WP/8/2015
WORKING PAPER
STRATEGIC STUDY ON CLUSTER STRENGTHENING TO SUPPORT THE SUPPLY OF VOLATILE FOOD COMMODITIES
Yunita Resmi Sari Noviarsano Manullang Nurchair Farliani Melia Oktarina Fauzan Rahman Akhmad Jaeroni Chaikal Nuryakin Hamdan Bintara
2015
The conclusions, opinions and views of the authors in this paper are those of the authors alone and do not constitute the official conclusions, opinions, and views of Bank Indonesia.
i
Strategic Study On Cluster Strengthening To Support The Supply Of Volatile Food Commodities
Yunita Resmi Sari, Noviarsano Manullang, Nurchair Farliani, Melia Oktarina, Fauzan Rahman, Akhmad Jaeroni, Chaikal Nuryakin, Hamdan Bintara
Abstract The main contributor to inflation comes from volatile food commodities whose price movements are highly influenced by seasonal factors. The supply of food commodities is affected by the disruption of production, distribution, and government policy. When there is disruption to production, the supply of commodities is unable to meet demand. The program to develop clusters was a form of Bank Indonesia’s participation in safeguarding supply in order to control the price movements of foodstuffs. The emergence of clusters is expected to raise productivity from commodities by managing clusters using the value chain approach (value chain). The study was conducted to understand and improve the role of clusters in supporting the supply and controlling the prices of volatile food commodities. The study was conducted in two commodity clusters in six regions, namely three regions for chillies (Jember Regency-East Java Province, Minahasa Regency-North Sulawesi Province, and Tanah Datar Regency-West Sumatera Province) and three regions for shallots (Majalengka Regency-West Java Province, Palangkaraya City-Central Kalimantan Province, and Simalungun Regency-North Sumatera Province). This study makes use of several analytical tools, namely: in-depth interviews with cluster stakeholders, the analytical hierarchy process (AHP), and SWOT analysis. Nationally, there was a production surplus of chillies relative to consumption. Nonetheless, it proved difficult to take advantage of the surplus at the national level in order to stabilize prices in the main centers of consumption because chillies are perishable by nature, while consumers prefer fresh chillies. Fluctuations in the prices of chillies are more determined by the distance between producers and consumers and also seasonal demand factors. The formation of national average prices of chillies was driven by the fundamentals of current production and consumption which are weekly or even daily in nature. For shallots, there was a surplus nationally, although prices still spiked at certain times. It was because the production of shallots was relatively uneven and only centered on Java and NTB. Nonetheless, the demand for shallots did not show large seasonal spikes in comparison to the demand for chillies. Key words : volatile foods, food prices JEL Classification : Q00, Q11
ii I. INTRODUCTION
1.1. Background
Bank Indonesia has been assigned with the duty to meet inflation targets, as set forth in Article 7 of Law No. 23 of 1999 regarding Bank Indonesia as amended by Law No. 3 of 2004. In performing this duty, Bank Indonesia coordinates with the Government.
Based on comparisons between the targeted and actual inflation in the years 2010 until 2015 (Bank Indonesia, 2015), there was, in general, a deviation between the inflation target which had been set and the actual inflation. Table 1 shows the targeted inflation along with the actual inflation from 2010 until 2015.
Table 1. Comparison of Targeted Inflation and Actual Inflation Actual Inflation Year Inflation Target (%, yoy) 2010 5+1% 6.96 2011 5+1% 3.79 2012 4.5+1% 4.30 2013 4.5+1% 8.38 2014* 4.5+1% 8.36 2015* 4+1% 3.35 Source: Bank Indonesia, 2015 Explanation: *) based on PMK No.66/PMK.011/2012 dated 30 April 2012
The gap between the targeted and actual inflation prompted Bank Indonesia to continue improving instruments to control inflation. The formulation of appropriate monetary policy is needed to maintain inflation at the desired level.
Historically, the main contributor toward inflation originated from volatile food commodities whose price movements are highly influenced by seasonal factors. Pressure on price movements in the volatile foods group owed mostly to supply shocks, while demand for commodities tended to be stable because they are a basic need (Prastowo, Nugroho et al., 2008).
The supply side of food commodities was affected by production disturbances, distribution, and government policies. Due to production disturbances, the supply of commodities was insufficient to meet demand. The production of commodities is highly dependent on the weather. Food commodities are also perishable in nature. The efficiency of distribution activities was affected by the length of the distribution
1 chain and profitability margins which were set by each distribution link along with conditions in the transportation sector. Disturbances in distribution activities can result in a scarcity of commodities. Meanwhile, government policies in regard to the setting of administered prices for commodities, such as fuel, electricity tariffs, and transportation tariffs can move commodity prices (especially perishable commodities) and may also influence the inflation expectations of the general public.
The program to develop clusters was a manifestation of Bank Indonesia’s participation in safeguarding supply. The cluster approach is one way of grouping related core industries, either supporting industries, infrastructure, supporting services, information and technology infrastructure, natural resources, and related institutions (PRES, 2013). The presence of clusters is expected to raise the productivity of commodities by managing clusters with the value chain approach. The results of strengthening the role of clusters is expected to be able to support the increased supply of commodities in the regions. In turn, increased supply is expected to maintain the stability of commodity prices. Over the long term, it is expected that the contribution toward inflation from volatile food commodities can be better controlled.
The cluster program was initiated by Bank Indonesia in 2007. By the end of 2015 Bank Indonesia had already developed more than 100 clusters in nearly all Representative Offices (KPw) of Bank Indonesia. Supported commodities are consist of commodities in the agriculture, livestock, forestry, fisheries, and manufacturing sectors. The development of clusters since 2014 was focused on either: 1) commodity clusters which support food security as they contribute to inflation or 2) main products which make a contribution to the economy. Based on volatile foods commodity group data, the five main commodities making the largest contributions toward inflation over the last five years are rice, shallots, red chillies, beef, and garlic (DKEM BI, 2014).
1.2. Identification and Formulation of the Problem
In the framework of increasing the role of clusters to support supply and to control volatile food commodity prices, a study was undertaken on the strategy used to strengthen the role of clusters in supporting the supply of commodities with the highest share of inflation.
1.3. Research Objectives
The objectives of this study are:
2 (1) To analyse the condition and role of clusters in supporting the supply of volatile food commodities in efforts to control prices; and (2) To recommend strategies to strengthen clusters in the framework of supporting the supply of volatile food commodities in efforts to control prices.
3 II. LITERATURE REVIEW
2.1. Inflation
The continuous increase in prices at the aggregate level in the economy is the definition of inflation according to Blanchard (2004). By making reference to Neo- Keynesian economic theory in Gordon (1997), one approach to determine inflation in Indonesia can be explained through the cost-push inflation concept or commonly called supply-shock inflation, i.e. inflation which is caused by increases in the production costs or the cost of procurement and services. The cost push shock is transmitted through the production chain and affects the selling prices of goods (Bloch, 2004).
BPS publishes inflation groupings called inflation disaggregation which comprise of core inflation, administered prices inflation, and volatile food inflation. Core inflation is the inflation of goods or services whose price developments are affected by economic developments in general (fundamental factors such as inflation expectations, the exchange rate, and the balance of aggregate demand and supply) which will impact price changes in general and tend to be more permanent and persistent. Administered prices inflation is inflation of goods or services whose price developments are generally regulated by the government. Volatile foods inflation is the dominant inflation created by shocks in the foodstuffs group such as harvests, natural disturbances, factors in the development of domestic food commodity prices, or developments in the international food commodity prices (BPS).
2.2. Problems Related to Chillies and Shallots
Chillies and shallots are important vegetable commodities and have a high economic value in Indonesia. Chillies are both perishable and seasonal. Their production is climate-dependent which means chillies cannot be planted and harvested throughout the year. It is this seasonality which results in abundant quantities of this commodity during the harvesting season – and therefore falling selling prices, while, conversely, the price of chillies spikes when supplies are limited.
There are issues regarding shallots in relation to resources, land selection technology and land conversion. Some land in production centers in Java, especially Cirebon, has already experienced degradation in terms of nutrients. Limited
4 production infrastructure which includes matters such as seed varieties, fertilizers, and watering are contributing factors in the sub-optimal production of shallots.
Off-farm problems, which are quite common, include obstacles to transportation and distribution, such as road damage and disturbances to inter- island crossings. Products in production centers cannot be immediately sent to regions where they are sold, thus creating stockpiles which leads to falling prices at the producer level as well as higher losses due to damage to some of the commodities. Besides that, the farmers make losses because the prices they receive are controlled by traders who have greater power.
Based on their characteristics, shallots and chillies are categorised as volatile food commodities which are often the main contributors to volatile foods inflation.
2.3. Clusters
Clusters are made up of several companies simultaneously competing and collaborating to gain an economic advantage (Porter, 1990 in Boja, 2011). The existence of clusters will have an impact and positive results such as reducing costs, time, and transportation. At the same time, there is also a concentration of specialized workers and greater ease in exchanging information (Marshall 1890 and Krugman 1991 in Boja 2011).
Porter (1998) in Kuah (2002) stated that clusters were indirectly able to affect the competition and gain a competitive advantage by boosting the productivity of cluster-based companies, undertake more focused and speedier innovation in supporting productivity growth, as well as encouraging the formation of new businesses which will later develop and strengthen clusters and provide positive feedback. Besides that, Kuah (2002) also concluded that clusters would create positive externalities from the consumer side. Companies location in close proximity to each other, prospective customers can reduce their searching costs in regard to comparing prices and quality. In this case, the reputation of the clusters - either in terms of quality or innovation - is the factor explaining why consumers become customers.
Table 2. Costs and Benefits Analysis of Being Located in Clusters DEMAND SIDE SUPPLY SIDE BENEFITS 1. Proximity to consumers 1. Knowledge Spillover Effect 2. Reducing the searching costs 2. Specialised workforce of consumers 3. Infrastructure advantages 3. Information externalities 4. Information externalities 4. Reputation
5 COSTS Competition in the output Competition in the input market market (land and labour) Source: Swann et al. (1998) in Kuah (2002)
Solvell (2008) and Sovell et al. (2003) in Boja (2011) tried to define a different cluster model. Here, the clusters are built around actors whose decisions and actions affect the development of clusters. The cluster actors referred to are the government (either central or local), the financial system, the education and research systems, small and medium enterprises (either public or private), non-governmental organizations, and media channels.
Education and Media Research
Organization Business for Promotion Environment and Collaboration
Government Financial and Public System Structure Cluster
Source: Solvell (2008) in Boja (2011) Figure 1. Cluster Factor Model
Clusters are also a type of network that is formed based on geographical location. The proximity between companies and agencies results in certain similarities which increases the frequency and positive impact from communications and interactions. In Indonesia, clusters are naturally formed from the traditional activities of the local community which specifically produce certain commodities. Based on the comparative advantage of the products made, businesses can take advantage of the excess of raw goods and the manpower available locally to develop further, for example: some batik entrepreneurs who were grouped in clusters in several areas of Java (Tambunan, 2006). Besides that, the grouping of rattan furniture producers in Tegalwangi village, West Java was able to create small-scale industry satellite activities in neighbouring villages (Smyth, 1992 in Tambunan,
6 2006). Manufacturers of wooden furniture in Jepara, Central Java which formed a furniture cluster have grown since 1980 and have been able to transform the city into a thriving commercial center (Schiller and Martin-Schiller, 1997 in Tambunan, 2006).
PRES (2013) stated that cluster problems, among others, included limited capital, human resources, inappropriate credit utilization, and a lack of infrastructure. Successful economic development based on clusters should be supported by the relevant policymakers. The government is not the only key player in cluster development, but the government has an important role. This role encompasses policymaking which supports economic policy (education, labour markets, and the rules of competition), being a facilitator, as well as policy to regulate subsidies (Ketels and Memedovic, 2008).
7 III. RESEARCH METHODOLOGY
3.1. Scope of the Research
This study covers the following:
1. Literature review on inflation, especially inflation caused by volatile food prices. Factors affecting volatile food prices include the pattern of distribution and market structure of volatile food commodities; related government policies and strategies, especially volatile food commodities; and developments concerning the imports of volatile food commodities.
2. The clusters that will be studied are food security clusters for volatile food commodities, i.e. chillies and shallots.
3. This study will focus on sample clusters which represent red chillies or shallots regions. The regions which are chosen also represent regions which are production centers or not production centers for red chillies or shallots.
4. Analysis of cluster strengthening strategies includes:
(a) analysis of the characteristics of inflation in sample areas, especially red chillies and shallots, including the patterns and causes associated with the supply of these commodities in the KPw BI sample;
(b) analysis of cluster conditions in the sample area, including (i) aspects of production (the amount of production, the availability of raw materials, and the technology used) and market aspects (distribution in/out of clusters, product marketing, competition, and market opportunities); (ii) the influence or impact of clusters on commodity prices; (iii) related policies and programs in the area of the KPw BI sample; and (iv) external environmental aspects covering social and economic matters, government policy, and infrastructure conditions and means of transportation; and
(c) the identification of obstacles and unconducive conditions that are faced in each KPw BI sample, the identification of conditions that support an increased supply of commodities in the cluster (FGD), the identification of strategies and strengthening efforts (SWOT), and the role of clusters in these strategies. After that, the selection or preparation of priorities is carried out by a logical and structured procedure (AHP).
8
Figure 2. Flow Chart of the Strategic Process to Strengthen Clusters
3.2. Research Methodology
This research uses a qualitative approach. The data is collected as follows: a. Primary data is obtained from the distribution of questionnaires, in-depth interviews, and by conducting Focus Group Discussions (FGD) with stakeholders, including KPw BI cluster program implementers, cluster experts, cluster actors including farmers, escort officers/PPL, related cluster figures, and academics. FGD are aimed at obtaining inputs or information on aspects of production (the amount of production, the availability of raw materials, and the technology used) and market aspects (the distribution in/out of clusters, product marketing, competition and market opportunities), the influence or impact of clusters on commodity prices, aspects of the external environment covering social and economic and government policy, and other information which supports the achievement of the research objectives. b. Secondary data was obtained from study literature, data and information from Bank Indonesia’s internal data, stakeholders of the cluster program, related ministries/agencies, the private sector, institutions, etc.
Meanwhile, the methods of analysis included: a. SWOT (strengths-weaknesses–opportunities-threats) to systematically identify various factors to formulate a cluster strengthening strategy. This analysis is based on relationships or interactions between the internal elements in cluster conditions, which includes strengths and weaknesses, toward external elements outside the clusters that includes opportunities and threats. b. Analysis of strengthening strategies that need to be done for each cluster (central or non-central). This can be done based on the recommendations of experts by using the analytic hierarchy process (AHP) method or using other appropriate methods.
