RESEARCH REPORT YEARLY FUND, 2006 ANALYSIS OF INSTITUTIONAL SUPPLY CHAIN PARTNERSHIP OF HORTICULTURE

Transcription

1 RESEARCH REPORT YEARLY FUND, 2006 ANALYSIS OF INSTITUTIONAL SUPPLY CHAIN PARTNERSHIP OF HORTICULTURE By : Saptana Adang Agustian Henny Mayrowani Sunarsih INDONESIAN CENTER FOR AGRICULTURAL SOCIO ECONOMIC AND POLICY STUDIES INDONESIAN AGENCY FOR AGRICULTURAL RESEARCH AND DEVELOPMENT MINISTRY OF AGRICULTURE 2006

2 EXECUTIVE SUMMARY Introduction 1. The change of strategic environment such as trade liberalization, rapid growth of modern market and traditional market, the dynamic of market demand and the change of consumers preference, and the phenomena of market segmentation, demanding the change and adjustment of supply chain management for horticultural products. Trade liberalization causing an increasing of trade of horticultural product, market penetration up to village level, increasing the competitiveness, increasing the integration of commodity market; which is implied to the tendency of decreasing price of agricultural products gradually. 2. The policy of the development of horticultural products in Indonesia succeed to increase production in production center and in the new development areas. But this increasing of production is not yet parallel with the dynamic of market demand and the change of consumers preference. It shows that reorientation of the policy should be done using the approach of the development of horticultural product through supply chain partnership institution. 3. Empirically, the marketing of horticultural product in supply chain partnership institutions is not efficient; long marketing channel, market structure tend to be oligopsony, unequal share among marketing agents, and price fluctuated in the short time. The development of supply chain partnership institutions for horticultural product creating the opportunity and the challenge to the farmers and the agribusiness agents in marketing their product. 4. The study divided by two activities. First activity is The Analysis of the Mechanism of Supply Chain Management Institution for Horticultural Products, the objective are : (1) To evaluate the mechanism of the policy in developing of horticultural agribusiness relating to supply chain management institution; (2) Identified supply chain partnership institution paterns on horticultural commodity in modern market and traditional market; (3) Identified the characteristics and management of horticultural product suplly chain in modern market and traditional market. Second activity is Policy Alternative in Developing Horticultural Supply Chain Partnership Institution, the objective are : (1) Analyzing the role and interaction between the agents in supply chain partnership institution of horticultural product; (2) Formulating the requirements of success of supply chain partnership institution; and (3) Formulating policy alternative of effective and efficient participatory supply chain partnership institution as a participatory manner. xiv

3 METHODOLOGY 5. Study was conducted in three provinces : 1) Bali Province with the study site in Gianyar District for melon and Jembrana District for watermelon, 2) Central Java Province with the main study site in Grobogan District and exploration study site in Karanganyar District, Kebumen District and Pekalongan District for melon and watermelon, and 3) West Java Province with the study site in Garut District and Bandung District for potato. Study site was decided based on the center of production and the existence, the dynamic and the various form of supply chain institution which is related with traditional or conventional market, modern market (e.g. : supermarket, hypermarket), institutionally consumers (e.g. : hotel, restaurant, hospital) and processing industries. 6. Sampling respondents covered of potato s farmers, melon s farmers, watermelon s farmers, farmer groups, traders in several levels, partner firms and processing industry, exporter, supermarket/hypermarket, restaurant and hotel. Secondary data and qualitative information were collected from several institutions such as: Central Agency of Statistic (BPS), Agricultural Offices, Regional Planning and Development Agencies (BAPPEDA), Assessment Institute for Agricultural Technology (BPTP), and Universities. 7. Data were analyzed in qualitative and quantitative methods. Quantitative analyses was done to analyze farm businesses and market efficiency through farm cost and benefit analyses, marketing margin, market structure and market integration, and price analyses. Qualitative analyses was done to analyze supply chain partnership institution covering the evaluation of agribusiness development policies, the identification of the supply chain institution pattern, and the analyses of supply chain institution and its management. 8. This study containing three principal points, there are: evaluation of agribusiness development policy, supply chain management and institution, and the development of market for horticultural product The market of horticultural product is included traditional market and modern market. Related aspect in analyzing market condition are marketing channel, market structure, marketing margin, price formation, dynamic of demand and suitability of supply. 9. The concept of institution in this context include the definition of institution and organization. The component of supply chain partnership institution include all of the supply chain agents, interaction among agents, rule and construction process, and its impact on farmers welfare and other agribusiness agents. 10. Supply chain management is one unit of integrated market which is containing the integration of the products and the agents to satisfy the consumers. The agents of supply chain are: (1) Producers, individually or group; (2) Supplier; (3) Manufacture; (4) Distributor; (5) Retail outlet; and (6) Consumer. The objectives of supply chain management for certain commodity or product are : (1) decreasing the market risk; (2) increasing xv

