The Effect of Fertilizer and Agricultural Machinery Subsidies on Paddy Productivity: A Feasible Generalized Least Squares Approach

Abstract

<p><em>Paddy is a commodity that is widely cultivated by farmers in Indonesia. Paddy farmers are currently facing the threat of declining farm productivity due to land conversion activities, access to inputs that are difficult to reach, and climate change. However, productivity can be increased through the use of fertilizer inputs and agricultural machinery. Government support for paddy farmers is provided through input subsidies and agricultural machinery. Therefore, this study explores the effect of input subsidies and agricultural machinery on paddy productivity. We selected 20 provinces with the highest proportion of paddy fields to the total area. Feasible Generalized Least Squares (FGLS) analysis is used to determine the effect of subsidies on fertilizers and agricultural machinery on paddy productivity in Indonesia. The results showed that input subsidies were mostly allocated to Java, Sumatra, and Sulawesi islands, while agricultural machinery was allocated more to Sulawesi and Nusa Tenggara islands. FGLS analysis shows that the area of irrigated land, subsidies for urea fertilizer, subsidies for NPK fertilizers, subsidies for ZA fertilizers, and grants for 2-wheel tractors affect increasing paddy productivity. Meanwhile, the effect of increasing temperature causes a decrease in paddy productivity.</em></p>

Implementation of Fertilizer Subsidies: Impact on Agriculture and Food Security in Indonesia (A Critical Review)

“…On the positive side, subsidies for fertilizer and agricultural machinery have been found to increase rice productivity, leading to higher rice production (Mulyono et al, 2023). In addition, the use of subsidized fertilizer has played a role in increasing national rice production and maintaining profitability for lowland rice farming (Priyanto et al, 2023). On the negative side, the increase in fertilizer prices due to global factors has led to a decrease in fertiliser availability and affordability for farmers, resulting in a decrease in production and productivity (Conway & Barbier, 1995).…”

“…The government provides fertilizer input subsidies to farmers with land areas of less than 2 hectares, which accounts for 89% of land-using households in Indonesia (Mulyono et al, 2023). The subsidy policy aims to increase poor farmers' purchasing power, agricultural productivity and income (Priyanto et al, 2023). However, there is a need to increase fertilizer use efficiency and maintain the volume of subsidized fertilizer due to the limited subsidy budget (Conway & Barbier, 1995).…”