Analysis of Marketing Channels and Price Effect to Rice Marketing Efficiency in Aceh, Indonesia

The objective of this study is to empirically explore the influence of marketing channels and price to rice marketing efficiency in Aceh Province, Indonesia. Six hundreds farmers' households from six districts of rice production base in Aceh were selected for the samples and analysed using the structural equation modelling (SEM). This study has been successfully documented how inefficient was the marketing of rice in Aceh because the farmers still tended to choose higher level of marketing channel with lower marketing performance. The price of rice was unstable, especially during the harvest and famine seasons, despite the government having set up a price policy. This study also found that marketing channels had positive and significant relationship with the rice marketing efficiency.


Introduction
The problem of food availability is a hot discussion topic. The regulation of food requires central and district governments to ensure country-wide security and sustainability. A government lacking the ability to provide a sufficient food supply affects economic, social and political stability. Fluctuation of food production is a common problem in Aceh. Although they actively produce rice, they have still encountered numerous food crises in the region (Arifin, 2008). Yet ironically, Aceh is well known as the rice barn of Java Island, due to its large area of rice production. As reported by the Statistics Bureau of Aceh (2010), more than half of the population of the province are the farmers who produce food, yet they still have inadequate food supplies and low incomes.
Current farming production is still less economical and subsistent to the welfare of the farmers' households in Aceh. According to E. Jamal, Hendiarto, Ening Ariningsih (2008), an income earned by the farmers was very much influenced by the marketing channels. Efficient marketing channels are determined by the mediator's performance and pricing policy set-up. The government has made a concerted effort to enhance the level of food production, but has failed to boost the income of the farmers or profits of farm enterprises. In other words, the effect of production improvement was not followed by the rise in income of the farm enterprises.
At the national level, rice production increased by more than 10% between 2004 and 2007, while the real income of farmers declined by 4-5%. This is simply due to the fact that increases in rice prices have not matched the increases in the price of other products. Secondly, farm enterprises were limited and small in comparison to business enterprises. Thus, to protect the welfare of the farmers and farm enterprises, the government has developed a price policy which aims to ensure the price stability of the rice (mostly during the harvest season due to its higher yield and relatively low price).
To the best of our knowledge, studies into marketing channel performances -either carried out by the government or farmers in the region -have been scarce. Therefore, this study attempts to examine the effects of perceived marketing channels and price of the perceived marketing efficiency. It includes the study on the stability degree of rice's price during famine and harvest season, the efficiency of its marketing channel and the effect of marketing channels and price to its marketing efficiency in the region. It is hoped that the findings of this study will help policymakers to shed some light on ways to enhance the prosperity of farmers.
At the same time, the study also contributes to the development of the science of rice marketing behaviour in the region. It is also hoped that the findings of this study could provide valuable input for revitalising marketing programmes for rice that could help farmers and enterprises generate greater profits.

