Indonesia Cocoa Bean Value Chain Case Study
EXECUTIVE SUMMARY
Indonesia is the third largest producer of cocoa in the world after Ghana and the Ivory Coast, and the most significant cocoa bean supplier in East Asia. Indonesia’s biggest competitive advantages include its low cost, high production capacity (availability of supply), efficient infrastructure and open trading/marketing system (business environment). Although the cocoa value chain in Indonesia has experienced phenomenal growth over the past few decades, its continued competitiveness is threatened by inconsistent and poor quality production. Widespread pest infestation, especially from the cocoa pod borer (CPB), is a primary cause of poor cocoa bean quality. In order to address the problems of CPB infestation, various public and private sector initiatives have been undertaken to conduct research, train and improve the traditional practices of smallholder cocoa farmers in Indonesia. Despite these efforts, adoption of improved production and post-harvest skills by cocoa farmers has been limited. This fact raises two questions: 1) What are the incentives and risks that various market actors in the Indonesian cocoa bean value chain have for investing in improved consistency of cocoa bean quality? and 2) How are the actors responding to these incentives? With multiple levels of local and international cocoa bean buyers fiercely competing on price, a smallholder cocoa farmer in Indonesia has many selling options and market channels for his/her production. Within such a market-based environment that differentiates little for quality, Indonesian smallholder cocoa bean farmers have little incentive to upgrade or adopt more labor-intensive (and costly) production and post-harvest practices. Similarly, cocoa bean collectors and traders have few incentives to invest in upgrading their supply channels. In contrast, processors and/or manufacturers have clear incentives to establish closer, more directed supplier relationships in order to improve the quality and
Indonesia is the third largest producer of cocoa in the world after Ghana and the Ivory Coast, and the most significant cocoa bean supplier in East Asia. Indonesia’s biggest competitive advantages include its low cost, high production capacity (availability of supply), efficient infrastructure and open trading/marketing system (business environment). Although the cocoa value chain in Indonesia has experienced phenomenal growth over the past few decades, its continued competitiveness is threatened by inconsistent and poor quality production. Widespread pest infestation, especially from the cocoa pod borer (CPB), is a primary cause of poor cocoa bean quality. In order to address the problems of CPB infestation, various public and private sector initiatives have been undertaken to conduct research, train and improve the traditional practices of smallholder cocoa farmers in Indonesia. Despite these efforts, adoption of improved production and post-harvest skills by cocoa farmers has been limited. This fact raises two questions: 1) What are the incentives and risks that various market actors in the Indonesian cocoa bean value chain have for investing in improved consistency of cocoa bean quality? and 2) How are the actors responding to these incentives? With multiple levels of local and international cocoa bean buyers fiercely competing on price, a smallholder cocoa farmer in Indonesia has many selling options and market channels for his/her production. Within such a market-based environment that differentiates little for quality, Indonesian smallholder cocoa bean farmers have little incentive to upgrade or adopt more labor-intensive (and costly) production and post-harvest practices. Similarly, cocoa bean collectors and traders have few incentives to invest in upgrading their supply channels. In contrast, processors and/or manufacturers have clear incentives to establish closer, more directed supplier relationships in order to improve the quality and