4 value added, efficiency and competitiveness; (3) useful in the strategic product development; and (4) strategy to enter the new market. 11. Based on those framework, it is necessary to build the supply chain partnership institution for the efficiency of horticultural product marketing. Reward for farmers are: availability of inputs, accessibility of market and appropriate selling price, and improving farmer income. Benefit of the partner firm are continuity of supply of horticultural product in the term of kind of commodity, volume, quality based on the demand of market. RESULTS AND DISCUSSION The Mechanism of Supply Chain Partnership of Potato in West Java 12. In 2005 APKENDO (Indonesian Association of Potato Seed Producer) Garut Branch was established. Fifty three (53) potato seed producers as a member are distributed in Sub-districts : Cisurupan 25 persons, Cigudeg 10 persons, Samarang 2 persons, Bayongbong 3 persons, Sukaresmi 1 person, Karangpawitan 1 person and Sukasari 1 person. APKENDO Garut Branch has a duty as follows : (1) Assisting government to control the distribution of seed (in term of legality) in and around Garut District; (2) Monitoring the demand of potato seed in production center in Garut; (3) Monitoring the total production of seed which is produced by local seed producer; and (4) Other duties will be formulated later based on government policy. 13. Seed delivery system in Contract Farming between PT IFM (Indofood Fritolay Makmur) and farmers was done only through vendor (Farmers Group Coordinator), who work also as a supplier of potato to PT IFM. Invoice of Seed Delivery (volume, price and value) was used in this system and signed by Field Supervisor and Vendor. 14. PT IFM appoint PT Mandiri Alam Lestari to import seed from Scotland and PT Indo Chemica to import seed from Australia and Canada through Tanjung Priok Port. Before distribute, seed was quarantined and keep in Cicalengka Storage, Bandung. Distribution of seed was done for each 12 days. The seed distribution target in 2006 is 1000 ton seed of Atlantic Potato, buffer stock was not applied by PT IFM. 15. Supply Chain Management Pattern for horticultural product in West Java are as follows : (1) farmers collectors wholesaler in Sub-district level wholesaler in Central Market (Caringin, Kramat Jati, Cibitung, Tanggerang and Bogor); (2) For Atlantic Potato, there is a partnership between PT IFM and farmers through mediator of Field Supervisor and Vendor. 16. Another partnership patterns for potato are : (1) Trading Partnership Pattern between supplier and supermarket, restaurant, hotel and wholesaler in central market; (2) Contract farming pattern (technical guidance and credit of seed) between PT IFM (Join venture of PT Indofood Sukses Makmur, 51% and PT Seven Up Netherland, 49%) and farmers for Atlantic Potato in West Java (40%) : Cikajang, Cigudeg, Cisurupan, Samarang, Bayongbong, xvi

