Journal of Agribusiness in Developing and Emerging Economies

Chilli production and adoption of chilli-based agribusiness in Indonesia

Joko Mariyono Sumarno Sumarno
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in Indonesia", Journal of Agribusiness in Developing and Emerging Economies, Vol. 5 Iss 1 pp. 57 -
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Chilli production and adoption Chilli-based

agribusiness
of chilli-based agribusiness in Indonesia
in Indonesia
Joko Mariyono and Sumarno 57
Faculty of Economics, University of Pancasakti, Tegal, Indonesia
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Received 13 January 2014

Revised 18 April 2014
25 May 2014
Abstract 27 June 2014
Purpose – Chilli plays an important role in the Indonesian economy through its multiplier effect. Accepted 27 June 2014
The recent rapid growth of chilli production in Indonesia can be explained by the development of
agricultural and communication technologies and improved market infrastructure. The purpose of this
paper is to analyse factors that affect farmers’ decisions to adopt chilli-based agribusinesses. Intensive
chilli farming, as a part of agricultural commercialisation, is considered a technological package that is
more profitable but also more input- and labour-intensive than the production of rice or other cereal
crops.
Design/methodology/approach – This study used a logit model to estimate the farmers’ decision
function. Personal characteristics, technical factors and business environment were hypothesised
to influence farmers’ decisions to adopt intensive chilli farming. Data for this study were compiled from
surveys conducted during 2009-2011. The surveys interviewed 300 farmer households in three main
chilli producing regions of Java, Indonesia.
Findings – The results indicate that younger farmers, and also farmers with more experience, were
more likely to adopt chilli farming. Availability of chilli production technology and the use of mobile
phones prompted farmers to adopt chilli farming. Access to vegetable markets, credit, and market
information were other factors driving farmers’ decisions to take up chilli production. Most farmers
were motivated to grow chilli to increase their incomes. Ecological factors were also the reasons.
Research limitations/implications – The sample for this research is quite low. However,
the sample was drawn from representative potential chilli production areas in Indonesia.
Originality/value – There is room to increase the number of chilli-based agribusinesses in Indonesia.
Intensive chilli farming should be introduced to young farmers and those with experience in vegetable
production. Farm credit, market information, and agronomic technologies should be made
more available and accessible to farmers. Strengthening communication networks among farmers
through the use of mobile phones is the best way to encourage farmers to adopt intensive chilli
farming. Vegetable markets should be established in potential chilli producing regions.
Keywords Indonesia, Java, Commercialisation of chilli, Intensive chilli farming, Logit model,
Technology adoption
Paper type Research paper

1. Introduction
Vegetable production, including chilli, plays an important role in global agribusiness.
Vegetable production tends to be more profitable than growing only cereal or staple
crops (Weinberger and Lumpkin, 2007; Ali, 2008; Johnson et al., 2008). Vegetables are
needed for daily dietary nutrition as well as to supply raw material for food processing
and pharmaceutical industries. Because of the high profitability of commercial
Journal of Agribusiness in
The authors thank the farmers who generously gave their time to provide information on crop Developing and Emerging
production practices, and anonymous reviewer(s) for constructive comments and suggestions. Economies
Vol. 5 No. 1, 2015
The authors acknowledge ACIAR-funded IDM-Chilli project led by Dr Gnifke of AVRDC-The pp. 57-75
World Vegetable Centre, and a business research project of Pancasakti University for providing © Emerald Group Publishing Limited
2044-0839
data. The interpretations and errors are responsibility of authors. DOI 10.1108/JADEE-01-2014-0002
 JADEE vegetable production, the potential exists for much higher impact on household income
5,1 if land and other inputs devoted to vegetables increases.
Global production of chilli has grown on average by 3.9 per cent per year during the
last decade, led by a steady increase in demand. In 2012, chilli was cultivated over an
area of 1,900,000 ha, with production of 31,170,000 t. The top five chilli producing
countries are China, Mexico, Turkey, Indonesia and Spain, which accounted for almost
58 75 per cent of the world’s production (FAOSTAT, 2013). China contributed more than
half of global chilli production (Figure 1).
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1.1 The importance of chilli in Indonesia

In Indonesia, chilli is an important part of life and, for most people, meals are not
satisfying unless chillies are included the dishes or served on the side as a condiment.
A large part of national chilli production is consumed daily in a fresh form. Chilli has
become a special commodity because of its capability to trigger high inflation. In 2010,
chilli contributed 0.32 per cent to total national inflation of 6.96 per cent in Indonesia;
chilli prices soared to record highs, provoking outrage in a nation that eats the tongue-
burning spice for breakfast, lunch and dinner (BPS, 2011). At about $11/kg – almost ten
times the usual price and more expensive than beef and chicken meat – chilli has truly
become a hot commodity on dining tables and in kitchens throughout Indonesia
(O’Loughlin, 2011). Considered as a staple by most people, chilli increasingly has
become a luxury item (Global Indonesian Voices, 2014). To control inflation rates,
the government has provided assistance to help farmers deal with unpredictable
climates, and formulated temporary trade policies on imports (Wicaksena and Permani,
2011). Chilli production receives special attention from Indonesia’s Central Bank. Even
Indonesian President said that “people should be creative in planting chillies,
an essential ingredient in Indonesian cuisine”. Indonesian people have been urged to
grow their own chillies in an attempt to deal with an extraordinary increase in chilli
prices (BBC News, 2011).
Chilli was still one sources of inflation in the foodstuffs component in January 2013.
The price increased mainly due to lower domestic supply ( Juniman, 2013). Recently,
Indonesian Finance Minister reported that the country’s inflation in 2013 exceeded
the target set in the state budget on food price hikes. Importantly, the rice supply

