Price Determination of Palm Oil Fresh Fruit Bunches on Imperfect Competition Market in Central Kalimantan Province, Indonesia

Abstract

The inequilibrium between the supplies of palm oil fresh fruit bunches (FFB) and the availability of palm oil mill causes the exploitation of palm oil fresh fruit bunches prices of farmers’ production, especially supply from estate smallholders (independent and plasma farmers). The exploitation of prices occur because of: a) market structure of palm oil fresh fruit bunches is oligopsony market, b) the value of conjectural elasticity is high, and c) the price elasticity value of supply and demand are small (0.19 and 0.048 are inelastic). This condition shows that oligopsony market power has sizeable and dominant influence on price determination of palm oil fresh fruit bunches in the input market. As the result, income, productivity and production of farmers are low. However, if farmers join in a cooperative institutional use oligopoly market power, so farmers can sell palm oil fresh fruit bunches at higher price or up to 34.86% of farmers’ real prices. Therefore, the price policy of government should consider to the elements of market power (conjectural elasticity) and the factors that influence market power (demand and supply price elasticities). The approach of bilateral monopoly market model can be an alternative solution of oligopsony market structure.

Keywords: palm oil fresh fruit bunches, price, oligopsony, oligopoly, bilateral monopoly