The influence of market risk on the economic well-being of smallholder rubber farming households

Purpose This study aims to quantitatively verify the impact of market risks on the decline in the quality of well-being among smallholder rubber farming households and to determine which market risk variables have the most negative impact on household welfare. Design/methodology/approach Ogan Komering Ulu District, South Sumatra Province, Indonesia, was chosen as the research location for its significant rubber plantation area. A sample of 100 rubber farmers was selected using proportional random sampling during the data collection period from April to May 2021. Primary data on household income, prices, costs, and expenditures were gathered through a questionnaire, while secondary data were obtained from local government offices. The research employed a simultaneous equation system to model the household economics of rubber smallholder farmers. Findings 1. The ranking of market risk variables, in terms of their negative impact on household consumption and income, is as follows: (1) declining rubber prices, (2) rising production costs, (3) reduced profitability and (4) increased labour wages. 2. Disruptions from market risk variables affect rubber-farming households more severely as consumers than producers. In all four scenarios such as declining rubber prices, rising labour costs, reduced profitability and increased production costs–the magnitude of losses in essential commodities consumption consistently exceeds the loss in total farm income. Education is the most vulnerable to reductions during adverse market events among all essential household expenditures. Research limitations/implications This research does not incorporate variables related to other essential risk variables that farmers face nowadays in the economic model of rubber smallholder households, such as risk to climate change, agricultural technology, and international trade policies, to provide insight into how these other vital risks affect the farmer household economy. Originality/value This study investigates how market risk variables such as falling output prices, rising input costs, reduced profitability, and increasing labour wages–affect smallholder rubber farmers' access to essential commodities (food, education, clothing and fuel) and their household income. It identifies which risks most critically reduce household consumption, highlighting education as the most vulnerable expenditure. The findings offer evidence-based insights for researchers and policymakers to formulate targeted interventions. By quantifying the effects of market risks on both consumption and income, the study supports the development of policies aimed at protecting smallholder rubber-farming households from economic shocks.