Rest of the
world, 26%

China, 51%
Spain, 3%
Indonesia,
5%

Figure 1. Turkey, 7%
Global share of top
five chilli-producing Mexico, 8%
countries Source: FAOSTAT (2013)
 should be sufficient in addition to supplies of other food products such as shallot and Chilli-based
chilli; and gasoline is no longer the major contributor to inflation (Antara News, 2014). agribusiness
Chilli is an important cash crop that provides a significant contribution to the
local and national economy through its multiplier effects. Moving from rice farming to
in Indonesia
chilli-based agribusiness makes rural economies more vibrant by increasing
opportunities for labour and material-intensive farming. Intensification sparked
activity in local markets, particularly through agricultural inputs and products 59
(Mariyono and Bhattarai, 2011). Chilli is a high value cash crop and needs more inputs,
particularly labour, than cereal and staple crops (Ali, 2006; Mariyono and Bhattarai,
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2009). The multiplier effects of chilli cultivation include employment creation,

agribusiness development, and improvements in local transportation, all of which
accrue to the rural community. At the national level, chilli provides income,
employment, and nutritional benefits to millions of smallholder farmers, rural
labourers, and consumers.

1.2 Chilli on the supply side

Chilli production uses about 20 per cent of the vegetable land and produces 12 per cent
of the total vegetable output, with a lower average yield than other vegetables in
general (White et al., 2007). Among the vegetables grown in Indonesia, chilli is
the highest in terms of acreage and production. The five major vegetables produced in
Indonesia and their respective production levels in 2013 are shown in Figure 2.
Chilli is produced year-round, but there are two main production seasons: one
starting from mid-February with a harvest running from late April to early June,
and the other starting in late July with a harvest running from September to as late as
early November. Monthly production of chilli nationwide, averaged by month over the
period from 2000 to 2013, ranges from 60,000 to 150,000 t with a peak in April and a
lower peak in September. Variations in weather, planting and other factors can
overwhelm seasonal output effects (Webb et al., 2012). Year-round patterns of
chilli productivity in Java reveal a sigmoid shape, meaning that the supply of chilli
fluctuates (Wijayanto et al., 2014).

2,500

2,000

1,500

1,000

500

Figure 2.
0 Area and production
Chilli Shallot Cabbage Leeks Carrot of top five
Area (*100 ha) Production (*1,000 t) vegetables in
Indonesia, 2013
Source: Indonesian Stat. Agency (BPS) (2013)
 JADEE Annual chilli-sown area has fluctuated over the last 25 years (Figure 3). In 2013, chilli
5,1 was cultivated on about 240,000 ha, with annual production of close to 1,600,000 t,
which was about 5 per cent of the global production. Indonesia is the fourth largest
chilli producer in the world (Indonesian Commercial Newsletter, 2013).
Chilli acreage started increasing in the early 1980s, from a base of approximately
50,000 ha. Production increased dramatically during the 1980s when there was a
60 substantial improvement in irrigation infrastructure and intensification of paddy.
The chilli-cultivated area reached a peak of around 230,000 ha in 1990. After that, the
crop acreage dropped to about 150,000 ha in 2001, and increase again to about 240,000
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ha in 2012. There was a dramatic decline in chilli production from 1,100,000 t in 1999 to
only about 600,000 t in 2001 due largely to a long drought.
Since average yields have remained steady over the period (at around 4-6 t/ha), it is the
dynamics of chilli-sown areas that determines chilli production levels in Indonesia.
Compared to regional and international standards, the average yield is considered very
low (Ali, 2006) and far below the potential of 15-20 t/ha (Indonesian Commercial
Newsletter, 2013). The low yield is due to many factors such as pest and disease
outbreaks and extreme weather conditions. This suggests an opportunity for high
yielding cultivars and better management practices to increase national production by
enhancing productivity without jeopardising grain production areas ( Johnson et al., 2008).

