The Influence of Agricultural Commodity on F & B Company ’ s Performance in Indonesia

INTRODUCTION During the last decade, a major agricultural commodity prices (soft commodities) in the world experienced significant price fluctuations. Data from the World Bank (2013) shows the price index of agricultural commodities from 2005 to 2011 has increased more than twofold. Some agricultural commodities become food product’s raw material for most of the population of the world, such as: sugar, palm oil, corn, and wheat. Fluctuations in food prices has affected huge social and economic stability in the countries of the world. High inflation of agricultural commodities has affected the purchasing power of food products for most population of the world. For some F&B industries, agricultural commodities inflation and its derivatives have cut most of the company’s profit margin, because it directly affects raw materials cost contribute to 40-55% of total cost of the company (Lee, 2002). Moreover research Nazlioglu and Vol. 6 | No. 1 ISSN: 2089-6271 The Influence of Agricultural Commodity on F&B Company’s Performance in Indonesia


INTRODUCTION
During the last decade, a major agricultural commodity prices (soft commodities) in the world experienced significant price fluctuations.Data from the World Bank (2013) shows the price index of agricultural commodities from 2005 to 2011 has increased more than twofold.Some agricultural commodities become food product's raw material for most of the population of the world, such as: sugar, palm oil, corn, and wheat.Fluctuations in food prices has affected huge social and economic stability in the countries of the world.
High inflation of agricultural commodities has affected the purchasing power of food products for most population of the world.For some F&B industries, agricultural commodities inflation and its derivatives have cut most of the company's profit margin, because it directly affects raw materials cost contribute to 40-55% of total cost of the company (Lee, 2002).Moreover research Nazlioglu and The Influence of Agricultural Commodity on F&B Company's Performance in Indonesia Soytas (2012) notes that agricultural commodities prices always depends on oil price and dollar.
Commodities prices also have relations with poverty (Estrades and Terra, 2012) and macroeconomics conditions (Makin, 2013).Gubler and Hertweck's research (2013) shows that commodity price shocks are a very important driving force of macroeconomic fluctuations, second only to investment-specific technology shocks, particularly with respect to inflation.
Neutral technology shocks and monetary policy shocks, on the other hand, seem less relevant at business cycle frequencies.Neutral technology shocks rather play an important role at low frequencies.Belke, Gordon and Volz (2012) investigates the relationship between global liquidity and commodity and food prices applying Retail food prices adjust rapidly rising prices of agricultural commodities, and very slowly lower the prices of agricultural commodities when the price drops (Schnepf, 2009).
Furthermore Schnepf (2012) states that the price of retail food products is more influenced by consumer demand (which is strongly influenced by economic conditions), compared to changes in the price of agricultural commodities.This association varies depending on the content of agricultural commodities in the retail food products.According to Lee (2002), the increase in agricultural commodity prices have the greatest influence on rising prices of food products compared to other factors such as rising energy costs, the cost of production and service costs.Among all sectors of the food industry, meat packing industry, poultry processing and dairy industry will have the biggest impact of the increase in input prices of agricultural commodities.
F&B industry is a sector that absorbs most agricultural commodities as its main raw material.
According to Lee (2002), among all F&B industry, meat processing industry is sub-sectors that have the largest percentage of raw materials cost of agricultural commodities for 73.55% of the total sales value (its output), and the lowest is the fisheries and fish industry by 12.45%.Thus the effect of the increase in input prices of agricultural commodities (meat) will be more significant than the increase in input prices of agricultural commodities in other sectors.
As with Lee's study (2002) who analyzed the contribution of agricultural commodity input prices in the retail food industry in the United analyzed that meat processing sector only at number four.Schnepf (2009) included more aspects that affect the output price of food retail, including promotional expenses, taxes, and profit; compared to Lee (2002) which takes into account only the cost of goods sold.Schnepf (2009) mentions the transmission of agricultural commodity prices to the retail food price movements (following the price movements of agricultural commodities), which is rapid movement directly in the first month after rising agricultural commodity prices, and a slow/pause occurred six months after the prices of agricultural commodities down.Price transmission to retail food products also occurs asymmetry, where the percentage of retail price reductions occurred not by the percentage increase in the retail price.This condition is mentioned Schnepf as sticky price in retail food products.Sticky price is influenced by several factors: consumer behavior, product turnover costs (switching costs), retail inventory management, retail costs due to price changes (relating to labeling and promotion) and market uncertainty.Research on the volatility of prices of agricultural commodities is also done by Bluedorn, Duttagupta, Pescatori and Snudden (2012), Paul and MacDonald (2000), and Schluter (1998), and further Conroy and Narula (2012) and Grant Thornton International (2011) reported the association with food firm's performance.Cashin, McDermott and Scott (2002) finds that there is an asymmetry in commodity price cycles, as price slumps last longer than price booms.How far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom.In addition, for most commodities, the probability of an end to a slump (boom) in prices is independent of the time already spent in the slump (boom).Browne and Cronin (2010)

