Bulletin of Indonesian Economic Studies

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Effects of Peer Pressure in Agro-clusters of West

Java

Dadan Wardhana, Rico Ihle & Wim Heijman

To cite this article: Dadan Wardhana, Rico Ihle & Wim Heijman (2021) Effects of Peer Pressure
in Agro-clusters of West Java, Bulletin of Indonesian Economic Studies, 57:2, 233-256, DOI:
10.1080/00074918.2020.1780197

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 Bulletin of Indonesian Economic Studies, Vol. 57, No. 2, 2021: 233–256

EFFECTS OF PEER PRESSURE IN

AGRO-CLUSTERS OF WEST JAVA

Dadan Wardhana*
Government of Bandung Regency, West Java

Rico Ihle, Wim Heijman

Agricultural Economics and Rural Policy Group, Wageningen University and Research

Agglomerations of agricultural activity yield a number of institutional and infra-

structural benefits for farmers. However, these regional concentrations also increase
competition among farmers. We quantify to what extent competitive pressure affects
farmers’ behaviour in agro-clusters, by analysing a survey of 1,250 farmers in West
Java. We use a conceptual model based on the theory of planned behaviour and
a behavioural interaction model. We also propose and econometrically test sev-
eral hypotheses. We find that specific competitive environments for certain aspects
of agricultural production matter most. In high-density agglomerations, less peer
pressure appears to foster more cooperative behaviour. Food insecurity increases
self-interest, and more intense cooperation is associated with lower income and
appears to be regionally heterogeneous. Policies intended to facilitate cooperation
could therefore be tailored to specific aspects of agricultural production and specific
regions of interest.

Keywords: agro-cluster, farmer behaviour, Indonesia, peer pressure

JEL classifications: Q12, Q13, R11

INTRODUCTION
The Food and Agriculture Organization (FAO 2017) highlights that farmers situated
near each other in large numbers and specialised in producing a certain commod-
ity may benefit from positive externalities. These include increased agricultural
outputs and access to markets and information, as well as increased innovation
(OECD, FAO and UNCDF 2016; Gálvez-Nogales 2010). However, such regional
concentration of farming may also result in highly competitive economic environ-
ments. That is, farmers situated very close to each other in dense clusters may face
substantial economic pressure, as they, for example, compete with numerous peers
for purchasing production factors or for marketing their farm outputs to buyers.
Smith (2001), Thapa (2010) and CSR Asia (2017) report that smallholder profits
may decrease as a result of such increased competition. Moreover, Fishbein and
Ajzen (2010, 10) find that the social pressure that individuals perceive may result in
behavioural changes. Farmers who feel increasing competitive pressure from peers

* Corresponding author. Email: 2015.dadanwardhana@gmail.com

ISSN 0007-4918 print/ISSN 1472-7234 online/18/000233-256 © 2021 ANU Indonesia Project

http://dx.doi.org/10.1080/00074918.2020.1780197
234 Dadan Wardhana, Rico Ihle and Wim Heijman

are likely to adapt their actions either by teaming up with peers or by increasingly
solving their problems individually, such as by attaining superior seeds or fertilisers.
Such pressure from peers may yield positive and negative effects. On the one
hand, farmers may be more inclined to use new production technology, such as
improved seeds or fertilisers, because they are influenced by many neighbouring
farmers’ use of the technology. They may also feel that they need to improve the
quality of their farm outputs because peers producing the same crop realise larger
sales revenues due to higher output quality. On the other hand, intense competition
between regionally concentrated agents of an industry may result in considerable
challenges for individuals. Output prices tend to decrease when many suppliers
compete to sell their produce (Alcácer 2006). In this situation, prices for production
inputs tend to increase as each actor tries to acquire inputs needed for produc-
tion (Meyer-Stamer 1998). Porter (1998) reports that fierce economic competition
between densely clustered economic agents of one industry tends to erode profits.
This is despite competition yielding the desired effects of agglomerations, such as
efficient resource allocation and regional knowledge spillovers.
This article assesses the effects of competitive pressure created by concentrated
economic activity. Understanding both the factors that drive peer pressure among
farmers and its effects on their behaviour may provide insight into the institutional
characteristics that help to reduce socio-economic conflicts among neighbouring
farmers. Such knowledge is important for Indonesia and other Southeast Asian
countries, as farmers in these regions are said to be challenged by negative exter-
nalities caused by highly competitive economic environments (FAO 2018). The FAO
highlights that the main source of these competitive environments is a growing
population that results in a higher number of actors increasingly competing.
This article’s analysis is very relevant in the Indonesian context, as the country
has been declaring itself an agrarian nation for decades (Rakhmat and Saputra
2016). Hamilton-Hart (2019) stresses that smallholder farmers play a crucial role
in achieving self-sufficiency in food production, which has been proclaimed a
priority by the Indonesian government in recent years. The FAO (2018) stresses
that the main challenges these smallholders face relate to declining farm sizes and
high prices of agricultural inputs. Arifin et al. (2019) and Statistics Indonesia (BPS
2013) report that both aspects are caused by urban sprawl, which is expanding
by 4.1% per year. This sprawl results in declining availability of land, water and
pasture. As the farmer population declines by about 1.75% per year (BPS 2013),
the number of agricultural labourers and the structure of input markets are also
changing significantly. The result is markedly higher competition between farmers
for increasingly scarce resources.
Hamyana and Romadi (2017), for instance, find that social conflicts among
Indonesian farmers frequently occur despite the prevalence of farmer groups
(kelompok tani/gabungan kelompok tani) and cooperatives (koperasi). They also observe
an uneven distribution of benefits from government subsidies among elites and
members of farmer organisations. Conflicts among farmers over water accessibil-
ity have been reported in the literature, for example, for the Majalengka Regency
of West Java (World Bank 2011). These conflicts have led to vegetable production
constraints, including for the Batang and Banjarnegara regencies of Central Java
(Susanto 2021).
Using data from a survey of 1,250 farmers in West Java, we assess to what extent
peer pressure in high-density agro-clusters affects farmers’ behaviour and income.
Effects of Peer Pressure in Agro-clusters of West Java 235