1.3 Chilli on the demand side

In Indonesia about 70 per cent of chilli is consumed fresh and 30 per cent is eaten in the
form of sauce. Chilli is a food commodity that has no substitute (Indonesian
Commercial Newsletter, 2013), leading to fluctuations in chilli production and unstable
market prices. Demand for chilli is very inelastic (Ali, 2006). At the beginning of 2011,
there was a 14 per cent price increase for every 1 per cent decline in supply. Although
the price surge during late 2010 to early 2011 was extraordinary, this was not
an isolated event for the preceding ten years. Chilli prices have shown a high degree of
volatility over the past decade since the 1997 Asian financial crisis led to relaxed
government control of commodity markets (Webb et al., 2012).

250

200

150
Value

100

50

0
Figure 3.
1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013
The dynamics of
chilli area, yield and Year
production in Area harvested (in 1,000ha) Production (in 10kt) Yield (in 0.1 t/ha)
Indonesia
Sources: Indonesian Stat. Agency (BPS) (2013); FAOSTAT (2013); Ferrari (1994)
 Since the last decade, chilli prices have undergone high month-to-month variability. Chilli-based
For the island of Java, where more than 60 per cent of chilli production occurs, agribusiness
monthly retail price data suggest that the chilli market is highly integrated.
Prices in one region or city are closely linked to prices in other regions (Webb et al.,
in Indonesia
2012). The spread between the minimum and the maximum price indicates that there
have been periods of distress selling, when prices were extremely low, and periods
of severe shortages, when prices were three to four times the average. The extreme 61
volatility of chilli prices are a focus of government and public concern. More price
volatility would mean higher risk premiums for traders and other middlemen,
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and broader farm-retail price spreads and a less efficient market for a key
Indonesian food product (Webb and Kosasih, 2011).
As chilli is grown as a cash crop, growing chilli intensively leads to commercialisation
of agriculture. In Indonesia, intensive chilli farming is conducted by smallholders.
Improvements in chilli cultivation practices, availability of improved quality of crop
varieties, and improvement in irrigation infrastructure are some of the reasons
attributed to the recently observed improvement in chilli production in Indonesia
(Mariyono and Bhattarai, 2009).
Most development economists consider smallholder commercialisation as a crucial
feature of the development process. It is the main pathway from a semi-subsistence
agricultural society to a more diversified economy based on high-valued crops
and a more food secure economy with higher standards of living. The process starts
with broad-based agricultural growth, causing a build-up of purchasing power by
millions of small farmers. These millions of farmers spend and recycle more cash
through the economy, stimulating demand and employment growth in non-farm
sectors, which in turn increases the demand for food and other farm products in
a virtuous cycle where rural and urban labour forces provide a market for each other
( Jayne et al., 2011).
Despite the rapid growth of chilli production, Indonesian chilli production is still low
in terms of global share. There is enough room to expand chilli production in Indonesia
by promoting intensive chilli farming to farmers who have not yet adopted the crop.
The adoption of intensive chilli farming is an important part of agricultural
commercialisation in Indonesia. To that end, this study evaluates the rapid growth of
chilli production during the past decade, and provides answers as to why some farmers
were willing to grow chilli and others were not.

2. Literature review
In current policy dialogues, commercialising agriculture is seen as a key element in
achieving economic growth and poverty reduction in developing countries,
including Indonesia. Agricultural commercialisation is characterised by
specialisation and the development of markets and trade that are fundamental
to economic growth (von Braun and Kennedy, 1986, 1994). As the movement
from subsistence to commercialisation of agriculture is the key point of agribusiness,
the government should encourage smallholder farmers to participate in market-
oriented farming.
Commercialisation of smallholder agriculture is not an instantaneous process. Leavy
and Poulton (2007) identify drivers of agricultural commercialisation, i.e. population
growth, new technology, market access, intensification, and asset accumulation.
More comprehensively, Poole et al. (2013) highlight that commercialisation of
agriculture requires a series of certain attitudes, which comprise a commitment to
 JADEE farming and new technologies, a low threshold of risk aversion, willingness to invest in
5,1 land and soils, access to finance, skills in managing business relations, price negotiation,
time spent in markets, product and process quality control and assurance, continuous
improvement and efficiency enhancement. Also, group activity with the inherent
operational and management challenges is necessary to reduce transaction and
transformation costs, and involves significant individual and organisational learning.
62 With respect to risk, Ikerd (2011) pointed out that farming is a risky business, and
that the low threshold of risk aversion is a critical factor for a successful
agribusiness. Diversification of agriculture is one way to reduce economic and
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ecological risks, as well as to increase farm profitability (Mariyono, 2007).