Research Scope
This study uses data from the period January 2005 to December 2012, because during this period the price of agricultural commodities experiencing very high volatility.Before 2005, agricultural commodity price was less volatile.The influence of agricultural commodities to be studied limited to: palm oil, wheat, corn, cocoa and sugar.The five of these commodities are highly significant effect on food price index movement in the world as well as being a major input for the F&B industry in Indonesia.F&B companies to be studied is selected to 15 companies listed on the IDX which is a consumer goods company and food services/ restaurant, and industrial goods were strongly associated with agricultural commodities as raw materials.Issuers that have a mix of business sectors (not just F&B, but also other business areas such as: cosmetics, animal feed or other), as well as venture issuers with bottled drinking water are not included in this study (because it is not associated with the commodity agriculture as an input cost).

Data Sampling
The data used in this study is a secondary data available from the following sources: • Data agricultural commodity prices daily and monthly for five commodity palm oil, wheat, corn, cocoa and sugar: obtained from the World Bank and Thomson Reuters.

Data processing
The study consisted of three different parts of the study, so there are three different kinds of data processing to see the effect of price movements of agricultural commodities, which: 1. Influence of agricultural commodity prices on the company's stock price This study analyzed the relationship between the price movements of agricultural commodities with the stock price of food and beverage companies by using multiple linear regression with the general form of the regression model for this study are as follows: Where: PRICEj is stock price of company j CORN is commodity price of corn WHEAT is commodity price of wheat COCOA is commodity price of cocoa PALMOIL is commodity price of palmoil SUGAR is commodity price of sugar β 0 is the intercept of the regression results

Influence of agricultural commodity prices on the company's gross profit
This section analyzes the effect of agricultural commodity prices on gross profit of food and beverage companies by using multiple linear regression with the regression models are as follows: Where PROFIT j is gross profit of company j, while all other coefficients and independent variables are the same with the first part regression. 1. Procedure design and data collection At this stage, the event (occurrence), the determination of the period of events and data collection is defined.In this study, the first event that affects the abnormal return is defined as an incident in which an increase in the prices of agricultural commodities, the accumulation within five days are above 5%, so thin the first event (t 0,1 ) occurred on 14 October 2010.
Conversely, second event is a drop in the prices of agricultural commodities, the accumulation within five days are more than 5%, and this second event (t 0,2 ) occurred on 14 March 2011.
In this study the incidence of the period is specified [-30,30]

Procedure time series
At this stage, modeling of expected return of each observed stock is defined using the single index model as follows: Where Ŕ jt is expected or predicted stock's return of firm j in period t, and Ŕ mt is market return (JCI) in period t, while α and β j are the coefficients obtained from the time series regression results for the observational data for 300 days.Having gained this market model is then carried the expected return estimation.

Procedure event study
At this stage, the estimated abnormal return of each stock were observed based on the expected return estimated in the previous stage (time series regression results).
Abnormal return calculations performed by the following formula: Where AR jt is abnormal return of firm j in period t, while Rjt is actual return of stock's firm j in period t.Then the calculation of average abnormal return (AAR) and cumulative average abnormal return (CAAR) is conducted with the following formula: AARnt is average abnormal return of n stocks in period t, CARj (t1,t2) is cumulative abnormal return of stock's firm j in period t, and CAAR (t1,t2) is cumulative average abnormal return for the period t1 to t2.

Analysis procedure
In the last stage, statistical test for the significance of the effect of the change event abnormal return before and after the incident, or the number of group shares.
Furthermore done interpretation and analysis of test results.

