Sustainability and profitability of cocoa-based farming systems in Indonesia
Cocoa is the third most lucrative export commodity in Indonesia after palm oil and rubber. Despite Indonesian government investments under the GERNAS program designed to stimulate farm productivity, cocoa production declined from 550,000 tonnes in 2007 to under 300,000 tonnes in 2018 as a result of agronomic and socioeconomic factors. This production shortfall resulted in a decline in cocoa bean exports and an increase in bean imports, and led to the suspension of grinding operations in nine of 20 plants. While yields of more than one tonne per hectare were common in the past, over 85 per cent of cocoa farmers in Sulawesi now produce less than 500 kilograms of wet beans annually, worth around Rp10 million. Lower incomes have forced cocoa farmers to seek off-farm employment or replace their cocoa trees with other crops.
This project aims to identify new opportunities to raise cocoa productivity and profitability, improve cocoa-based farmer livelihoods and revive the Indonesian cocoa industry. The project took an interdisciplinary, holistic approach that examined rural livelihoods, intensification of cocoa production, diversification into mixed farming, supplementary crops or small businesses connected to the cocoa supply chain, access to finance and community healthcare.
The project adopted an integrated approach examining relations between cocoa productivity on the farm, smallholder livelihoods, and policies further downstream in the value chain. Constraints to cocoa productivity and profitability were identified through focal studies on producer practices, health and livelihood, analyses of price transmission and the impact of the cocoa export tax.
A study on the cocoa value chain was conducted for the research component of a Masters course at the Institut Pertanian Bogor (IPB). Market data on raw bean sales between 2015 and 2017 were collected from public resources including the Indonesian Farmer Association and the New York Board of Trade. Analysis using the Vector Error Correction Model, monthly price means and standard deviations was used to establish correlations and the coefficient of variation, as well as the impact of export tax on local prices.
To support further studies, baseline data on livelihood, health and household economics were collected from a typical cocoa-based community in Polewali-Mandar District, West Sulawesi. Four villages in two sub-districts, Anreapi and Mapilli, were selected by purposive sampling. Households were selected using a randomization method, providing a total sample of 130 households distributed between the four villages. The first survey gathered demographic data and information on access to water, sanitation practices and farm practices, as well as health-related information on men (older than 15 years) and, including anthropometric data, women (15-49 years) and children (under 5 years). The second survey focused on income from cocoa and other crops, household consumption, expenditure on farm inputs and availability of finance.
In addition, the project surveyed consumer perceptions of niche chocolates in Australia. Key informant interviews were conducted. These interviews and data from the village surveys were used to develop a livelihood curriculum framework, as well as general recommendations.
Results and achievements
Price volatility was cited as a major deterrent to farmer investments in agricultural inputs and management practices. Analysis of the relation of international and domestic prices showed that fluctuations in international price were transmitted directly to domestic prices, affecting farmers.
The project identified the extent to which youth are not attracted to cocoa farming. Access to formal finance is a key constraint. The study demonstrated access to finance is improved by financial literacy.
Household income was higher on farms that had diversified into other crops. Evaluation of a mixed farm (cocoa/goat) model demonstrated efficient use of resources and favourable cost/benefit ratios.
Health constraints to productivity were demonstrated in Polewali-Mandar, supporting World Health Organisation estimates of substantial losses in labour productivity due to poor health and nutrition. Key health issues detected were high blood pressure (34 per cent of a subsample of adult males and 30 per cent reported by the District Health office for pregnant mothers, higher than the national average), undernutrition (26 per cent) and malnutrition (23 per cent) in young children, high rates of adult overweight/obesity (31 per cent in females and 24 per cent in males) and reported joint pain (28 per cent in women and 33 per cent in men). Few resources are available for mental health patients. Gender roles are separated on cocoa farms, however interviews indicated women benefit from vegetable growing programs to improve nutrition as well as supplementing income.
The study concluded that smallholder-based cocoa farming as currently practised in Sulawesi is unsustainable. Without the benefit of ‘forest rent’, yields are too low to be profitable on small farms because of price volatility, labour shortages and poor community health.
We recommend that strategies should focus on promoting medium-scale, diversified cocoa production on 5-10 hectare farms. Our study showed the potential of medium scale cocoa-agroforestry to increase yield and carbon stocks. Financial and health services to cocoa-farming villages need to be improved, following consultation with communities to identify their needs and priorities, to improve the productivity of labour.
In parallel, we recommend the development of large scale, high-productivity cocoa production. This will require incentives to promote significant agro-investment to establish high productivity farms using fertigation, selected genotypes and intensive management. Such enterprises are necessary to satisfy the currently idle processing capacity in Indonesia.
Professor David Guest
Professor of Plant Pathology, School of Life and Environmental Sciences
The University of Sydney
Professor Nunung Nuryartono
AIC Senior Fellow
Relation Analysis of International Cocoa Prices and Indonesian Cocoa Farmers’ Price after Export Tax Policy on Cocoa Beans
By Andini Nisurahmah, Nunung Nuryartono, Tanti Novianti (all from IPB University)
International Journal of Developing and Emerging Economies Vol.5, No.4, pp.1-13, December 2017