3.3. Sampling Method
The method to sample research areas is conducted in a non-random manner (purposive sampling) by taking into account the conditions of each region with
9 different inflation and cluster characteristics. The selected cluster areas are central and non-central which are able to keep inflation fairly stable. The sample area includes clusters in six regions, as follow:
1. Jember Regency, East Java Province, namely the red chilli clusters which are central production areas.
2. Majalengka Regency, West Java Province, namely the development of shallot clusters in Cirebon, West Java (non-central area).
3. Minahasa Regency, North Sulawesi Province, namely the cayenne chillies clusters which are central production areas.
4. Palangkaraya City, Central Kalimantan Province, namely the newly-developed shallots cluster (non-central area).
5. Simalungun Regency, North Sumatera Province, namely the shallots clusters which are central production areas.
6. Tanah Datar Regency, West Sumatera Province, namely the chilli clusters which are central production areas.
3.4. Analytic Hierarchy Process (AHP)
The Analytic Hierarchy Process (AHP) is the decision making method for solving complex and unstructured problems by placing them into groups and organizing them into a hierarchy. The AHP method can be used as a tool in determining the government’s programs.
In completing the necessary matrix what needs to be done is comparing the influence or the importance of the elements at each question level by using scale values as described in the next section. AHP is conducted by comparing one variable with another variable; for example, as follows: a. Assessment of the elements of the problem at each level which is being examined in analysing the condition and role of clusters in supporting the supply of volatile food commodities as an effort to control prices. The assessments are expressed numerically on a scale of 1 to 9. b. These numbers show a comparison of two element statements with a cumulative scale from 1 until 9. To assess the comparison of the degree of the intensity of importance of one element toward other elements the following criteria are used:
10 Intensity of Explanation/ Explanation Importance Verbal Definition
Two elements have the same impact on 1 Equal importance the goal.
Experience and appraisal slightly 3 Moderate importance support one element over other elements. Experience and appraisal strongly Essential / strong 5 support one element over other importance elements.
One strong element is supported and 7 Very high importance dominant in practice.
Evidence that supports one element 9 Extreme importance over another has the highest possible affirmation. Values between two This value is given when there are two 2, 4, 6, 8 consideration values compromises between two choices. which are adjacent c. In the assessment of the relative importance of two elements, reciprocal axioms are applied. This means that if element i (column 1) is rated 5 times as more important than element j, element j must be equal to 1/5 times more important than element i. d. If the element in column 1 (on the left) is more important than the element in column 2 (on the right), the comparative value is filled in column 1 and if otherwise it is filled in column 2.
In AHP there is an expression called inconsistency. Inconsistency is the value of inconsistency caused by miscalculation, a lack of information, a lack of concentration at the time of data retrieval, and possibly in the ever-changing state of the real world. AHP allows for inconsistencies with a maximum value limit of 10%.
3.5. SWOT
In general, SWOT is one tool to analyse the internal or external environment to formulate the strategies that will be used by an organization. Nonetheless, for the purpose of our analysis, these SWOT components can be interpreted as follows. a. Internal Factors
Internal factors are factors which originate from internal clusters or can be controlled by clusters.
11 1) Strengths are resources, skills, and other factors which are relatively superior belonging to the survey areas. Example: access to capital or good management.
2) Weaknesses are limitations or deficiencies in resources, skills, and other factors which seriously obstruct the performance/productivity of clusters. Example: research development, entrepreneurial culture. b. External Factors
External factors are factors which are outside the cluster and which cannot be directly controlled by the cluster.
1) Opportunities are favourable situations which are found in the environment of the cluster. Example: regulations and local government support in cluster development.
2) Threats are unfavourable situations in clusters to affect supply or price stability. Example: inadequate infrastructure and competition with other commodities.
In turn, this SWOT analysis will be used as a tool to formulate appropriate strategies to strengthen clusters in increasing supply which has an impact on price stabilization in the districts. In this research, the SWOT questionnaire contains two main tables, i.e. an assessment of current conditions and urgency of development/handling going forward related to the problem of sub-category/ more specific factors. For that, each sub-category is divided into two categories, namely internal (to obtain the strengths and weaknesses) and external (to obtain the opportunities and threats).
1. The assessment of the score, i.e. the assessment of the potential or the achievement of the current results and the expected performance over the next five years. The assessment of respondents is 1 until 8 with the following explanation:
number 1 = absolutely weak number 2 = extremely weak number 3 = very weak number 4 = weak number 5 = good number 6 = very good
12 number 7 = extremely good number 8 = outstanding
2. Urgency assessment, i.e. the assessment of the urgency of these factors to be addressed. This assessment is related to the scale of the priority in resolving development issues which are reflected through these factors.
number 1 = not urgent number 2 = quite urgent number 3 = urgent number 4 = very urgent
The results of the questionnaire are numerical/quantitative. Any questions answered by respondents in the scale form will be calculated so that each cluster is obtained. Each scale will be formulated into a strategy to strengthen the cluster. After that, we will see the quadrant of the processing results by counting the number of each scores which have already been multiplied by their level of urgency. It is this quadrant which serves as the map of the cluster strengthening strategy. In turn, the SWOT matrix is made based on the strengths and weaknesses with the opportunities and threats. Based on the quadrant and SWOT matrix, we can determine the formulation of the cluster strengthening strategy.
3.6. Time Series Decomposition
To estimate the supply needed in maintaining price stability, the time series decomposition method is used. This method is highly suitable to be used for variables or data with strong seasonal movements such as the pattern of agricultural or plantations production which has a harvesting season.
The basic principle of the time series decomposition method is decomposition of time series data into several patterns and the identification of each component of the time series separately. This decomposition is conducted to improve the accuracy of forecasting and understanding behaviour of time series data.
The decomposition method is based upon the assumption that the existing data is a combination of several components,
Data = pattern + irregularities = f (trend, cycle, seasonal) + error
In estimating the irregularities or random components, it will be represented by the residual, i.e. the differences in the combination of estimates of the trend, cycle, and
13 seasonal components with the actual data. The assumption above implies that there are four components which affect a time series, i.e. three components which can be identified because they have a certain pattern, namely the trend, cycle, and seasonality, along with the random component which cannot be predicted because it does not have a systemic pattern and shows irregular movements (Awat, 1990). The trend component is the tendency of data to move up or down over the long run. Seasonal variations are periodic upward and downward movements (recurring at the same time interval). The cycle component are the changes in the wave which repeats itself over a relatively long period, for example 10 years, the 20th quarter, and others. The random component is characterized by unpredictable movements, occurring suddenly, and difficult to predict. Such movements can arise as a result of war, natural disasters, or monetary crises.
By this multiplicative assumption, the decomposition component can be represented by the formula:
풚풕 = 푺풕풙 푴풕 풙 푻풕 풙 푰풕 Explanation:
풚풕 : actual data in period t
푺풕 : cycle component in period t
푴풕: seasonal component in period t
푻풕 : trend component in period t
푰풕 : random component in period t
Estimates are based on the expectation that decomposition will leave the first three components, with the random component represented by the residual or differences between the estimates and the actual data:
풚풕 = 풚̂풕 + 휺풕
풚̂풕 = 푺풕 풙 푴풕 풙 푻풕 Explanation:
풚풕 : actual data in period t
풚̂풕: data estimates in period t
휺풕: error component in period t
14 IV. RESEARCH RESULTS
This chapter will provide an overview on the production, consumption, and trade of chillies and shallots at the national and regional levels of the areas covered by the survey. It should be noted that food commodities – especially chillies – have different varieties. Chillies, for example, can be categorized as large red chillies, curly red chillies, green chillies, and cayenne chillies. The analysis of chillies without considering their type can lead to an incorrect conclusion. Because of that, this research attempts as much as possible to group chillies based on the varieties developed in the survey areas. Besides that, the performance and analysis of each cluster of respondents will also be presented.
4.1. Production, Consumption, and Trade
To understand the role of clusters Bank Indonesia (BI) in supporting the supply of commodities as an effort to increase supply and control prices in cluster areas, initially needs a general picture of demand and supply/production at the national and provincial levels where the district or city of the BI cluster is located.
National aggregate data is needed in the analysis of price stability because trade between provinces in Indonesia is getting larger. The stability of commodity prices in an area depends upon, among other things, the success of production in the area where the commodity is sourced. If the national demand for commodities is greater than the national production, there will be a tendency for commodity prices to increase, as well as vice versa. Price stability is also highly dependent on the stability of national production every month. As such, the pattern of commodity production throughout the year in cluster areas also needs to be assessed to determine the causes of price fluctuations.
Consumption data in this analysis is obtained by estimating household consumption data from the 2014 BPS National Socio-Economic Survey (SUSENAS), while production data is obtained from the Ministry of Agriculture, the Agriculture Office, and BPS data. There are differences in the classification of BPS production and consumption data. Production data on chillies is divided into two groups, namely large chillies and cayenne chillies, while the consumption data is divided into three groups, namely red chillies, green chillies, and cayenne chillies. With the availability of such data the discussion of national and provincial surplus or deficits - especially
15 for West Sumatra and East Java used the total data of all chilli varieties and not just red chillies, while for North Sulawesi Province it was devoted to cayenne chillies.
Because chillies and shallots are consumed daily, monthly data is very important to estimate actual needs. Production data for chillies and shallots is already available on a monthly basis, but consumption data which is estimated from SUSENAS consumption is only available on a yearly basis. Because of that, consumption data can only be used to predict the average requirement per month or per year, without taking into account seasonal factors such as increased consumption during holidays. Similarly, the data needs for industries that are not yet available, even though the amount is quite significant in influencing prices. Because of limitation, this research attempts to complete each analysis by incorporating seasonal factors and estimates of industry needs taken from various literature.
4.1.1. Chillies
Chart 1 shows that the production of chillies nationally is greater than the consumption or there is a production surplus which reaches 40%–60% of consumption each year. This surplus does not mean that there is a decline in prices throughout the year in all areas of Indonesia. In the case of oversupply, prices will fall for farmers, but the impact on end consumers is influenced by many things.
1,100,000 1,074,602
1,050,000 1,012,879 991,258.65 1,000,000 983,846.83 954,360 950,000 Ton 898,189.29 900,000
850,000
800,000 2012 2013 2014
Produksi Konsumsi
Source: Ministry of Agriculture (compiled) and BPS Chart 1. National Production and Consumption of Chillies Per Year 2012–2014
Fluctuations in chilli prices continue to occur driven by the following:
1. The national production pattern has strong seasonal characteristics and a long cycle (nearly one year). Production declines during the rainy season, around the
16 period November–February (Graph 2). These characteristics are also found in the demand for red chillies during certain months, such as national holidays, when consumption can increase by 10%–20% compared to normal consumption. The differences in seasonal factors in demand and production creates price instability. For example, during national holidays demand increases but production declines because of the rainy season. As such, the price of chillies is determined by the fundamentals of current production and consumption which are weekly, or even daily in nature.
2. The distance of producers (production centers) to consumers especially in big cities as deficit centers (Figure 3) is great. Transportation disturbances occur when production declines, especially during the rainy season, driving up prices. Besides that, chillies are perishable by nature so that stockpiling is more difficult to undertake in order to anticipate increased demand, especially demand for fresh chillies.
3. Fairly high industry demand will also reduce the ability of production to withstand price fluctuations from the consumption side.
Red Chillies 120,000 80,000 100,000 70,000 60,000 80,000 50,000
60,000 40,000
Rp Ton 40,000 30,000 20,000 20,000 10,000
- -
Jul12 Jul13 Jul14
Apr 12 Apr 13 Apr 14
Okt 12 Okt 13 Okt 14
Jan 12 Jan 13 Jan 14
Produksi Konsumsi Harga
Source: Ministry of Agriculture (compiled) and BPS Chart 2. National Production and Average Consumption1 of Red Chillies Per Month in the Years 2012–2014
1 The average consumption per month is obtained from the amount of consumption per year divided by 12. This gives rise to a picture of flat average consumption over one year. The need for consumption data per month as mentioned previously is very important to help to more accurately predict the surplus/deficit conditions in a one month period.
17
Source: Ministry of Agriculture (compiled) and BPS Figure 3. Map of National Chillies Surplus and Deficit Year 2014
A surplus of chillies also occurred in the provinces of the cluster areas that were surveyed (Figure 3). Nonetheless, if looked at by the type of chilli, North Sulawesi experienced a deficit of cayenne chillies (Chart 3). In terms of consumption, the consumption of chillies per capita in West Sumatera was far higher (9kg/year/capita) if compared to East Java (3.5kg/year/capita). As a result, the increased consumption demand for chillies in West Sumatera is far higher than for East Java when there is the seasonal impact from holidays. Besides that, the production of chillies from these two centers is also absorbed by the food processing industry, either large-sized industry (East Java) or home industry (West Sumatera).
18
Source: BPS and Ministry of Agriculture, * Cayenne chillies Chart 3. Production and Consumption of Chillies in West Sumatera, East Java, and North Sulawesi* in the Years 2012-2014 (Tons)
35,000
30,000 25,000 20,000
Ton 15,000 10,000 5,000 -
Jul-12 Jul-13 Jul-14
Sep-14 Sep-12 Sep-13
Nov-12 Nov-13 Nov-14
Jan-13 Jan-14
Jan-12
Mar-12 Mar-13 Mar-14
May-12 May-13 May-14
CR_Sumbar CR_Jatim CB_Sumbar CB_Jatim
Source: BPS and the Ministry of Agriculture Chart 4. Production of Cayenne Chillies (CR) and Large Chillies (CB) per Month in West Sumatera and East Java in the Years 2012-2014
Chart 4 illustrates the differences in the production of chillies in West Sumatra and East Java. East Java produces nearly twice as many large chillies as West Sumatera and around 32 times the amount of cayenne chillies. West Sumatera has a relatively stable production pattern throughout the year, whereas East Java has a strong seasonal pattern. Besides that, there are differences in production costs with the production costs in West Sumatera standing at two-three times those in East Java.