Hypothesis
In this study, there are several hypotheses that

Statistics Test
In the study of agricultural commodity prices influence on stock prices and gross profit of food and beverage companies, the descriptive statistical  vol. VI no. 01 (2013vol. VI no. 01 ( -2014) ) Some food companies observed their input costs closely related to the price of agricultural commodities, but the regression model shown no significant effect on its stock price, for example CEKA (Cahaya Kalbar), DAVO (Davomas), INDF (Indofood), PSDN (Prasidha), SIPD (Sierad) and SMAR (SMART).This may be due to the issuer in addition to moving in the downstream processing industry, they are also engaged in upstream processing industry such as palm plantation, cocoa, poultry, coffee or wheat flour, so the share price is not affected by commodity price movements upstream.

The effect of agricultural commodity prices on the food company's gross profit
The second regression performed in this research is to look for the influence of agricultural commodity price movements on gross profit of food and beverage companies.Results of regression and statistical tests between the independent variables in agricultural commodity prices with the

a
global cointegrated vector-autoregressive model.They use different measures of global liquidity and various indices of commodity and food prices for the period 1980-2011.The results support the hypothesis that there is a positive long-run relation between global liquidity and the development of food and commodity prices, and that food and commodity prices adjust significantly to this cointegrating relation.Global liquidity, in contrast, does not adjust, it drives the relationship.Oil price changes has great impact to agricultural commodities market.The responses of agricultural commodity prices to oil price changes depend greatly on whether they are caused oil supply shocks, aggregate demand shocks or other oilspecific shocks mainly driven by precautionary demand.Oil shocks can explain a minor friction of agricultural commodity price variations before the food crisis in 2006-2008, whereas in post-crisis period their explanatory abilities become much higher.After crisis, the contributions of oil-specific factors to variations in agricultural commodity prices are greater than those of aggregate demand shocks.Nazlioglu and Soytas (2011) examines the dynamic relationship between world oil prices and twenty four world agricultural commodity prices, based on monthly prices ranging from January 1980 to February 2010, accounting for changes in the relative strength of US dollar in a panel setting.The empirical results provide strong evidence on the impact of world oil price changes on agricultural commodity prices.They find strong support for the role of world oil prices on prices of several agricultural commodities.The positive impact of a weak dollar on agricultural prices is also confirmed.Fluctuations in agricultural commodity prices is very significant especially during the last ten years.All agricultural commodity prices increased significantly, both in the category of vegetable oils (such as palm oil and soybean oil), as well as in the category of grains such as corn and wheat (World Bank, 2013), as shown in Figure 1.In the beverage category (such as chocolate and coffee Robusta) and other categories (such as sugar), commodity prices also increased by a similar trend with other agricultural commodities, as shown in Figure 2. According to Schnepf (2009) the price is redress mechanisms linking major agricultural commodities through several levels of the market system to retail food products.The nature of agricultural commodity prices influence the price of retail food products in general depend on the size of its contribution to the retail price of food and the level of market competition.Schnepf identified three fundamental factors to describe the influence of agricultural commodity prices on retail food products, namely: • Magnitude: the magnitude of the effect of price movements on all levels of the market to other levels • The speed of the adjustment: if there is a delay in adjusting levels between marketing • Asymmetry: if the price adjustment is not the same in terms of the effect of agricultural commodities to retail food products and vice versa.

Figure 1 .
Figure 1.Commodity price movements on vegetable oils and grains 2002-2013 argue that long run and dynamic relationships should exist between commodity prices, consumer prices and money.Their empirical analysis shows equilibrium relationships existing between money, commodity prices and consumer prices, with both commodity and consumer prices proportional to the money supply in the long run.Persistence profiles reveal commodity prices initially overshooting their new equilibrium values in response to a money supply shock.They conclude that money has to be brought into analyses of the relationship between commodity prices and consumer prices.Research Objective This study aims to analyze the relationship between world agricultural commodity price movements with the movement of the stock price of food and beverage companies, analyze the effect of price movements of raw materials (agricultural commodities) on the financial performance particularly gross profit of F&B companies, to test the extent of significance relationship between variables in agricultural commodity prices with the variable gross profit and stock price of F&B companies, and analyze whether the increase/ decrease in the price of agricultural commodities caused the abnormal returns and cumulative abnormal return on stocks of F&B company in Indonesia.Financial data used in this research is gross profit because the gross profit is directly related to the cost of input material (agricultural commodities) in F&B industries.While the net profit data is not used in this research due to bias influenced by factors of interest, taxes and depreciation.