To do this, we first measure aspects of competitive pressure that individual farm-

ers face from peer smallholders in the context of Indonesia.1 Second, we assess the
effects of these aspects on farmers’ choices to behave cooperatively or selfishly,
using several regression models based on the theoretical framework of James and
Hendrickson (2008), and testing a number of hypotheses. By doing so, we account
for the density of agro-clusters and other characteristics of the selected regions of
farms. Third, we assess the effects of farmers’ behaviour on their income, again
using regression analysis. West Java provides an appropriate setting for obtaining
insights into these aspects because it is—after Jakarta—the Indonesian province
with the densest population of farmers.2 The Indonesian Ministry of Agriculture
also considers the province a national production centre of rice paddy farming
(Media Indonesia 2021).
Our analysis shows that farmers living in regions with low competitive pressure
are more likely to cooperate. Competing for access to production inputs and crop
markets, farming for six hours or more per day on average, and being a member
of a farmer group drive cooperation among farmers. Farmers tend to show self-
interest if they feel that they cannot obtain seeds of superior quality and if their
households are food vulnerable. The effects of farmers’ behaviour on their income
appear to be regionally heterogeneous.

CONCEPTUAL FRAMEWORK
Krugman’s (1991) ‘new economic geography’ literature has established that
regional agglomerations of any industry yield positive effects, such as economies of
scale and regional knowledge spillovers. The literature on regional agglomerations
also covers agricultural production (FAO 2017; OECD, FAO and UNCDF 2016).
Porter (1998) notes that economic pressure from peers within an industry tends to
be more intense in regions where many of the peers’ businesses are close to each
other. In the context of agriculture in Southeast Asia, such spatial agglomerations
are often referred to as agro-clusters (Deichmann et al. 2008).
Folta, Cooper and Baik (2006) stress that competition for resources such as labour
or land, or for marketing opportunities, increases as a cluster grows. However, a
farmer may still behave altruistically and cooperatively towards peers by sharing
agricultural information on input supply, new technologies, selling prices, mar-
keting options or government subsidies. Braguinsky and Rose (2009) report that
the sharing of knowledge among neighbouring farmers in highly competitive
environments is likely to increase the adoption of new technologies. More frequent
social interactions within agro-clusters also accelerate the effects of agglomeration
on farmers’ behaviour towards peers (Suire and Vicente 2009). On the other hand,
some farmers may act selfishly by withholding information that would increase
the farm income of peers. Fehr and Fischbacher (2002) note that competition may
prompt people to choose between being cooperative or selfish.

1. Smallholders are defined as farmers who cultivate agricultural land of less than two
hectares (Khalil et al. 2017). BPS (2013) reports that about 70% of West Javanese farmers
belong to this category.
2. BPS (2013) reports between 1 and 187 farmers per square kilometre across Indonesia’s
provinces. Across West Java, there are between 14 and 373 farmers per square kilometre,
indicating that this province covers a wide range of farmer densities.
236 Dadan Wardhana, Rico Ihle and Wim Heijman

FIGURE 1 Farmer’s Behavioural Patterns due to Peer Pressure

Farmer’s
Farmer’s personality Past experience
demographics

1. Attitudes towards
Peers’ behaviour
peer pressure

Behavioural
Peers’ cognitive 2. Perceived social
Behavioural intention responses
proximity (peer) pressure
to peer pressure

Peers’ organisational 3. Perceived

proximity behavioural control

Perceived costs and

Access to resources
risks of behavioural Proximity
and knowledge
responses

Source: Authors’ adaptation of Ajzen’s (1991) and Rabbie’s (1991) work.

A framework conceptualising how behavioural choice in the continuum between

pure self-interest and pure cooperation can be determined is shown in figure 1.
This framework is based on Ajzen’s (1991) theory of planned behaviour and on
Rabbie’s (1991) behavioural interaction model. Ajzen (1991, 188) suggests that
behavioural responses (of farmers to peer pressure) should be considered as the
result of people’s attitudes—referring to the degree to which people have ‘a favour-
able or unfavourable evaluation or appraisal of the behaviour in question’—and
to their perceived social pressure ‘to perform or not to perform the behaviour’.
Together with ‘perceived behavioural control’—that is, a person’s ability, resources
and opportunities to willingly display a certain behaviour—these factors jointly
influence an individual’s intention to behave a certain way, as shown in figure 1. All
three determinants depend on characteristics of the individual and on the external
environment to which the person is exposed (Rabbie 1991).
The theoretical framework of Fishbein and Ajzen (2010, 22–5) suggests that
individual attitudes are influenced by personality, individual demographic char-
acteristics and past experience. The second influencing factor is peer pressure, as
perceived by the farmer. Farmers may refuse or continue to share information in
response to being treated unfairly or fairly by peers if, for example, other farm-
ers have or have not concealed options for receiving government subsidies. The
third factor determining an individual’s behavioural intention and responses is
perceived behavioural control. For instance, some farmers may not be able to
share information because they have limited access to financial resources or have
limited spare time. On the other hand, widespread institutional arrangements
in Indonesia such as farmer groups, associations and cooperatives may foster
Effects of Peer Pressure in Agro-clusters of West Java 237

perceived behavioural control of individual members by improving their abilities,

