Risks of Curly Red and Big Red Chili Prices in Indonesia

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Agriculture is a sector that plays an important role in the national economy. This is because the sector is one sector that has a large contribution to the total national GDP. The agricultural sector ranks third out of nine national economic sectors with a contribution of 13.83 percent of total GDP in 2007.

Risks of Curly Red and Big Red Chili Prices in Indonesia
Risks of Curly Red and Big Red Chili Prices in Indonesia

Although only ranked fourth, the GDP growth rate of this sector was able to outperform other sectors, which amounted to 26.32 percent. One component that contributes to agricultural GDP is the horticulture subsector. This subsector contributes 21.17 percent to total agricultural GDP with a tendency to increase from year to year. Big chili is a horticultural product that has a very fluctuating price. The existence of price fluctuations is a risk faced by farmers. At times the price is very high but not long after the price can drop dramatically. The gap between the highest and lowest prices of the red chili commodity is quite large.

During 2006-2008 the lowest curly red chili was at Rp 2800 per kilogram while the highest price was Rp 26,000 per kilogram. Meanwhile, for large red chili, the lowest price is Rp. 3000 and the highest price is Rp. 25000. This study aims to analyze the price risk of large red chili and curly red chili in Indonesia and effective alternative strategies related to the risk of large red chili commodity prices and curly red chili in Indonesia. The amount of data used in this study is 1147 data which is the daily price data of red chili in the period January 2006 to February 2009 in the Kramat Jati Main Market. Data processing and analysis are done quantitatively and qualitatively. Quantitative analysis is performed to analyze the price risk of red chili using the ARCH GARCH model and VaR (Value at Risk) calculation.

Qualitative analysis is done through interviews, discussions, and observations. Risk analysis results for curly red chili and large red chili indicate that price fluctuations are inseparable from the influence of demand and supply in the market. The price of red chili usually rises at the end of the year where there are many religious holidays such as Eid, Christmas and New Year. Low prices occur in May to August where at that time oversupply usually occurs because of simultaneous harvests that occur on Indonesian chili farming. Based on the ARCH GARCH Analysis it is known that the best models for predicting curly red chili prices are ARCH (1) and GARCH (2). This means that the pattern of price movements of curly red chili is influenced by the volatility of the previous day and the variants of the previous two days. The best model that can be used to predict the risk of large red chili prices is ARCH (1) GARCH (2). This means that the pattern of movement iii the price of large red chili is influenced by the volatility and variance of the previous day. Based on VaR (Value at Risk) calculation, the risk level obtained by farmers for curly red chili commodity is 14.68 percent while for large red chili is 4.85 percent. The higher price risk of curly red chili compared to large red chili shows that for every rupiah received, the price risk of curly red chili is greater than that of large red chili. If the acceptance of red chili farmers on an area of ​​one hectare is Rp. 91,800,000.00 then in the one-day sales period the risk level received by farmers for curly red chili commodities is Rp. 13,476,240.00 and large red chili is Rp. 4,452 .300,00. The risk level of curly red chili is greater than that of large red chili due to the greater demand volume of curly red chili with a more fluctuating supply. Efforts to overcome price risk can be carried out effectively if there is cooperation between the parties involved in it such as farmers, traders, and the government. Efforts to overcome the price risk from the farmer side are carried out through careful calculation in determining the planting period of chilies, avoiding planting large chilies on one stretch (crop diversification), crop rotation, chili processing, and the contract system. Traders are an important element in ensuring the arrival of chili from producers (farmers) to consumers.
The risk reduction strategies undertaken by traders are selling chili in the food industry and drying chilies. Efforts to reduce price risk will work better through support from the government. Efforts to reduce price risk by the government are carried out through the formation or activation of cooperatives and farmer groups, regulation of production patterns as well as intensive counseling and coaching related to cultivation and approaches to farmers related to the importance of regulating production pattern policies to reduce price risk. Efforts to minimize the price risk of curly red chili and large red chili should be carried out in an integrated manner between farmers, government traders and other parties.

All related components must be able to work together to overcome price risks to be more effective. Collaboration between the various parties should be accompanied by consistency and a strong commitment to achieving the expected results more efficiently. Research on chili is mainly related to cultivation efforts so that it can be planted in various seasons and minimizing the risk of production needs to be developed. This also relates to efforts to succeed in the policy of regulating large chili production patterns to reduce price risk. Also, the role of the Indonesian Chili Agribusiness Association which was newly formed on November 22, 2008, is expected to be more optimal in dealing with the risk of the high red chili price.

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