5 Garut District and Pangalengan, Ciwidey and Lembang, Bandung District; Central Java (30%) : Purwokerto, Brebes, Pemalang, Dieng (Wonosobo); East Java (15%) : Malang; Jambi (5%) : Kerinci; North Sulawesi (5%) : Modoinding; and North Sumatra near Aceh (5%). This partnership is participated by 250 farmers. 17. The demand of Atlantic Potato by PT IFM (based on the demand of manufacture) are : (1) A day 50 tons, 1,500 ton a month and 18,000 tons a year; (2) Supply of raw material is from domestic production : Garut, Bandung, Purwokerto, Wonosobo, Malang, Kerinci, North Sulawesi and South Sulawesi; and import from Australia, Scotland and China; (3) Supply from Garut is dominant, 375 tons a month or 4,500 tons a year (25% from the total demand); (4) Planting area is 25 ha a month, available farmers area is 300 ha but availability of seed only 60 ton a month, on the average, with total 250 partner farmers; (5) Development area of Atlantic Potato for manufacture is 900 ha, therefore, demand of seed is 150 ton a month for 75 ha. Expected production 1,125 ton a month or 13,500 a year (75%). 18. In closed partnership institution between farmers and PT Indofood Fritolay Makmur, price was decided through negotiation and contract and it was decided before planting. Farmers deciding the price based on the farm cost and profit expectation from the most benefited alternative commodity in the farm, Granola potato, therefore farmers decided that selling price of Atlantic potato should be higher than the price of Granola potato in the market. In other side, the partner firm deciding the buying price of raw material based on cost of production of processed potato and the buying price of imported raw material. In this case, farmers get the high price for their product and PT IFM get the lower buying price compare with import potato, the price is Rp 3 500/kg. 19. Market structure is monopoly, a lot of seller (farmers) and only one buyer (PT IFM). Farmers, in this case, were able to consolidate themselves through united of farmer group, therefore market structure is monopsony versus monopoly. But in bargaining position, monopoly of firm still stronger than monopsony of farmers. 20. Based on farmers perception, in general, Contract Farming Pattern increasing their income %. But farmers still faced to several problems such as : (1) Seed quota and limitation of planting area; (2) High dependency on climate and high rainfall; (3) Price of seed quite high (Rp 9,000 a kg), even though purchasing price also high (Rp 3,500 a kg in supplier storage and Rp 3,750-3,800 in manufacture): (4) Delaying seed distribution causing unpredictable planting time; (5) Increasing price of input, such as : pesticide, fertilizer; (6) Over production (surplus) was indicated, those surplus was kept in Cisurupan and all cost is the responsibility of farmers. xvii

6 The Mechanism of Supply Chain Partnership of Melon and Watermelon in Central Java 21. Most of melon from production center in Central Java (Grobogan, Karanganyar, Kebumen and Pakalongan) is marketed in Jabotabek Region through Pasar Induk Kramat Jati, Cibitung, Tanggerang (50%), Pasar Induk Caringin, Bandung and other districts (15%), Big cities in Central Java and Yogya (25%) and East Java (Surabaya, Sidoarjo, Jombang, Kediri) is 10%. Melon and watermelon farmers faced on oligopoly market, a lot of farmers as a seller versus 4-6 traders as a buyer. 22. Market for melon and watermelon is quite prospectable. Melon and watermelon is marketed in local market, provincial market, hypermarket, such as: Carefour and for export. Wholesaler in Central Market distributed melon to traditional market and supermarket. The demand of melon and watermelon increase every year, therefore, melon and watermelon farm will have a good prospect in the future, market is available and profit is better compare with paddy and secondary crops (palawija). 23. Price of melon depend on the supply, and demand of melon is relatively stable and tend to increase every year. In partnership pattern with trader in traditional market, price decided based on market price; and for closed partnership pattern, price decided based on contract or agreement. Price of melon in farmer level is around Rp 800 2,300 a kg, and watermelon is Rp 500 1,300 a kg. Price of melon and watermelon is depend on the variety/kind of crops (seed or seedless; seedless red, seedless yellow, black beauty etc), grade/quality, availability of other fruits (rambutan, mangga, durian etc) in the market, and volume of local melon and volume of melon from East Java and Coastal Area of West Java (Indramayu) in the market. 24. There are four marketing institution patterns for melon and watermelon in Central Java : (1) Transactional pattern or trading pattern, include all marketing agents in the regions; (2) Partnership pattern between farmers and UD Mekar Buah in Kebumen; (3) Partnership pattern between farmers and CV OISCA Solo and PT Indofresh (export-import company for horticultural products); and (4) Partnership pattern between farmers and supermarket (through UD Mekar Buah as a mediator) for special kind of watermelon (Black Beauty). 25. Partnership pattern between farmers and trading company can be explained as follows : (1) There are several kinds of trader who is involved: collector in production center, wholesaler from other district and wholesaler in the main market in consumer area (Jakarta, Bekasi, Bandung, Tasikmalaya, Cirebon, Surabaya, Sidoarjo, Jombang, Kediri, Solo, Yogyakarta, semarang, Pekalongan, Tegal); (2) Relationship between independent farmers and traders, usually as a consumer/client who can be trusted; (3) Wholesaler in regional level supplying melon and watermelon to Central Market in Jakarta, Bekasi and Bandung (60%), cities in Central Java (20%), East Java (15%) and Supermarket (5%); (4) High quality melon and watermelon are suppllied to Pasar Induk Kramat Jati-Jakarta, Cibitung-Bekasi and Carefour xviii

