The relation between finance utilisation and business performance in Indonesian horticulture

Finance is important for Indonesian farmers to purchase agricultural inputs and machinery and to pay for hired labour, which can improve farm performance. Farmers in Indonesia can access finance from various finance providers, i.e. banks, micro-finance institutions, farmers’ associations, traders, agricultural input kiosks and so-called “other sources” such as family and friends. The overall objective of this thesis was to analyse the relation between finance utilisation from different finance providers and horticultural business performance in Indonesia. This thesis first compares farmer knowledge of the requirements to obtain finance with the actual requirements set by finance providers, and investigates factors that determine farmer knowledge of the requirements. Next, this thesis analyses the relation between finance utilisation from different finance providers and the technical efficiency of horticultural farms using a bootstrap truncated regression. Furthermore, the role of finance utilisation from different finance providers in production risk is analysed using an ordinary least squares regression. Finally, this thesis analyses finance utilisation and its relation with chili supply chain continuity as reflected by contract fulfilment rates using a censored regression analysis. Findings show that farmers generally have little knowledge of the finance requirements. Findings also show that in-kind finance utilisation from farmers’ associations positively associates with farmer knowledge of finance requirements. The results of the bootstrap truncated regression show that commercial credit from banks and in-kind finance from farmers’ associations positively associate with the technical efficiency of some types of horticultural farms. Commercial credit from micro-finance institutions and flexible payment of inputs to agricultural input kiosks generally have negative associations, especially with the technical efficiency of mangosteen farms. Subsidised credit from banks and in-kind finance from traders have both positive and negative associations with the technical efficiency of the horticultural farms. With regard to production risk, results show that depending on the risk measure, risk-reducing associations were found for commercial credit from banks and flexible payments of inputs to kiosks. With respect to supply continuity, outcomes show that chili contract fulfilment rates are positively associated with in-kind finance from farmers’ associations, but negatively associated with subsidised credit from banks and flexible payment of inputs to agricultural input kiosks.