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

1. Managing risks: what poor households in Yogyakarta do to smooth theirconsumption? Catur Sugiyanto, Sri Yani Kusumastuti, Duddy Donna, Tiar Mutiara Shantiuli Faculty of Economics and Business, UGM, INDONESIA IMTFI’s First Annual Conference for Funded Researchers November 4-6, 2009 UC-IRVINE

2. Outline Problem Methodology Initial Findings

3. 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

4. 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.

5. Specifically, we will describe what practice commonly observed in the poor household to protect against risks; what type of assets held; and analyse factors determine the type of assets held.

6. 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

7. 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

8. UCI Indonesia Yogyakarta • 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

9. Farmer

10. Fishermen

11. Contracted worker Uncontracted Worker

12. Producers

13. Street Vendor

15. 125 households

16. Income and Consumption fluctuation (Rp)

17. Sources of income fluctuation More than one alternatives chosen

18. Season Disaster: earthquake Contract ended Project ended Low demand: non holidays Other: cooking oil and fuel price increase, avian flu

19. Source of Income fluctuation for different types of jobs

20. Source of Income Fluctuation, by Region

21. Ex ante strategy: saving

22. 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

23. Saving Preference by Types of Jobs (%)

24. Saving Preferences by region (%)

25. Ex post: what they do when their income decrease? May choose more than one options

26. 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

27. What people do when their income decrease?

28. What people do when their income decrease?

29. Source of Consumption fluctuation

30. Source of Consumption fluctuation for different jobs (%)

31. Source of Consumption fluctuation for different regions (%)

32. Demographic Profile

33. Surplus of Income

34. Lack of Income

35. Thank you Terima kasih