The production quantity of cayenne chillies in East Java reaches its peak in April–July and falls to its trough in December–February, while the lowest production of large chillies in East Java occurs in the months from July–January and increases
19 in the months from February–June. With this pattern, East Java needs a planting program in the months of October–November for cayenne chillies and a dry season planting program for large chillies. These two programs require special/advanced programs in the form of handling red chilli and cayenne adult plants in the months of December and January. On the other hand, West Sumatera is more focused on intensification and extensification efforts.2
There are differences in the trading systems for red chillies in West Sumatera and East Java. From various sources it is known that 90% of the production of West Sumatera’s red chillies is sold to Riau, while the demand coming from West Sumatera alone is obtained from the provinces of Bengkulu, Java, Lampung, and North Sumatera. Besides demand from household industries, this trading system is one of the reasons for chilli price fluctuations in West Sumatera, a center for red chilli production. On the other hand, the red chilli center in East Java tends to face the problem of low prices at the farmers’ level during the harvesting season. This emphasizes the importance of marketing red chillies from the production center of East Java.3
From the three surveyed regions, only North Sulawesi is not a production center because the cultivation of chillies has not yet been done in a large and systematic manner in this region. In North Sulawesi the consumption of cayenne chillies is far higher than the consumption of red chillies (18:1) so that cultivation is focused on cayenne chillies. The consumption of cayenne chillies in North Sulawesi increases sharply in the month of Thanksgiving or Easter (July–August) and during Christmas. With a relatively stable deficit each year of 3%–7% or 300–600 tons of the consumption in the years 2012–2014, North Sulawesi is still dependent on other regions (Gorontalo4 and East Java) to fulfil its chilli requirements, especially when consumption rises significantly.
The production of cayenne chillies in North Sulawesi was stable at around 9,000–9,500 tons in the years 2010–2013, albeit only reaching 8,461 tons in 2013. This decline owed to decreased planting area, especially in the Regency of Minahasa, a production center for cayenne chillies. In 2014, the Minahasa district government
2 The productivity of chillies often declines in the rainy season because of the amount of chillies that rots and is susceptible to disease/viruses. 3 West Sumatera and East Java as centers and sources for chillies for other regions also have problems with price increases, especially during holidays. The increasing information flows and inter regional trade will influence commodity prices in the regional centers. 4 Some sources say that Gorontalo’s red chillies originate from South Bolaang Mongondow (Bolsel), one of the regencies in North Sulawesi. Geographical proximity to Gorontalo means that the trade for chillies in Bolsel is more entwined with Gorontalo than with regencies/cities in North Sulawesi.
20 together with BI ran the program Regency Rica or Regency Cabai, increasing the planting area. This program has already helped to increase the production of cayenne chillies in North Sulawesi by 24.9 tons to 8,486 tons in 2014. However, the increase in production in 2014 was not able to meet the higher demand consumption which reached 8,779 tons (10,974 tons including industry demand) or up by 8.6% from the previous year. This resulted in a deficit of 293 tons (2,488 tons including industry demand) or 22.7% of consumption demand. This deficit will become very large if there is an increase in consumption in certain months. Price fluctuations are increasingly difficult to control with production of cayenne chillies in this province declining in the months of October–December when demand increases (Chart 5).
1,800 1,600 1,400 1,200 1,000
Ton 800 600 400 200
-
Jul-12 Jul-13 Jul-14
Sep-12 Sep-13 Sep-14
Nov-12 Nov-13 Nov-14
Jan-12 Jan-13 Jan-14
Mar-12 Mar-13 Mar-14
May-12 May-13 May-14
Produksi Konsumsi
Source: Ministry of Agriculture (compiled) and BPS Chart 5. Production of Cayenne Chillies per Month North Sulawesi From 2012–2014 (tons)
Although on a national basis the surplus of cayenne chillies is greater than the surplus of chillies that can reach 60%–80%, the pattern of the decline in December’s production is a general pattern of national cayenne chillies production (Chart 6). This decline in national production was one of the causes of the sharp increases in prices in North Sulawesi which reached Rp150,000.00/kg in December 2014. As such, the planting program in the months of September–November and the special program in the form of crusial handling adult chilli plants in December and January.
21 90,000 80,000 70,000 60,000 Ton 50,000 40,000
30,000
Jul-12 Jul-13 Jul-14
Sep-12 Sep-13 Sep-14
Nov-12 Nov-13 Nov-14
Jan-12 Jan-13 Jan-14
Mar-12 Mar-13 Mar-14
May-12 May-13 May-14
Produksi Konsumsi
Source: Ministry of Agriculture (compiled) Chart 6. National Production and Average Consumption of Cayenne Chillies Per Month in 2012–2014
4.1.2. Shallots
Chart 7 shows that the national production of shallots always records a surplus each year reaching 40% of the consumption in 20145. This situation is also reflected in the stability of shallot prices at the national level.
1,400,000 1,233,984
1,200,000 964,221 1,010,773 1,000,000
755,162 800,000 705,584 629,690 Ton 600,000 400,000
200,000
- 2012 2013 2014
Produksi Konsumsi
Source: Ministry of Agriculture (compiled) and BPS Chart 7. National Production and Consumption of Shallots 2012–2014 (tons)
Shallot prices are relatively more stable than chilli prices because of the following factors:
5 Consumption does not include industry demand since there is not a valid source of information concerning industry’s demand for shallots.
22 1. The national production of shallots has strong seasonal characteristics (down in March–April and November–December and up in January and May/July), but having a shorter cycle (5 and 7 months)6. As such, planting in September–October is vital but hampered by the late rainy season. The decline in production in March owed more to land conversion for rice paddies in January.
2. The demand for shallots did not show a significant seasonal spike as red chillies did.
3. With a shorter cycle and a longer life (4–6 months), the storage (stocks) of shallots is more easily done. This allows for an effective response to increased demand.
4. As such, the formation of shallot prices is not only determined by current production but also by trade and the market structure.
160,000 70,000
140,000 60,000 120,000 50,000 100,000 40,000
80,000 Rp Ton 30,000 60,000 20,000 40,000 20,000 10,000
- -
Jul12 Jul13 Jul14
Mei 12 Mei 13 Mei 14
Sep 12 Sep 13 Sep 14
Nov12 Nov13 Nov14
Jan 12 Jan 13 Jan 14
Mar12 Mar13 Mar14
Produksi Konsumsi Harga
Source: Ministry of Agriculture (compiled) Chart 8. National Production, Average Consumption of Shallots and Prices per Month 2012–2014
6 In one year, there are two cycles whereas cayenne chillies only have one long cycle in one year.
23
Source: Ministry of Agriculture (compiled) and BPS Figure 4. Map of the National Surplus and Deficit of Shallots in 2014
Although the prices are relatively stable, the national production of shallots is dependent on shallot production centers in Java and NTB (Figure 4). The focus of production centers in Java and NTB poses a risk if there is an attack by pests or climate change which cause production to decline. This happened in 2013 when the production center for shallots in Java experienced a production decline due to extreme weather. The price of shallots nationally soared to Rp60,000.00/kg. As a result, the long-term impact was an increase in the average yearly price from Rp15,000.00 in 2013 to above Rp20,000.00 in 2014.
From the three regions surveyed (North Sumatera, West Java, and Central Kalimantan), only West Java experienced a surplus because the Regency of Cirebon is one of the national centers of production for shallots. By contrast, North Sumatra and Central Kalimantan experienced deficits which resulted in relatively high prices. For example, in 2014, the production of shallots in North Sumatera and Central Kalimantan reached only 21% and 1% of the consumption demand, respectively. With a production deficit which reaches nearly 80% and 100%, high inflation of shallots in North Sumatera and Central Kalimantan has been overcome by increases in the production of shallots nationally.
24
Source: Ministry of Agriculture (compiled) and BPS Chart 9. Production and Consumption of Shallots in North Sumatera, West Java and Central Kalimantan in 2012–2014 (tons)
Production efficiency is also determined from historical production. North Sumatera is already accustomed to planting shallots but Central Kalimantan is not. In Central Kalimantan, besides the lack of both farming competency and the completeness of agricultural institutions, the productivity and production efficiency of shallots is also low so that the BEP price of shallots in this region is high. Besides that, the shallots which are in the market at the present time are already dominated by shallots from Probolinggo-East Java and Bima-NTB so that efforts to increase the production of shallots in the province need significant on-farm and off-farm efforts.
Besides that, efforts to increase the production of shallots in North Sumatera are easier and cheaper because they are supported by suitable soil conditions and farmers who are experienced in the cultivation of shallots (especially in areas where BI clusters are located, the Regency of Simalungun). One factor which must be considered in this region is the competition for the use of agricultural land for shallots and red chillies.
25 4.2. Description of Clusters in the Surveyed Areas
4.2.1. Chillies Cluster in Tanah Datar Regency in West Sumatera Province
The Guguak Lagundiah Farmers Group was founded in 1998. Unity and solid cooperation mean makes that this group still stands today. Group members have rules that must be agreed upon and followed together. One of the agreed values is that if one of the members is not present in the group’s activities (preparing land for cultivation), then this member will be fined Rp100,000.00.
Table 3. Chilli Clusters in Tanah Datar Regency Explanation Cluster Chillies Cluster Tanah Datar Regency, Guguak Lagundi Farmers Group in Jorong Tanjuang Nagari Name of Cluster Pandai Sikek District X Koto Tanah Datar Regency, West Sumatera In Charge of Cluster Bank Indonesia Year Founded 18 March 1998 Year Cluster Started December 2014 Jorong Tanjuang, Nagari Pandai Sikek , District X Location and Cluster Koto, Tanah Datar Regency, West Sumatera Address Province Number of 11 (eleven) people Members/Farmers Name GAPOKTAN Pandai Sikek GAPOKTAN/Association Tanah Datar Regency of Agriculture Office, West Sumatera Province of Agriculture and Food Crops Stakeholders involved Office, West Sumatera Province of Food Crops and Horticulture Protection Office Source of Supply Nagari Pandai Sikek Over the year, the planting period is 6 months and Planting Period the harvesting period is 20 weeks Land Area 2 hectares Total Production 100 kg–1,300 kg per week or 5–20 tons per year Marketing (Local, Between Sold to local traders, by local traders sold to buyers Regencies-Provinces, etc) out of West Sumatera Province. Starting with the personal capital of group members. Then the group’s business capital is taken from the remaining cash which is set aside Source of Capital for business capital in the planting season/the following year, facilitation of SLPHT activities and chilli plant demonstration plots to support production. Status/Program End Date The program is underway, ending December 2016 Integrated Pest Control School for Chillies, Training Mentoring Activities to Strengthen Institutions/Groups, Demonstration
26 Explanation Cluster Plots for Chilli Plants (0.5 – 1 ha), Learning Visits To The Pests Disease Laboratory and PHT Clinic (BPTHP) in Bukittinggi.
Sepuluh Koto District is a fertile area with enough water sources. As a result, the BI clusters can undertake planting throughout the year with a planting period of 6 months and a harvesting period of 20 weeks or 5 months. Activities undertaken in the first year include mentoring and providing cultivation knowledge such as the use of technology and the proper use of pesticides and artificial fertilizers. Currently, an additional 1 hectare demonstration plot is being developed and previously a 0.5 hectare SLPHT was already carried out.
With production reaching 20 tons per year, this cluster is only able to increase the surplus by 0.09%. There is a surplus of 21,617 tons for the province along with 8,769 tons for Tanah Datar Regency. In 2014, Tanah Datar Regency managed to successfully increase the production of chillies by 79 tons or increase the surplus in the regency by 436 tons from 8,333 tons to 8,769 tons so that the effectiveness of Tanah Datar Regency amounted to 0.09% overall.
The role of BI’s cluster in creating price stability is not yet significant given the high price fluctuations, especially during the hajj month or during holidays. West Sumatera’s local supply comes from outside the area, i.e. from North Sumatera, Lampung, and Java, so that a decline in supply from Java or Lampung leads to price increases in West Sumatera.
There are several problems which emerge in the implementation of BI’s cluster. These are as follows:
1. Institutions such as cooperatives have not yet been formed so that farmers only act as price takers from middlemen.
2. The change from the non-organic cultivation of chillies to organic cultivation becomes a burden for group members because greater efforts are required. Up to now, the results from the change to organic cultivation are still unknown because harvesting of the demonstration plot has not yet been done.
3. The role of the local government - especially at the regency level - is still lacking, such that the development of chilli clusters is still not running optimally.
27 AHP and SWOT Results
In this study, the analysis of supply is broken down into three processes, namely: production, replication, and sustainability, while price stability is also broken down into three processes, i.e. intermediate demand, final demand, and connectivity. All processes have high consistency so that it is reasonable to draw a conclusion from the AHP results of this process (Chart 10).
Production Replication
Skill 0.324 Entrepreneurship 0.275 Teknologi 0.323 Modal Sosial 0,250 Bibit 0.179 Organisasi Klaster 0.179 Luas Lahan 0.088 Dukungan Stakeholder 0.175 Masa Tanam 0.085 Akses Pembiayaan 0.122
Inconsistency : 0.03 Inconsistency : 0.08
Sustainability Intermediate Demand
Akses dan Perluasan… 0.351 Pedagang Besar/Pasar Induk 0.432 Modal Sosial dan… 0.211 Penanganan Pasca… 0.205 Pengepul/Pedagang 0.365 Akses Keuangan 0.131 Tengkulak/Juragan/Ta 0.203 Keberlangsungan Input 0.102 oke
Inconsistency : 0.06 Inconsistency : 0.05
Final Demand Connectivity
Akses Pasar 0.472 Akses Informasi 0.353 Kualitas & Struktur Pasar 0.207 Ketersediaan Infr. 0.321 Relasi Pedagang dan Keberadaan Industri 0.198 Petani 0.217 Rumah Tangga dan Jalur Distribusi Industri 0.124 0.109
Inconsistency : 0.03 Inconsistency : 0.06 Chart 10. AHP Results of the Tanah Datar Chilli Cluster
The SWOT results conclude that social capital and cluster management openness were the most dominant cluster strengths, while cluster weaknesses were in the access to supporting services, inputs, and cluster management evaluation. On the other hand, geographical factors, proximity to suppliers along with stakeholders
28 support were the most apparent opportunities for cluster development, while demographics and access to information were still the threats.
Thus, it can be concluded that having a pool of workers and making improvements in regard to the access of information concerning prices and the quality of information can constitute a program that is consistent with the aim of increasing supply. Furthermore, improving access to markets and supporting services can be a solution for the weaknesses and threats to supply and price stability, either for farmers or the general population.