Agricultural diversification with high-value crops is also one of the several
pathways to agricultural development (Kumar, 2009). Availability of farming
technologies becomes important to support commercialisation. Investment in
intensification of land use is only possible with nutrient replenishment to the soil to
sustain its productivity. In subsistence societies, the soil nutrient supply is
replenished by farmyard manure. As output growth is intensive, commercially
oriented agricultural production systems are not possible in the absence of chemical
fertilizer use (Pingali and Rosegrant, 1995). In the case of cassava in Africa,
unavailability of adequate agricultural technologies such as disease-free planting
materials and disease-tolerant varieties has impeded the adoption of
commercialisation technologies (Mulu-Mutuku et al., 2013).
If diversification with high-value crops and commercialisation of agriculture are
driven by technological change (Pingali and Rosegrant, 1995), then the adoption of
agricultural technology becomes an important factor. Successful adoption
of technology “can be a powerful force in reducing poverty” (de Janvry and
Sadoulet, 2002, p. 1), and new technology seems to provide opportunities to increase
production and income substantially (Feder et al., 1985; Selvaraj, 2009). Changes in
agricultural technology have always been important components in the progress of
human societies, and more so recently in the development of modern agriculture with a
range of technologies (Huang et al., 2004). One key innovation that will be necessary
to improve the productivity of diversified farming systems is the introduction and
adoption of technologies that reduce costs and help farmers manage and optimise input
allocation in multiple crop systems. These technologies are costly, however, and the
development of innovative low-cost, practical strategies that reduce the costs
of production in diversified farming systems in the developing world will be necessary
if they are to be widely disseminated (Bowman and Zilberman, 2013).

3. Methodology
3.1 Model of analysis
This study uses technology adoption framework for analysing factors explaining the
decision of farmers to enter chilli-based agribusiness in Java, Indonesia. The factors
comprise personal, technical, and business aspects. Java accounts for about 60 per cent
of chilli consumption in the country and Java is also the largest producer of chilli.
The chilli market for the island of Java is highly integrated, meaning that prices in
one region or city are closely linked to prices in other regions (Webb et al., 2012).
The framework of this study is represented in Figure 4. Whether or not farmers
decide to enter chilli-based agribusiness in the market depends on many factors.
Each factor simultaneously affects farmers, such that some farmers are likely to enter
chilli-based agribusinesses, and others are unlikely to do so.
 Chilli-based
Personal factors: age,
education, experience, agribusiness
wealth, family member
Adopt intensive
in Indonesia
chilli farming
FARMER

Technical factors: farm

size, agronomic
63
technology, cell-phone
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Not adopt
intensive chilli
farming
Figure 4.
Process of farmers’
Business environment: Other factors: residuals decision to adopt
credit, market information excluded from the intensive chilli
and distance to market model farming

In a mathematical form, the farmer’s decision model can be expressed as:

(
1 X
k
Y ¼ b0 þ bi X i þ e
0 i¼1

where Y ¼ 1 if farmer enters chilli-based agribusiness or Y ¼ 0 otherwise, X is a vector

of factors affecting farmer’s decision, β are coefficients to be estimated, and ε is
residuals capturing other factors beyond this analysis. Following the procedures
provided by Park (2009), this study employs a logit approach to estimate the farmer’s
decision model. The logit shows that more or less likely for Y ¼ 1 is dependent on factor
X. If β is positive, an increase in X leads to more likely for Y ¼ 1, and vice versa
(Verbeek, 2003). The marginal effect of X is computed to perceive the real
approximation to the amount of change in Y that will be produced by a one-unit change
in X[1]. A set of hypotheses are built and tested at z critical 1, 5 and 10 per cent levels.

3.2 Data and variables

This study is based on a set of cross-section data collected from surveys carried out
during late 2009 – early 2011. At the micro level, cross-section analysis is able to
answer important questions about technology use. Cross-section data also can
articulate farmers’ preferences, and provide some information on patterns of adoption
and non-adoption (Doss, 2006).
Primary data were collected at farm level in three main regions of Java, where more
than half of national chilli production occurs. Household level data were collected using
individual interviews, and qualitative data were collected from group discussions
among selected farmers. Group discussions focused on the motivation of farmers to
engage in agribusiness based on intensive chilli farming. The motivations of adopting
chilli farming were analysed using a weighted average[2].
Individual interviews were conducted in 300 farmer households. About one-third
of households were non-chilli adopters. Definition and measurement of selected
variables influencing decision to grow chilli are provided in Table I. The justification
for selecting explanatory variables follows:
 JADEE Variables Definition Measure
5,1
Adopter of chilli-based Farmer who operate chilli farms 1 ¼ yes
agribusinessa 0 ¼ otherwise
Age Age of household head Year
Education level Length of formal education of household head Year
Experience in vegetable Time spent in vegetable farming Year
64 Family member Number of family members in a household Numeric
Size of farm Total area cultivated to crop m2
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Number of plots Number of plots Numeric

Wealth rankingb Social status in the village 1 ¼ poor, 2 ¼ medium, Rank order
3 ¼ rich
Access to credit Whether farmers access credit for farming 1 ¼ yes; 0 ¼ no
Agricultural training Participation in agricultural training programme 1 ¼ yes; 0 ¼ no
Use of cell-phone Whether farmers use cell phones in farming business 1 ¼ yes; 0 ¼ no
activities (for marketing)
Agricultural technology Number of vegetable-related technologies locally Numeric
available and accessible to farmers
Distance to market Distance to nearest local market to sell chilli km
Table I. Market information Availability of market information 1 ¼ yes; 0 ¼ no
Definition and Notes: aNon-chilli grower is a farmer who either stopped growing chilli in the past few years or never
measurement of grew chilli because of various reasons; bwealth status is relative rank based on land holding, type of
selected variables house, vehicle and livestock ownership and non-farm occupation

Age of household head represents emotional maturity and physical ability.

