By Donni Fajar Anugerah
The agricultural sector plays a strategic role in Indonesia's economic development, contributing 13.70% to national Gross Domestic Product (GDP) in 2020. Notwithstanding, the contribution of the agricultural sector is decreasing.
The agricultural sector in Indonesia is also a significant contributor to environmental pollution given excessive use of pesticides and chemical fertilisers. According to a study by Kaika and Zervas (2013), declining agricultural production could be the result of contamination by pesticide residues and heavy metals in arable land and the water supply.
Against this backdrop, Sucihatiningsih et al. conducted research to measure and analyse the contribution of each agricultural subsector to the environmental quality index in the near and long term. The research focused on West Java, Central Java and East Java, with funding from the central bank through the Bank Indonesia Research Grant (RGBI) scheme.
In addition, the research also analysed public willingness to pay for ecolabel products, concluding with policy recommendations for the implementation of digital markets selling ecolabel-based products.
The research applies Vector Error Correction Models (VECM) and Panel Vector Error Correction Models (PVECM), along with logistic regressions and Analytical Hierarchy Processes (AHP).
The VECM approach showed that agricultural sector GDP has a significant impact on the current upward trend of methane gas, with a coefficient of 1.02%. Meanwhile, VECM analysis also demonstrated that regional horticultural subsector GDP has a significant effect on lowering the environmental quality index, with a coefficient of 1.66%. Based on individual inter-provincial estimations in West Java, Central Java and East Java using panel data at the regency and city administrative levels, the research found that regional agricultural sector GDP in the three aforementioned provinces does not affect sulphur dioxide in either the near or long term.
On average, approximately 82.6% of respondents from a sample of 300 stated their willingness to pay for agricultural products labelled as environmentally friendly. Based on the results of FGD and AHP analysis, the research concluded that market access was the main priority for green economy recovery efforts in Indonesia. This implies that market access must be unlocked by all relevant stakeholders, including the government, producers and consumers.
Based on AHP analysis, the overarching policy priority is the provision of market access for organic farmers. As farmer motivation is increased by attractive markets, particularly the organic price premium, farmers will directly and voluntarily increase their competencies and understanding of organic farming. Farm capacity and land intensification are another important factor. The most important determinants of increasing organic agriculture in Indonesia at the consumer level include: (i) setting economical and competitive consumer prices, (ii) consumer confidence in the products, and (iii) the health benefits.
The research revealed two primary determinants of consumers preferring conventional products over environmentally friendly alternatives. First, ecolabel products tend to be more expensive than conventional products. Second, a lack of public understanding regarding the urgency of ecolabel products. The higher price of ecolabel products compared to conventional alternatives is attributable to low demand and expensive raw materials, among others.
What is the role of government to encourage the public to purchase ecolabel products? Public education through ubiquitous smartphone technology is one strategy. The government could broadcast public service announcements through social media and collaborate with famous celebrities. In general, the public is easily swayed and persuaded by popular public figures. Alternatively, the government could provide incentive support by facilitating holiday tax certification and production permits for companies producing ecolabel products. Such measures would be expected to boost sales of ecolabel products.
