Product Market Combination for Small Farmers in Indonesia: Contract Farming in North Sumatra for Vegetable Export to Singapore

vegIMPACT Report 26 September, 2016

Product Market Combination for small farmers in Indonesia: Contract farming in North Sumatra for vegetable export to Singapore

Marijn van der Laan, Novianto, Marcel Stallen

vegIMPACT is a program financed by The Netherlands’ Government promoting improved vegetable production and marketing for small farmers in Indonesia, contributing to the food security status and private sector development in Indonesia. The program builds on the results of previous joint Indonesian-Dutch horticultural development cooperation projects and aligns with recent developments in the horticultural private sector and retail in Indonesia. The program activities (2012 – 2016) include the Development of Product Market Combinations, Strengthening the Potato Sector, Development of permanent Vegetable Production Systems, Knowledge Transfer and Occupational Health. Wageningen University and Research centre (Wageningen UR, The Netherlands): Applied Plant Research (APR), AGV Research Unit Lelystad Centre for Development Innovation (CDI), Wageningen Plant Research International (PRI), Wageningen Agricultural Economics Institute (LEI), Den Haag Contact person: Huib Hengsdijk, [email protected] Indonesian Vegetable Research Institute (IVEGRI, Indonesia) Contact person: Witono Adigoya, [email protected] Fresh Dynamics (Indonesia) Contact person: Marcel Stallen, [email protected]

www.vegIMPACT.com

© 2016 Wageningen, Stichting Dienst Landbouwkundig Onderzoek, Research Institute Praktijkonderzoek Plant & Omgeving/Plant Research International, P.O. Box 16, 6700 AA Wageningen, The Netherlands; T +31 (0)317 48 07 00; www.wageningenur.nl/en/Expertise-Services/Research- Institutes/applied-plant-research.htm

Stichting Dienst Landbouwkundig Onderzoek (DLO Foundation). All rights reserved. No part of this publication may be reproduced, stored in an automated database, or transmitted, in any form or by any means, whether electronically, mechanically, through photocopying, recording or otherwise, without the prior written consent of the DLO Foundation.

DLO is not liable for any adverse consequences resulting from the use of data from this publication.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Product Market Combination for small farmers in Indonesia:

Contract farming in North Sumatra for vegetable export to Singapore

Marijn van der Laan, Novianto, Marcel Stallen (PT Fresh Dynamics Indonesia)

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Contents

Abbreviations and acronyms ...... 5

1 Introduction PMC Contract farming for export ...... 6 1.1 VegIMPACT Product Market Combinations ...... 6 1.2 North Sumatra - market scan ...... 6 1.3 PMC Horti Jaya - the business proposition ...... 9

2 PMC Horti Jaya: approach and interventions ...... 11 2.1 PMC partners ...... 11 Farmers practices and location ...... 11 Trader ...... 12 Retailer(s) ...... 14 2.2 PMC activities and interventions ...... 15 ToT and ToF activities ...... 15 Farm recording ...... 16

3 PMC results and evaluation ...... 18 3.1 Training activities ...... 18 3.2 Transfering knowledge: from ToT to ToF ...... 18 3.3 Key lessons per module and impact ...... 19 3.4 Farm recording ...... 23 3.5 Evaluation ToT activities after intervention ...... 28

4 Conclusions ...... 30 4.1 Business proposition PMC Horti Jaya ...... 30 4.2 PMC contribution to vegIMPACT objectives...... 30

Annex I Extracts training needs assessment extension staff ...... 32

Annex II Short bio of subject matter trainers ...... 35

Annex III Farm plot recording froms ...... 36

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Abbreviations and acronyms

APR (PPO) Applied Plant Research of Wageningen University and Research Centre BPS Badan Pusat Statistik, the Indonesian Central Agency on Statistics FGD Focus Group Discussion PPE Personal Protective Equipment IDR Indonesian Rupiah (currency; 1 Euro = 14,500 IDR, July 2016) IPM Integrated Pest (and disease) Management IVEGRI Indonesian Vegetable and Research Institute ME Monitoring and Evaluation MRL Maximum Residue Level OH Occupational Health PMC Product Market Combination PPE Personal Protective Equipment TOF Training of farmer TOT Training of Trainer WHO World Health Organization WP Work Package

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

1 Introduction 1.1 VegIMPACT Product Market Combinations Within the vegIMPACT program, a Product Market Combination (PMC) is a pilot project implemented with partners in the supply chain, including small farmers (< 2 ha), who produce vegetables in a coordinated way and according to specific market demands. A PMC contains innovative aspects, for example the use of improved varieties, a new marketing concept, packaging materials, branding of the vegetables or the supply chain configuration itself. In a PMC supply chain partners make mutual arrangements with regard to improving existing market linkages or to create new market opportunities. PMC’s are considered as a “proof of concept“ to show that innovations and cooperation in market-oriented supply chains potentially can benefit all supply chain partners and in particular small farmers. National and international vegIMPACT PMC staff facilitate this process from carrying out initial market surveys, developing business propositions in collaboration with supply chain partners, facilitating the implementation of the supply chain until the marketing of the product. Farmers and supply chain partners in a PMC are supported by vegIMPACT project staff to improve critical issues in their supply chain such as agronomy aspects, post-harvest issues, organizational weaknesses and marketing. To this end a (training) needs assessment and supply chain analysis are conducted by vegIMPACT staff and interventions for improvement proposed. Product Market Combinations contribute to the following vegIMPACT objectives: increased vegetable productivity; reduced pesticide usage per unit product; reduced production costs per unit product; increased financial margins for farmers and reduced occupational health problems and risks. In this report the approach, facilitation process and results of the “PMC contract farming in North Sumatra for vegetable export to Singapore” are described and the impact on the relevant vegIMPACT objectives assessed. The remainder of Chapter 1 provides a market scan of North Sumatra and an introduction to the PMC proposition. In Chapter 2 the characteristics of the PMC, the supply chain actors and other stakeholders are presented and the arrangements between partners and the market proposition (the PMC interventions) are described. Agronomical practices are summarized as far as relevant for the performance of the supply chain. In Chapter 3, the results of the PMC interventions are presented and discussed. In Chapter 4 conclusions are formulated and the contribution of the PMC to the vegIMPACT objectives is presented. 1.2 North Sumatra - market scan North Sumatra stretches across the island of Sumatra between the Indian Ocean and the Strait of Malacca and covers an area of 72,981 km² (Fig. 1.1). The province consists of a wide, low plain along the Strait of Malacca, where the provincial capital, Medan, is located. From the west to the south, there is a large mountain range.