Literature Review
Marketing channel is the chain of interrelated enterprises that take part in the process of the movement of goods from the producer to the consumer (Guibert, 2006). Marketing channels have traditionally been viewed as a bridge between producers and users. However, this perspective fails to capture the complex network of relationships that facilitate marketing flows: the movement of goods, service, information, and so forth between channel members. Marketing channel selection influences marketing decisions (Kotler & Keller, 2009), and over time it is important for producers to consistently evaluate marketing channel performance (Anderson, Day & Rangan, 1997). Producers should select the marketing channel with the best criteria for maximising profits (Rosenbloom, 2003). Marketing channel performance can be assessed and observed through the reputation of channel members (Neves, Zuurbier & Compamar, 2001), the common criteria being the performance-based financial measures (including marketing profit margin and marketing cost) (Spriggs, 1994) and performance-based behavioural measures (including marketing control).
Marketing channel selection for farm commodities is based on an evaluation of marketing activity, marketing cost, channel member profit and the consumer price segment received by the producer (Rahman & Mohiuddin, 2006).According to Dijkstra (2001), the marketing channel's form (such as direct selling, selling through intermediaries, dual distribution, or reverse channels) influences its performance and its level of marketing efficiency, the marketing channel's distance will affect marketing cost and margin fluctuation. The greater marketing channel's distance, the more complex marketing channel's form to ensure that products reach consumer in the place and time desired.
Price is commonly considered as the main determinant for consumers choosing which products and services to use/buy. Price is also an important element in determining market segmentation and profit. In many respects, price is not only seen as the main attention-grabber for consumers, but is also a crucial factor for the producer (Kotler & Keller, 2009). For food commodities, the market is divided into the consumer market and the producer market. Participants in both markets always strive for profit maximisation from marketing transactions; thus pricing policy becomes a central point to be focused on as part of efforts to enhance marketing efficiency.
The consumer price (buying price) and producer price (selling price) of rice influences the marketing of rice commodities (Arshad, 1992), while the market supply of rice will influence the marketing price of rice. Theoretically, during the great harvest, the supply of rice increases tremendously and in turn will cause the market price to fall (Saragih, 2006). However, in practice, marketing mediators and agents grab any opportunity to gain high profit during the harvest season without putting much effort into selling the rice at a high price. Thus, the excess supply of rice during the harvest season does not guarantee against a price decline for consumer (Arifin, 2006). Government interventions to enhance market performance and rice marketing efficiency should therefore be conducted via pricing policies (Damarjati, 2006). The behaviour of buyer mediators influences the consumer price, producer price and disparity price. Subsequently, the market situation influences the fluctuation of price disparity (between grain and rice), which exists as a result of market structure and price instability (Arifin, 2006).
The right distribution channel ensures that customers in different locations around the country, or around the world, can get products and get the right level of service, or it will be failed to distributed in the country. Efficient marketing activities will result in a better marketing performance, and thus provide greater benefits for all market participants as well as increase farmers' income. The efficiency of the market and marketing system is shown by the normal distribution of marketing margins from trading commodities.
Marketing margin analysis is commonly used to assess how the cost distribution from each marketing activity benefits each mediator and produces a better price for the farmer (Arshad, 1992). In imperfect competitive markets, increases in marketing costs leads to a decrease in producer costs alongside an increase in consumer costs while the marketing mediator will gain an additional benefit due to a decline in marketing costs (Bakucs & Fertö, 2005). Marketing cost fluctuations influence marketing efficiency fluctuations, the marketing margin and consumer price received by farmers (Rahman & Mohiuddin, 2006): a stable price is reflected by its low coefficient of variation (Dewan Ketahanan Pangan, 2008).
Price movement and transmission from one level to another in a particular market is one indicator of marketing efficiency (Corriston, 2002). The price movement is a change in the of a security or other asset, especially in the short term, while price transmission analysis measures the effect of prices in one market on prices in another market. Price transmission has a linear relationship to the marketing efficiency: the higher and faster a price transmission, the higher the level of marketing efficiency (Bakucs & Fertö, 2005). Efficient marketing activities are reflected in more frequent price alteration across the markets (Meyer & Cramon-Taubadel, 2004). An efficient marketing strategy can boost producers' incomes and cause consumer prices to increase (Soekarwati, 2005). A portion of the consumer price received by the farmers is small if the market mediator or marketing channel is longer (Arshad, 1992); a lower portion received by the farmers is a reflection of inefficient marketing (Rahman & Mohiuddin, 2006). This present study focuses on the effect of marketing channel and price to the marketing efficiency. Within these few years, several studies relating this issue have been made by some researchers in the world using different statistical tool. Those attempts have been provided invaluable literatures on testing marketing efficiency and related issues [see, for example, Arshad (2006), Rangasamy (2008), Durham (1995), Angulo (2007), Hau (2004) and Irawan (2007. In general, those researches were focused on the marketing efficiency issues as discussed in this paper. Arshad (2006), however, is more focused an efficient supply chain. While, Rangasamy (2008) focused on marketing price at each market chain, Durham (2008) emphasized on the transportation cost in a spatial market, Angulo (2007) focused on the achievement of an enterprise, Angela (2004) focused on the correlation of two market and its influential factors and Bambang (2007) examined the correlation of price variation and transmission. According to Rangasamy (2004), the marketing efficiency is much influent by marketing cost. By putting the marketing efficiency as an independent variable, Angulo (2004) analysed the effect of financial marketing value and marketing assets to marketing efficiency. So far, the use and selection of marketing channels by farmers are more based on habit or routine sells by ignoring the understanding and selection process based performance marketing channel. Their understanding about the effect of marketing channel level is still low. They tend to apathetic to marketing channel which involve agent in a marketing channel they want to choose.
The farmers' habit which became one of the causes that lowering their income is that they are less consider the time and place of sale at a better price. Rice prices at the consumer level perceived higher than the price of grain. Less availability of rice in market has driven the price, so the price is more expensive in the lean season instead of the harvest season. In the dry season the price competition is more pronounced than the harvest season and intermediaries take advantage of market supply shortage situation to increase the selling price.
Based on the research problem and literature review, two hypotheses can be formulated: 1. There is a significant impact of marketing channel efficiency and marketing system efficiency to the stability of price of rice in Aceh, Indonesia. 2. The marketing channel and price have an influence on rice marketing efficiency in Aceh, Indonesia.

Research Method
This research was designed in a descriptive and verification manner as a mean to provide an overview of examined variables (Kuncoro, 2006), which include marketing channels, price, and marketing efficiency. With this descriptive study it is hoped can describe the respondents identity, unravel and transform the data of farmers perception to the marketing channels, price and marketing efficiency in numbers, percentages and tables so that easy to interpreted.
This research was conducted by using survey method, i.e. measured the quantitative and qualitative characteristics of each unit analysis. The unit analysis is rice farmers' household in six centre of rice production in Aceh Province, they are Great Aceh District, Pidie District, Bireuen District, North Aceh District, East Aceh District, Aceh Tamiang District.
Primary data collection in this research was conducted by distributing the open-and close-ended questionnaires to farmers, farmers' household and agents. At the same time, formal and informal interviews were conducted with several marketing agents, Head of Provincial Food Security Agency, Head of Provincial Agriculture Agency, Head of Provincial Trade and Industry Agency and UMKM Aceh who had been involved in marketing and food security issues in Aceh.
The relevancy of marketing channels and marketing efficiency was analysed by conducting observation to rice commodity marketers, especially the agents who connect the farmers and consumers at various market levels. This research is essentially a explanatory research with the objective to examine the hypothesis about the correlation between the studied variables and the formulated hypothesis (Singarimbun, 1986). For the purposes of explaining the relationship between marketing channel, price and marketing efficiency as described in the formulation of the problem, the various relationships between variables were analyzed using descriptive statistics and inferential statistics. The Structural Equation Model (SEM) is used for inferential statistics. Table 1 shows the research variables used in this study.