The Effect of Transaction Costs on the Sustainability of Milkfish Aquaculture in North Coast of Java, Indonesia

The potential of Milkfish Aquaculture on the North Coast of Java is very promising as the source of economy to both the farmers and Indonesia. However, the challenge faced by milkfish farmers is the fluctuation of input and selling prices may threaten business. Gresik as one of the center of milkfish production faces issues in accessing the market to sell their products, hence they require intermediaries that carries transaction costs which implicitly increase their final costs. Moreover, lack of cold storage and advance processing in the area complicate and reduce the bargaining value of milkfish farmers towards its buyer. This is because milkfish has a relatively very short shelf-life without proper storage or additional processing. The research is aimed to analyze the cost structure of milkfish farmers on the north coast of Java towards farmers income. Quantitative method is employed using two analyses: Ordinary Least Square (OLS) and Mann-Whitney Comparative Test. This study found that input cost is significantly affect the milkfish farmer, while the investment and transaction costs do not affect the milkfish farmer. Although the transaction cost variable is not significant, it shows negative coefficient value which implies reverse relationship with income. The result of Comparative Test is that the transaction cost of traditional farmers is higher compared to the semi-intensive. This is because the semi-intensive aquaculture has a higher bargaining position compared to the traditional ones, so that the cost of information, negotiation and other transaction cost are lower compared to the traditional ones. This study may useful for the milkfish farmer to increase efficiencies in the production by reducing the hidden costs and improve supply chain of the milkfish industry for the sustainability of milkfish farmers and its sub-industries in Gresik.