Vertical Market Integration for Beef Prices Using Vector Error Correction Model (VECM) In Indonesia

Abstract

Normatively, price changes that occur in the consumer market will be passed on to the producer’s market. The price change is not necessarily enjoyed by beef cattle farmers in Indonesia. The purpose of this research was to examine whether there is a vertical market integration of beef among consumer and producer market in Indonesia. The examination of this issue was done through the Vector Error Correction Model (VECM). The data used in this study were secondary. This study used monthly price data of beef (Rp/kg) in Indonesia, consisting of 96 observations from January 2011 to December 2018. This study reveals that there is a long-term relationship among the consumer market and producer market in Indonesia. The short-run was also found that vertical beef market integration in Indonesia is only one direction, from consumers to producers. This finding represents that the beef market is vertically integrated, but the integration is not perfect. Imperfect integration of beef marketing in Indonesia signifies that the beef market in Indonesia is inefficient both in the short and long term. This study recommends the government formulate policies that provide infrastructure to avoid market exploitation and asymmetry information from the consumer market to the producer market. Besides, the government needs a price brand policy, where the government sets a reasonable price disparity between prices at the farm level and prices at the consumer level.