This variable was used as an explanatory variable in studies on adoption of
agricultural technologies of chilli (Kuntariningsih and Mariyono, 2013) and rice
(Kariyasa and Dewi, 2013) in Indonesia, and dairy farms in the USA (El-Osta and
Morehart, 1999). In general, the effect of age on technology adoption is in a parabolic
form, meaning that positive impact occurs at certain ages, and becomes negative after
a critical point when farmers are getting older.
Education of household head reflects human capital. It is expected that a higher
level of education leads to more rational decision making. Many studies use this
variable to explain the adoption of agricultural technologies (e.g. Caswell et al., 2001;
Fernandez-Cornejo et al., 2001; Nzomoi et al., 2007; Wang et al., 2006).
Experience in vegetable production represents the farmer’s familiarity with
vegetable production, which is considered more complex than other cereal crops.
Farmers with experience in vegetable production are expected to be more likely to
adopt intensive chilli farming. As this is a particular study on chilli adoption, similar
studies on vegetables including experience on vegetable farming, are still limited.
A study by Kuntariningsih and Mariyono (2013) uses this variable in explaining
farmer’s decisions to select specific agricultural technologies in chilli production.
Number of family members determines the availability of family labour that can be
devoted to intensive chilli farming. Since chilli farming is labour intensive (Mariyono and
Bhattarai, 2011), the number of family members is expected to be more likely for farmers
to adopt an intensive farming system. A significant contribution of this variable to the
adoption of agricultural technology is shown by Fernandez-Cornejo et al. (1994).
Size of farm represents scale of farming, which eventually determines profitability.
It is expected that a larger scale of farm leads to more likely adoption. Studies by
El-Osta and Morehart (1999), Fernandez-Cornejo et al. (1994, 2001), Nzomoi et al. (2007)
 and Roberts et al. (2002) show that size of farm significantly affects adoption Chilli-based
of agricultural technology. agribusiness
Number of plots represents land fragmentation. When land is fragmented
in separate plots, it will be less efficient for intensive farming operations, and farmers
in Indonesia
will become discouraged. In India, a study reveals that fragmented landholdings are a
major hindrance in the adoption process (Firdaus and Ahmad, 2010).
Wealth ranking reveals relative social status and richness in the community. 65
Since intensive chilli farming is very costly, a farmer with higher wealth ranking is
expected be more likely to engage in chilli-based agribusiness. A study shows that
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richer farmers tend to adopt new technology (Jayasinghe-Mudalige and Weersink,

2004), but Ghadim and Pannell (1999) surmise that richer farmers are unlikely to adopt
improved technology recommendation.
Access to credit enables farmers, regardless of whether they are rich or poor, to have
cash to finance intensive agriculture, including chilli farming. This variable
has particular impact in the commercialisation of agriculture over the world. Among
others, Kafle (2010), Kumar (2009), Kuntariningsih and Mariyono (2013), Nzomoi et al.
(2007), Raut et al. (2011) and Zeller et al. (1997) reveal that easy access to credit is
a major determinants that has strong positive influences for technology adoption.
Agricultural training equips farmers with technical skills and practical
knowledge. Participation of agricultural training enhances human capital.
This variable is considered an important factor in the adoption of agricultural
technology in general. In Thailand, knowledge is one of the important factors
affecting farmers’ ability to apply good agricultural practices in chilli production
(Athipanyakul and Pak-Uthai, 2012). Mauceri et al. (2005), Mariyono and Setyoko
(2006) and Yang et al. (2008) show that agricultural training influences the level
of technology adoption. This is supported by a fact that higher frequency of
extension contact, which is higher exposure to knowledge, leads to rapid adoption
(Asrat et al., 2009; Ghadim and Pannell, 1999; Kafle, 2010).
Use of cell phone enables farmers to access information related to chilli-based
agribusiness. With more complete market information, it is more conducive for farmers
to operate their own businesses. The effect of cell phone usage on the
commercialisation agriculture has been studied by Bresnyan (2008) and
Kuntariningsih and Mariyono (2013), indicating that the use of cell phones leads to
more prospective technology adoption.
Agricultural technology related to vegetable farming enables farmers to operate
efficient farms. The greater the number of agricultural technologies applied in farming,
the more efficient the farming is. With availability of agricultural technology, farmers
are more likely to engage in agribusiness (Kafle, 2010; Kariyasa and Dewi, 2013; Raut
et al., 2011).
Distance to market represents cost-effective marketing of produce. Since chilli is a
perishable product, the distance to vegetable markets is important. Many studies
have shown that distance to market is the significant driving force behind the adoption
of agricultural technology (Kariyasa and Dewi, 2013; Raut et al., 2011; Wang et al.,
2006). The closer farmers are to a vegetable market, the more likely it is for a farmer to
adopt agribusiness.
Available market information to farmers reduces asymmetric information between
farmers and traders. Asymmetric information, i.e. lack of knowledge about prevailing
prices, demanded quantity and preferred quality, caused farmers to have relatively
low bargaining power (Soviana and Puspa, 2012).
 JADEE 4. Results and discussion
5,1 As reported in Table II, the selected factors are expected to explain why some farmers
adopt chilli-based agribusiness and others do not. The result of the logit model shows
relatively strong variables that explain the variation in farmers’ decisions. Overall,
the results from the logit model is significant at 99 per cent of confidence level, despite
the relatively low coefficient of determination as noted by pseudo R2, which accounts
66 for only 40 per cent. This result is reasonable in the absence of several other factors
such as agro-ecological factors and structural, institutional and policy elements in our
model that may also influence farmers’ decision to grow chilli. The compilation of all of
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this information at the household level, as would be required for econometric modelling,
is out of the scope of this study.
There are six variables that are insignificant in affecting farmers’ decision to adopt
intensive chilli farming: formal education, number of family members, wealth ranking,
size of farm, number of plots, and agricultural training. The insignificance of such
variables means that they have no influence on farmers’ decision making. However,
these variables do tend to affect farmers’ decisions as follows.
Formal education has insignificant negative impact. This is contrary to our
expectation, and it needs to be explored more thoroughly in a subsequent study.
One possible cause is that topics taught in formal education are general and do not
specifically emphasise agricultural subjects. With respect to agricultural development,
Indonesia as an emerging economy should prioritise effective and efficient formal
education which will integrate practical knowledge and technical skills appropriate to
the rural context and which will enable young generations to participate in the
development of rural areas as per suggestion of Poole et al. (2013).
The impact of number of family members is insignificant and negative.
This indicates that farmers with a large number of family members do not
necessarily grow chilli, even though chilli farming is a labour-intensive task. All family