Table 4. SWOT Results of the Tanah Datar Chilli Cluster STRENGTHS WEAKNESSES Access to business supporting Social capital services Production/operations Availability of inputs Cluster management —Openness Cluster management (evaluation) OPPORTUNITIES THREATS Sales Access to information Geographical factors Demographic factors Cluster management information Economic factors system
4.2.2. Chilli Cluster in the Regency of Jember, East Java Province
Table 5. Chilli Cluster Jember Explanation Cluster Name of Cluster Holtikultura Lestari Cooperative In Charge of Cluster Bank Indonesia Year Founded August 2011 Year Cluster Started 2013 Location and Cluster Wuluhan District, Jember Regency Address Number of Cooperative members 20 people Members/Farmers Name AACI (Indonesian Association of Chilli GAPOKTAN/Association Agribusiness) Agriculture Office, Cooperatives Office, Stakeholders involved Muhammadiyah University Source of Supply Locally in Jember Planting Period Throughout the year, mostly from May–June Land Area Partnership of 125 people Total Production 1,500 tons Marketing (Local, Between PT Heinz ABC, at one time with PT Indofood Regencies-Provinces, etc) (blacklisted) Source of Capital Holtikultura Lestari Cooperative
29 Explanation Cluster Mentoring Activities Field School Training, plastic crates aid, GTCK
Through mentoring conducted by BI Jember, production increased. Production which previously only resulted in 0.8 kg per stem rose to 1.5–2 kg per stem. With production reaching 1,795 tons per year and a surplus of 34.022 tons, the BI cluster was able to increase the surplus in the Regency of Jember by 1.67%.
Each year the Lestari Cooperative supplies 1,500 tons of chillies to PT Heinz ABC which is supplied by 125 cooperative partners. Each farmer will have contracts of different amounts and planting periods (months) along with prices that have already been agreed with PT Heinz ABC. Several benefits obtained by farmers through partnerships with the Lestari Cooperative are: (1) farmer partners will get loans in the form of seeds and saprodi (agricultural production facilities) which are to be repaid at harvesting time; (2) prices which are offered above the cost of production (Rp8,000.00 per kg). If there is a decline in chilli prices, PT Heinz ABC will still purchase the chillies at the agreed price. Nonetheless, if the market price is higher than the contract price, PT Heinz ABC will give a price increase of 50% from the difference between the market price and the contract price.
In 2014, chilli market operations were conducted by the Department of Trade, i.e. when the price of chillies increased to Rp30,000.00 per kg. The Lestari cooperative was requested to participate in these market operations by supplying 2 trucks with each truck containing 5 tons (total 10 tons) with a selling price of Rp10,000.00 per kg. The impact of cheap chillies in the market was that they indirectly reduced the price of chillies in Tanjung Jember Market.
In August 2015 the movement of chilli planting during drought (GTCK) was undertaken as initiated by the Ministry of Agriculture and supported by BI. To this end, KPw BI Jember provided assistance in the form of 1 hectare of land, but because a larger impact was sought, the cooperative as the manager of the BI cluster added 14 hectares of land so that the total amount reached 15 hectares. The main problem in undertaking GTCK relates to the availability of water sources. To overcome this problem, a pump was used to irrigate the land. The costs incurred until the first harvest amounted to Rp5,900.00 per stem, or very high compared to the production costs in one planting season in general (normal season) of Rp6,000.00 per stem.
Some of the problems encountered in the Jember chilli cluster were as follows:
30 1. Very significant declines in prices occurred when the supply of chillies was abundant.
2. To undertake the planting of chillies considerable capital is needed, thus meaning that external funding sources are needed. As an illustration, 100 million rupiah is needed for 1 hectare of planted area.
AHP and SWOT Results
Based on the AHP results in this cluster, important factors in the production process are skills and technology. The replication ability is determined by the cluster organization, social capital, support from stakeholders, entrepreneurship, and access to funding. The strength of the cluster organization in Jember became a major replication factor because the relationship with industry has existed for some time.
On the other hand, access and market expansion along with social capital and networks became a major factor in the sustainability of cluster farming. For this cluster, the most important factor for final demand was the existence of industry for market guarantees, while information access was the most important factor for connectivity in terms of obtaining information on prices or forming relations with all cooperative partners.
Production Replication
Skill 0.474 Organisasi Klaster 0.371 Teknologi 0.204 Modal Sosial 0.261 Masa Tanam 0.171 Dukungan Stakeholder 0.177 Bibit 0.083 Entrepreneurship 0.155 Luas Lahan 0.068 Akses Pembiayaan 0.089
Inconsistency : 0.03 Inconsistency : 0.20
Sustainability Intermediate Demand
Akses dan Perluasan… 0.434 Pedagang Besar/Pasar Induk 0,390 Modal Sosial dan… 0.258 Penanganan Pasca… 0.152 Pengepul/Pedagang 0,390 Akses Keuangan 0.087 Tengkulak/Juragan/Ta 0,220 Keberlangsungan Input 0.069 oke
Inconsistency : 0.02 Inconsistency : 0.08
31 Final Demand Connectivity
Keberadaan Industri 0.572 Akses Informasi 0.416 Kualitas & Ketersediaan Akses Pasar 0.219 Infr. 0,260 Rumah Tangga dan Relasi Pedagang dan Industri 0.142 Petani 0.213 Struktur Pasar 0.068 Jalur Distribusi 0.111
Inconsistency : 0.05 Inconsistency : 0.02 Chart 11. AHP results of the Jember Chilli Cluster
The SWOT results conclude that the availability of inputs and cluster management became the dominant cluster strengths, while the cluster weaknesses lie in the cluster management information system and the cluster administration. The demographic factor (labour), information system, and proximity to suppliers became the biggest opportunities for cluster development. On the other hand, geography and competition for land use along with market access remained as the threats for cluster farmers.
Table 6. SWOT Results of the Jember Chilli Cluster STRENGTHS WEAKNESSES Availability of inputs Cluster management information system Cluster management Cluster management Marketing Social capital OPPORTUNITIES THREATS Demographic factor Geographic factor Cluster management information Competitive factor system Proximity to suppliers Market access
4.2.3. Cayenne Chilli Clusters in Minahasa Regency, North Sulawesi Province
The development of BI’s Cayenne Chilli Clusters in Minahasa Regency began in 2014 and coincided with the designation of this regency as a regency of chillies. There are 5 Cayenne Chilli Clusters which are located in 5 districts, namely: Tombulu, Tombariri, South Tondano, North Tondano, and West Tompaso (Table 7).
Table 7. Cayenne Chilli Clusters in Minahasa Regency Explanation Cluster Name of Cluster Chilli Clusters in Minahasa Regency
32 Explanation Cluster In Charge of Cluster Bank Indonesia Year Founded 2014 Year Cluster Started 2014 Location and Cluster Address Minahasa Regency, North Sulawesi Province Number of Members/Farmers 85 Name GAPOKTAN In the process of formation Local Government of Minahasa Regency, PT. Gunung Mas Agro Lestari, along with BPN Stakeholders involved North Sulawesi Province and Minahasa Regency Source of Supply Inputs: local Planting Period August–October and February–May 5 hectares of cayenne chillies and 5 hectares of Land Area red chillies 5–10 tons per year (cayenne chillies and red Total Production chillies) Marketing (Local, Between Local and between provinces Regencies-Provinces, etc) Swadaya (self-help) and BI assistance (Bank Source of Capital Indonesia’s Social Program) Status/ Program End Date Ongoing, ending at the end of 2016 Cultivation technical training with PT. GMAL, Mentoring Activities financial education, Facilitation of Land Rights Certification (SHAT) with BPN
BI assistance provided to clusters includes the provision of agricultural production facilities (saprodi) and capital. Note that even in the beginning, BI provided financing for the whole production process. The provision of saprodi was done by Pemda through PT Gunung Mas Agro Lestari. The cluster development commenced through the making of a demonstration plot with an area of 1 hectare and this was done by one group of farmers that comprises of 10 farmers on average. The average production of each demonstration plot is 1 ton per year. The production of cayenne chillies for all demonstration plots (including 10 hectares of demonstration plots from the local government - Pemda) is as many as 15 tons.
With production reaching 15 tons per year and a deficit of 2,488 tons per year, the BI clusters only closed the deficit by as much as 0.60%. Because Minahasa Regency managed to increase the production of cayenne chillies by 130 tons in 2014 or increasing the regency surplus by 319 tons from 354 tons to 673 tons, the Regency Chilli program was able to lessen the production deficit of cayenne chillies in Minahasa Regency by 12.82%. However, the role of BI’s clusters in achieving price stability was still very minimal because of high price volatility, especially in December
33 2014. Price stability was not only influenced by increased production, but also by the alignment between planting patterns and seasonal factors of public consumption.
Several problems which emerged in implementing BI clusters were as follows:
1. The role of BI clusters in encouraging farmers to cultivate chillies tended to stem from BI assistance or incentives in making demonstration plots.
2. The number of farming group members who are involved in demonstration plots of 1 hectare generally number 10 farmers. This number is not efficient because it encourages freeriders so that cluster development is not optimal.
3. Efforts to replicate chilli cultivation are still lacking or do not take place. This is because there are too many farmers involved in a single demonstration plot (1 hectare) so that the profit or yield per farmer is very low. As such, farmers have not been encouraged to replicate chilli cultivation.
4. There are indications of farmer groups who are not in a region causing difficulties in the coordination of the development of clusters/ demonstration plots.
AHP and SWOT Results
The AHP study results (Chart 12) shows that all processes have high consistency, except final demand. Because of that, the AHP results from this process are not valid to draw conclusions. For the production process, the important factors are technology and expertise. The technology needed relates to hand tractors and water pumps/retention basins. The replication capability is determined by social capital, cluster organization, support from stakeholders, and access to finance. BI should be able to utilize the social capital of farmers (mapalus), namely the culture of mutual cooperation of the Minahasan people to undertake cluster replication. On the other hand, access to and expansion of the market along with postharvest handling are the key factors in cluster sustainability.
34 Production Replication
Teknologi 0.316 Modal Sosial 0.223 Skill 0.297 Organisasi Klaster 0.216 Luas Lahan 0.143 Dukungan Stakeholder 0.203 Masa Tanam 0.123 Akses Pembiayaan 0.202 Bibit 0.121 Entrepreneurship 0.156
Inconsistency : 0.03 Inconsistency : 0.02
Sustainability Intermediate Demand
Akses dan Perluasan… 0.296 Pengepul/Pedagang 0.525 Penanganan Pasca… 0.231 Pedagang Besar/Pasar Modal Sosial dan… 0.193 Induk 0.338 Akses Keuangan 0.161 Tengkulak/Juragan/Ta 0.137 Keberlangsungan Input 0,120 oke
Inconsistency : 0.03 Inconsistency : 0.04
Final Demand Connectivity
Rumah Tangga dan Akses Informasi Industri 0.365 0.305 Kualitas & Ketersediaan Keberadaan Industri 0.273 Infr. 0.274 Relasi Pedagang dan Akses Pasar 0.247 Petani 0.252 Struktur Pasar 0.115 Jalur Distribusi 0.168
Inconsistency : 0.38 Inconsistency : 0.03 Chart 12. AHP results of the Minahasa Regency Chilli Cluster
Table 8. SWOT Results of the Minahasa Chilli Cluster STRENGTHS WEAKNESSES Social capital Production/operations Availability of inputs Research and development Culture of entrepreneurship Finance/accounting OPPORTUNITIES THREATS Proximity to suppliers Infrastructure Role of the stakeholders Market access Access to information Competitive factor
The SWOT results concluded that social capital and the availability of inputs were the most dominant cluster strengths. By comparison, the cluster weaknesses lie in the production, research and development, and cluster financial administration. The proximity to suppliers and support of stakeholders were the
35 main opportunities for cluster development. On the other hand, infrastructure and lack of market access still posed threats for cluster farmers.
As such, it can be concluded that the provision of technology and infrastructure from stakeholders, social capital (mapalus) were factors conducive toward increasing supply. Furthermore, market access or farm shops can be a solution for the weaknesses and threats toward supply and price stability, either for farmers or the general public at large.
4.2.4. Shallots Cluster in Simalungun Regency, North Sumatera Province
Simalungun Regency was chosen by Bank Indonesia as the region for the development of the shallots cluster because of its fairly good geographical conditions. The soil structure of this location is very good for growing shallots because it has sandy characteristics with abundant water sources. The location of the shallots cluster development, namely Haranggaol Horisan District, was formerly a center for shallot producers since 1980. At that time, shallots from this area were well-known for their spiciness, so there was a lot of demand from consumers in North Sumatra. Nonetheless, at the beginning of the 1990s, plants were attacked by viruses in all shallot farming areas so that farmers then switched to the cultivation of other crops such as coffee.
With the desire to bring back shallot farming in Haranggaol Horisan District, a number of farmers tried to cultivate shallots in 2012. Then, at the beginning of 2013, KPw Bank Indonesia Pematang Siantar in collaboration with BPTP North Sumatera conducted a study on shallot farmer assistance by forming clusters. After the laboratory testing of several types of shallot seeds, it was ascertained that the maja shallot type is the most suitable for the soil structure of this region.
Table 9. Shallot Clusters in Simalungun Regency Explanation Cluster Name of Cluster Shallot Clusters In Charge of Cluster Bank Indonesia Year Founded 2012 Year Cluster Started 2013 Haranggaol Horisan District, Simalungun Location and Cluster Address Regency, North Sumatera Province Number of Members/Farmers 50 Name of GAPOKTAN Tani Andalan Group
36 Explanation Cluster Stakeholders Involved BPTP North Sumatera Source of Supply Inputs: Aipopo Regency Planting Period July–September and March–May Land Area 13.9 hectares Total Production 20 tons Marketing (Local, Between Within the province Regencies-Provinces, etc.) Source of Capital Swadaya (self-help) Status/ Program End Date Ongoing, ending in the middle of 2016 Cultivation technical training and procurement Mentoring Activities of seeds, organic fertilizer assistance
Bank Indonesia provided assistance in the form of agricultural production assistance with a maximum of 5 rante (unit area, 1 rante = 400 m2). BPTP periodically provides dissemination results and training to field officers to provide technical advice to farmers such as proper fertilizer allocation, the planting period which takes into consideration the weather and the cultivation of shallots. Initially, the farmers were only able to produce an average of 8 tons. But after the assistance provided by Bank Indonesia and BPTP, farmers were able to produce 20–25 tons on average (the last harvesting was in the beginning of September 2015).
Although production increased, North Sumatera’s deficit of shallots reached 39,781 tons in 2014 meaning the production from the clusters only covered a deficit of 0.06%. Besides that, the production of shallots in Simalungun Regency itself also experienced a deficit in that year.
Nonetheless, the establishment of shallot clusters in Haranggaol Horisan District was able to attract the interest of farmers outside the clusters developed by Bank Indonesia to participate in the cultivation of shallots. Initially, Bank Indonesia only established two shallot farmer group clusters. This has now increased to eight farmer groups and two new groups are currently in the process of being added as well.
The establishment of shallot clusters in Haranggaol Horisan District was able to increase the production of shallots. This had a double effect (an increasing number of shallot farmers). Nonetheless, the planted area is increasingly restricted due to the competition for land use with other farming commodities such that the production of shallots is not maximal. In addition, the decline in production also owes to the
37 weather which is often smoky due to forest burning which results in a lack of sunshine and fog (high altitude lands).
