REGIONAL ECONOMIC DEVELOPMENT AND SUSTAINABLE PEPPER PROMOTION

By

P. Lyssens Agribusiness Advisor

Swisscontact

Kuching, 11 November 2013

Table of Content

• 1. Regional economic development (RED) in West Kalimantan (programme, objective)

• 2. The RED methodology

• 3. Using the “sustainable pepper promotion” in the RED programme

1. The RED programme

• RED (Local and Regional Economic Development) is a cooperation project between:• the Indonesian Planning and Development Agency (BAPPENAS) and • the German Federal Ministry of Economic Cooperation and Development (BMZ).

• Implemented by • the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)/ Swisscontact (SC)

• strives to increase regional competitiveness through a more sustainable path to economic growth

The RED objective in West KalimantanRED is supporting the region of Singbebas, -city of Singkawang -districts Sambas and Bengkayang.

Focusing on the regional and provincial priorities and promoting: • the tourism sector;• the white pepper value chain• the creation of an enabling business

environment

H

2. The RED Methodology

a. Value chain analysis

b. SWOT (Strength, Weaknesses, Opportunities and Threats)

c. Identify critical solution: ... “sustainable” white pepper

H

a. Actors and activities along the pepper Value Chain in W-Kal (1)

• Production of 4.432 tons of dried WP on an area of 9190 ha with average productivity of 0.48 WP ton/ha.

• Farmers (more than 20,000), traders and input suppliers have an average of 14 years experience in the pepper business

• Ethnically diverse

• Average 26% of total plot size is dedicated to WP farming

• 75% of farmers state pepper as main income source.

• 90% of farmers plan to increase production of WP

• Gender specific activities

• Pepper is sold through multiple traders before being sold on the international market with limited grading and sorting

20.04.23

buyer

buyer

buyer

buyer

Open Market:All pepper products

(only distinction in size, color, moisture...)

FARMER

FARMER

FARMERFARMER

FARMER

Traditional Trade

"Open Market" driven value chain

Activities: Sorting, Grading & Packing

Activities: Sorting, Grading & Packing

Sold to Malaysia

When the price is high

Activities: Defoliation, Soaking Peeling and Drying

Sam

bas

Dis

tric

t

Activities: Sorting & Grading

Farmer Village Sub-district Subah

Activities: Defoliation, Soaking, Peeling and Drying Big Trader

Kab. Sambas

Farmer Village Sebubus Collector Trader

Sub District Paloh

Activities: Drying

Activities : Defoliation, Soaking, Peeling andDrying

Farmer Village Temajok

Border area Village: Telok Melano

(Malaysia)

Broker Singkawang

Broker Pontianak

Tanjung Pinang

Jakarta

Exporter

End Buyer

Malaysia

Activities: Sorting & Grading

PriceIDR 70,000

Be

ngka

yang

Dis

tric

t

Farmer

Activities: Defoliation, Soaking, Peelingand Drying

Village traders (collectors)

Activity: Drying

Big Trader Kab. Bengkayang

PriceIDR 75,000 Price

IDR 85,000

PriceIDR 85,000

PriceIDR 85,000

Price IDR 73,000

Price IDR 73,000

Price IDR 73,000

Price IDR 73,000Price IDR 70,000

Price IDR 70,000

Price IDR 75,000

Price IDR 76,000

a. The value addition along the chain (2)

20.04.23

Strength• Steady demand, growing• Good soil and climate conditions• Long-term experience in pepper

production, 75% as main business• Critical mass of production in Singbebas

to become interesting for buyers

Weakness• Low level of organization• Problems of input quality• Low productivity • Long supply chain (high price

fluctuation, limited bargaining, limited share of value added)

• Environmental issues

Opportunities

• Increased demand from consumers for quality (sustainable products)

