the Special Region of Yogyakarta (DIY), i.e. Kulonprogo Regency, Sleman, Bantul, and Gunungkidul. During the period of 2011-2015, Kulonprogo Regency makes the highest contribution to the total production of red chili in the Special Region of Yogyakarta, which amounted to 168,280 quintals, equivalent to 71.95% of total production Regency Year 2011 2012 2013 2014 2015 Kulonprogo 107.226 115.816 109.208 125.075 168.280 Sleman 27.855 28.599 41.938 36.157 44.307 Bantul 5.251 16.702 17.651 12.244 19.693 Gunungkidul 3.369 3.453 2.538 2.124 1.599 Pembangunan pertanian tidak hanya diarahkan pada komoditas pangan tertentu, akan tetapi juga diarahkan pada komoditas-komoditas yang mempunyai nilai ekonomis tinggi (Putri, 2007). Komoditas pangan yang mempunyai nilai ekonomis tinggi dan banyak diusahakan masyarakat akhir-akhir ini yaitu komoditas pangan yang berasal dari subsistem pertanian hortikultura. Pemasaran komoditas hortikultura menjadi tindakan ekonomi yang berpengaruh terhadap tinggi rendahnya pendapatan petani. Sayuran merupakan jenis tanaman hortikultura yang banyak dipilih dalam usahatani, salah satu komoditas pilihan masyarakat adalah cabai merah (BPS DIY, 2016). Cabai merah di Indonesia menjadi sayuran penting didasarkan pada volume perdagangan, baik di pasar produsen maupun pasar konsumen. Produksi yang tinggi secara otomatis akan memberikan keuntungan besar bagi petani jika tidak disertai pemasaran yang baik dan efisien. Pemasaran akan berjalan baik dan efisien apabila informasi tentang produk dapat diketahui oleh semua pihak, baik informasi jenis komoditi, mutu, harga, pasar, dan ketersediaan (Kumalawati dalam Listiyorini, 2008).

Productivity (Quintal/Ha) Introduction During 2011-2015 the production of red curly chili in Kulonprogo Regency fluctuates although it is not so significant. Year Harvest Area (Ha) Production (Quintal) Productivity (Quintal/Ha) 2011 1.278 107.226 83,90 2012 1.324 81,00 2013 1.341 108.459 80,85 2014 1.532 125.039 81,62 2015 1.380 114.816 83,20

When the price of chili falls, curly red chili farmers will be harmed Curly red chili is a vegetable that often experiences price fluctuations When the price of chili falls, curly red chili farmers will be harmed Market integration analysis is needed to see whether changes in product prices at the retailer's level will affect changes in market prices at the farm level. Market integration also shows whether or not information flows smoothly at all market levels. Non-integrated markets will provide inaccurate information that distorts marketing decisions at the market level. The existence of inadequate price information between producers and consumers causes information asymmetry.

Objectives This study aims to determine the price behavior at the producer market in Kulonprogo Regency and the consumer market in Pasar Induk Kramat(PIKJ), and the vertical integration between the two markets.

Methodology The basic method used in this research is descriptive to find out the description of the data to analyze The type of data used in this study is secondary data in the form of monthly prices of curly red chili at the producer level in Kulonprogo Regency and the consumer market in PIKJ during the period of 2011-2015. The behavior of curly red chili prices is analyzed using a graphical and mathematical approach. Graphic analysis is used to describe the monthly prices of curly red chili during 2010-2015 displayed in graphical form. Graphical analysis is done using Microsoft Excel software. Mathematical analysis is done using Coefficient of Variation (CV) to determine the fluctuations in the price of curly red chili.