AHP and SWOT Results
The results of the calculations from the AHP and SWOT questionnaires conducted in the shallots cluster survey area show that in regard to production, technology and skills are the most important things for the smoothness of the production process in shallot clusters in Simalungun Regency. Because of that, plant medicine technology needs to be periodically provided in the agricultural area. In addition, cultivation ability is important for the sustainability of production.
Production Replication
Teknologi 0.339 Organisasi Klaster 0.327 Skill 0.243 Dukungan Stakeholder 0.305 Luas Lahan 0.141 Modal Sosial 0.149 Masa Tanam 0.14 Entrepreneurship 0,110 Bibit 0.137 Akses Pembiayaan 0.108
Inconsistency : 0.07 Inconsistency : 0.03
Sustainability Intermediate Demand
Akses dan Perluasan… 0.339 Pedagang Besar/Pasar Induk 0.487 Modal Sosial dan… 0.219 Akses Keuangan 0.183 Pengepul/Pedagang 0.318 Penanganan Pasca… 0.16 Tengkulak/Juragan/Ta 0.196 Keberlangsungan Input 0.099 oke
Inconsistency : 0.06 Inconsistency : 0.003
Final Demand Connectivity
Kualitas & Ketersediaan Akses Pasar 0.329 Infr. 0.324 Rumah Tangga dan Akses Informasi Industri 0.293 0.275 Keberadaan Industri 0.215 Jalur Distribusi 0.241 Relasi Pedagang dan Struktur Pasar 0.162 Petani 0.16
Inconsistency : 0.08 Inconsistency : 0.05 Chart 13. AHP results of the Simalungun Regency Shallots Cluster
From the marketing side, for final demand, market access is important because there is a central agribusiness terminal in North Sumatera (STA), which is
38 the gathering place for all agricultural produce from various regions. From this STA, small traders will take commodities to sell in consumer markets. The role of middlemen who collect the agricultural produce from farmers to bring to STA is vital for smooth distribution.
For infrastructure and infrastructure facilities which are an important indicator in connectivity, the condition of roads from and towards the cluster in Haranggaol Horisan District is not that good. The condition of the roads which are narrow, steep, and undulating means that access to this location is difficult.
The problem of market reach is an important issue for shallot clusters in Simalungun Regency. This is due to the remote location of the market with poor road access. Market share is also an important issue in sustainability because of the fairly large need for market share in North Sumatera (judging by its consumption). This should motivate farmers to continue to produce.
For the replication indicator, cluster organisation is crucial in influencing the cluster replication process. Cluster organisation which is sound and supported by strong social capital in the shallot clusters is able to attract the attention of other farmers to join new farmer groups. Besides that, the ability of clusters to manage funds well from the existing capital is able to sustain cultivation in future planting periods.
From SWOT analysis, the strengths of the shallot internal clusters in the Regency of Simalungun are found to be: strong social capital, inputs, and the farming ability of cluster members. Enthusiastic backing from cluster members - which is supported by historical factors from Haranggaol Horisan District - provided good start-up capital for the development of clusters. The availability of inputs is very good and comes from outside the cluster, i.e. from the area of Aipopo. Presently, this cluster is developing the shallot seeds.
The weaknesses in the cluster, among others, include: (i) the lack of both an entrepreneurial culture and an adequate information system; and (ii) the lack of a decent warehouse to store and dry the shallots so that the shallots germinate faster and cannot be sold for consumption.
Table 10. SWOT results of the Shallots Cluster in Simalungun Regency STRENGTHS WEAKNESSES Availability of inputs Entrepreneurial culture Social capital Information System
39 Competency and expertise Production storage facilities OPPORTUNITIES THREATS Geographic factors Market access Economic factors Access to information Competitive factor Role of stakeholders
Geographic factors - especially good soil conditions and the availability of water sources - are external factors which support cluster development. With sufficient water sources, planting at this cluster can be done throughout the year (unimpeded by the dry season). Besides that, shallots produced by this cluster are more competitive compared to other crops produced in the same cluster or shallots produced in other clusters.
4.2.5. The Shallots Cluster in Majalengka Regency, West Java Province
BI’s Cluster Program is still small in scope as a pilot project. Activities undertaken by BI KPw Cirebon, among others, include capacity building and raising the incomes of farmers. The development of shallot clusters by BI has received the support of the government of Majalengka Regency. Currently, besides the development of shallot farming areas, the government of Majalengka Regency seeks to enter the structured market, developing shallot-derived products, and establishing a better planting pattern.
Farmers in Majalengka Regency are used to putting aside some of the shallots produced for use as seeds in the next planting season. Usually the amount saved is around 30% of the total harvest so that in the case that prices increase, farmers do not face difficulties in the procurement of seeds. Some shallot farmers in Majalengka Regency specialise as breeder farmers or seed providers whose entire production will be saved for use as seeds and sold in the next 3–4 months.
Table 11. Profile of the Majalengka Regency Shallots Cluster
Explanation Cluster Name of Cluster Majalengka Regency Shallots Cluster In Charge of Cluster Bank Indonesia Year Founded 2014 2014 (production already began 10 years ago, BI’s Year Cluster Started cluster just started in 2014) Location and Cluster Majalengka Regency (Kadipaten, Ligung, Dawuan, Address Cibunut, Cijurey) Association Chairman Mudassir
40 Explanation Cluster Majalengka Regency of Agriculture and Fisheries Office, Stakeholders Involved Majalengka Regency of Trade and Small Medium Enterprises (SMEs) Own production. There are businesspeople who have become shallot distributors from Probolinggo. These Source of Supply shallots are cleaned and weighed, and then sent to North Sumatera Planting Period Throughout the year Land Area Total: 30 hectares (from 3 people who manage the land) Low-lying land: 12–15 tons/ha Productivity High-lying land: 8–10 tons/ha Marketing (Local, Between Regencies- Local, between districts and provinces Provinces, etc.) Swadaya (self-help) and saprodi assistance from Source of Capital stakeholders Status/ Program End Program still running until now, Brigade program will Date be held Cultivation training, training in developing derivative Mentoring Activities products
Production at BI’s cluster in Majalengka Regency in 2014 reached 795 tons. This is equivalent to a contribution of 3% toward the shallots surplus in West Java of 26,516 tons. Besides that, Majalengka Regency has already managed to increase the surplus of shallots by 6,527 tons in 2014 so that Majalengka Regency boosted the production surplus of shallots by 3%.
The land managed as shallot clusters covers 30 hectares and comes from 3 groups. Activities of the BI cluster are able to increase the productivity of human resources, thus inspiring the local government of Majalengka Regency to develop shallot clusters. To support shallot cluster activities, cluster farmers have established cooperatives that are utilized to make savings and loans and provide seed facilities if farmers have trouble finding seeds. Nonetheless, for security purposes, cooperatives are still asking for loan guarantees.
AHP and SWOT Results
Based on the results of the hierarchy process analysis, the level of shallot cluster needs of Majalengka Regency in regard to the replication process, social capital, cluster organisation, and support of stakeholders are of a similar level. The management of the shallots cluster of Majalengka Regency is already good with the enthusiastic backing of farmers, but still needs to be upgraded for the cluster to have greater added value for its members.
41 For business continuity, access and market expansion needs to be developed. Post-harvesting handling is needed by the shallots cluster of Majalengka Regency in the high-lying lands because only certain vehicles can reach the cluster.
In regard to intermediate demand, wholesalers are urgently needed. Majalengka is the center for shallots after Brebes which is directly related to market access in regard to final demand. These two things are mutually sustainable. Market access should be further developed because if there is an obstacle to market access (for example Kramat Jati Market) arising from supply from Brebes, then it be difficult to market the shallots from Majalengka Regency.
Access to information in Majalengka Regency is very important, especially since signals in the high-lying lands are not very good thus causing cell phone connections in this area to be problematic. Besides prices, planting information is required in other areas, especially in Brebes. This is useful for stability, especially at the time when there is not a harvesting season in Brebes because planting can be undertaken in Majalengka Regency throughout the year on either low-lying land or high-lying land.
Production Replication
Skill 0.447 Modal Sosial 0.246 Teknologi 0.251 Organisasi Klaster 0.242 Bibit 0.102 Dukungan Stakeholder 0.221 Masa Tanam 0.101 Entrepreneurship 0.147 Luas Lahan 0.1 Akses Pembiayaan 0.147
Inconsistency : 0.15 Inconsistency : 0.06
Sustainability Intermediate Demand
Akses dan Perluasan… 0.412 Pedagang Besar/Pasar Induk 0.625 Penanganan Pasca… 0.235 Modal Sosial dan… 0.139 Pengepul/Pedagang 0.231 Akses Keuangan 0.126 Tengkulak/Juragan/Ta 0.144 Keberlangsungan Input 0.088 oke
Inconsistency : 0.03 Inconsistency : 0.04
42 Final Demand Connectivity
Akses Pasar 0.501 Akses Informasi 0.311 Relasi Pedagang dan Struktur Pasar 0.341 Petani 0.298 Rumah Tangga dan Jalur Distribusi Industri 0.094 0.205 Kualitas & Ketersediaan Keberadaan Industri 0.064 Infr. 0.186
Inconsistency : 0.09 Inconsistency : 0.05 Chart 14. AHP results of the Majalengka Regency Shallots Cluster
Based on the SWOT results, production factors, the availability of inputs, and other factors are the most important strengths of the cluster, while market access, cluster management, and financial aspects are still weak so that the criteria must be further improved. The main challenges which must be faced are access to information, purchasing, competitive factors, and socio-cultural issues. The opportunities in Majalengka Regency relate to geographical factors which are founded on two levels so that planting can be done throughout the year along with economic factors and the proximity to suppliers.
Table 12. SWOT Results of the Majalengka Regency Shallots Cluster STRENGTHS WEAKNESSES Production Cluster management Availability of inputs Market access Research and development Finance / accounting OPPORTUNITIES THREATS Demographic factors Access to information Economic factors Purchasing Geographic factors Competitive factors
4.2.6. The Shallots Cluster in Palangkaraya City, Central Kalimantan Province
The production of shallots from the cluster in Palangkaraya City is still low because the cluster is relatively new and the land used is still limited (in the form of demonstration plots). In fact, the production of shallots is currently limited to seeds. The produce from the shallot clusters will be resold to government offices. Further more, it will be sent to farmers who will plant shallots. The total production of shallots reached 30 tons per hectare per planting season and the production has not yet entered the markets in Palangkaraya City and Central Kalimantan. Thus far, Central Kalimantan has experienced a fairly large shallots production deficit. To meet
43 the consumer demand for shallots in Central Kalimantan, shallots are sent from Bima (NTB), Brebes (West Java), and Probolinggo (East Java).
Table 13. Palangkaraya City Shallots Cluster
Explanation Cluster Name of Cluster Palangkaraya Shallots Cluster In Charge of Cluster Bank Indonesia Year Founded 2013 Year Cluster Started 2013 Location and Cluster Palangkaraya City, Central Kalimantan Province Address Number of 25 Members/Farmers Name of GAPOKTAN/ - Association Central Kalimantan Province of Agriculture and Animal Office, Central Kalimantan Province of Stakeholders Involved Research Center for Agricultural Technology, Palangkaraya City of Agriculture Office Source of Supply Seeds: Brebes, Bima Planting Period Throughout the year Land Area 4–5 hectares Productivity 30 tons/ planting season Marketing (Local, Between Local Regencies-Provinces, etc.) Swadaya (self-help) and saprodi assistance from Source of Capital stakeholders Physical aid is minimized, technical and Status/ Program End Date nonmaterial assistance is ongoing Cultivation training, postharvest processing Mentoring Activities training, seed purification, farming analysis training
The shallots production from the BI cluster in Palangkaraya City reaches around 30 tons. This amounts to a 0.42% contribution to cover the shallots production deficit in Central Kalimantan of 7,187 tons per year. Shallots production in Palangkaraya rose significantly in 2014 (123%) from 11.06 tons in the previous year. Although up significantly, Central Kalimantan still cannot keep up with the increased demand for shallots which rose 11.1% in 2014. As such, the presence of existing clusters is not yet able to cover the shallots production deficit.
There are several problems/challenges in trying to develop shallots in Central Kalimantan, including:
44 1. There are still a limited number of farmers who develop shallots in Central Kalimantan.
2. There are still a limited number of farmers in Central Kalimantan who have a good understanding of the technical skills of shallots cultivation.
3. Land in Central Kalimantan is marginal, sandy, and peaty so the input costs are high.
4. Concerns regarding the legality of the farmers’ land ownership.
5. Lack of good quality seeds ahead of the planting season.
6. Limited number of instructors, plant seed supervisors (PBT), and officers controlling organisms disturbing plants (POPT) who understand shallot cultivation technical skills.
7. Unoptimized institutional function at the farmers’ level.
8. There is not yet an independent agency or volunteering party which wants to assist the shallot development program.
AHP and SWOT Results
The results of the hierarchical process analysis (Chart 15) are in line with the results of the in-depth interviews conducted with each party. In the production process, the clusters in Palangkaraya City are in great need of expertise and skills in shallot cultivation from planting until harvesting. Two years since introducing shallots to farmers is still not deemed enough time for farmers to master shallot cultivation so that problems have not been able to be handled quickly in the event of pest and disease attacks. Land cultivation technology such as soil propagation still uses hoes so the results are not optimal. Besides that, the lack of irrigation channels has forced farmers to use drilled wells and pumps which raises costs.
In regard to intermediate demand, farmers prefer to directly sell their produce to traders/middlemen than to wholesalers. This is because farmers do not have access to wholesalers. Meanwhile, if sold to wholesalers, the prices of shallots would be manipulated or determined solely by the wholesalers.
Market access is crucial for farmers in order to meet final demand because the shallots produced have not yet penetrated the existing markets in Palangkaraya City, but they are instead rechanneled to the government departments. In regard to connectivity, it can be seen that access to information such as price information,
45 information on planting patterns, and other information is highly needed by the clusters in Palangkaraya City.
