Impact of Covid-19 pandemic on Indonesia’s agricultural subsectors: an ARDL approach

Purpose. The research aims to study the effect of the Covid-19 pandemic on aggregate agricultural production and agricultural production per subsector, where the agricultural sector is divided into five subsectors, namely food crops, horticulture, plantations, livestock and fisheries. Methodology / approach. The Autoregressive Distributed Lag (ARDL) method is applied in this work. Using ARDL equations with restricted test cointegration, it generates both short-term and long-term models simultaneously. The analysis moves on to estimate the long-term and short-term models of (i) the impact of the Covid-19 pandemic on total agricultural production and (ii) the impact of the pandemic on agricultural production per subsector. Results. In general, the Covid-19 pandemic had a negative but insignificant effect on Indonesia’s agricultural production. The effect of the Covid-19 pandemic on agricultural production (GDP) varies significantly from one subsector to another. The negative effect was in the food crops, horticulture and fisheries subsectors, but this negative effect was significant only for food crops. The pandemic had a positive effect on the plantation crops and livestock subsectors, but the positive effect was significant only for the livestock subsector. Based on the Error Correction Term (ECT) value, the speed of agricultural subsectors to return to long-run equilibrium is not the same. Originality / scientific novelty. Until now, research on the impact of the Covid-19 pandemic on agriculture has been based on the assumption that the agricultural sector is a homogeneous system. This study examines the agricultural sector by decomposing it into subsectors including food crops, horticulture, plantations, livestock, and fisheries. The results show that each subsector responds differently to shocks (due to the Covid-19 pandemic). As far as we can observe, this study is the first to decompose subsectors for Indonesia. In addition, studies related to the influence of the Covid-19 pandemic on agriculture using a dynamic econometric approach (using time series data) are still limited. Practical value / implications. The Covid-19 pandemic had an impact on production due to an increased unemployment and decreased purchasing power, which reduced demand for products from the food crops, horticulture, and livestock subsector, which in turn caused a decrease in production. Research results help the government in determining the best course of action to support the food crops, horticulture, and fisheries subsectors in the event that the Covid-19 pandemic creates unfavourable conditions. Future research proposals include: (i) a study of how the production function in the agricultural subsector can be used to estimate production in the event of unforeseen circumstances like the Covid-19 pandemic or an economic downturn; and (ii) a study of how the type of fiscal stimulus affects production in agricultural subsectors to determine the type of assistance based on the dominance of subsectors in a particular region.