resources and opportunities.
The framework depicted in figure 1 can be used to assess the drivers of any
behavioural choice of a farmer. This analysis focuses on the options a farmer might
consider in response to high or increasing competitive pressure resulting from
a high concentration of nearby fellow farmers. Kahneman and Tversky (1979)
emphasise that before performing an action, people assess the benefits and costs
that they might incur with respect to income growth. Thus, although maintaining
a certain behaviour and perceiving social pressure, a rational farmer will not act a
certain way if costs are likely to exceed the expected benefits.
We follow James and Hendrickson (2008) by taking into account the trade-off
between income and ethical behaviour. James and Hendrickson (2008) suggest that
a farmer will behave in way that takes into account the potential to increase their
income. This behaviour can be understood as being on a continuum between fully
ethical and fully unethical, as shown in figure 2.
As each farmer is affected by different levels of the three factors determining
individual behaviour (figure 1), each chooses how much one should cooperate
with peers or how self-interested one should be (figure 2). This continuum can be
interpreted as being between fully cooperative behaviour—for example, in the form
of collaborating with peers to purchase and use farming technology or to share
information about marketing opportunities—and purely self-interested behaviour,
which could take the form of withholding such information or not collaborating.
Figure 2 shows the trade-off between income and ethical behaviour, subject
to the environments of low peer pressure (to1) or high peer pressure (to2) that a
rational farmer might face, as suggested by James and Hendrickson (2008). Utility
ui of farmer i in figure 2 determines the location of the farmer’s indifference curve.
This reflects the farmer’s disposition towards sacrificing ethics to increase profits.
Farmer i—situated in an environment of low peer pressure, denoted by to1—will
optimise the degree of ethical behaviour (b) and farm income (π) so that utility is
maximised by the combination (b1, π1 ) in point A.
The general erosion of farm profits in a highly competitive regional environment
within agro-clusters of high density—as reported by Porter (1998)—results in a shift
in the trade-off from to1 to to2 as indicated by the arrow at the bottom-right corner
of figure 2. Hence, if farmer ii is situated in a more competitive environment (to2)
and displays behaviour of an identical ethics score (b1) as farmer i, farmer ii realises
income π’1 in point B. The difference between π1 and π’1 is the eroded income due
to high peer pressure given a constant level of ethical behaviour.
As point B is not optimal in terms of the trade-off between income and ethics
at given utility u2, the farmer could consider a change in behaviour in order to
increase income. In this case, the maximum utility level for u2 can be reached
only if the farmer’s behaviour becomes less ethical by the difference between b1
and b2 so that final income increases from π’1 to π2. This optimum exists at point
C, which—although lower than income π1 in the low peer pressure environment
to1— is the maximum utility the farmer is able to reach given to2.
Hence, the higher the peer pressure (that is, the farther to the left the trade-off
function shifts), the higher the incentive for a rational farmer, given the farmer’s
individual utility structure, to behave less ethically to partly compensate for the
238 Dadan Wardhana, Rico Ihle and Wim Heijman

FIGURE 2 Trade-off between Ethical Behaviour and Income

Ethical behaviour

Fully ethical
be

B A
b1
b2 C

u1
u2

to2 to1
0
πe π’1 π2 π1 π’max πmax Profit (π)

Source: Authors’ modification of James and Hendrickson’s (2008, 352) model.

Note: The x axis label denotes the farmer’s profit (the difference between all farm revenues and all farm
costs). The y axis measures how ethical a farmer’s behaviour is on a continuum, from zero (completely
unethical behaviour, or pure self-interest) to be (fully ethical behaviour, or complete cooperation). Thus,
the lower the ethics score, the more unethical a farmer’s behaviour. u1 and u2 denote the farmer’s utility
in environments of low and high peer pressure, respectively. πmax and π’max are the maximum profit
levels a farmer may realise under low and high peer pressure environments, respectively. π1 and π2
denote the utility-maximising profit levels at ethical behavioural levels b1 and b2, respectively. The differ-
ence between π1 and π’1 therefore represents the income loss of a farmer with an ethical behaviour level
of b1, due to a highly competitive economic environment inside a very dense agro-cluster (Porter 1998).

profit erosion resulting from greater competition (Porter 1998). Additional profit
beyond the level πe can be realised only through lower ethics (higher self-interest).
This mechanism has been empirically confirmed. Graafland (2002), James and
Hendrickson (2008) and Graham (2014) show for various countries that an increase
in competitive pressure perceived by farmers reduces their ethical behaviour.

METHODS
Data and Variables
West Java is one of the most important agricultural production regions of Indonesia.
According to BPS (2015), the province contributes more than 15% of Indonesia’s
annual rice production and 20%–40% of the country’s horticultural production.
The region is also a major producer of coffee, tea, vegetables, fruit and livestock.
These crops are produced across West Java in geographic clusters chosen for the
Effects of Peer Pressure in Agro-clusters of West Java 239

suitability of the surrounding topography and agricultural resources, such as soil

and water.
We conducted a survey of 1,250 farmers in West Java. We selected the sample
using a two-step model, which represents both regional and individual farmer
numbers, to ensure representativeness. As part of this process, we chose 15 subdis-
tricts from a total of about 600 in the province.3 In each subdistrict, we randomly
selected 70–80 respondents. We then interviewed the respondents face to face
between May and August of 2016. Figure 3 shows the locations of the farmers
surveyed.
Following Sahara et al. (2015) and Umberger et al. (2015), we constructed two
key variables, using principle component analysis (PCA), in order to capture two
types of behaviour of farmer i: cooperative behaviour (b1i) and self-interested
behaviour (b2i).4 We measured cooperative behaviour by determining whether
respondents shared information on farming practices with peers. Self-interested
behaviour was measured mainly by determining whether respondents withheld
such information from peers.
To capture peer pressure, we assessed two variables: the individually perceived
degree of peer pressure (dpressi) and the comprehensiveness of peer pressure
(cpressi).5 The variable dpressi indicates to what extent farmer i felt general pressure
as a result of economic competition with peers. The variable cpressi captures the
farmer’s perception of the sources of peer pressure. These sources include peers’
use of superior seeds (z1i); peers’ use of production technology (z2i); changes in the
availability of input supplies and the ease of finding crop markets, due to competi-
tion (z3i); changes in knowledge accessibility, due to competition (yi); changes in
production input costs, due to competition (x1i); and changes in income opportuni-
ties, due to competition (x2i) (Lerman 2004; Foley et al. 2005; Sykuta 2013). These
six factors quantify in which specific aspect(s) of the farming process the most
pressure is individually perceived.
Following Fingleton, Igliori and Moore (2004), and Wardhana, Ihle and Heijman
(2017), we quantify agro-cluster density using the variable rds:

e
rd=
s es −   Es (1)
E

The variable es denotes the observed number of farmers in subdistrict s. The

variable e indicates the number of farmers in West Java, our reference region. E
refers to the total number of employed people in West Java. Es, then, is the total

3. Our choice was based on 18 combinations involving the following variables: density of
agro-clusters (high, medium or low), poverty rates (high, medium or low) and subdistrict
classification (rural or urban), according to Head of Central Bureau of Statistics Regulation
37/2010. As three combinations did not have corresponding regions, we selected 15 feasible
subdistricts.
4. Online appendix A1 describes the exact measurements of the behavioural variables con-
sidered. Online appendix C1 provides a descriptive analysis of them.
5. For details on the exact measurements of these variables, see appendix A2 and tables B1
and B2 in the online appendix.
240 Dadan Wardhana, Rico Ihle and Wim Heijman

FIGURE 3 Respondents Surveyed in West Java

Source: Survey respondents’ GPS coordinates.