The CV formula is as follows: Information: s = standard deviation x = the average price of curly red chili n = number of samples CV = coefficient of variation

Pit = b1 (Pit-1) + b2 (Pat - Pat -1) + b3(Pat -1) The vertical integration between the producer market in Kulonprogo Regency and the consumer market in PIKJ is analyzed using the Index of Market Connection (IMC) model. The IMC model using the Autoregressive Distributed Lag Model approach is formulated as follows: Pit = b1 (Pit-1) + b2 (Pat - Pat -1) + b3(Pat -1) Information: Pit = the price of curly red chili in the producer market in the month t Pit-1 = the price of curly red chili in the producer market in month t-1 Pat = the price of curly red chili in the consumer market in the month t Pat -1 = the price of curly red chili in the consumer market in month t-1 bi = regression coefficient

b1 = regression coefficient of Pit-1 IMC Values are: Information: b1 = regression coefficient of Pit-1 b3 = regression coefficient of Pat-1 Information Short Term Long Term Strong integration IMC is close to 0 IMC < 1 b2 is close to 1 (> 0.5) Weak integration IMC >1 b2 is close to 0 (<0,5) No integration High IMC b2 is very close to 0

Result and Analysis The price of curly red chili at the producer level in Kulonprogo Regency fluctuates every month during 2010-2015. During 2010-2015, the price of curly red chili was the highest in December 2014, which was Rp. 72,100 per kilogram and the lowest price occurred in July 2011, which was Rp. 3,300 per kilogram. The low prices occur due to the harvest of curly red chili from May to July in which the peak harvests occur in July. Petani di Kabupaten Kulonprogo menggunakan dua jenis lahan untuk membudidayakan cabai merah keriting yaitu lahan pasir serta lahan sawah. Tentunya keduanya memiliki kekurangan dan kelebihannya masing-masing. Budidaya cabai merah keriting di lahan pasir mampu memproduksi cabai merah keriting dalam jumlah yang lebih besar dibandingkan di lahan sawah, karena hama di lahan sawah lebih banyak dan cabai merah keriting cenderung berproduksi dengan jumlah dan kondisi yang baik pada lahan yang tidak lembab yaitu lahan pasir. Cabai merah keriting di lahan pasir masuk musim tanam pada bulan April dan Agustus, sedangkan untuk jenis lahan sawah cabai merah keriting mulai ditanam pada akhir musim penghujan yaitu April.

The combination of production and prices of curly red chili in Kulonprogo Regency during 2010-2015 In December 2014 the price was very high but the production was also quite high during that time. The price of curly red chili in December 2014 was at the highest price, i.e. Rp. 72,100 and Rp. 65,214 in the consumer market with the total production of 12,809 quintals. In addition, there was a low production followed by a low price as happened in December 2012 in which the production was only 1,996 quintals while the price of curly red chili touched the figure of Rp 8,775 in the producer market and Rp 9,214 in the consumer market. Petani di Kabupaten Kulonprogo menggunakan dua jenis lahan untuk membudidayakan cabai merah keriting yaitu lahan pasir serta lahan sawah. Tentunya keduanya memiliki kekurangan dan kelebihannya masing-masing. Budidaya cabai merah keriting di lahan pasir mampu memproduksi cabai merah keriting dalam jumlah yang lebih besar dibandingkan di lahan sawah, karena hama di lahan sawah lebih banyak dan cabai merah keriting cenderung berproduksi dengan jumlah dan kondisi yang baik pada lahan yang tidak lembab yaitu lahan pasir. Cabai merah keriting di lahan pasir masuk musim tanam pada bulan April dan Agustus, sedangkan untuk jenis lahan sawah cabai merah keriting mulai ditanam pada akhir musim penghujan yaitu April.

Price behavior of curly red chili in the consumer market during 2010-2015 There is a significant price gap in certain months. The highest price occurred in December 2014 at a price of Rp 65,215 per kilogram while the lowest price occurred in July 2011 at a price of Rp 5,454 per kilogram. The highest prices in the consumer market are due to the small supply of curly red chili in the local market so traders need to buy curly red chili from other regions. These conditions cause additional costs as traders have to pay more for curly red chili distribution activities at a more expensive price so that the consumer market increases the price of curly red chili. The lowest price occurred in July 2011 because of the abundance of curly red chili in the market. It happens because during the months of May to July the harvest season occurr simultaneously which causes the price of curly red chili in the market to fall. The low prices that occur in the consumer market do not harm traders because they still get profits from the curly red chili they sell, although not so much.