7 Supermarket; and (5) Low quality melon and watermelon are sold in traditional markets in Central Java, West Java and East Java. 26. Partnership pattern between farmer individually and trader, case in Kebumen, was done since 1985 up to The obligation of trader are: (1) Distribute high quality seed of melon and watermelon; (2) Distribute inputs; (3) Distribute working capital; (4) collecting and marketing the product. The obligation of farmers (400 farmers) are: (1) managing farm perfectly; (2) reporting the schedule of planting and harvesting; and (3) selling all the product to the partner. In this partnership, price contract was not done. Price decided based on the market price and the trader get Rp a kg based on market condition (demand and price). 27. Partnership pattern between farmer group and PT OISCA and PT Indofresh, case in Pekalongan, can be describe as follows : (1) There is an agreement on the planting area of melon and watermelon, in the average ha a farmers; (2) There is an agreement on the variety of planted crops; (3) There is an arrangement on the schedule of planting and harvesting for each farmer in each region; (4) Inputs (seed, fertilizer, pesticide, mulch etc) are supplied together by the farmer group or individually by farmers; (5) There is a mechanism in marketing the product together between farmers and partner based on market price; and (6) There is a contribution/fee of the member of farmer group/association Rp 100, ,000 per season per farmer as a capital of the group, recently, accumulated capital is Rp 30 million. 28. The benefits of farmers in those partnership system and joining the Melon Association are: (1) Availability of price information and stable price of product; (2) Guarantee in product marketing; (3) Availability of the new melon cultivation technology information; (4) Avoid over supply with scheduling planting area, time of planting and variety based on market demand; and (5) The existence of appreciation toward the melon and watermelon with regional trade mark. The Mechanism of Supply Chain Partnership of Melon and Watermelon in Bali 29. Estimated 11 farmer groups/sta in Bali Province who work on horticultural product, among that only 1 group who work on melon and watermelon, there is Farmers Group Tunas Jaya in Penyaringan Village, Mendoyo, Jembrana District. 30. Most of melon from Gianyar is locally marketed based on the demand of traditional market, hotel, restaurant, and supermarket in Bali. Watermelon from Jembrana marketed to Denpasar and Java Island such as: Surabaya, Malang, Jakarta, Bekasi. Demand of watermelon in Bali is 32 ton a day and it is supplied from Jembrana (75%). In general, melon and watermelon farmers faced to oligopsony market, a lot of farmers as a seller versus 3-4 traders as a buyer. xix