•
Data daily and monthly stock price, and the stock price index daily: obtained from Thomson Reuters • Data quarterly gross profit company: obtained from Thomson Reuters, the company's website, and the IDX.The latest period data (3rd and 4th quarter of 2012) was not available in Thomson Reuters yet, so that gross profit data was taken from company's website and IDX.Daily data in commodity prices and stock prices are averaged over the period 2005-2012 per monthly and per three months to see the relationship between the prices of agricultural commodities and stock prices studied.Gross earnings data from company financial reports quarterly period 2005-2012 is used to see the effect of commodity prices on the financial performance of agricultural companies studied.Daily price data of agricultural commodities and stock prices during the period 2010-2011 are used to perform event study of the significant rise and decline in agricultural commodity prices.
3. Influence of agricultural commodity prices on abnormal return of company's stockAccording toBodie, Kane and Marcus (2011: 381-  383)  abnormal return caused by an event can be estimated from the difference between the stock's actual return with a benchmark.Many researchers have used the market model to estimate abnormal returns.Event study techniques are empirical financial research methods commonly used to examine the effect of an event on the company's stock price.Event study techniques are also frequently used to examine the efficiency of the market related to the leaking of information to the market.Event study procedure is divided into four stages, namely: or observed 30 days before and after the event, observation period in the first event of the 26 August to 26 November 2010, and from 27 January until 26 April 2011 for the second event.While the estimation period for modeling the expected return is [-300,-31], begin on 5 February 2010.Daily price data of agricultural commodities and daily closing stock prices are collected of the period 4 January 2010 until 30 December 2011.
have been prepared on the purpose of the research related to the effects of agricultural commodity price movements on stock prices, gross profit, abnormal return and cumulative abnormal return on stocks of food and beverage companies.Here are six hypotheses, namely: 1. Increase in agricultural commodity prices affect the stock price of food and beverage companies H 0,1 : β 1 = β 2 = β 3 = β 4 = β 5 = 0 2. Increase in agricultural commodity prices affect the gross profit of food and beverage companies H 0,2 : β 1 = β 2 = β 3 = β 4 = β 5

β
of corn price and sugar prices showed mostly positive.This means that the price of corn and sugar have positive effect on gross profit of nearly all food companies observed, which means that the higher corn price and sugar prices will affect the food company's gross profit increase.This may be explained by the results of Schnepf study (2009), which mentions the price of food and beverage consumer products with the term sticky price, in which food manufacturers will tend to quickly raise its product prices at current input prices (prices of agricultural commodities) rose, and will long lowered product prices when agricultural commodity prices fell.The coefficient β corn prices only negative on the issuer DAVO (Davomas), while the coefficient β sugar prices is negative on issuer CEKA (Cahaya Kalbar), DAVO (Davomas) and PSDN (Prasidha).But the results of the t test on the coefficient β agricultural commodity prices largely showed no significant effect at the 5% significance level.This may be related to the purchasing strategies and procurement of raw materials of agricultural commodities in each of the observed food company.Several food and beverage companies have implemented procedures hedging in the purchase of raw materials (agricultural commodities), such as futures and options contracts implementation of agricultural commodities through a broker.The results of event study on fluctuating agricultural commodities prices The calculation results of the average abnormal return (AAR) and cumulative average abnormal return (CAAR) in the first event (rising prices of agricultural commodities simultaneously) are shown in the following figures.The calculation of CAAR seen that the rise in agricultural commodity prices simultaneously influence positive value of the cumulative abnormal return of food and beverage company's stock price that are observed, and the trend of positive abnormal return prior to the event period compared to the period after the event.The result of this calculation is in line with the results of the first regression to see the effect of the agricultural commodity price movements at a stock price of F&B companies, where there is a positive effect on agricultural commodity price movements on stock prices of food and beverage company in Indonesia.

Figure 3 .
Figure 3. Average AR in the event of increase agricultural commodity prices