Production Replication
Skill 0.371 Dukungan Stakeholder 0.291 Teknologi 0.354 Modal Sosial 0,250 Bibit 0.124 Entrepreneurship 0.169 Masa Tanam 0.111 Akses Pembiayaan 0.152 Luas Lahan 0.039 Organisasi Klaster 0.138
Inconsistency : 0.12 Inconsistency : 0.34
Sustainability Intermediate Demand
Penanganan Pasca… 0.435 Pengepul/Pedagang 0.506 Modal Sosial dan… 0.192 Pedagang Besar/Pasar Akses dan Perluasan… 0.178 Induk 0.384 Akses Keuangan 0.101 Tengkulak/Juragan/Ta 0,110 Keberlangsungan Input 0.095 oke
Inconsistency : 0.05 Inconsistency : 0.004
Final Demand Connectivity
Akses Pasar 0,350 Akses Informasi 0.365 Rumah Tangga dan Relasi Pedagang dan Industri 0,280 Petani 0.278 Kualitas & Ketersediaan Struktur Pasar 0,230 Infr. 0.214 Keberadaan Industri 0,140 Jalur Distribusi 0.142
Inconsistency : 0.10 Inconsistency : 0.09 Chart 15. AHP Results of the Palangkaraya City Shallots Cluster
Based on the SWOT analysis results shown in Table 14, it can be seen that there are still many weaknesses which must be rectified in the development of the shallots cluster in Palangkaraya City, such as cluster management, social capital, and production/cultivation. This is because shallot cultivation is a new phenomenon in the world of farming in Central Kalimantan so it must be supported in all respects in order to foster the production of shallots.
The challenges or main threats faced are market access because shallots production in Central Kalimantan is not well known yet. Other challenges are a lack of access to information as well as socio-demographic-geographic factors that are not
46 yet supportive. The role played by the various stakeholders in Central Kalimantan is expected to be able to overcome the existing challenges.
Table 14. SWOT Results of the Palangkaraya City Shallots Cluster STRENGTHS WEAKNESSES Availability of inputs Cluster management Research and development Social capital Competency and expertise Production/cultivation OPPORTUNITIES THREATS Role of stakeholders Market access Economic factors Access to information Competitive factors Demographic factors
4.3. Trading of Chillies and Shallots
CHILLIES
Tanah Datar Regency Chillies Cluster
Generally, farmers in Tanah Datar Regency sell their produce to middlemen because their relationship goes back a long time. The produce from the harvest is taken directly by middlemen on site. For BI cluster farmers, middlemen will receive all of the harvested produce even though the middlemen’s stock is already substantial. Middlemen will sell chillies with a profit margin of Rp4,000.00– Rp5,000.00/kg. Middlemen do not store or stock chillies from farmers: all chillies which are obtained are directly divided in accordance with orders from Riau and the remainder are sold in the local market.
The middlemen are located at Padang Luar Market, where there are eight middlemen. The amount of produce sent ranges from between 2–5 tons per day. Each day there are as many as 40–50 farmers selling chillies to middlemen, but during quiet periods the number is only around 25 farmers per day. For each 50 kg of chillies which are accepted, some 1–2 kg is lost due to physical factors (damaged/bad chillies). The price of chillies that is received from farmers is generally good until the 8th harvest, but after that middlemen will pay lower prices because the quality of chillies after the 8th harvest is lower.
Jember Regency Chillies Cluster
The marketing of chillies in Jember Regency does not experience problems because cluster production will be absorbed by PT Heinz ABC based on contracts
47 which have already been agreed to. Each year Mitra Lestari Cooperative as the cluster manager supplied as many as 1,500 tons of chillies.
Minahasa Regency Cayenne Chillies Cluster
The trade of cayenne chillies in the Manado city market, which is the center for the consumption of cayenne chillies in North Sulawesi, is dominated by one large trader. In fact, the middlemen who deal directly with the farmers are also considered to be the hands and feet of that large trader. This large trader controls the supply from other regions that goes to Manado, especially from Gorontalo. By controlling the market from farmers to end consumers as well as controlling inter-regional trade, this large trader possesses monopolistic power in the trade of chillies in Manado. In turn, this has implications on the ability for prices to be set by adjusting supply.
Because chillies are perishable by nature, the power of the big trader depends on the extent of the competition between market players. For that, the government and BI needs to encourage improvements in the trade of cayenne chillies at the farmers’ level, for instance by establishing farmer and cooperative shops.
Chilli Marketing /Sales Channel:
1. Marketing channel in the Tanah Datar Chillies Cluster
Farmer Middlemen Riau/Retailer
2. Marketing channel in the Jember Regency Chillies Cluster
Farmer partnerships Cooperatives Industry (PT Heinz ABC)
3. Marketing channel in the Minahasa Regency Chillies Cluster
Farmer Middlemen /Large Trader Retailer Consumer
SHALLOTS
Simalungun Regency Shallots Cluster
The Simalungun Regency is widely known for its agricultural produce, especially horticultural products because of its location on high-lying land. One of the leading commodities produced is shallots, some of which are produced by famers under KPw Bank Indonesia Pematangsiantar in Haranggaol Horisan District.
The shallots which are produced every harvest are collected by local middlemen to be brought to STA (sub-terminal agribusiness) Saribu Dolok which is open on market day (Wednesday). On market day, many traders and middlemen come from various areas to sell or buy agricultural products, including shallots from
48 Haranggaol Horisan District. Meanwhile, in Pematangsiantar, STA (or the similarly named STA Parluasan) opens on market day, i.e. Monday and Thursday. The middlemen bring shallots from areas in North Sumatera and from Java. The retailers are not only from Pematangsiantar, but also from Medan and other various areas in North Sumatera. The vital role of middlemen who gather commodities from farmers and sell them in STA will be better and more organized if embedded in a cooperative so as to improve the exchange rate of farmers in STA.
Majalengka Regency Shallots Cluster
The Majalengka Regency shallots cluster sells its harvested produce to middlemen who are also part of the cluster. The shallots are then brought to large traders in the same regency. These large traders will distribute chillies to central markets, modern markets, or exporters in the following manner:
1. PD Medal Rahayu
a. Caringin Central Market with demand for10 tons/day
b. Supermarket with demand for 7 tons/week
2. MJ Sukasari Kaler
PT Alamanda Sejati (sold to Singapore) with demand for 2 tons/week
Palangkaraya Shallots Cluster
The shallots in Palangkaraya City come from Bima, NTB, and Brebes. These shallots are transported through the port in South Kalimantan (Trisakti) and then sent to Palangkaraya over land directly to the large market in Palangkaraya. Palangkaraya’s main market has three large middlemen who distribute shallots to small traders who then sell them to consumers. The middlemen have connections with shallot shippers, some of whom are their own families.
Some traders who do not have relations with middlemen will bring their own shallots by using trucks and sell directly with lower prices. The shallots sold comprise a mixture of shallots of various varieties and include unsorted shallots as well. In the Palangkaraya City market, there are still no locally produced shallots from Palangkaraya City itself because cluster farmers still sell shallots to the Department of Agriculture as seeds.
Shallots Marketing / Sales Channel:
1. Marketing channel in Simalungun Regency
49 Farmer STA Simalungun Retailer Consumer
2. Marketing channel in Majalengka Regency; the alternatives are as follows:
a. Farmer Consumer
b. Farmer Wholesaler Retailer Consumer
c. Farmer Small Wholesaler Wholesaler Retailer Consumer
d. Farmer Middleman Regency Wholesaler Provincial/Inter-provincial Wholesalers Main Market Consumer
e. Farmer Middleman Supermarkets in Bandung
3. Marketing channel in Palangkaraya
a. Farmer Palangkaraya Agriculture Office
b. Farmer Bima, Brebes Small Wholesaler Wholesaler Middleman Palangkaraya Retailer Consumer
4.4. Estimates of Cluster Supply to Control Prices
Decomposition of the Pattern of Production
Data estimates for the production of cayenne chillies, large chillies, total chillies, and shallots based on the method of decomposition are shown in Charts 16, 17, and 18. Cluster needs to boost production when there is seasonal weakness or when production is below trend.
Cayenne Chillies 160,000 150,000 140,000
130,000 Ton 120,000 110,000
100,000
Jul-16
Oct-16
Apr-16
Feb-16
Sep-16
Nov-16
Jan-16 Dec-16
Aug-16
Mar-16 Jun-16 May-16 Chart 16. The Role of the Cayenne Chillies Cluster to Affect Supply
In 2016, the cluster had to bolster the production of cayenne chillies by as much as 70,816 tons spread in the periods January–April and September–December.
50 The greatest demand is in December, January, and February when around 15,000 tons is needed in each month (estimated production is below the trend line).
Table 15. Cayenne Chillies Demand in 2016 Additional Production Month (Tons) Jan 14,789 Feb 14,907 Mar 9,958 Apr 2,473 Sep 1,788 Oct 5,844 Nov 6,005 Dec 15,052 Total 70,816
Large Chillies 210,000 200,000 190,000 180,000 Ton 170,000 160,000 150,000
Chart 17. The Role of the Large Chillies Cluster to Influence Supply
Chart 17 shows that the cluster must boost the production of large chillies by as much as 96,816 tons in 2016 spread across the months of January, August, and October–December. The greatest demand for chillies is in November–December when demand reaches more than 25,000 tons.
Table 16. Large Chillies Demand in 2016 Additional Production Month (Tons) Jan 8,676 Aug 9,540 Sep 7,759 Oct 17,981 Nov 25,543 Dec 26,726 Total 96,225
51 Table 16 shows the estimated demand for chillies on an aggregate basis which is the sum of the estimated demand for cayenne chillies and large chillies in 2016. In total, the demand for chillies reached as much as 167,041 tons, i.e. 70,816 tons for cayenne chillies and 96,225 tons for large chillies. The largest estimated demand is in the months of January (23,465 tons), November (31,548 tons), and December (41,778 tons).
Table 17. Chillies Demand in 2016 Cayenne Large Total Month Chillies Chillies Chillies Jan 8,676 14,789 23,465 Feb - 14,907 14,907 Mar - 9,958 9,958 Apr - 2,473 2,473 Aug 9,540 - 9,540 Sep 7,759 1,788 9,547 Oct 17,981 5,844 23,825 Nov 25,543 6,005 31,548 Dec 26,726 15,052 41,778 Total 96,225 70,816 167,041
Shallots 310,000 290,000 270,000 250,000 230,000 Ton 210,000 190,000 170,000
150,000
Jul-16
Oct-16
Apr-16
Feb-16
Sep-16
Nov-16
Dec-16 Jan-16
Aug-16
Mar-16 Jun-16 May-16 Chart 18. The Role of the Shallots Cluster in Affecting Supply
For shallots, the cluster must boost the production of shallots in 2016 by as much as 350,623 tons spread across the periods of February–May and September– December. The largest demand for shallots comes in the months February–March and November–December.
52 Table 18. Shallots Demand in 2016 Additional Production Month (Tons) Feb 40,047 Mar 51,240 Apr 24,597 May 22,603 Sep 4,029 Oct 110 Nov 61,622 Dec 36,704 Total 350,842
4.5. Cluster Area Effectiveness
The results of the survey show that clusters have already provided a contribution toward the supply of chillies and shallots at the provincial and regional levels. Nonetheless, because cluster production is still minimal, the effectiveness of clusters to support the supply of chillies and shallots is still low. This is shown in Table 18, i.e. the effectiveness of the clusters is still below 3%.
Table 19. Cluster Effectiveness Improveme Provinc Province Product nt Surplus Cluster e Surplus Consum ion Regency/ Effectiven Product /Deficit Survey Commodi ption Cluster City ess ion Area ty Cluster (D/C) x A B C = A-B D E 100 Tanah Datar Curly 66,797 45,180 21,617 20 436 0.09 Chillies chillies Cluster Jember Red Chillies 238,820 131,634 107,186 1,795 34,022 1.67 chillies Cluster Minahasa Chillies Cayenne 8,486 10,974 (2,488) 15 319 0.60 Cluster chillies Majalengka Regency Shallots 130,082 103,566 26,516 795 6,527 3.00 Shallots Cluster Palangkaray a City Shallots 125 7,312 (7,187) 30 -39 0.42 Shallots Cluster
53 In general, the clusters developed by Bank Indonesia were able to boost capacity and production in each of the clusters. The increase in production can reach 1.5 times the normal production. Based on the table above, four clusters have a positive effectiveness value. This means that the four clusters provide a contribution toward the surplus and reduce the deficit, namely: (i) the Tanah Datar Chillies Cluster, (ii) the Jember Chillies Cluster, (iii) the Minahasa Chillies Cluster, and (iv) the Majalengka Shallots Cluster. Meanwhile, two other clusters are still negative, i.e. the Simalungun Shallots Cluster and the Palangkaraya Shallots Cluster. The reason for the negative values for these clusters is the lower production of shallots in Simalungun Regency and the large increase in consumption in Palangkaraya City.
54 V. CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
There are several varieties of chillies with each variety having its own pattern of production and consumption characteristics. Each year the surplus of large chillies reaches 40%–50% and for cayenne chillies 60%–80% at the national level. Nonetheless, the surplus did not automatically translate into a decline in prices because the establishment of national average chilli prices is also driven by the fundamentals of current production and consumption which is weekly and even daily in nature.
Demand for chillies has strong seasonal characteristics in the sense that in certain months (such as during holiday periods), consumption can increase by 10%– 20% if compared to normal consumption. The pattern of national production also has strong seasonal characteristics and a long cycle (nearly one year), but production declines during the rainy season, i.e. in the period November–February. Differences in seasonal factors in demand and production lead to increased price instability. Price fluctuations are also influenced by the production center distribution which is unlike the consumption center distribution, i.e. large cities. Meanwhile, the perishable nature of red chillies and consumption preferences for fresh chillies means that it is difficult for the surplus at the national level to be used for price stability in central consumption areas.
The national production of shallots has strong seasonal characteristics, (falling in the periods February–March and November–December; increasing in January and May/July), but with a shorter cycle (5 and 7 months). Meanwhile, from the demand side, shallots do not have large seasonal spikes in comparison to red chillies. Nationally, shallots have an average surplus which exceeds 40% each year.
The role of the prevailing supply-demand is less fundamental in the formation of national prices of shallots because shallots can last relatively longer (4–6 months) and can be stored. As such, the formation of shallot prices is not determined so much by current production, but influenced by trade and the market structure. The national production of shallots depends on the national shallot centers, i.e. Java and NTB. This is very important to increase and sustain the production of shallots in the production center.
55 From the AHP results, several factors can be identified which determine the success of the cluster in affecting the supply, namely: (1) production supported by good skills and the mastery of technology in processing or cultivation; (2) good replication which is done through the organisation cluster (for example cooperatives) and strong social capital in the cluster or group (values of mutual cooperation, sense of belonging, and common ownership); (3) sustainability by facilitating access and market expansion to absorb the production, social capital, and networking belonging to the cluster; (4) intermediate demand by working with local middlemen; (5) final demand can be managed through cooperation with industry based on contracts to guarantee prices and market certainty; and (6) connectivity through the provision of price-related information, access to capital, along with quality and the availability of infrastructure (roads, electricity, and irrigation channels).