8 31. Price of melon and watermelon are influenced by supply, demand is relatively stable and tend to increase every year. Price formation in various supply chain partnership institutional pattern of melon and watermelon in Bali based on the price of main destination market, e.g. Central Market in Jakarta for watermelon, Anyar Market and Badung Market for melon. Farmers gate price of melon Rp 800-2,000 per kg and watermelon Rp 800 1,800 per kg, it is depend on the variety, grade, quality, marketing time and volume, and supply of melon and watermelon from Java Island. 32. Several supply chain partnership pattern are found in Gianyar and Jembrana, there are: (1) Partnership pattern between independent farmer and trader; (2) Partnership pattern between farmer and collector; (3) Partnership pattern between member and manager of farmers group. 33. Partnership pattern between independent farmer and trader/collector can be describe as follows : (1) There are two levels of traders : collector in production center and wholesaler in consumer center; (2) Partnership between independent farmers and traders, usually as a consumer/client, some time trader providing capital for farmer; (3) Trader supply most of commodity to Pasar Induk in Jakarta, Bekasi and Surabaya (60%), other cities in Java (20%), local market in Denpasar and Badung (20%); (4) High quality product is supplied to Pasar Induk Kramat Jati-Jakarta, Cibitung- Bekasi, supplier of Hotel and Restaurant in Bali; and (5) Low quality product is marketed in traditional market in Bali. 34. Supply chain partnership pattern between farmers individually and collectors was done since 1990 up to 2006 and it can be sustain and spread up until the other districts. The obligations of trader are: (1) Supplying the high quality seed; (2) Supplying inputs based on the farmers need; (3) Providing working capital; (4) Collecting and marketing the product. The obligations of farmers (40 farmers) are: (1) managing farm perfectly; (2) reporting the schedule of planting and harvesting; and (3) selling all the product to the partner. In this partnership, price contract was not done. Price decided based on the market price and the trader get a fee of Rp a kg depend on market demand and price. The average farmers income through this partnership is Rp 1,200-1,800 a kg. 35. Supply chain partnership pattern through farmers group pattern/sta describe as follows: (1) There is an agreement on the planting area of melon and watermelon for each farmer; (2) There is an agreement on the variety of planted crops based on the market demand; (3) There is an arrangement on the schedule of planting and harvesting for each farmer in each region; (4) Inputs (seed, fertilizer, pesticide, mulch etc) are supplied together by the farmers group or individually by farmers; (5) There is a mechanism to market the product together between farmers and partner based on market price; and (6) There is a contribution/fee for a farmers group/association/sta. xx

9 The Main Problems in Farmers Level 36. Technical problems are: (1) Lack of high quality seed; (2) Specific location technological package for horticultural product is not yet available; (3) Climate is not appropriate (high rainfall, drought, drastically change of climate); (4) High intensity of pest attack; (5) Productivity stagnation of melon and watermelon in production center; (6) Harvesting and post harvesting system are not yet suitable; (7) Capability of human resources (farmers and agricultural officers/kcd/ppl) is not appropriate, lack of knowledge on horticultural crop production; and (8) Agricultural infrastructure not yet well develop, especially : farm road, village road and irrigation system. 37. Economical problems are: (1) High price of inputs (seed, fertilizer, pesticide, and plastic mulch); (2) There is an indication of over production/surplus in a peak season and deficit in other season; (3) In the short run, price of product fluctuate; (4) Farmers capital is weak, most of farmers get a credit and pay it after harvest; (5) Marketing system of horticultural product is not efficient. 38. Institutional problems are : (1) Lack of institutional consolidation in farmers level in the aspect of leadership, organization, management, capitalization and entrepreneurship; (2) Existing supply chain partnership institution succeed in helping farmers in providing inputs, capital and marketing the product; but position of farmers are not yet equal, farmers position is still in sub-ordinate of trader or business partner. 39. In developing supply chain partnership institution, attention should be taken on several points as follows: (1) Developing and strengthening partnership through a mature social process; (2) Understanding of the agribusiness network of horticultural products; (3) The importance of production planning and regulating in farmers group level; (4) The importance of the development of irrigation for specific commodity of horticultural products; (5) Transparency in management is important, especially in price and profit share; (6) Commitment between partners to develop trust among them; (7) Appropriate infrastructure in post harvest handling and marketing in production center is necessary; (8) Assistance and guidance from PPL who is an expert in horticultural production process is needed; (9) Consolidation of farmers group institution to develop strong farmers group; (10) Developing entrepreneurship ability of the farmers; (11) Price stabilization through the development of domestic high quality seed, the development of partnership and accessibility of market and manufacture is necessary to be done; (12) Developing appropriate information system, in the management, production and marketing aspects; (13) Appropriate integration of vertical coordination in partnership institution should be constructed; (14) Developing the Integrated Partnership Firm Institution. xxi