Logit model Marginal effect

Variable Coef. z-value dy/dx z-value
d
Constant 2.462 1.46
Age of household head −0.052 −2.34b −0.005 −1.90b
Formal education −0.114 −1.26d −0.011 −1.16d
Experience in vegetables 0.063 2.80a 0.006 2.26b
Family member −0.125 −0.81 d
−0.012 −0.80d
Wealth ranking 0.119 0.40d 0.012 0.39d
Size of farm 6E-05 0.79d 6E-06 0.78d
Number of plots −0.105 −0.61d −0.010 −0.61d
Access to credit 2.603 2.46b 0.160 3.20a
d
Agricultural training 0.453 0.70 0.040 0.77d
Use of cell phone 3.341 3.16a 0.238 4.35a
Available technology 0.675 2.80a 0.066 2.34b
Distance to market −0.109 −2.07 b
−0.011 −1.78c
Market information 1.096 2.65a 0.110 2.17b
LR χ2 104.36a Y ¼ Pr(Adopt) ¼ 0.89
Table II. Pseudo R2 0.40
Estimated logit Notes: Superscript letter following z-value and χ2 indicates asignificant at 99 per cent confident
model and its interval; bsignificant at 95 per cent confident interval; csignificant at 90 per cent confident interval; dnot
marginal effects significant
 members of a household do not engage in chilli farming, typically only trained Chilli-based
or experienced members. agribusiness
Size of farm is insignificant but has a positive effect on farmers’ decision to grow
chilli. There is a tendency that farmers with large farms are more likely to grow chilli.
in Indonesia
Chilli production requires operating capital, and farmers with larger farms are
wealthier and can better manage high capital operations than those with small farms.
Insignificant impact indicates that opportunities for farmers to adopt chilli farming are 67
equal between small and large farms. This could be because farmers who want to grow
chilli experience no major difficulties in accessing credit to meet the high operating
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capital costs for chilli.