Price behavior of curly red chili in the producer market and consumer market during 2010-2015 It can be seen that when the prices in the consumer market are high, the prices in the producer market in Kulonprogo Regency will also be high. The price movements that occur in the market of producers in Kulonprogo Regency are in line with the price movements that occur in the consumer market. , it can also be seen that during 2010-2015, the high price of curly red chili fluctuations occur in four different points, i.e. July, January, November and December, with the highest peak price occurring in December 2014. In 2010 the price of curly red chili the highest occurred in December. In 2011, it occurred in January. In 2012, it happened in January. In 2013, it occured in October. In 2015, it was in January.

Vertical Integration between Producer Markets in Kulonprogo Regency and Consumer Market in PIKJ Two markets are said to be integrated if the price changes in a market are responded to the changes in prices in other markets. This is because changes in prices in a market are partially or totally transmitted to the prices in other markets, both in the short and long term. The calculation results is obtained using EViews Version 10 through the regression of price variables in the market of Kulonprogo Regency in the current period (Pit), prices in the market of Kulonprogo Regency in the previous period (Pit-1), the current prices in PIKJ consumer market (Pat), prices in the market in the previous period of PIKJ consumers (Pat- 1) and the difference in prices in the current PIKJ consumer market (Pat) with the previous period (Pat-1)

Regression Coefficient The regression results of the factors that influence the price of curly red chili in the producer market in Kulonprogo Regency Variable Regression Coefficient Std. Error t-Statistic Prob. The previous period of curly red chili price in the producer market in Kulonprogo Regency 0,465991 0,110398 4,221018 0,0001* The difference in prices of curly red chili in PIKJ consumer market in the current period with the previous period 0,795348 0,088089 9,028895 0,0000* The previous period consumer level price of curly red chili 0,525002 0,109170 4,809018 R-squared 0,756664 Mean dependent var. 16540,42 Adjusted R-squared 0,745768 S. D. dependent var 10915,98 S. E. of Regression 5503,990 Akaike info criterion 20,11902 Sum squared resid 2,03E+09 Schwartz criterion 20,24650 Log likelihood -710,2253 Hannan-Quinn criter. 20,16972 F Statistic 69,44642 Durbin-Watson stat 1,943451 Prob (F-statistic) 0,000000   The adjusted R2 value of 0.745768 or 74.5768%. It means that 74.5768% of the price variation of curly red chili in Kulonprogo Regency market can be explained in the present period using variations in the prices of curly red chili in Kulonprogo Regency producer market, the price of curly red chili in the previous period of PIKJ consumer market, and the difference in chili prices red curly in the current PIKJ consumer market with the previous period. Whereas, the remaining 25.4232% is explained using variations in other variables that are not included in the regression model, such as the variable of season. The results of the analysis show that the value of the Prob (F-statistic) is smaller than α 1% so the decision taken rejects Ho and accepts Ha. It means that the independent variables are the price in the producer market of Kulonprogo Regency in the previous period, prices in the previous period of PIKJ consumer market and the difference in prices in PIKJ consumer market in the previous period and the non-independent variables are variations of curly red chili prices in the present period among producers and the real effect with a confidence level of 99%. The t test is used to determine the effect of independent variables on individual independent variables. As presented in Table 4, it can be seen that the price variable in the market of the producer in Kulonprogo Regency in the previous period has a value of Prob. T amounting to 0,0001. It indicates that Prob. T is smaller than the error rate (α) of 1% so that it rejects Ho and accepts Ha. It means that the variable price of curly red chili in the market of Kulonprogo Regency in the previous period significantly influences the variable price of curly red chili in the market of Kulonprogo Regency at the current level with 99% confidence. Whenever there is an increase in the price of curly red chili in the market of Kulonprogo Regency in the previous period of IDR 1,000 / kg, the price of curly red chili in the market of Kulonprogo Regency will increase by IDR 465.991 / kg.