10 Completing Supply Chain Partnership Institution Model of Horticultural Products 40. The results show that supply chain partnership institution which is developed through integration or vertical coordination and the transparency among the partners is the best in order to increase productivity, efficiency, accessibility to the market and competitiveness of products. It is found in the several cases, such as, partnership between farmers and PT Indofood Fritolay Makmur, farmers and supermarket/hypermarket, farmers and hotel and farmers and expoter/importer. Eventhough in the fact, partnership between farmers and trader is dominant. 41. The reasons of the developing integrated firms are : (1) Integration between upper stream (inputs supply) and down stream (post harvest, marketing) firms can be deleted the intermediate market, therefore double margin can be reduced and price will be more reasonable to be competited in the market; (2) Asymetry price transmition will be reduced; (3) There is an incentive to continue inovating the technology, management and market in each agribusiness activities, which are benefited for all agents. 42. Sustainable supply chain partnership institution can be formed with considering of the development of supply or production and the development of demand through increasing consumers income or consumers buying capacity. The development of supply can be done through increasing productivity, production, quality of product, continuity of supply and creating of value added of product. 43. The model of integrated supply chain partnership institution can be used as an alternative, with considering of voluntary sector (existing institution in local community), private sector (economic or market institution) and public sector (government). Policy Implication 44. Planning and developing Supply Chain Institution of horticultural product in production center should be based on equilibrium on supply and demand, market segment and market destination, and integrated among the agents to develop interdependency and profitability. 45. Increasing bargaining position of farmers through consolidation farmers group institution and among farmers group in the aspects of management, membership, capitalization and accessibility to market is important. The following step is to make all agents in agribusiness of horticultural product closely associated and positioning it in the clear role or function and right based on the agreement. It is important for each agent in Supply Chain Institution to have a commitment on the above agreement; they should work together, bearing the risk together and enjoying the profit together through equalization and transparency. 46. Policy suggestions to develop competitiveness partnership institution in production center are: (1) Availability of high quality seed and inputs in the xxii

11 term of kind, volume, quality, place, time and price; (2) Availability of specific location technology ; (3) Market guarantee and price assurance; (4) Regenerate farmers group institution is important; (5) Developing finance institution, which is accessible for farmers, is necessary; (6) Developing Supply Chain Partnership Institution in the principles of centrality, efficiency, holistic and integrated, and sustainable ecosystem; (7) Developing integrated extension system between government and private sector; and (8) Formulating alternatives mechanism and systems on the existing Supply Chain Partnership Institution in a participatory manner. 47. Implementation the integrated supply chain partnership institution for horticultural product, as an alternative model, are as follows : (1) Farmers should be consolidated in farmers group; (2) Farmers group should be transformed to formal institution which has a legal aspect; (3) Those farmers group should be consolidated as a Farmers/Agribusiness association and consolidate their business management in appropriate scale of farm in one spread area, depend of the commodity (10 up to 25 hectare): (4) Commodity was chosen based on the regional potency and market demand; (5) Applying corporate management in their agribusiness; (6) Deciding partner firm based on the recommendation of Agricultural Offices in the commitment to develop agribusiness community; and (7) Availability of Agribusiness Information and Consultation Center as a mediator and facilitator in the development of the integrated supply chain partnership institution for horticultural product. xxiii