Number of plots, which represents land fragmentation, has insignificant negative
impact on the decision to grow chilli. Farmers with more fragmented land tend to be
less likely to grow chilli. This is plausible because farmers need to monitor chilli fields
regularly, and carrying out pest and disease control and other operations will be easier
if there is one plot rather than many plots.
Wealth rank status is insignificant and positive. This means that high-income
farmers are more likely to grow chilli than low-income farmers. This is consistent with
the effect of the size of land, where larger farms indicate richer farmers. However,
the net effect of wealth is marginal in our model, as farmers in the surveyed sites have
relatively easy access to credit if they want to grow chilli.
Training in agricultural practices, as expected, has a positive impact on the decision
to grow chilli, even though it is insignificant. Trained farmers are more likely to adopt
chilli farming as their technical knowledge improves and they gain an understanding
of sophisticated vegetable production methods. This is also consistent with the effect of
farmers’ experience in vegetable farming.
Among selected variables, age of household head and distance to vegetable market
have significant negative impact. This means that as farmers become older, they are
less likely to grow chilli. This is reasonable, because older farmers are less capable
of operating input- and labour-intensive chilli farms. In many cases, farmers used to
grow chilli, but stopped because of their age. Older farmers are supposed to be
incapable of adjusting to modern high-tech farming systems. Therefore, they have
remained at the subsistence level with little mechanisation and traditional farming
methods (Karembu, 2013). Younger members of the household live in urban areas or
nearby cities. This fits a statement by Karembu (2013, p. 94) that “[…] status quo has
only served to further demotivate the youth as farming is portrayed as a punitive,
inferior and non-profitable enterprise”.
Distance to market vegetables represents cost-effective and efficient transportation
for selling the product. It is reasonable to assume that the further farmers are away
from the market, the less likely it is for farmers to adopt an agribusiness approach to
chilli production. In a similar case, better transportation infrastructure can reduce
transport and intermediation costs and cut the distance between farmers and markets
for remote, rural communities (Bresnyan, 2008), as rural roads can increase market
access ( Jouanjean, 2013). This condition leads to a higher rate of interregional
commodity exchanges. In Indonesia, a reduction in trade and transport margins
can reduce interregional agri-food prices (Rum, 2011). In India, efficient transportation
decreases trade costs and interregional price gaps, increases interregional and
international trade, and eventually increases real income (Donaldson, 2010).
Interregional trade provides a price stabilizing effect, allowing farmer associations to
hedge against price risk (Bresnyan, 2008).
 JADEE Having experience in vegetable farming, access to credit, use of cell phone,
5,1 availability of agricultural technologies and market information have a positive
significant impact on the adoption of chilli-based agribusiness.
Experience in vegetable farming has significant positive impact on the probability
of farmers to grow chilli. Thus, farmers with more experience in vegetable production
are more likely to grow chilli. This is a plausible finding: Experience is a good teacher.
68 With more experience in vegetable farming, which is relatively riskier than rice
and other food crops, farmers can cope with problems and risks associated with chilli
farming. Chilli is also one of the riskiest crops, with high variation of chilli yields among
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chilli growers (Mustafa et al., 2006; Bhattarai and Mariyono, 2009).

Access to credit has a positive and significant effect on the decision to grow chilli.
This means that farmers who can access credit are much more likely to grow chilli than
other farmers. Farmers can use credit to finance operating capital for chilli production.
This is also the reason for why the size of farm and household wealth status are
relatively less importance to the likelihood of farmers to adopt chilli production.
This finding confirms previous studies in Indonesia and other developing countries.
Use of cell phone has positive and significant impact on the probability of farmers to
adopt chilli farming. Farmers who have personal mobile phones are more likely to
adopt chilli farming than farmers who do not have mobile phones. This is logical
because by using mobile phones, farmers can get more accurate market information,
such as prevailing prices at the markets and chilli production levels in other regions.
In many cases, farmers with mobile phones obtain chilli price information by calling
2-3 traders before picking up the chilli the following day. Access to mobile phones has
dramatically changed the flow of market information in chilli production areas in
Indonesia; it has also strengthened farmers’ bargaining positions on price.
The number of vegetable-related technologies available in the local market, such as
hybrid seeds, modern fertilisers and crop protection agents, significantly leads to
a greater likelihood of farmers conducting intensive chilli farming. Such technologies
make the environment conducive for engaging in vegetable agribusiness, including
chilli. Prabha and Chatterjee (2009) show positive impacts of agricultural technologies
such as modern fertilizers and high yielding varieties on agricultural productivity.
In India, the limited availability of appropriate technologies for chilli production is the
main factor associated with a decline in chilli-cultivated area (Rajput et al., 2007).
Availability of market information has significant influence on the adoption of
intensive chilli farming. When market information is available and accessible to
farmers, chilli farming becomes less risky, and farmers have stronger bargaining
power, particularly in negotiating product prices.
Note that ownership of mobile phones has the largest magnitude of marginal effect,
followed by having access to credit and availability of market information.
This indicates that these factors are the most important factors for adoption of
intensive chilli farming. Mobile phones play an important role in accessing crucial
information related to high-value crops. Credit is also important for financing capital-
intensive agribusiness. Easy access to microcredit will help farmers who plan to
operate chilli-based agribusiness and produce other high-value crops. This fits
the suggestion of Pinder and Wood (2003), that at the micro level, policies need to
improve access to credit and inputs for small-scale farmers. In addition, the policy is
likely to provide them with guaranteed markets and promote the development of a
competitive agricultural production and marketing system. In the long term,
functioning rural finance institutions can leverage social capital. Public policy can
 support pilot testing of technological innovations that reduce costs and risks of offering Chilli-based
financial instruments to rural small-scale producers. Just like cell phones can speed agribusiness
market and price information to producers, so-called m-banking can also dramatically
reduce transaction costs for rural financial transactions (Bresnyan, 2008).
in Indonesia
The results of the logit model confirm the results of the group discussions, provided
in Table III. Economic motive has the highest weighted rank, meaning that farmers
enter chilli-based agribusiness largely due to their profit orientation. Chang et al. (2012) 69
confirm that farmers who invest in high cost production are rewarded with high
profits. This fits with the commercialisation of chilli farming in rural areas. Ecological
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motives also rank high because chilli needs a special agro-climate to achieve its
yield potential. A previous study by Noorhadi and Sudadi (2003) shows a similar factor
set in vegetable farming in Indonesia. Other reasons, such as good fit with the local
cropping pattern followed and government incentives, were less important in
influencing farmers’ decision to grow chilli.
At this point, the rapid growth of chilli production, which results from expansion of
the area cultivated to chilli, is understandable. The development of telecommunications
technology in Indonesia has provided everyone (including farmers) with affordable
access to cell phones. The government and the private sector have provided farmers
with easy access to credit, in collaboration with rural cooperatives. Every month during
the planting season, units of mobile banking open and provide banking services
in rural areas. Markets and supporting infrastructure have been established near
existing chilli producing regions, to make it easy for chilli farmers to sell the product
efficiently. In collaboration with international research centres, national research and
development institutions have been discovering and disseminating vegetable-related
technology during the past decade. All these factors have simultaneously led to the
expansion of chilli production in Java, in particular, and in Indonesia in general.

