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Chapter 5 Data, Estimation and Results
In this chapter, estimation and results of the model estimation are presented. In section 5.1, data sources and the description of variables used for estimating the demand function
and the adjustment system are presented. In section 5.2, the estimation results are reported. From the estimates of the adjustment system, the type of interaction between
the public estates and private companies is determined. The estimates of the adjustment system are then replicated using the Monte Carlo numerical integration method, results of
which are presented in section 5.3. In section 5.4, the estimation results for the adjustment cost parameter and market power index are discussed. Section 5.5, completes
the chapter with some concluding comments.
5.1 Data
The model was estimated using annual data for the period of 1968–2003. Discount rates and exchange rate data are from the International Finance Statistics. CPO domestic
demand data were not available: CPO consumption data listed in the Oil World were used as a proxy. CPO domestic prices were constructed from two sources—the Indonesian
Department of Agriculture and Oil World—while the crude coconut oil and palm cooking oil domestic prices were from the Indonesian Bureau of Statistics and Suharyono 1996.
All price data were deflated by the Indonesian Consumer Price Index data reported by the Indonesian Bureau of Statistics.
In estimating the adjustment system, only the public estates and private companies were considered as the dominant groups. Due to diseconomies of size of each of the members,
lack of processing facilities and trade associations, smallholders were unlikely to have an ability to influence market prices. Hence, they are not considered as one of the dominant.
As CPO domestic supply data for the dominant groups were also not available, CPO
Universitas Sumatera Utara
103 production data were used as a proxy. These data were recorded by the Indonesian
Directorate General of Plantations, Department of Agriculture. The relationship between the production and the domestic supply data is as follows Suharyono 1996; Susanto
2000; Zulkifli 2000; ISTA Mielke 2004:
Equation 5.1
S O Q
M X
E = + +
− −
where:
S
is the domestic supply;
O
is the opening stock;
E
is the ending stock;
Q
is the production;
M
is imports; and
X
is exports.
, Q M
and
X
are the accumulation values for each year, while
O
and
E
are the stock values at the end of January and December, respectively. For the national level data,
stock and import values are insignificant. Stocks are small because CPO is perishable and can not be stored for more than three months. Imports are also small because usually
domestic production is more than adequate to supply the domestic demand. Excess demand occurs either when international prices are high, giving an incentive for
producers to increase their export levels, or when domestic demand significantly increases due to feast months Ramadhan, Ied-Fitr and New Year. The statistical
summary of these data is shown in Table 5.1.
15
Data of the CPO demand, real prices of CPO, crude coconut oil and palm cooking oil were used in the estimation of demand equation. Table 5.1 shows that all of these
variables have large differences between their minimum and maximum values. The large differences between means and medians, and the non-zero values of skewness suggest the
asymmetric distribution condition. Kurtosis values of all of these variables are greater
15
The complete data set for both the demand equation and adjustment system is provided in Appendix 5.1.
Universitas Sumatera Utara
104 than for the normal distribution, indicating distribution with the small variance and the
slim or long tails. Finally, the Jarque–Bera statistics indicate rejection of the hypothesis that all of these data are normally distributed.
Table 5.1 Statistical summary of research data
Statistics CPO
demand CPO real
price CCO real
price Palm
cooking oil real price
Public estates group’s
production Private
group’s production
Unit Thousand
tonnesyear Rp
tonne Rp
tonne Rp
tonne Tonnes year
Tonnes year
Mean 1,025
94,997 108,486
119,305 1,118,954
895,268 Median
613 18,142
29,765 32,040
345,827 886,740
Maximum 4,083
815,546 929,105
822,027 4,627,744
1,706,852 Minimum
23 354
558 487
59,075 122,369
Standard deviation
1,251 196,328
213,545 228,273
1,423,874 567,736
Skewness 1.5
2.5 2.6
2.2 1.3
–0.0 Kurtosis
4.0 8.1
9.3 6.1
3.4 1.4
Jarque–Bera statistics
12.4 64.4
86.5 37.2
11.1 3.9
Jarque–Bera probability
0.0 0.0
0.0 0.0
0.0 0.1
Data of the CPO produced by the public estates and private companies were used in the estimation of the adjustment system. Table 5.1 shows that all of these variables have
large differences between the minimum and maximum values. The skewness values and the large difference between the mean and median values indicate that these data are
distributed symmetrically in the private production data but not in the public estates production data. The public estates data have a kurtosis value greater than the normal
distribution, indicating a small variance and a thin tail, while that of the private data is smaller than for the normal distribution, indicating a large variance and a fat tail. Finally,
the Jarque–Bera statistics indicate that the normal distribution hypotheses are rejected in all of these data.
5.2 Demand equation and adjustment system
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