**Table 4.3  Estimation results (2SLS first  stage regression) in 2007**

|**_Dependent variable:_**<br>**_Urea use and Urea_**<br>**_use squared *)_**|Overall<br>(Urea use)|Overall (Urea<br>use squared)|Quintile 1|Quintile 2|Quintile 3|Quintile 4|Quintile 5|
|---|---|---|---|---|---|---|---|
||(7)|(8)|(9)|(10)|(11)|(12)|(13)|
|Urea price|-0.4123|-4.0166|-0.2568|-0.4949|-0.3980|-0.2981|-0.5096|
||(-11.30)**|(-11.19)**|(-3.76)**|(-6.29)**|(-5.12)**|(-3.58)**|(-5.40)**|
|SP price|-0.1901|-1.9744|-0.2587|-0.1535|-0.1614|-0.2699|-0.1745|
||(-6.19)**|(-6.53)**|(-4.23)**|(-2.47)*|(-2.35)*|(-3.64)**|(-2.30)*|
|Seeds price|0.1343|1.301|0.109|0.0329|0.0992|0.1638|0.1924|
||(7.40)**|(7.29)**|(-3.37)**|(0.86)|(2.43)*|(3.86)**|(4.07)**|
|Rice price|-0.2353|-2.4983|-0.3366|-0.0842|-0.1614|-0.2989|-0.3564|
||(-4.74)**|(-5.12)**|(-3.83)**|(-0.83)|(-1.53)|(-2.49)*|(-2.59)**|
|Land size|-0.2834|-2.7681|-0.0231|-0.1166|-0.1993|-0.3188|-0.3497|
||(-33.72)**|(-33.48)**|(-0.84)|(3.43)**|(-6.24)**|(-10.84)**|(-15.35)**|
|Labor cost|0.0846|0.7801|0.0223|0.0586|0.0865|0.1294|0.0938|
||(12.91)**|(12.09)**|(1.52)|(3.54)**|(4.84)**|(7.83)**|(7.60)**|
|Dummy irrigation|0.0947|0.9417|0.0632|-0.0026|0.0458|0.1016|0.2276|
||(6.99)**|(7.06)**|(2.49)*|(-0.10)|(1.55)|(3.13)**|(6.13)**|
|Education|-0.0005|-0.0003|0.0029|-0.0048|0.0023|-0.0016|0.0039|
||(0.25)|(-0.02)|(0.77)|(-1.21)|(0.55)|(-0.38)|(0.86)|
|Age|0.0005|0.0036|0.0014|-0.0007|0.001|0.0009|0.0000|
||(0.81)|(0.62)|(1.34)|(-0.63)|-0.75|-0.66|(-0.02)|
|Dummy Java-Bali|0.2976|2.9552|0.258|0.2696|0.2842|0.2595|0.3043|
||(17.74)**|(17.90)**|(6.07)**|(7.53)**|(7.63)**|(7.02)**|(7.43)**|
|Constant|11.9444|96.2634|10.8608|11.0279|10.6926|11.9695|13.4387|
||(26.10)**|(21.38)**|(12.40)**|(11.25)**|(10.79)**|(10.90)**|(10.99)**|
|R-squared|0.27|0.27|0.13|0.12|0.13|0.18|0.26|

t statistics in parentheses + significant at 10%; * significant at 5%; ** significant at 1% All variables are estimated in natural logarithm

*) Dependent variable of estimation at quintile level is  urea use

The model estimates the threshold at which the relationship between urea used and yields reverses at 226 (kg/ha) and in line with the recommended amounts by the MoA at 200-250 (kg/ha). However, it is important to note that the maximum of a 2SLS quadratic estimation is sensitive to omitted variable bias. The model supports the thesis that overusing urea will have an adverse impact on rice production. Many farmers in the survey report using 2 and 3 times the recommended urea levels (Figure 4.1). The overuse of urea in Indonesia, particularly when compared with some of its regional peers, and its negative impact on soil quality, are well documented.<sup>16</sup> This is mostly the result of distorted factor prices and is

> 16  Several studies conducted by agriculture research institutes in Indonesia document the negative effects of overusing urea on yields and soil quality.  Pantjar and Timmer (2008) document the link between soil degradation and urea overuse and land farming intensity in Indonesia.  In the same line, Supriono (2000) explored the impact of urea use on soy bean growth in Central Java and found that using urea at 100 kg/ha had  a positive effect on increasing soy plant height, pod numbers per plant, and seed yields per plant, but that high levels or urea stifled plant enzymes  and decreased soy bean yields and growth.  Furthermore, Aribawa, et. Al., (2006) looked at the effect of urea usage and other organic fertilizer on the soil composition and the growth of long beans in Bali. They found that using urea, as the sole fertilizer, decreased the nitrogen elements and the acidity of the soil and recommended using a blend  (urea and organic fertilizer) to maintain the high growth of long beans in Bali.

**16**