Paper ID: 57
ENSO AND CPO PRICE VOLATILITY IN INDONESIA
Muhammad Luthfi Khoiruddin1*, Arini Wahyu Utami1, Irham Irham1
1 Department of Agricultural Sosioeconomics, Faculty of Agriculture, Gadjah Mada University, Indonesia
ENSO (El Nino Southern Oscillation) climate anomaly has become more frequent and stronger because of global warming and climate change. ENSO has arguably played a critical role in tropical countries such as Indonesia, primarily due to its intrinsic linkage with agricultural production and prices. This study examines one such relationship between ENSO and the price volatility of Crude Palm Oil (CPO), one of the most produced and consumed vegetable oil in the world. By applying monthly time-series data from 2006 to 2018 and Ocean Nino Index (ONI) from the Nino 3.4 region which serves as a proxy for the ENSO variable, this research used Autoregressive Conditional Heteroscedasticity (ARCH) methods to find out the CPO price volatility and Vector Error Correction Model (VECM) to investigate the impact of ENSO on the CPO price volatility both in the short-run and long-run. The results showed that the price volatility of CPO in Indonesia is low and will be persistent in the long term. ENSO affects the volatility of CPO prices in the long run, but there is no effect in the short run. The result is important for the stakeholders and government in preventing the risk and uncertainty condition of CPO price fluctuation caused by climate anomaly.