Note: Region 1 (R1) denotes regencies close to DKI Jakarta, such as Bekasi, Depok and Bogor. Region 2
(R2) refers to Karawang, Purwakarta and Subang. Region 3 (R3) represents Bandung metropolitan area.
Region 4 (R4) refers to Tasikmalaya, Ciamis, Banjar, Garut and Pangandaran. Region 5 (R5) denotes
Sumedang, Kuningan, Indramayu and Cirebon. Region 6 (R6) represents Sukabumi and Cianjur.

number of employees in subdistrict s. The higher the value of rds in a subdistrict,

the higher the density of the agro-cluster in that region. Hence, a high rds value
signifies that agriculture in region s is more important in terms of employment
than in West Java on average. This rds variable quantifies that farmers living in
the same subdistrict operate under very similar socio-economic conditions within
Effects of Peer Pressure in Agro-clusters of West Java 241

this agro-cluster. Moreover, we include other agro-cluster characteristics in the

analysis, such as the distance to neighbouring farmers or to the closest economic
centre (online appendix table C1).
Next, we consider a number of control variables. They include the socio-economic
characteristics of a farmer and the properties of the region in which the farmer lives.
For instance, the variable ‘crop diversity’ represents the number of crops that a
farmer cultivated in the season before the survey. The variable ‘food vulnerability’
indicates a farmer’s experience of being unable to provide daily food for their
household.6 We also measure poverty of the farmer’s household, as it has been
shown to matter for behavioural decisions (Brañas-Garza 2006).
Figure 4 shows the results of the non-parametric smoothing estimates. These
illustrate how farmers’ behaviour depends, on average, on the degree of peer pres-
sure (dpressi) and agro-cluster density (rds). Figure 4a shows, within a wide range, a
convex association between cooperative behaviour and peer pressure. An increase
in peer pressure is associated with a reduction in cooperation until the pressure
reaches a degree of about 2. Cooperation then increases with peer pressure until
the latter reaches a degree of about 6. After this, cooperation barely changes as peer
pressure increases. Figure 4c shows that the relationship between self-interest and
peer pressure is concave. Beyond a peer pressure degree of 8 (at which point the
degree of selfishness is highest), selfishness reduces quickly.
Figure 4b indicates a concave association between cooperation and agro-cluster
density. As agro-cluster density increases, so does the level of cooperation, until it
reaches its maximum of about –2. Figure 4d shows a convex relationship between
self-interest and agro-cluster density, with the lowest degree of self-interest seen
at a density level of about –2.

Empirical Model Specifications and Hypotheses

Pursuant to the discussion in the second section of this article, we separately esti-
mate two empirical models for quantitatively assessing the effects of perceived
peer pressure on a farmers’ behavioural patterns as follows:

6
β 0 + β1dpressi + β 2 sq _ dpressi + β 3 rd s + ∑β pc cpress pi
bni =
p =1
6 2 15
(2)
+ ∑β sq _ cpress + ∑β d + ∑β Vxi + ε i .
sq
p pi
d
f fi
v
x
=p 1 = f 1= x 1

The dependent variable bni quantifies either cooperative behaviour (b1i) or

self-interested behaviour (b2i). The variables dpressi and cpresspi are considered in
quadratic form,7 which allows us to identify potential turning points in the effect

6. Drawing from an FAO survey module, we quantify food vulnerability by using a five-
point Likert scale. Detailed descriptive statistics of all variables are given in table B3. The
FAO survey module’s Food Insecurity Experience Scale contains eight questions that refer
to farmers’ individual experiences of food insecurity and its effects on them as well as on
their household members (Ballard, Kepple and Cafiero 2013).
7. For details on the measurements of these variables, see online appendix A and table B2.
242 Dadan Wardhana, Rico Ihle and Wim Heijman

FIGURE 4 Non-linear Relationships of Smoothed Estimates between Variable Levels

(a) Cooperation (y axis) (b) Cooperation (y axis)

and Peer Pressure (x axis) and Agro-cluster Density (x axis)
4 4

2 2

0 0

−2 −2

−4 −4
0 2 4 6 8 10 −6 ₋4 −2 0 2 4

(c) Self-interest (y axis) (d) Self-interest (y axis)

and Peer Pressure (x axis) and Agro-cluster Density (x axis)
3 3

2 2

1 1

0 0

−1 −1

−2 −2
0 2 4 6 8 10 −6 −4 −2 0 2 4

Source: Authors’ data.

Note: The grey shading denotes the 95% confidence interval around the non-parametric estimate.
Smoothed estimate refers to the kernel-weighted local bivariate polynomial smoother (the curved black
line), as described by Fan and Gijbels (1996).

of competitive pressure; that is, changes in a farmer’s behavioural tendency, as

suggested by the non-linear estimates in figure 4.
The variable rds captures agro-cluster density. We explicitly account for this
variable because the higher the agro-cluster density, the stronger the peer pres-
sure that farmers perceive (Porter 1998). The term dfi represents the distances d1i
and d2i between farmer i and the closest neighbouring farmer and closest regional
economic centre, respectively, both measured in minutes of travel time. Finally, the
term Vxi represents 15 control variables, including 13 socio-economic characteristics
of farmer i and the farm, as well as 2 properties of the region in which the farmer
lives. The symbol β is used to represent the correlation coefficients to be estimated
using ordinary least squares (OLS). The error term is εi.
Effects of Peer Pressure in Agro-clusters of West Java 243

The framework depicted in figure 2 suggests that farmer i becomes more

self-interested in increasing income to at least partially offset losses due to high
competition from peers. This suggestion is in line with the empirical findings of
Braguinsky and Rose (2009) and Songsermsawas et al. (2016). We therefore assess
the effects of farmers’ behaviour on their income, allowing for heterogeneity of
regional effects (online appendix table C1), a significant determinant of income
(OECD 1998), as follows:

