M. Muslich Mustadjab

Supply Response and Corn Price Volatility in Indonesia

Corn is a strategic commodity due to its high carbohydrate and protein content. In recent years, consumption for corn has increased because of the increasing population and high demand of corn from milling industries, livestock feed industry, and food consumption. The corn production fluctuates depending on weather and the presence of pests and diseases, whereas, corn consumption increases every year. Hence, the disequilibrium between production and consumption makes price fluctuate. There are many undesirable effects on the increase, such as: decrease or increase in the purchasing power of buyers and financial loses. Therefore it is important to analyze price dynamics of corn. The objectives of this research are to analyze the supply response in corn market, analyze corn price volatility in Indonesia, and choose the appropriate GARCH (Generalised Autoregressive Heteroscedastic) model to express price volatility. This research was conducted in Indonesia, because Indonesia is one of the top corn producers in the world. The methodology of this research uses GARCH model. The empirical results show that price volatility is an important risk factor.