5. Conclusion and policy implication

Intensive chilli farming provides more income and employment than other crops, and
the whole rural community benefits due to more employment created in rural
communities. However, farming largely has been done by a small fraction of farmers.
There is enough scope to increase the number of smallholder farmers participating in
chilli agribusinesses. There are some major factors affecting the decision of farmers to
grow chilli intensively in Java. The older and further farmers are away from vegetable
markets, the less likely it is that they will engage in intensive chilli farming. However,

Motives Weighted rank (R) % of response

Higher profitability than other crops 6.63 94

Suitable to micro-climate condition 4.32 86
Meet the local soil ecology 4.00 79
Personal interest in chilli farming 2.86 61
Experience in chilli cultivation 2.83 57
Following neighbouring farmers 2.27 46
Following cropping pattern 1.14 28
Government encouragement 0.21 4 Table III.
Notes: R ¼ weighted rank value for each reason; the higher the rank value, the more important Motivations for
the factor growing chilli
 JADEE having experience in vegetable cultivation, having access to credit, and using cell
5,1 phones encourages farmers to adopt intensive chilli farming. Availability of vegetable-
related technologies and market information creates a favourable environment for
farmers to adopt chilli-based agribusiness. Farmers decide to operate intensive
chilli farms because of economic and agro-climatic motives. These findings explain the
substantial growth of chilli production in Indonesia, where more land has been devoted
70 to chilli production. The government has established vegetables markets or
agribusiness terminals relatively close to vegetable production pockets, and
improved transportation modes and infrastructure in rural areas. Recently,
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information technology has been accessible to everyone, including farmers, at

affordable costs.
In response to more expansion of chilli production in other regions, it is
recommended that intensive chilli farming technology should be introduced in
communities where farmers have easy access to credit, are still young, yet have
experience in vegetable farming. In such communities, intensive chilli farming will be
adopted widely by farmers. Importantly, where farmers are already familiar with
the use of cell phones, they are more likely to adopt chilli farming, as they have access
to accurate market information. Vegetable markets and agronomic technologies that
support intensive chilli farming should be provided, and market information should be
regularly updated. In the long run, providing vocational education – particularly
on agricultural subjects – in rural areas will encourage young people to engage in
promising agribusinesses. The findings from this study are expected to contribute to
better planning and targeting of vegetable research and development activities
in Indonesia.

Notes
1. The marginal effect of a continuous explanatory variable is the partial derivative with
respect to that variable. But, the marginal effect of a dummy explanatory variable is
the difference in predicted probabilities of X ¼ 1 and X ¼ 0, holding all other independent
variables constant at their reference points (Park, 2009).
P
nS
2. The weighted average rank is calculated as R ¼ N , where n is number of farmers
responding to each category, N is total sample and S is score, with the higher score the
more important.

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About the authors

Dr Joko Mariyono is a Member of Academic Staff in the Department of Economics, Pancasakti
University, Tegal – Indonesia. He holds PhD in economics from The Australian National
University, Canberra. He specialises in rural and development economics, and his research
expertise includes econometric and micro-economic modelling, micro-economic impact evaluation
of innovation and dissemination of technology, economic sustainability of rural and agriculture
development, and agribusiness. He is the author of over 50 professional and technical papers
including book chapters and training modules. He also provides consultancy services to research
and development institutions in Indonesia and overseas. Dr Joko Mariyono is the corresponding
author and can be contacted at: mrjoko28@gmail.com
Sumarno is a Member of Academic staff in the Department of Economics, Pancasakti
University, Tegal – Indonesia. He graduated from Diponegoro University – Indonesia, and holds
Master of Science with concentration on Business. His research interests include financial
management, business management and marketing. He has taught many subjects in business
management. Currently, he serves as Vice Rector of the university.

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