2 7 5 5 2 5 7
 ir   0   nI bni   xII X xi   rIII ir   rIV, nir bni   rV, xir X xi   i . (3)
n 1 x 1 r 1 r 1 n 1 r 1 x 1

The dependent variable πir measures the farm income of farmer i in region r, cal-
culated as the difference between all farm revenue and all farm costs from January
to March 2015 in millions of rupiah. The variables bni are identical to the ones in
equation 2. The term Xxi represents seven control variables that complement those
represented by Vxi in equation 2. These seven variables include business activities of
the farmer and characteristics of the region of the farm. We also include a dummy
variable for membership in a farmer group, farmer association or cooperative, in
equation 3. We do this to control for whether such membership is associated with
an increase in farmer income (Verhofstadt and Maertens 2014). The y’s are sets of
coefficients to be estimated using OLS. The error term is εi. We find that endogene-
ity is a minor issue for model 2, as behaviour is plausibly shaped by perceptions,
while causality in the opposite direction contradicts the theoretical framework
of Ajzen (1991) and Rabbie (1991). Moreover, all variables on a regional scale are
virtually independent of the behaviour of individual farmers or their income as
modelled in equation 3. The Durbin-Wu-Hausman test applied to equations 2 and
3 showed no significant results, implying that estimating equation 2 separately
using OLS yields consistent results.
Based on Regulation 22/2010 on the Spatial Planning of West Java, we group
all subdistricts into six meta-regions represented by R1, R2, R3, R4, R5 and R6
(figure 3). Table C2 in the appendix presents summary statistics of each of the
six development regions. Each of these regions contains several subdistricts
that have relatively homogenous characteristics relevant for the income gen-
eration of farmers. Therefore, each region is represented by dummy variables
θθirir, ,rr ∈ {{R1,
R1,R2,
R2,R3,
R3,R4,
R4,R5,R5, R6 }
R6}.
This regional heterogeneity may also yield regionally varying partial effects
of the explanatory variables on farmer i’s income. We explicitly consider these
effects in equation 3: first, as region-dependent intercepts; second, as the region-
dependent slope; and third, as separate dummies and interaction terms between
each regional dummy and all explanatory variables. Accounting for such potential
regional heterogeneity in the effects of income determinants seems very plausi-
ble given that output prices and farmers’ productivity—both major determinants
of farm income—have been reported to show significant regional heterogene-
ity in Southeast Asian countries (OECD 1998). Moreover, Luckmann et al. (2015)
emphasise existing differences in regional supply chains and output prices in
Vietnam. Arifin et al. (2019) report starkly varying labour productivity patterns
for Indonesian agriculture.
244 Dadan Wardhana, Rico Ihle and Wim Heijman

If the regional effects θir and their interactions are jointly not significant, then
equation 3 can be simplified into equation 4, implying that the findings of the
OECD (1998) do not apply to West Java:

2 7
 i   0   nI bni   xII X xi   i . (4)
n 1 x 1

Models 2 and 3 allow us to test a number of relevant economic hypotheses

about the estimated relationships. For this purpose, we conduct F-tests on com-
binations of estimates from equation 2 in order to acquire statistical evidence to
support or reject the following null hypotheses, which are derived from figure 1
and the literature:
1. Figure 1 suggests that the coefficients of the variables measuring the degree of
peer pressure are jointly statistically significant. We test whether both variables
have no effect on cooperative or self-interested behaviour (Ho: β= 1 β=2 0 ).
2. Figure 1 suggests that the coefficients of the variables measuring the compre-
hensiveness of peer pressure are jointly statistically significant. We test whether
they have no effect on both types of behaviour (Ho: β= β=
c sq
1,2,..6 1,2,..6 0 ).
3. The coefficients of all variables measuring either the degree or the com-
prehensiveness of peer pressure are jointly statistically significant
(Ho=: β1 = β 2 β= c
1,2,..6 β= sq
1,2,..6 0 ). We test whether hypotheses 1 and 2 can be
jointly rejected.
4. Fischer and Qaim (2012) find that distance has a negative effect on collective
action and membership in a farmer group. We test whether the distance vari-
ables d1i and d2i have no joint effect (Ho: β= 1
d
β=
d
2 0 ).
5. Brañas-Garza (2006) finds that poverty reduces the generous behaviour of
individuals. We test whether the variables quantifying food vulnerability, the
poverty rate and the location of a household in a rural region are not jointly
statistically significant in explaining behaviour (Ho: β= 7
v
β=
v
9 β= v
10 0 ).
6. Figure 1 suggests that characteristics of farmers (for example, age and gender)
influence their behaviour. We test whether age and gender do not jointly affect
behaviour (Ho: β= 1
v
β=v
2 0 ).
Next, we carry out an F-test to assess whether the partial effects in equation 3 are
spatially heterogeneous across the six regions (R1–6), as suggested by the OECD
(1998); that is, we test whether model 3 can be simplified into equation 4.
7. The partial effects of farmers’ behaviour on income levels do not statistically
differ by region (Ho: γ 1,III…, 5 = γ 1,1
IV
= … = γ 5,2
IV
= γ 1,1
V
= … = γ 5,7
V
= 0) .

RESULTS AND DISCUSSION

Effects of Peer Pressure on Behaviour
Figure 5 compares both versions of model 2 by illustrating the significance of the
estimated coefficients; that is, the effects of peer pressure, agro-cluster density and
Effects of Peer Pressure in Agro-clusters of West Java 245

FIGURE 5 Estimation Results of the Effects of Peer Pressure

and Other Key Variables on Farmers’ Behaviour

Degree of peer pressure

dpress
sq_dpress

Comprehensiveness of peer pressure

Peers’ use of superior seeds (z1i)
Peers’ use of production technology (z2i)
Peers’ use of inputs & crop markets (z3i)
Change in knowledge accessibility (yi)
Change in production inputs (x1i)
Change in income opportunities (x2i)
z1i squared
z2i squared
z3i squared
yi squared
x1i squared
x2i squared

Agro-cluster variables
Agro-cluster density
Distance to closest cooperating farmer
Distance to nearest economic centre

Control variables
Male (dummy variable)
Farmer’s age
Farmer (dummy variable)
Household members
Assets
Meeting frequency
Food vulnerability
Yield satisfaction
Rural farm location (dummy variable)
Poverty rate

−0.4 −0.2 0 0.2 0.4

Cooperative behaviour Self-interested behaviour

Source: Authors’ calculations.