Table 20. AHP Summary
Intermediate Final Production Replication Sustainability Connectivity Demand Demand
Skills Cluster Access and Wholesaler/ Market Access to Technology Organisation Market Main Market Access Information Social Expansion Middleman/ Industry Quality and Capital Social Trader Presence Availability of Capital and Infrastructure Networking
The results of the SWOT analysis show that in general cluster power comes from strong social capital, cluster management which is open to information and new ideas, along with the adequate availability of inputs. Meanwhile, cluster weakness lies in the institutional aspects which are still lacking so that the bargaining position is low. As a result, the cluster operates based on prevailing norms without adequate management. This is closely related to clusters which do not yet have entrepreneurial spirit and have the same vision as the cluster manager.
Supportive geographical conditions are an opportunity so that the cultivation of crops can be undertaken throughout the year. On the other hand, difficulties in accessing markets is a threat to cluster survival because the produce is usually sold to middlemen so that they are able to determine the prices.
5.2. Recommendations
Increased Supply and Price Stability of Chillies and Shallots
To increase the supply of red chillies, intensification and extensification needs to be undertaken through a regional agricultural development program. Therefore,
56 the updating of the data of farmer groups and combined farmer groups by region needs to be done. Besides that, to improve quality, it is deemed necessary to develop virus-resistant seeds, especially during the rainy season along with a national red chilli storage facility.
In an effort to support price stability, the following needs to be done:
1. Align the planting pattern throughout the year to guarantee the availability of supply, especially during the dry season.
2. Improve the trading and distribution channels so they are more efficient and effective.
3. Diversify consumption into dried chilli condiments and processed chillies.
4. Encourage cooperation between production center provinces and consumption center provinces - which is ultimately aimed at aligning supply and demand to achieve price stability.
5. Provide data on national household commodity needs per month, especially the crucial holiday months in order to arrive at estimates of the increased demand at that time.
Similarly, intensification and extensification is needed through the regional agricultural development program in order to increase the supply of shallots. The development of seeds resistant to pests and free of disease is also important. Besides that, to anticipate climate change uncertainties in shallot production centers, water supply facilities and infrastructure can be established on rainfed land in the months September–October or greenhouse technology can be developed for rainfed land in the planting season in the month of January for the needs of March. Stock continuity can also be maintained by creating and providing shallot storage technology to store the produce from harvests (in July–August) for up to six months so that the demand during the months of November–March can be fulfilled.
The recommendations to ensure the stability of shallot prices include:
1. improving the trading and distribution channels so they are more efficient and effective;
2. encouraging cooperation between production center provinces and consumption center provinces - which is ultimately aimed at aligning supply and demand to achieve price stability; and
57 3. obtaining supply from other areas in a controlled manner and in accordance with the demand.
General Recommendations to Strengthen Clusters
In strengthening the role of clusters in general, efforts can be made in several regards such as:
1. developing and enhancing cultivation skills along with utilizing technology through mentoring and demonstration plots;
2. improving the status/strengthening of cluster institutions so that clusters have greater bargaining power;
3. strengthening the social capital of clusters so that clusters have the same value, vision, and goals so that they can be understood and implemented by all members;
4. requiring market access and networking so that clusters can create or enter new markets so that production can be absorbed by the market, even partnering industry in the future;
5. improving major infrastructure such as road access, irrigation, and the availability of information which is facilitated by stakeholders including Bank Indonesia, Agriculture Office, Public Works Office, and Industry and Trade Office; and
6. giving saprodi assistance when there are extreme climate conditions which need special handling so that the sustainability of the farmers’ businesses can be guaranteed.
58 LIST OF REFERENCES
Boja, Catlin. 2011. Cluster Models, Factors, and Characteristics. International Journal of Economic Practices and Theories, Vol 1, No.1. FMC working paper in the book named Conference Theme Paper – Changing Paradigms of Cluster Development. Kuah, Adrian TH. 2002. Cluster Theory and the Small Business. Journal of Research in Marketing and Entrepreneurship: Volume Four, Issue 3. UK. Ketels, Christian HM and Olga Memedovic. 2008. From Clusters to Cluster-Based Economic Development. International Journal Technological Learning, Innovation and Development, Vol 1, No.3. Tambunan, Tulus. 2006. Development of Small and Medium Scale Industry Clusters in Indonesia. Kadin Indonesia-Jetro. PRES. 2013. The Mapping and Deepening of Main Regional Commodity Clusters and the Contribution of Commodities toward Inflation. Saptana, Nur Khoiriyah Agustin and Ahmad Makky Ar-Rozi. Production Performance and Red Chilli Prices.
59 Appendix 1
Cluster Commodity Characteristics Production Demand Vs. Production Supply: Prod - EX + IM Consumer price Jember Large Red Center Surplus Surplus Surplus Rp 10.000,- Regency Chillies Exports to Jakarta and Declines during Large industry elsewhere harvesting
Tanah Datar Red Chillies Center Balanced Deficit Balanced Rp 25.000,- Regency Buying/supplying Java Commonly cultivated Production Padang chillies Increases if there are chillies from Bengkulu and Vs. Consumption Java production problems Lampung 90% sold to Riau Minahasa Non-Center Balanced Balanced Surplus Rising prices Regency Normal price Red cayenne Commonly cultivated but not in Rp25,000.00. chillies Large deficit during Buying/supplying from the form of systematic and large- Month of December: Christmas in December Gorontalo and Surabaya scale farming Rp100,000.00 up to Rp150,000.00 Not stable throughout the year especially months of the dry season Majalengka Shallots Center Large Suplus Stable/declining prices Regency Commonly cultivated Rp11,000.00 up to Sold to Bandung Rp16,000.00 Palangkaraya Shallots Non-Center Very small Large deficit Balanced Stable prices City Buying/supplying from Rp20,000.00 up to No shallots farming before Brebes and Bima Rp30,000.00 Simalungun Shallots Non-Center Small Deficit Balanced Stable prices Regency Ten years stopped cultivating Buying/selling from Rp23,000.00 up to shallots Brebes Rp28,000.00 Declines during large harvests coupled with
abundant supply from Java.
60 Appendix 2. Description of the Regions
1. Tanah Datar Regency
Sepuluh Koto District is a red chillies farming center covering an area of 1,027 hectares and with production of 6,054 tons (2013), or equal to 55% of the red chillies production in Tanah Datar Regency. There has been an increase in production of 4% or 397 tons compared to the previous year. The contribution of Tanah Datar Regency toward West Sumatera’s total production is 17%. Farmers in this region have been farming chillies for generations meaning they are highly proficient.
Table 21. Production and Consumption7 in Tanah Datar Regency and West Sumatera Province 2012–2014 (tons) Production Consumption Year West Tanah West Tanah Sumatera Datar Sumatera Datar 2012 65,104 7,842 44,286 2,758 2013 68,101 11,001 43,669 2,668 2014 66,797 11,398 45,181 2,629
2. Jember Regency
Jember Regency is one of the farming centers for chillies in East Java which accounts for 13% of the total production in the whole of East Java. East Java alone accounts for 18% of the national production of chillies. In 2013 there was a 4% decline in the production of chillies in East Java and a decline of up to 50% in Jember which owed to extreme weather conditions causing crop failure. In 2014 production rose again leading to a surplus of 37,000 tons.
The chillies cluster in Jember is managed by the Hortikultura Lestari Cooperative which was founded in 2011. Before being formed as a cooperative, the Lestari Cooperative was still in the form of a business group which was a sub- supplier to PT Heinz ABC up to 2011. To be able to directly supply PT Heinz ABC, this group must be an official institution.
7 Consumption here is household consumption or not including the needs of industry and seeds. Consumption needs excluding households are estimated to reach 20 percent of household needs such that the estimated total needs are 1.25 x household consumption.
61 Table 22. Production and Consumption in Jember Regency and East Java Province 2012–2014 (tons) Production Consumption Year East Java Jember East Java Jember 2012 343,710 25,821 137,649 7,649 2013 329,177 10,553 119,033 6,757 2014 349,842 45,744 131,635 7,946
3. Minahasa Regency
Minahasa Regency has become a production center for cayenne chillies in North Sulawesi Province with a contribution reaching 25% of total production. The Minahasa Regency experienced a production surplus of chillies reaching nearly 673 tons, making this a strategic regency in regard to fulfilling the demand for cayenne chillies in North Sulawesi. The production of chillies in Minahasa Regency in 2014 increased by 130 tons or around 9.5% from the previous year. This indicates that establishing Minahasa Regency as the Chillies Regency has been a success even though production is not yet optimal. The choice of Minahasa Regency as the location for Bank Indonesia’s cluster is highly appropriate if the intention is to bolster production. The planting of cayenne chillies is commonly done by the people of Minahasa Regency at the household level, although the farming of chillies is only done by some people.
Table 23. Production and Consumption in Minahasa Regency and North Sulawesi Province 2012–2014 (Tons) Production Consumption Year North North Minahasa Minahasa Manado Sulawesi Sulawesi 2012 1,455 9,656 1,479.43 1,912.49 9,031.56 2013 1,710 8,461 1,355.66 1,320.74 8,063.10 2014 2,156 8,486 1,482.91 1,400.50 8,779.12 Source: National socio-economic survey (Susenas), BPS, and Minahasa Regency of Agriculture Office
4. Simalungun Regency
Since 2011, the consumption of shallots in North Sumatera has tended to increase although consumption did decline in 2013. The production of shallots in North Sumatera reached 14,156 tons in 2012, albeit still insufficient to meet the demand in North Sumatera. There are several shallot producing centers in North Sumatera, such as the areas of Batubara, Aipopo, Simalungun Regency, and Toba- Samosir. Simalungun Regency is one of the largest shallot producers in North
62 Sumatera although production has declined since 2011. The largest decline occurred in 2013 when the production of shallots fell by nearly 40%.
Table 24. Consumption and Production of Shallots in North Sumatera
Consumption Production Year Pematang North North Simalungun Simalungun Siantar Sumatera Sumatera 2011 2,802 795 41,273 5,915 12,449 2012 2,818 684 42,088 5,750 14,156 2013 2,762 669 38,056 1,868 8,305 2014 2,952 648 41,383 1,602 7,810
5. Majalengka Regency
The geographical conditions of the land in Majalengka Regency are of two types, namely low-lying land and high-lying land. These conditions mean that the cultivation of shallots can take place throughout the year in Majalengka Regency. The planting of shallots on high-lying land is more costly than planting on low-lying land, starting from the input costs and upkeep until post-harvesting. Meanwhile, in terms of the productivity, yields on low-lying land are 12–15 tons/hectare and 8–10 tons/hectare on high-lying land.
Most of the shallots produced in Majalengka Regency were taken out of the area to supply markets in West Java, Jakarta, and other areas. Based on Table 24, the production of shallots in Majalengka Regency showed a decline in 2013 compared to 2012, but then rose again in 2015. Shallot prices were extremely volatile in 2013 and this was a factor in the decline in the consumption of shallots.
Table 25. Production and Consumption in Majalengka Regency and West Java Province 2012–2014 Production (Tons) Consumption Year West Java Majalengka West Java 2012 115,896 1,805 102,743 2013 115,585 1,467 76,875 2014 130,082 1,547 90,057 Source: Susenas, BPS, and the Agricultural Data Center of the Ministry of Agriculture
6. Palangkaraya City
Central Kalimantan has a population of 2,384,700 and covers an area of 153,564 km2, some of which (30%) falls into the category of sandy marginal land and peatlands. Initially, it was not possible to plant the peatlands with shallots. However, since 2012, Bank Indonesia KPw of Central Kalimantan Province and the Research
63 Center for Agricultural Technology (BPTP) undertook trial plantings of shallots which proved to be successful. In 2013, this was followed up with development efforts during the dry season. The yields reached 27.3 tons/hectare gross weight on quartz sand land and 12.8 tons/hectare on peatlands.
The development of shallot farming was done with reference to the roadmap which had been made by mutual agreement with Bank Indonesia, the Research Center for Agricultural Technology (BPTP), and related government departments in 2016–2020. The development of shallot farming was directed toward efforts to produce shallots which can be directly absorbed by local or national markets for consumption needs. In the future, it is expected that the development of shallots in Central Kalimantan can help to suppress the pace of inflation whilst also fulfilling demand for seeds in the surrounding area.
Table 26. Production and Consumption in Palangkaraya City and Central Kalimantan Province 2012–2014 (tons) Production Consumption Year Central Kalimantan Palangkaraya Central Kalimantan 2012 1.00 637.27 6,455.40 2013 56.00 476.66 5,632.84 2014 125.00 529.40 6,357.66 Source: Susenas, BPS, and the Agricultural Data Center of the Ministry of Agriculture
64 Appendix 3. Conclusions and Recommendations by Cluster Region
Conclusions
Tanah Datar Regency Chilli Cluster
The following are some conclusions concerning the conditions of the Tanah Datar Regency chilli cluster.
1. With assistance from BI there was a change in the cluster, i.e. cultivation of the land improved because the use of chemical fertilisers was limited and also because of improvements in cultivation techniques.
2. Increased production with assistance from BI is not yet evident because there have not yet been any harvests from the field school land. The new productivity can only be seen after 1 planting and harvesting period. If chilli productivity increases significantly it is hoped that farmers in the surrounding area will also change their cultivation approach.
3. From the interviews, local governments tend to provide assistance to groups which already cooperate with Agriculture Office. These farmer groups obtained assistance from Agriculture Office for their achievements, i.e. the number one best farmer in the Tanah Datar Regency and the third best in West Sumatera.
4. It was difficult for Agriculture Office to provide assistance in the form of permanent facilities such as water reservoirs since the group’s land is leased.
5. The techniques to farm organically which were introduced to SL are considered to be fairly onerous for group members given that more time is needed to manage the land.
6. The seeds which are used are local seeds which have existed for generations. New seeds have been tried, but they could not be harvested because by the time the harvesting should have taken place, the plants failed to flower - meaning no chillies were produced.
7. Based on the AHP results, skills and technology are the most important factors to boost the productivity in the Tanah Datar Regency chilli cluster, besides strong social capital, which is the main factor in undertaking cluster replication. Besides that, for connectivity, the most important factor is access to information.
65 8. The SWOT results conclude that for the Tanah Datar Regency chilli cluster, social capital and the availability of inputs are the most dominant cluster strengths, while the cluster’s weakness lies in access toward supporting services. On the other hand, this cluster has opportunities coming from geographical factors, while the threats to the farmers’ cluster still come from the demographics factor and access to information.
