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with minimum agricultural practices. The reason may be lower input requirements and hence lower production costs when these practices are followed. This can also be
ascribed to the restructuring of farming patterns, as rubber production is carried out. Under monoculture system, lower production costs are realized mainly because
producers rarely use expensive inputs like chemicals and fertiliser since they are heavily subsidized. Therefore, even though the results under smallholder rubber
agroforestry system lie under efficient schedule, smallholder monoculture system is more efficient.
Furthermore, location may also have an effect to the smallholder’s efficiency. Closer to the auction market implies that producers realize higher rubber prices than
far from the auction markets i.e. Senamat village is closer than its counterpart this means that Muara Kuamang is prone to sell its rubber to traders for unfair prices.
This means that monoculture producers are better off than agroforestry producers as far as the above factor is concerned which could definitely undermine any
competitiveness a system may have in production.
5.3. Effect of Divergences or Policy Transfers
The analysis has highlighted the fact that market prices diverge from their underlying social valuations mainly because of government policies, particularly
taxation on imported chemicals and fuel. Table 15 shows negative values for factor transfers, which imply positive incentives for smallholder rubber farmers under both
systems. This can be attributed to the primary factors of production. Therefore factor transfers may include some effect of the policies and market imperfections that
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influence the profitability of alternative crops. With regard to output transfers, all values were found to be negative, which is a reflection of disincentives to farmers.
This may be a result of transportation costs that are prominent in fixing the producer prices for rubber. Consequently, input transfers also indicate disincentives, as positive
values show that farmers are paying input prices that are higher than world prices as a result of government policies.
This concerns the differences between private and social valuations of revenues, costs and profits. Any divergence between the observed price and the
estimated efficiency price is explained by the effects of policy or by the existence of market failures. Social prices correct for existence of distorting policies that lead to
an efficient use of resources. It is noted that not all policies distort the allocation of resources; some policies however, endorse to improve efficiency by correcting for
failure of product or factor markets to operate properly. A negative transfer in the total revenue indicated that the smallholders were receiving less than the border
parity price for the commodity. A negative transfer in the domestic factors represents a positive transfer to the producers smallholders under monoculture and agroforestry
systems of the commodity as this contributes to an increase in profit while a negative transfer in the tradable column indicated that smallholders are paying less than they
would if distortions were not present compared to how it would have been if the result was positive.
The value of output revenues transfer was negative for both rubber monoculture and rubber agroforestry Table 15 and the NPCO of these systems was
0.47 and 0.43 respectively Table 16. These suggest the existence of substantial
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output transfer from farmers to the economy. Apparently, it stemmed from two things, namely, failures in domestic market of output and overvalued official
exchange rates. Monoculture farmer and agroforestry farmers actually respectively received only 47 and 43 of the efficient f.o.b. price.
The value of tradable input transfer was negative for both rubber monoculture and rubber agroforestry Table 15 and the NPCI of these systems was 0.59 and 0.69
respectively Table 16. This indicates that producers in both systems are not taxed when they buy tradable inputs; hence here producers are protected because of
government’s subsidy on the tradable inputs like fertilizer i.e. Urea, TSP and KCI. According to the results, monoculture System looks to be benefiting from
subsidies as compared to the agroforestry system. Therefore other crops that are planted along side rubber in the agroforestry system also take advantage of the
subsidy provided by the government. These results are consistent with the negative divergences for both tradable input costs of both systems in the Policy Analysis
Matrix as shown in Table 15. The EPC values of 0.45 and 0.42 Table 16 for rubber monoculture and rubber
agroforestry respectively shows that the transfers of output and tradable inputs were significant. Output transfer from farmers to the economy was much higher than the
input transfer from the economy to farmers. The net transfer was negative in both rubber monoculture and rubber
agroforestry, but rubber monoculture provided much higher transfer than in rubber agroforestry. This was caused by the higher output quantity in rubber monoculture in
comparison with that in rubber agroforestry.
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5.4. Effects of Fertilizer Subsidy
