Output Supply and Input Demand System of Commercial and Backyard Poultry Producers in Indonesia

Jacinto F. Fabiosa, Helen H. Jensen, Dong Yan
May 2004  [04-WP 363]

Indonesia's domestic broiler production has grown rapidly, in part because of a ban on imports of poultry parts and strict inspection and meat certification requirements. Whether Indonesia will continue to protect the domestic broiler sector and import feed grains and other inputs or whether it will directly import meat products is a relevant question to many stakeholders. This study uses a normalized quadratic function to estimate the output supply of commercial and backyard broiler producers in Indonesia and the input demand for three major inputs: day-old chicks, feed, and labor. Data come from three datasets: a 1996 household survey and 1996 and 2000 surveys of commercial producers. For the most recent dataset, the own-price elasticity in both the output supply and feed input demand equations were found to be significant. The signs of the elasticities were theoretically consistent, with a positive supply and negative demand elasticity. The magnitudes of the elasticities were smaller than expected (the supply elasticity was 0.285). The inelastic supply explains the high border protection imposed by Indonesia, which in turn implies that any income-driven expansion in the quantity of broiler product demanded would be quickly constrained by rising prices. Consequently, supply from imports would become attractive and would dampen any incentive for growth in the domestic sector. This result cast doubt on the long-term sustainability of Indonesia's import substitution policy regime.

Keywords: broiler trade, Indonesian poultry production, normalized quadratic profit function, production economics.

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