Note: The y axis shows the coefficient β estimates and the x axis shows cooperative behaviour (b1i) or self-
interested behaviour (b2i) based on the estimation of model 1. The circles represent the point estimates
of the coefficients explaining the partial effects of various independent variables on cooperative behav-
iour. The triangles denote the point estimates of the coefficients that explain self-interested behaviour.
The lines to both sides of each of the point estimates indicate the lower and upper bounds of the 95%
confidence interval. The variables represented by lines that do not cross the vertical line denoting zero
are statistically significant at the 5% level.

the control variables on farmers’ cooperation (b1i) and self-interest (b2i), respective-
ly.8 The two versions of model 2 differ only by the dependent variable.
Figure 5 shows that the effect of peer pressure (dpressi) on both types of behav-
iour is significant at the 5% level, confirming the findings of Ajzen (1991), Rabbie

8. Detailed results are provided in table D1 in the appendix. The overall F-tests of both
model versions are significant at the 5% level, showing that both models give meaningful
explanations of variations in farmers’ behaviour.
246 Dadan Wardhana, Rico Ihle and Wim Heijman

(1991) and Binmore (2009). The partial effect of perceived peer pressure is higher
for selfishness than for cooperation. The sign of this partial effect is opposite in both
model versions. The partial effects of the squared terms are both significant and of
opposite sign and have much narrower confidence intervals. Thus, the marginal
effect of peer pressure on cooperative behaviour is convex, as suggested by figure
4a. From low levels of peer pressure to a degree of about 4.3, cooperative behaviour
declines, but it rises beyond that point. Figure C1 in the appendix shows that about
60% of all observations lie in this range (–3.7 to 4.3).
The marginal effects of peer pressure on self-interest indicate a concave rela-
tionship: selfish behaviour increases strongly as peer pressure grows, until the
pressure reaches a degree of about 6; it then declines, as suggested by figure 4. This
is in line with the work of Bergstrom (2002), who finds that individuals facing low
levels of peer pressure typically become more selfish in their dealings with peers
because they believe self-interest will benefit them more than cooperation. The
finding is also in line with the findings of Hendrickson and James (2008) (figure 2)
and Graham (2014), who emphasise that perceived pressure increases selfishness.
In figure 5, the wide confidence intervals of many of the coefficients of the
control variables often render them insignificant. Several aspects determining the
comprehensiveness of peer pressure appear to significantly affect cooperation. The
largest coefficient value is about 0.4, for peer pressure resulting from changes in
input costs (x1i). Furthermore, these six factors determining comprehensiveness
significantly influence self-interest. The largest coefficient has a value of about 0.4,
for the variables measuring competition for production technology (z2i) and the
use of superior seeds (z1i). Many of the quadratic terms are not significant.
Agro-cluster density (rds) appears to have a positive effect only on self-interest.
Denser agro-clusters are associated with increased selfishness. A greater travel
distance from a farm to the next economic centre means the farmer is less likely to
act selfishly. Farmers situated in subdistricts of the densest agro-clusters appear to
cooperate most when they perceive the least peer pressure (see section D1 of the
online appendix). Likewise, farmers are most likely to act most selfishly in dense
agro-clusters with the highest peer pressure.
Table 1 complements figure 5 by translating the abstract statistical estimates into
corresponding magnitudes of tangible economic effects. Thus, this table summa-
rises the economic relevance of the estimated effects, using the maximum observed
ranges of the explanatory variables. This table reports the partial effects in decreas-
ing order of the maximum observed effect of each explanatory variable on each
type of behaviour.
Table 1 suggests that two of the variables quantifying the comprehensiveness
of peer pressure exert the largest maximum partial effects on both self-interest and
cooperation. Change in input costs (x1i) due to competition is the most prominent
factor that influences farmers’ levels of cooperation. This is followed by competi-
tion with peers for attaining information on input supply and crop marketing (z3i).
The maximum effect size of the comprehensiveness variable x1i changes the level of
cooperative behaviour by 2.97 points, which is 46% of its observed range (for more
details, see section D2 of appendix D). Membership in a farmer group appears to
increase cooperation and reduce selfishness.
Effects of Peer Pressure in Agro-clusters of West Java 247

TABLE 1 Economic Relevance of Determinants on Farmers’ Behaviour

Cooperative behaviour Self-interested behaviour

Absolute Relative Absolute Relative

Variable effect effect (%) Variable effect effect (%)

Change in input costs 2.97 46 Use of superior seeds 4.21 86

Inputs and crop markets 1.05 16 Production technology 1.84 38
Production technology 0.59 9 Food vulnerability 1.62 33
Degree of peer pressure 0.44 7 Output satisfaction in
the last yield 0.51 10
Working hours in Agro-cluster density 0.50 10
agriculture 0.41 6
Member in farmer Income opportunities 0.41 8
group 0.39 6
Knowledge accessibility −0.23 −4 Crop diversity 0.22 5
Being a rice farmer −0.36 −6 Degree of peer pressure −0.09 −2
Food vulnerability −1.16 −18 Member in farmer
group −0.18 −4
Being a rice farmer −0.22 −5
Changes in input costs −0.61 −12
Distance to economic
centre −0.65 −13
Knowledge accessibility −1.03 −21

Source: Authors’ calculations.

Note: Only variables that are statistically significant at the 5% level in equation 1 are included. The
maximum absolute effect of each variable on the respective dependent variable in the ‘absolute effect’
column is calculated by multiplying the estimated correlation coefficient—if significant at the 5% level—
by its observed range (maximum minus minimum). The ‘relative effect’ column shows the share of the
absolute effect of each variable, divided by the observed range of the dependent variable; that is, this
column reports which share of the total observed range of the dependent variable can be explained the
most by the absolute effect of each explanatory variable.