Jember Regency Chilli Cluster
The following are some conclusions concerning the conditions of the Jember Regency chilli cluster.
1. The farming method in Jember Regency is already well structured. This can be seen in the fact that the owners of the land/capital act as managers and hand over all the technical matters of the work to labourers who are paid daily. Good leadership and management are needed to manage systems like this.
2. BI’s assistance has already helped to raise yields, i.e. from 0.8 kg per stem to 1.5–2 kg per stem. The impact was also felt by non-cluster farmers whose land is adjacent to the land of cluster farmers.
3. In 2013 there was a wet drought, i.e. rainfall throughout the year, culminating in a 50% decline in chilli production in Jember Regency.
4. Clusters can affect prices through market operations by selling chillies below the market price, i.e. Rp10,000.00 from the normal price of Rp28,000.00 to Rp30,000.00.
5. The amount of initial capital in chilli farming requires considerable capital. As such, financial access with low interest rates is certainly needed.
6. Noting that production from the Jember Regency cluster is 13% of East Java’s total production, a drastic change in the supply can significantly affect the production of chillies in East Java, even in other areas.
7. Each year the Lestari Cooperative enters into a contract to supply PT Heinz ABC with 1,500 tons of chillies spread over 12 months. Each month the Lestari Cooperative must be able to meet its obligation in accordance with the agreed amount.
8. The contract prices between Lestari Cooperative and PT Heinz ABC are always above the production prices.
66 9. Due to the lack of commitment from some group members, the cooperative in 2015 was unable to continue supplying chillies to PT Indofood. The cooperative members who are partners decided to sell their produce in markets where prices were higher.
10. A pool of cooperatives is needed to obtain cooperative access with companies. The cooperative organisations formed are not pure because those who partner with the cooperative are not required to become a member.
11. From the analysis using AHP, the strength of cluster organization in Jember Regency is the main replication factor because of the long standing cooperation with industry. Unlike the other clusters, the most important source of final demand in this cluster is from industry since the entire production is sold to industry.
12. SWOT analysis concludes that the availability of inputs is the most dominant cluster strength, while the cluster’s weakness lies in production. Meanwhile, the demographic factor (labour) is the most apparent opportunity for cluster development. Geographic factors and competition to use land along with market access remain as the main threats facing farmer clusters.
Minahasa Regency Cayenne Chilli Cluster
The following are some conclusions concerning the conditions of BI’s cluster in Minahasa Regency.
1. The farmer types in Minahasa Regency comprise of Farmer Merpati (PSPB), Farmer Pedati, and Farmer Sejati.
2. Minahasa Regency has become a center for cayenne chilli production in North Sulawesi and was designated as the Regency Rica in 2014, which successfully boosted the production of cayenne chillies, although it is still not yet optimal.
3. The ability of the BI cluster to encourage farmers to cultivate chillies was mainly due to BI’s swadaya (self-help) incentives in making demonstration plots.
4. The replication incentive in the form of chilli cultivation profits is still lacking. This is because there were too many farmers involved in a single demonstration plot (one hectare) so that the produce/farmer was very small.
5. Having 10 farmers per hectare per demonstration plot is very inefficient and serves to encourage free riders. This is due to the target of farmer groups which generally number 10 farmers.
67 6. The indication that farmer groups were not located in a particular area created difficulties in coordinating the development of clusters / demonstration plots.
7. There were indications that Farmer PSPB and/or Farmer Merpati were present in the BI cluster and other agricultural programs.
8. From the AHP search results, besides skills, technology is the most important consideration in the development of this cluster’s productivity, especially hand tractors and water pumps/ retention basins. In the replication process, social capital is the most vital consideration in this cluster.
9. After conducting SWOT analysis, it is found that social capital and the availability of inputs are the most dominant cluster strengths, while the main cluster weakness lies in production. Meanwhile, the proximity to suppliers is the clearest opportunity for cluster development. On the other hand, infrastructure and lack of market access remain as threats to farmer clusters.
Simalungun Regency Shallots Cluster
The following are some conclusions concerning the conditions of the Simalungun Regency shallots cluster.
1. Social capital and institutional factors in Bank Indonesia’s cluster in Simalungun Regency are very good for the initial capital in the formation of the cluster.
2. The farmers are very proficient in cultivation because they already have knowledge of the cultivation of shallots.
3. Geographical conditions support cluster development (water and soil conditions).
4. The selling price of the shallots produced is volatile depending upon the supply conditions in the North Sumatera market which are affected by supply from Java and Bima.
5. The shallots produced in Simalungun Regency are very competitive because they have a different taste compared to the shallots produced in Java.
6. The role of stakeholders and coordination between-stakeholders is still lacking in Simalungun Regency in regard to increasing the production of shallots.
7. Technology and skills are the most important consideration for ensuring the smooth production process in the shallots cluster in Simalungun Regency
68 based on AHP analysis. The technology needed is primarily medicine to prevent plant viruses. To support sustainability, from the marketing side, market access has become important because in North Sumatera there is an agribusiness terminal center which is the gathering place for all agricultural products from various regions.
8. The SWOT analysis results of this cluster show that social capital is a key strength. The weaknesses lie in postharvest handling problems and the cluster information system.
Majalengka Regency Shallots Cluster
1. The Majalengka Regency cluster is a replication of BI’s cluster in Brebes whose productivity started to decline with the soil starting to get over-farmed. Majalengka Regency is expected to become a center for shallots other than Brebes.
2. The cluster has already been running since 2014 with cooperation with the related government departments.
3. The geographical conditions of the land in Majalengka Regency are of two types, namely low-lying land with yields of 12–15 tons/hectare and high-lying land (above) with yields of 8–10 tons/hectare.
4. Besides producing shallots, Majalengka Regency is also a shallots breeder.
5. The shallot seeds of Majalengka Regency are already certified.
6. Weather conditions mean that shallots need a lot of control during the production process.
7. There is already the Brigade Land Cultivation program to help farmers: all social assistance facilities will be diverted toward goods; for example, the provision of cultivators. Besides that, there is also the Brigade Plant Control Operation and Brigade Irrigation. These programs are conducted by Agriculture Office.
8. The increase in production was due to the farmers' own efforts, such that greater encouragement is needed from the local government.
9. The AHP analysis results show that skills are an important factor for this cluster because the geographical conditions of Majalengka Regency require special farmer skills. Besides that, access and market expansion are important
69 considerations for Majalengka Regency in regard to the sustainability of shallot farming.
10. Based on the SWOT results, production and the availability of inputs are the main cluster strengths, while market access remains a key weakness. A main challenge which must be faced is access to information.
Palangkaraya City Shallots Cluster
1. The cultivation of shallots has been done based on the initiative of Bank Indonesia and BPTP since 2012. Before 2012, there was no production of shallots in Central Kalimantan.
2. Thus far, the shallots in Central Kalimantan come from Bima (NTB), Brebes (Central Java), and Probolinggo (East Java).
3. In Palangkaraya, clusters have not yet been formed such as those which exist in Majalengka Regency – those in Palangkaraya are still in the form of demonstration plots.
4. Prices tend to be stable at around Rp20,000.00 up to Rp30,000.00/kg.
5. Production in Palangkaraya City continues with the assistance from government departments, the seeds given, and the produce is sold to government departments.
6. Shallots for consumption have not yet entered the traditional markets in Palangkaraya City.
7. There is already a roadmap for the development of shallots in 2016–2020 which is the result of a joint agreement between Bank Indonesia and related agencies.
8. The production of shallots in Palangkaraya City is not enough for consumption (meaning a deficit). This is because the increase in the production of shallots is insufficient to offset the increase in consumption.
9. Skills and technology are important considerations related to productivity. The skills of farmers in Palangkaraya still lag far behind those of farmers in Java and the use of technology is still very simple. In regard to replication, the support of stakeholders is still highly needed, especially in the production activities in the demonstration plot.
10. Many things still need to be improved such as cluster management because shallots really are a new phenomenon in the world of agriculture in Central
70 Kalimantan. The main challenge or threat facing shallot farmers in Palangkaraya is market access.
Recommendations
Tanah Datar Regency Chillies Cluster
Tanah Datar Regency as one of the red chilli centers in West Sumatera has a very important role in maintaining the stability of supply and prices. The following are some recommendations for this cluster:
1. Improving production quality by using appropriate pesticides (type and dose);
2. Changing cluster institutions into formal institutions, such as cooperatives, in order to facilitate access with relevant stakeholders;
3. Using postharvest handling techniques and diversification of processed products;
4. Reducing dependency on middlemen by opening market access to other parties/areas;
5. Widening access to market information; for example, by establishing an agribusiness station;
6. Regulating the planting period with other regions in order to create price and supply stability;
7. Establishing a pool to undertake coordination between farmers within a province;
8. Enhancing the role and function of PPL;
9. Opening access to finance with low interest rates and easy financing terms, such as KKPE which is very helpful for farmers with low interest rates;
10. Improving the group’s financial administration management abilities; and
11. Restoring the fertility of the soil which has started to become over-farmed by using appropriate technology (organic).
Jember Regency Chillies Cluster
Jember Regency as one of the red chilli centers in East Java has a strategic role in maintaining the stability of supply and prices of chillies in East Java, even until Jakarta and Kalimantan. The following are some recommendations for this cluster:
71 1. Requires improvements in aspects of cluster financial administration toward a more modern direction by using accounting applications/software;
2. Requires continued assistance, among other things, to overcome problems and to adopt technology;
3. Requires access to credit/funding which is in accordance with the pattern/cycle of chilli cultivation, for example the instalments can be paid after harvesting;
4. Improving the coordination between stakeholders to achieve synchronization in the provision of assistance;
5. Requires access to information on prices; and
6. Requires modern technology to produce more profitable chillies compared to the production of other commodities.
Minahasa Regency Cayenne Chillies Cluster
Regency Minahasa is not yet optimal in either the production of cayenne chillies or in achieving price stability especially in December. Recommendations to optimise BI’s cluster and the Minahasa Regency as the Chilli Regency are as follows:
1. Better targeting of farmer clusters and the recipients of government assistance being real farmers or at least Pedati Farmers.
2. Pre-programs must be started by updating and verifying data: comparing BP4K data and other data sources, for example private data.
3. If updating farmer group data is not possible, then the agricultural program is not directed toward farmer groups but toward farmer areas with 3 farmers/hectare which covers 10 hectares or 30 farmers.
4. To encourage supply and price stability, BI may consider helping to ensure the availability of pumps and retention basins in the central production regency to Sejati farmers.
5. Capital and technology subsidies are still needed and with the area concept, the efficiency of cluster funds can be improved; for example, for the provision of one hand tractor for 10 hectares of land or 3 farmer groups.
6. Contracts made professionally, especially with private parties for the provision of saprodi (agricultural production facilities).
72 7. Bank Indonesia must encourage the provision of data, especially the demand per month including demand data in the months July–August and December. With this data, programs can be planned before prices become volatile.
8. It is necessary to coordinate and cooperate with the cayenne chilli centers, especially Brebes and other centers in East Java in addition to Gorontalo.
9. The social implications in the cluster program should be minimized by the leadership of Bank Indonesia in the regions and centrally so that the cluster is more assertive and structured in determining its goals, i.e. to increase supply and ensure price stability.
10. Greater welfare of farmers should be sought by opening up farmers’ access to traditional markets and other markets, including the formation of farmer shops.
11. Bank Indonesia should be able to take advantage of mapalus as social capital for Minahasa farmers because mapalus is a form of the Minahasa people’s gotong-royong (mutual cooperation) culture. This is the use of traditional customs as part of efforts to replicate Bank Indonesia’s clusters.
12. Access to markets or farmer shops can be a solution for the weaknesses and threats facing supply and price stability, either for farmers or for the general public in general in Minahasa Regency.
Simalungun Regency Shallots Cluster
1. Strong support in terms of infrastructure, i.e. in the form of roads is highly needed because of the impact on cluster connectivity with the market (local government coordination).
2. Clusters need good postharvest handling in order to store the shallots so they don’t easily get rotten.
3. Information on price developments in the market is much needed so that farmers do not suffer potential losses.
4. Good social capital (strong institutions) should be created, with the cooperative to be profitable, either from the aspect of the marketing results or provision of inputs.
5. Intensive communication between stakeholders who are involved in the development of shallots in Simalungun Regency along with coordination so that development programs are better targeted is very much needed.
73 6. Clusters need plant medicine technology which is periodically given to the agricultural area, as well as gaining scientific insights on matters such as fertilizer allocation.
7. Although the inputs in this cluster are supplied by other regions, seed development is needed in order to achieve self-sufficiency in the future. Besides that, the development of an information system to support social capital that is already good is also needed.
Majalengka Regency Shallots Cluster
1. The planting pattern of shallots must be better planned.
2. Promotional activities for Majalengka Regency’s shallots needs to be improved so that the people are aware that shallots are a main product of Majalengka Regency.
3. The cluster must firstly be socialised to farmers, i.e. the function and role of the cluster. This socialisation is needed so that farmers do not only join the group if there is cluster activity because they assume that with a cluster assistance will be provided.
4. Land ownership certificates need to be made for farmers.
5. There needs to be cooperation between regions in the form of news events in order to fulfil commodity demand. If there is a scarcity of shallots in other areas, Majalengka Regency can help provide supplies.
6. Research needs to be conducted on what kinds of shallots are suitable for planting in each district in Majalengka Regency.
7. Wholesalers and good marketing strategies are very much needed so that abundant production can be well utilized and profitable as well as being competitive with the shallot centers in Brebes.
Palangkaraya City Shallots Cluster
1. Further research is needed on the production process for shallots on sandy land and peatlands.
2. Farmers should be provided more information concerning what is a cluster, what are its activities, and what things are done.
3. Providing insights to farmers to change their mind-set so they don’t only farm when assistance is provided. Growing awareness and the building of strong
74 social capital to make shallots become a main commodity as well as increasing the value added and prosperity of farmers.
4. There needs to be assistance in land cultivation, relating to items such as cultivators and sprayers because all land cultivation activities are still done manually.
5. Maximizing the duties and functions of PPL in providing counselling.
6. Farmers want more direct training activities in the field, not just training in seminars or workshops.
7. The roadmap made must be carried out properly.
8. If shallots are already growing briskly di Central Kalimantan, the next step is to expand into new markets. Thus far, the shallots available in the market are those sent from other regions and the market structure was formed a long time ago. Because of that, consideration must be given to how shallots which are produced locally can enter markets without triggering a dispute with the major shallot suppliers from outside the area.
9. Close assistance for this cluster is much needed because it is still in its early stages, especially mentoring in regard to technology development.
10. Expansion of market access because so far the cluster has mainly met the demand from the government departments alone.
75