Managing risks: what poor households in Yogyakarta do to smooth their consumption?

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Managing risks what poor households in
Yogyakarta do to smooth their consumption?

• Catur Sugiyanto, Sri Yani Kusumastuti,
• Duddy Donna, Tiar Mutiara Shantiuli
• Faculty of Economics and Business, UGM, INDONESIA

IMTFIs First Annual Conference for Funded
Researchers November 4-6, 2009
UC-IRVINE
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Outline

• Problem
• Methodology
• Initial Findings

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Problem

• Households engage in agriculture in poor
  countries often must cope not only with severe
  poverty, but also with extremely variable
  incomes. Accumulated wealth can create a buffer
  for the most vulnerable.
• However, a high proportion of the poor in the
  world has no or extremely low levels of
  marketable wealth or limited access to financial
  institution (insurance or credits) to facilitate
  their income and consumption smoothing
  activities, Case (1995), Dercon (1996), Zeller
  et.al (1997), Robinson (2002), CEPPS and Bank
  Indonesia (2004), (Roog, 2006), among others

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• The ability of households to smooth consumption
  over time thus reflects a key dimension of well
  being, for example Morduch (1995), Kinsey et.al.
  (1998), Wik (1999), Zeller (2000), Skoufias,
  (2003), Notten Crombrugghede, (2006), Laczo
  (2007).
• Although the underlying smoothing mechanisms are
  similar, the ways in which household smooth
  consumption are highly contextual, i.e. depend on
  the particular institutional, social and economic
  context they live in. So, diversity in asset
  choice is important in order to allow households
  to manage risk in any one period (Aryeetey,
  2004). Demographic characteristics will exhibit a
  significant correlation with their choice between
  financial and other assets.

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Specifically, we will

1. describe what practice commonly observed in
   the poor household to protect against risks
2. what type of assets held and
3. analyse factors determine the type of assets
   held.

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Literature

• Strategy choices
• Ex ante
• Ex Post
• Assets choices
• What types of assets?
• Liquid and safe store of value
• Farm and non-farm assets
• What institution?
• Limited financial markets
• Demographic Characteristics
• Ages farm (old) non farm (younger)
• Education farm-non formal (lower) non
  farm-formal (higher)
• Female and non-female headed household farm and
  off-farm assets
• Types of job
• Farm and non farm activities

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Methodology

• Central in this framework is a typology of
  consumption smoothing strategies which is based
  on what actions households may take to smooth
  consumption.
• Then, we relate these smoothing strategies to
  possible institutional smoothing partners and the
  assets that may be required to follow a
  particular smoothing strategy
• We also investigate whether the observed patterns
  differ by type of
• activities, and
• areas/regions

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UCI

• Sample
• A non-probability with a purposive sampling
  because the population is difficult to identify.
• We select 125 house holds, representing
• 25 household in each five regions and
• 5 types of jobs
• Guided questionaires

Indonesia
Yogyakarta
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Farmer
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Fishermen
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Contracted worker
Uncontracted Worker
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Producers
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Street Vendor
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(No Transcript)
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125 households
 Job Yogya karta Bantul Kulon Progo Gunung kidul Sleman Total
Farmers 0 4 4 5 5 18
Fishermen 0 5 5 4   14
Contracted worker 6 4 4 4 5 23
Uncontracted worker 6 4 4 4 5 23
Producers 6 4 4 4 5 23
Street Vendor 7 4 4 4 5 24
Total 25 25 25 25 25 125
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Income and Consumption fluctuation
(Rp)
Producer Farmer Street vendor Fishermen Contracted worker Uncontracted worker
Income Max 773,636 956,677 733,478 1,125,000 886,429 782,381
Income Min 467,273 559,444 436,522 439,286 562,857 435,476
Income Range 306,363 397,233 296,956 346,905 323,572 346,905

Consump tion Max 823,333 1042,35 655,455 1,032,143 798,571 782,273
Consump tion Min 520,714 554,118 420,455 417,857 536,19 460,682
Consump tion Range 302,619 488,235 235 321,591 262,381 321,591
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Sources of income fluctuation
Sources Total Percent
Season 67 53.6
Disaster 10 8
Contract ended 19 15.2
Project ended 19 15.2
Low demand 50 40
Other 39 31.2
More than one alternatives chosen
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• Season
• Disaster earthquake
• Contract ended
• Project ended
• Low demand non holidays
• Other cooking oil and fuel price increase, avian
  flu