Effects of Farmers’ Behaviour on Income

Figure 6 reports the estimation results of model 3; that is, the effects of farmers’
cooperation and self-interest on income, depending on the location of the farm in
one of the six regions shown in figure 3.9
While self-interest appears not to have a significant effect on income in any of
the six regions, the partial effect of cooperative behaviour on income appears nega-
tive and statistically significant at the 5% level. Our results therefore confirm a likely

9. These results directly correspond to the theoretical model of James and Hendrickson
(2008) (see figure 2). Detailed results are given in table D2 in the appendix. The overall F-test
of this model has a p-value smaller than 0.01, indicating that it is meaningful for explaining
the variation in farmers’ income.
248 Dadan Wardhana, Rico Ihle and Wim Heijman

FIGURE 6 Regionalised Determinants of Farmers’ Income

Farmer behaviour
Cooperative behaviour (b1i)
Self-interested behaviour (b2i)
Control variables
Years of schooling (yedu)
Farm size (fsize)
Number of crops (ncrop)
Working hours on farm (whours)
Rice farmer (dummy) (frice)
Membership (dummy) (D_Member)
Distance to economic centre
Region (dummy variables)
Region 1 (R1)
Region 4 (R4)
Region 5 (R5)
Region 1
b1i_R1
b2i_R1
yedu_R1
fsize_R1
frice_R1
ncrop_R1
whours_R1
D_Member_R1
Region 2
b1i_R2
b2i_R2
yedu_R2
fsize_R2
ncrop_R2
whours_R2
D_Member_R2
Region 4
b1i_R4
b2i_R4
yedu_R4
fsize_R4
frice_R4
whours_R4
D_Member_R4
Region 5
b1i_R5
b2i_R5
yedu_R5
fsize_R5
frice_R5
ncrop_R5
whours_R5
D_Member_R5
Region 6
b1i_R6
b2i_R6
yedu_R6
fsize_R6
whours_R6
D_Member_R6

−2 −1 0 1 2 3

Source: Authors’ calculations.

Note: The circles represent the point estimates of the coefficients of model 2, explaining the partial effects
of the explanatory variables on farmers’ income. The lines to both sides of each of the point estimates
indicate the lower and upper bounds of the 95% confidence interval. The variables represented by lines
that do not cross the vertical line denoting zero are statistically significant at the 5% level. Region 3 (R3)
is the reference category. For the precise definition of the regions, see figure 3.
Effects of Peer Pressure in Agro-clusters of West Java 249

TABLE 2 F-test Results

Model 1: Dependent variable: farmers’ behaviour

Cooperative behaviour Self-interested behaviour

p-value Interpretation p-value Interpretation

Hypothesis 1 < 0.01 dpressi affects Hypothesis 1 < 0.01 dpressi affects
cooperative behaviour selfishness
Hypothesis 2 < 0.01 cpressi variables jointly Hypothesis 2 < 0.01 cpressi variables
affect cooperative jointly affect
behaviour selfishness
Hypothesis 3 < 0.01 dpressi and cpressi Hypothesis 3 < 0.01 dpressi and cpressi
jointly affect jointly affect
cooperative behaviour selfishness
Hypothesis 4 0.24 Distance does not affect Hypothesis 4 < 0.01 Distance affects
cooperation selfishness
Hypothesis 5 < 0.01 Poverty affects Hypothesis 5 < 0.01 Poverty affects
cooperation selfishness
Hypothesis 6 0.02 The characteristics Hypothesis 6 < 0.01 The characteristics
jointly affect jointly affect
cooperative behaviour selfishness

Model 2: Dependent variable: farmers’ income

p-value Interpretation

Hypothesis 7 < 0.01 The partial effects of farmers’ behaviour on income are regionally
heterogeneous.

Source: Authors’ calculations.

trade-off between cooperation and income, as proposed in figure 2. For the refer-
ence region of Bandung metropolitan area, as well as R1, R4, R5 and R6, a farmer
scoring one unit higher with respect to cooperation has, on average, an income of
17% less. The impact of cooperation on income for R2 differs statistically from that
for R1, R3, R4, R5 and R6, and thus points to some regional heterogeneity in this
effect. Figure 6 and table D2 in the appendix suggest that the partial effects of the
control variables vary by region too. For example, in the reference region, R3, farm
size appears to have the greatest effect on income, while in R1, being a rice farmer
appears to have the greatest effect on income. In R2, cooperative behaviour has the
greatest effect; in R4, the number of crops; and in R5, farmer group membership.
Table 2 reports the results of the F-tests of hypotheses 1–7. The results for
hypotheses 1, 2 and 3 show robust evidence that both the degree and the com-
prehensiveness of peer pressure determine farmers’ behaviour—cooperative or
self-interested—confirming this aspect of our conceptual framework, as derived
from Ajzen (1991) and Rabbie (1991).
250 Dadan Wardhana, Rico Ihle and Wim Heijman

Physical distance to the closest farmers with whom the farmer cooperates and
to the nearest economic centre appear to matter only for self-interested behav-
iour. This only partly supports Fischer and Qaim’s (2012) findings. Hypothesis 5
is rejected at the 5% level for both types of behaviour, confirming Brañas-Garza’s
(2006) findings. Hypothesis 6—that farmers’ personal characteristics influence their
behavioural patterns, as hypothesised in our conceptual framework in figure 1—is
rejected as well. Finally, hypothesis 7 is rejected, indicating that the effects of farm-
ers’ behaviour on income levels statistically differ across the regions of West Java,
in line with the OECD’s (1998) research.