• Positive sector dynamics; • farmers plan to increase production• improve GAP

Threats

• Palm oil as competitor• Crop failures / over supply

b. Key findings – SWOT for Pepper Singbebas

c. Problem analysis, critical solutions

20.04.23

Intervention 1

Farm Group Organization

Intervention 2

Training on good farm practice

Intervention 3

Promotion for “sustainable “ white pepper

3. Applying the “Sustainable” white pepper promotion

a. “Sustainable” Pepper : Rationale - The market imposes it

The consumer (mainly in the EU and US) becomes more demanding on quality and the environmental impact of goods he buys

- Food related regulations

The national food and safety bodies become stricter

“Sustainable” distributors and regulators ensure necessary mitigation measures are taken.

b. Consequence of the rationaleFrom Traditional Pepper to Sustainable Pepper•Buyer / distributor explains to his supplier how the

pepper has to be cultivated, ... according to sustainable

principles.

• Additional requirements/ specifications;

A new “Knowledge Transfer” on the product delivery.

A transfer of information with:

1. a higher complexity, which can be

2. codified (leading to standard procedures) and

3. a capacity of the supplier to accomodate to the new requirements

• Farmers in general have limited capacity to understand and implement these protocols. They need specific support / incentives from the buyers are necessary.

• Buyers therefore have to establish closer (partnerhsips) and longer relations (term contracts) with their suppliers / farmers’groups or the trader/middleman

Sustainability is about:

1.Biodiversity

2.Soil and water

3.Crop management

4.Health

5.Social Welfare

6.Waste Management

7.Administration

b. Consequence of the rationale

Necessary steps

- Socialization of the " sustainability concept"- Mapping of interested actors- Identification of product specification, requirements and expected capacities to meet them- Identification of existing gaps and needs- Identification on process to fill the gaps and needs- Identification of responsibility of related actors to put the process in place (faciltation, agreement), - Farmers organized- Farmers’ technical capacities increased

Precondition for the transition from "open market"

to "sustainable market"

Farmer / supplier- Willingness

- Ability- Incentive

Buyer / Intl Distrib

- Willingness- Ability- Market

- "Sustain" Market is large enough (saturation)- No competition from easier markets- Overkill in regulations, requirements,...

Limitations to "sustainable market" promotion

buyer

buyer

buyer

buyer

Open Market:All pepper products

(only distinction in size, color, moisture...)

FARMER

FARMER

FARMERFARMER

FARMER

Traditional Trade

"Open Market" driven value chain

buyer

Standards, protocols,

Requirements

FARMER

FARMER

FARMER

Sustainability (certification)Integrated Managment (ICS)

Farmer organization

PartnershipAgreement

Faci litation (decodifier,

Sustainable Trade

"Modular" driven value chain

20.04.23

Dishutbun(Dir. Plantation)

Dishutbun Province (Chair of pepper WG):In charge of the policy framework to promote white pepper

Dishutbun Districts:Implementers of the promotion programs

Bappeda(Planning Board)

plays a supporting role in terms of coordination and budget allocation.

Universities

Play the role of information and knowledge provider and also a service provider to Dishutbun or private sector market players

Pepper Working Group

H

d. Who are our partners and what is their role in West Kalimantan?

Selected Enterprises in the SectorMain actors in the value chain. Partners for Dishutbun: designing and implementing changes to enhance competitiveness. Commercial incentives are their driver. By choosing “sustainable” white pepper the programme aims at a strong partnership between farmergroups and anchor enterprises / buyers

e. Action Plan for the promotion of sustainable Production

Conclusion• By November 2013, the RED programme in West Kalimantan has:

• More than 120 dynamic, motivated farmers• Organized in farmers’groups (pre-cooperatives)• On the way to be certified in “sustainable”pepper for about 70 – 100 ton / year• Trained in GAP • Working hand in hand with the administration (extension workers)• Possibly with IPR (locally branded product)

• Looking for more buyers / traders to work withand partner with the farmers and purchase Sustainable White Pepper.

• On its way to prove that West-Kalimantanis improving its competitive position in the pepper sector by promoting “Sustainable White Pepper”.