For
investors who wish to trade stocks of agricultural sector (in particular sub-sectors food and beverage processing) on the Stock Exchange, we recommend to sell at the current prices of agricultural commodities were at highs and buying when the price of agricultural commodities at the lowest price level, of course to do more in-depth analysis of agricultural commodity prices which significantly affect the company's stock price.3.Those food and beverage processing companies, could do a follow up on the strategy implementation of buying agricultural commodities, in order to be more integrated with the product sales strategy, associated with fluctuations in agricultural commodities price as inputs.4.Those policy makers in government and in parliament, can perform analysis of world agricultural commodity price movements for any decisions related to the minimum pricing policy of the purchase to farmers or agricultural commodity imports, and its influence to the inflation rate in Indonesia.CONCLUSIONBased on the data analysis and discussion that has been done, it can be taken some conclusions from this study are: 1. Agricultural commodity price movements affect stock price movements in food and beverage company listed in IDX.Dominant agricultural commodity prices affect stock prices in the food and beverage industry in IDX is corn and sugar.Price hike in corn and sugar will be a positive influence on observed food company's stock price increases.2. Agricultural commodity price movements affect the gross profit of food and beverage company listed in IDX.Dominant agricultural commodity prices affect company's gross profit is commodity prices of corn and palm oil, which positively influence.This explains the behavior of the food and beverage industry tend to quickly raise the price of the product at the time of input prices of agricultural commodities has increased, and will slowly lower the selling price when the price of inputs has decreased.3. Statistics test results shows that the influence of agricultural commodity prices doesn't have a significant effect only on PT Sierad Produce Tbk stock prices, because the dominant input of this company is poultry commodity, while observed agricultural commodities are other than poultry commodities.Influence commodity prices of wheat, cocoa and palm oil to the food company's stock price largely insignificant, except in some issuers such as AISA (Tiga Pilar), PSDN (Prasidha), and SMAR (SMART) for wheat commodity, MYOR (Mayora), PTSP (Pioneerindo/CFC), SKLT (Sekar Laut), SMAR (SMART), and STTP (Siantar Top) for cocoa commodity, as ell as the PTSP (Pioneerindo/CFC) and SMAR(SMART) for palm oil commodity.This is probably due to some companies engaged in the food processing sector in addition to the downstream industry, they also move upstream (plantation of palm, cocoa, coffee, livestock), and some companies are also engaged in a wide range of food processing sub-sector.The increase in agricultural commodity prices has a positive effect on the food company's gross profit increase, except cocoa price effect on gross profit issuers DAVO (Davomas) and palm oil prices on gross profit issuers PTSP (Pioneerindo/CFC) that otherwise negatively.4.Increase in agricultural commodity prices that

Code Issuer name Listing date Sector Market capitalization* (IDR billion) Total asset** (IDR billion)
*data IDX per 31-July-2012 in billion Rupiah **data IDX per June-2012 in billion Rupiah Table 1.List food & beverage companies

Table 2 .
Descriptive test results of variables with the observation period 2005-2012 In the event study research, test t was used to test statistical hypothesis because the sample of companies used is less than 30.In this case it will compare whether the average of the specific sample groups larger or smaller than a value of zero.Statistical formula used is:Where AARnt is average abnormal return of n stocks in period t, SARt is standard deviation of average abnormal return group stocks in period t.CAARnt is cumulative average abnormal return stocks in period t, SCARt is standard deviation of cumulative average abnormal return group stocks in period t, and n is number of sample of food and beverage companies.In all observed food companies indicate that the regression models tested proved significant at the 5% significance level (F test), means that the null hypothesis is rejected, it means that at least one dependent variable that significantly affected the food company's stock price variable, except on variable stock price PT Sierad Produce (SIPD).This can be explained because the issuer SIPD not directly related to the agricultural commodities variable being tested, namely oil palm, wheat, corn, cocoa and sugar.SIPD is an issuer whose business activities on farms and poultry processing industry, so the company's performance is more heavily influenced by raw material input prices of poultry.issuersCEKA(CahayaKalbar),DAVO (Davomas), PSDN (Prasidha), PTSP (Pioneerindo/CFC), SIPD (Sierad), SMAR (SMART) and STTP (Siantar Top).The coefficient β of wheat prices, cocoa prices and palm oil prices show largely negative effect on the regression models with food company's stock price.However, the effect of wheat price, cocoa price and palm oil prices is largely insignificant.The results of t statistic test shows that coefficient β wheat prices is significant at 5% significance level only at the issuer AISA (Tiga Pilar), PSDN (Prasidha) and SMAR (SMART).While coefficient β cocoa prices is significant only at the issuer MYOR (Mayora), PTSP (Pioneerindo/CFC), SKLT (Sekar Laut), SMAR (SMART) and STTP (Siantar Top), and the coefficient β palm oil prices is significant only at the issuer PTSP (Pioneerindo/CFC) and SMAR (SMART).International Research Journal of Business Studies

Table 3 .
Regression result between variables stock price and agricultural commodity price