CONCLUSIONS AND IMPLICATIONS

Clustering of the economic activity of an industry is likely to lead to competitive
peer pressure. This influences the behavioural patterns of the agents involved
(Porter 2000). It can be advantageous for agents by easing cooperation (Porter
1998) but also disadvantageous (James and Hendrickson 2008) by eroding profits.
Thus, responding to such pressure, farmers may behave cooperatively or selfishly
towards their peers.
Based on the primary survey data of 1,250 farmers in 15 subdistricts of West
Java, we estimate the effects of various aspects of peer pressure on the willingness
of farmers to behave cooperatively or selfishly, by explicitly accounting for the
density of agro-clusters. Based on the theory of planned behaviour of Ajzen (1991)
and the behavioural interaction model of Rabbie (1991), we develop a conceptual
framework to guide our empirical analysis.
Our first regression model quantifies the impacts of various aspects of com-
petitive pressure on farmers’ behaviour. The second regression model relates the
behavioural variables with farmers’ income, allowing for regional heterogeneity,
as suggested by the OECD (1998). From the conceptual framework and literature,
we derive seven hypotheses about key parameters, which we test econometrically
using F-tests.
We find strong evidence that peer pressure in its various forms and agro-cluster
density shape the behaviour of Indonesian farmers. Farmers in regions with the
densest agro-clusters appear to behave cooperatively if they perceive low levels of
peer pressure.10 Farmers appear most self-interested in the regions with the densest
agro-clusters and most peer pressure.
Specific aspects of competition—for example, competition for attaining inputs
or production technologies—appear to affect behaviour considerably. Competition
from changes in input costs and for obtaining information on input supplies and
crop marketing appear to encourage cooperative behaviour the most. Competition
for attaining superior seeds and production technologies appear to increase self-
interested behaviour the most.
We empirically confirm the trade-off between cooperative behaviour and income
hypothesised by James and Hendrickson (2008). Simultaneously, we find evidence
that self-interested behaviour does not significantly increase income. In line with

10. R4 has the densest agro-cluster and R3 has the least dense agro-cluster. Detailed results
are given in online appendix table C2.
Effects of Peer Pressure in Agro-clusters of West Java 251

the OECD (1998), however, we find some evidence that the effect of cooperation
on income does significantly vary by region. Household food insecurity appears
to have a consistent and large effect on farmers’ behaviour towards peers, which
supports Brañas-Garza’s (2006) finding that food insecurity reduces cooperation
considerably.
These findings indicate that the strong tradition of community in Indonesia
remains an important part of farmers’ lives. Some farmers in agro-clusters show
high levels of cooperation despite high levels of peer pressure and fears that coop-
eration will negatively affect their income. This shows that economic incentive may
not be the main factor affecting the behaviour of smallholder farmers. However,
unethical behaviour due to competitive pressure from intense and concentrated
economic activity appears widespread. About 37% of the survey respondents
reported being uncooperative with peers, for fear of conflict. Nearly 48% of the
farmers who reported being uncooperative have been cheated by peers or fear
being cheated. However, such self-interest, which flouts Indonesian social norms,
appears to have no effect on farmers’ incomes.
In order to reduce peer pressure among neighbouring farmers, policies should
be tailored to specific characteristics of each region. For farmers in dense agro-
clusters (such as R2, R4 and R5), policies could improve access to information
on input supplies and crop marketing. For farmers in regions of low agro-cluster
density (such as R1, R3 and R6), policies could aim to reduce the selfishness of
farmers by ensuring sufficient supplies and low prices of production inputs, or by
improving the efficiency of input use so that farmers’ production costs decrease.
Hamilton-Hart (2019) emphasises governments’ current ‘willingness to adopt
intrusive state interventions to direct economic activity’. Our analysis shows that
to improve the exchange of knowledge and expertise among farmers, policymakers
should aim to improve specific aspects of agricultural production. It would suffice
to encourage the factors that appear to increase cooperation and discourage the
factors that appear to increase selfishness.
Selective policies may succeed if the role of institutions such as cooperatives and
farmer groups is fostered by governments. These institutions could play a greater
role in distributing production inputs, such as high-quality seeds. Alternatively,
machinery cooperatives could focus on the purchase, maintenance, administration
and coordination of joint technology use (Harris and Fulton 2000). Such coopera-
tives are widespread in Western Europe and North America. Boosting the roles of
these institutions in crop marketing is likely to stimulate cooperative behaviour,
as suggested by Ibnu, Offermans and Glasbergen (2018).
Local government offices for agriculture could play a pivotal role in improving
the general availability and spatial distribution of inputs, and in improving the
connections and trust among farmers and input suppliers. They could champion
support for farmer organisations to establish such cooperation, by strengthening
and extending agricultural extension, as stated in Law 19/2013 on the Protection
and Empowerment of Farmers. The agricultural offices could also help farmer
groups to establish partnerships with other stakeholders, such as input suppliers,
processing and marketing firms and research institutions. This could help farmers
in agro-clusters to obtain the information and resources they need.
Hence, policies and other programs to support farmers should take a whole-of-
chain approach. They should not only target on-farm aspects but also address input
252 Dadan Wardhana, Rico Ihle and Wim Heijman

and output markets. Importantly, they should consider the competitive nature and
regional characteristics of farming locations, including agro-cluster density and
peer pressure. Farmer groups and extension officers could communicate regional
needs to policymakers, potential investors and other stakeholders, such as buyers,
firms and scholars. In doing so, they could also help farmers to reduce costs of
attaining market information and transport. This might not only create opportunity
for the national and provincial governments to develop appropriate agricultural
policies, but also stimulate the development of private sector initiatives. This could
include start-ups that provide digital infrastructure—such as that of TaniHub, an
Indonesian organisation helping farmers attain higher prices and more customers
for their crops—to help farmers market their products to end consumers.
The finding that food insecurity at the household level, as evaluated according
to FAO criteria (Ballard, Kepple and Cafiero 2013), consistently and considerably
reduces cooperative behaviour implies that some households may face a poverty
trap. Their limited willingness to cooperate with peers tends to exclude them from
positive spillovers. Such spillovers could improve their food security or income.
Targeted policies are needed to help them escape this trap.
Last, the pronounced spatial heterogeneity of the effect of farmers’ behaviour
on their income should be considered. Such heterogeneity implies that all-purpose
policies are unlikely to be effective across all regions of West Java or Indonesia.
Therefore, any policy intervention intended to reduce the negative effects of com-
petitive peer pressure should be tailored to the particular characteristics and needs
of each region, as suggested by the OECD (2007).
Future research could investigate whether and to what extent the spatial struc-
ture of certain crop specialisations affects the extent and the comprehensiveness of
peer pressure for specialised farmers. Unique features of niche markets may relate
to the level of peer pressure experienced.

ACKNOWLEDGMENT
We gratefully acknowledge the funding provided by the Indonesia Endowment
Fund for Education (LPDP). We also wish to thank the government of West Java
province for supporting this research, and the anonymous reviewers for offering
suggestions for enriching this article.

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