The Prob T value shows the difference in price of curly red chili in PIKJ consumer market at the present period with the previous period of 0.0000 which is smaller than α 1%. It means that the difference in price of curly red chili in PIKJ consumer market in the previous period has a significant effect on the variable price of curly red chili in the market of Kulonprogo Regency at the current level of trust 99%. Prob. T for the variable price of curly red chili in PIKJ consumer market in the previous period is 0.0000 which is smaller than the value of α 1%. Thus, at the 99% confidence level, the price of curly red chili prices in the previous period of PIKJ consumer market has an effect on the variable price of curly red chili in the market of Kulonprogo Regency in the present period

The regression results of the factors that influence the price of curly red chili in the producer market in Kulonprogo Regency After testing the model, the IMC model is calculated using the equations obtained from the regression results as follows: Pit = 0,465991(Pit-1) + 0,795348(Pat-Pat-1) + 0,525002(Pat-1) Based on the regression equation above, it can be seen that the value of b1 is 0.465991 and the value of b3 is 0.525002. The calculation is done by entering the regression coefficients b1 and b3 into the following formula.

Short Term Vertical Integration based on the IMC value, it can be seen that there is a strong integration in the short term between the prices in Kulonprogo Regency producer market and prices in PIKJ consumer market. It is seen from the index of marketing connection (IMC) value 0.89 (<1) The strong degree of market integration in the short term in Kulonprogo Regency shows that the flow of information between farmers and PIKJ consumer market is so smooth that the prices among farmers are affected by prices in PIKJ consumer market. This shows that the changes in the price of curly red chili in PIKJ consumer market at the previous time affect the price of curly red chili in the market of Kulonprogo Regency producer at the present time. The IMC value is smaller than 1 meaning that the degree of integration between the producer market in Kulonprogo Regency and PIKJ consumer market in the short term is strong. The changes in the price of curly red chili in PIKJ consumer market are transmitted well and quickly to the producer market in Kulonprogo Regency or the price changes that occur in the market of the producer of Kulonprogo Regency are strongly influenced by the price changes that occur in PIKJ consumer market Information flows run smoothly so farmers can find the condition of curly red chili prices in PIKJ consumer market. It can occur due to the presence of PIP (Market Information Service) officers in Kulonprogo Regency. Every day, PIP officers record the prices of curly red chilies at the farmer and the prices of curly red chili in PIKJ consumer market so that any changes in curly red chili prices occuring in PIKJ consumer market can be immediately shared to the farmers through the PIP officers. Curly red chili farmers in the producer area have been able to utilize the obtained information, either from PIP officers or from PIKJ consumer market optimally. Furthermore, the response to the price of curly red chili can occur quickly and well through the availability of good and adequate transportation infrastructure.

Long Term Vertical Integration Long-term vertical integration is related to the relation between price changes in the reference market transmitted to the local market in the long term. It can be seen from the coefficient value of b2. The analysis is on farmers' markets in Kulonprogo Regency as a producer market and PIKJ as a consumer market. Based on the regression equation, it can be seen that in the long run the prices in the market of the producer of Kulonprogo Regency have strong integration. It is indicated by the b2 coefficient of 0.795348 (> 0.5), which means that the price of curly red chili in the market of Kulonprogo Regency is influenced by the price of curly red chili in PIKJ consumer market The producer market in Kulonprogo Regency and the consumer market in PIKJ have been integrated so that without any government interventions, the market mechanism has been able to adjust prices when fluctuations in the prices of curly red chili occur.

Conclusion The behavior of curly red chili prices in the market of Kulonprogo Regency and PIKJ consumer market tends to fluctuate with the same pattern of movement The integration between the producer markets in Kulonprogo Regency and PIKJ consumer market in Kramat Jati Central Market occur both in the short and long term. There is a strong integration in the short term between the prices in Kulonprogo Regency producer market and prices in PIKJ consumer market which can be seen from the index value of marketing checks (IMC) of 0.89 (<1). It shows that the changes in the price of curly red chili in PIKJ consumer market at the previous time affect the price of curly red chili in the market of Kulonprogo Regency producer at the present time. In the long run, the value of b2 indicates that the increase in the price of curly red chili of Rp. 1,000 in the consumer market PIKJ will increase the price of curly red chili Rp. 795,348 in the market of the producer of Kulonprogo Regency.