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Source of Income fluctuation for different types
of jobs
Source Producers Farmers Street Vendor Fishermen Contracted Worker Uncontracted Worker
Season 21.62 64 29.55 93.33 12.90 22.92
Disaster 2.70 8 9.09 0.00 0.00 4.17
Contract ended 0.00 8 2.27 0.00 32.26 10.42
Project Ended 2.70 0 2.27 0.00 22.58 20.83
Low Demand 40.54 4 22.73 6.67 16.13 35.42
Other 32.43 16 34.09 0.00 16.13 6.25
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Source of Income Fluctuation, by Region
Source Bantul Gunung Kidul Kulon Progo Sleman Yogyakarta
Season 48 72 76 44 28
Disaster 0 0 32 8 0
Ended Contract 20 16 4 20 16
Ended Project 12 0 8 24 32
Low Demand 32 44 36 48 40
Other 24 16 20 44 52
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Ex ante strategy saving
Type of saving Total Percent ()
Money in house 71 56.8
Money Formal financial institution 36 28.8
Money Informal financial institution 36 28.8
Assets 55 44
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• Saving money
• In house in the wallet, under the mattress,
• Formal financial institution bank, licensed
  cooperative
• Informal financial institution non licensed
  cooperative, arisan (rotated saving)
• Assets gold (jewelry), livestock (duck, goat,
  chicken), motor cycle, inventory, electronic
  appliances

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Saving Preference by Types of Jobs ()
Producers Farmers Street Trader Fishermen Contracted Worker Uncontracted Worker
In house 11.2 8 9.6 3.2 12 12
formal financial institution 6.4 1.6 6.4 6.4 2.4 5.6
informal financial institution 4.8 3.2 7.2 0 5.6 6.4
assets 7.2 9.6 7.2 4 8.8 7.2
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Saving Preferences by region ()
Bantul Gunung Kidul Kulon Progo Sleman Yogyakarta
In house 28 44 68 52 92
formal financial institution 60 24 24 20 16
informal financial institution 24 4 28 48 40
assets 36 60 32 80 12
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Ex post what they do when their income decrease?
Total Percent ()
Looking for additional job 49 39.2
Reschedule working load 36 28.8
Borrowing money 79 63.2
Transfer from relatives/family members 34 27.2
Selling assets 55 44
Obtaining poor food subsidy 60 48
May choose more than one options
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• Looking for additional job un-contracted worker
  in the city (temporary migrant)
• Reschedule work load decreasing the work load
• Borrowing money
• formal financial institution (bank, licensed
  cooperative),
• non formal financial institution (neighbors,
  relatives, non licensed cooperative,
  moneylenders)
• Transfer from relatives/family member
• Selling assets gold (jewelry), livestock (duck,
  goat, chicken), motor cycle, inventory,
  electronic appliances
• Obtain poor food subsidy (rice for the poor) or
  food from neighbors

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What people do when their income decrease?
Producers Farmers Street Trader Fishermen Contracted Worker Uncontracted Worker
Finding another job 4.8 5.6 2.4 8.8 6.4 11.2
Reschedule working load 7.2 1.6 4.8 4.8 1.6 8.8
Borrowing money 12.8 8 14.4 5.6 12 8.8
Transfer from relatives/ family members 5.6 7.2 4 2.4 2.4 4.8
Selling assets 5.6 10.4 7.2 2.4 8.8 9.6
Obtaining poor food subsidy 8 6.4 11.2 2.4 10.4 9.6
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What people do when their income decrease?
Bantul Gunung kidul Kulon Progo Sleman Yogyakarta
Finding another job 36 44 56 28 32
Reschedule working load 24 0 44 36 40
Borrowing money 56 72 56 68 64
Transfer from relatives/ family members 48 28 16 32 12
Selling assets 24 56 48 72 20
Obtaining poor food subsidy 68 4 52 40 76
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Source of Consumption fluctuation
Total Percent ()
New School Year 63 50.4
Family member illness 82 65.6
Moslem Eid Celebration 91 72.8
Contribution to neighbours (baby born, funeral, wedding, social contributions) 87 69.6
Other 13 10.4
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Source of Consumption fluctuation for different
jobs ()
Producers Farmers Street Trader Fishermen Contracted Worker Uncontracted Worker
New School Year 9.6 5.6 8.8 4.8 9.6 11.2
Family member illness 12 9.6 16 3.2 12 12
Moslem Eid Celebration 12.8 7.2 13.6 8.8 14.4 15.2
Contribution to Neighbors 13.6 8 13.6 7.2 14.4 12
Other 0.8 0.8 3.2 2.4 0 2.4
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Source of Consumption fluctuation for different
regions ()
Bantul Gunung kidul Kulon Progo Sleman Yogyakarta
New School Year 60 28 60 56 48
Family member illness 20 96 52 76 84
Moslem Eid Celebration 36 88 84 72 84
Contribution to Neighbors 60 36 76 88 88
Other 20 12 4 0 16
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Demographic Profile
Head holders Job status Total
Male jobless 1
have a job 39
family member has a job 38
Female jobless 2
have a job 19
family member has a job 26
Total Total 125
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Surplus of Income
Gender Saving money Saving money Saving money Assets
Gender in house Formal financial Institution Non Formal Financial Institution Assets
Male 55.13 28.21 25.64 51.28
Female 59.57 29.79 34.04 31.91
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Lack of Income
Gender Male Female
Looking for additional job 51.28 19.15
Reschedule working load 35.90 17.02
Borrowing money 57.69 72.34
Transfer from relatives/family members 26.92 27.66
Selling assets 50.00 34.04
Obtaining poor food subsidy and other subdidies 43.59 55.32
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• Thank you
• Terima kasih