The application of structural equation modeling in building an economic welfare model for rice farmers: In search of the way towards a sustainable life

Abstract

Rice ( Oryza sativa L.) is a principal food crop globally. It is classified as a strategic commodity that strengthens the national economy, guarantees food security, and signifies a nation's economic governance. Hence, the current study aimed to examine the determinants affecting rice productivity and farmers’ economic welfare in Bantaeng Regency, Indonesia. One hundred forty (140) primary data points were collected by structured interviews. The data was analyzed using structural equation modeling. The findings indicated that the Exogenous Latent Variables (EXLV) of Production Factors (FPR), Farmers' Characteristics (KRK), and Agricultural Institutional Activities (AKP) had direct impacts on the Endogenous Latent Variables (ENLV) of Agricultural Activities (APN) and Non-agricultural Activities (ANP). Also, the EXLV of Production Factors and Agricultural Institutional Activities had an indirect impact on the rice farmers’ economic welfare. As a result, the EXLV of Production Factors and Agricultural Institutional Activities were found to be the most important variables in the model, exerting direct and indirect effects on rice farmers’ economic welfare. These findings also indicated that the indicators of these two latent variables were very important in increasing rice farmers’ economic welfare. Consequently, improving farmers' access to irrigation systems, expanding the area planted, intensifying labor use, and applying high-quality seeds, which were the indicator variables for the production factors, will be effective policy actions to enhance rice farmers’ economic welfare. In addition, to improve the well-being and sustainable livelihood of rice farmers, it is also important to strengthen the effectiveness of agricultural institutional activities by improving extension services and increasing farmers' access to markets. Implementing these strategies will be a long-term solution to enhance the welfare of rice producers and to sustain farmers' livelihoods and production management.

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