North Sumatra has a population of 13,527,937, making it the 4th most populated province in Indonesia. It is a multi-ethnic province with large communities of Batak (42%), Nias (6%), and Malay (11%), who are regarded as the native inhabitants. But there is also a large population of Javanese (21%) and Chinese (10%) people.

The majority of the population is Islamic (55%), but also large groups of Protestants (38%), Catholics (7%) and Buddhists (6%) live in the province.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Figure 1.1 North Sumatra with Karo regency.

Agriculture in North Sumatra is dominated by coffee plantations, but there are some vegetable production centres as well of which Karo regency (2,127 km2) is one of the largest. About 74% of the Karo population is engaged in agriculture, which produces 60% of its regional GDP. The regency has a population of 365,713 persons. Other vegetable areas in North Sumatra are Deli Serdang and Simlungun. The soil around the volcanic mountain Sinabung, located in the Karo regency, is very fertile, similar to other production centres in the vicinity of volcanos in Indonesia. The main horticulture products produced in Karo are potato and cabbage. Large amounts are exported to Singapore, Thailand, Malaysia and Taiwan. The region is also well known for its oranges (known as Jeruk Medan) that are marketed in Jakarta and other cities in Sumatra. The Karo regency is a 2-hour drive from Medan, making it ideally located for export. Medan has an international seaport as well as an international airport, and it is strategically located to metropoles such as Singapore and Kuala Lumpur. However, the poor infrastructure and logistics of the Sea Port and the excessive and uncontrolled use of pesticides and chemical fertilizers for vegetable production1 in Karo regency are some of the reasons causing a continuous decrease in export volumes to neighbouring countries. With a population of more than 2 million, Medan itself is also an important market for vegetables. But according to Saptana and Sayaka (2006)2 the main vegetables’ marketing and distribution centres in Sumatra are the markets at regency level, such as in Berastagi, Karo regency. Figure 1.2 graphically shows the rather complicated, lengthy and in-transparent supply chains which are dominated by local collectors and traders. During the PMC inventory trip it was concluded that vegetable supply chains in North Sumatra have not changed much over the years. To date market channels are dominated by local collectors and traders. Supply chain stakeholders interviewed confirmed that the development of the horticulture sector in the Karo regency is stagnant and that no innovations in the production and marketing system have been successfully introduced in recent years.

1 Farmers using a growing amount of pesticides in vegetable production, making it increasingly difficult for products to meet the stringent MRL guidelines of export markets like the Singapore market. 2 Saptana and Syaka, B. (2006). Current situation of Indonesian vegetable marketing in the agribusiness horticulture belts. Jurnal llmu dan Teknologi Pangan Vol. 4, No. 1. vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Production levels of vegetables in recent years have been influenced to a large extend by the eruption of the Sinabung volcano. After a huge eruption in 1600, the volcano has been dormant for hundreds of years, but since 2010 it is active again. Since then several eruptions occurred and till date the volcano is still active.

Figure 1.2 Marketing channels of potato and cabbage products in Sumatra. Source: Saptana and Sayaka (2006).

During the inventory the following constraints for successful vegetable production and marketing in Karo regency were identified: • Weather patterns in North Sumatra are different from Java: rainfall is year round, but irregular and less predictable (seasonal). • Poor logistical and cold chain infrastructure. • Availability and quality of vegetable seed is poor. • Basic farmer practices with regards to cultivation techniques • Lack of well-organized and strong farmer groups and cooperatives. • Local Batak farmers have a strong preference to work individually, rather than to cooperate with each other. • Many farmers easily breach informal agreements, and do not comply with agreed product volumes and quality standards (by mixing of different qualities and grades of vegetables; a top layer of good quality products covering poor quality at the bottom, as well as side selling). Regardless of these constraints the local government of North Sumatra vowed to support the Berastagi horticulture sector in 2011 in order to increase export from 10 to 30%.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

1.3 PMC Horti Jaya - the business proposition After a systematic assessment of PMC opportunities in the region, a commercial producer/trader (PT Horti Jaya Lestari) in Karo regency was identified. This trader cooperates and sources vegetables from about 500 small farmers. Main products sourced from these out growers are: potato, cabbage (various varieties), paksoi and other leafy vegetables. Horti Jaya works with short term contracts that cover only one planting round. It offers a seed loan and basic coaching activities to the farmers, through a dedicated Horti Jaya extension team. All farmers are visited at least once per week. If a crop is damaged or even destroyed by unforeseen and extreme weather circumstances, farmers do not have to pay back the seed loan. Contract prices offered by Horti Jaya are fair and farmers normally abide by the formal contractual agreements. Horti Jaya sells most of the vegetables at the - very price competitive - retail markets in Singapore. Even though Singapore consumers are getting increasingly quality conscious, prices are still the most important criteria for buying vegetables. Downstream, the Horti Jaya supply chain appears to work smoothly and a professional sales and marketing team is in place. However, upstream in the supply chain, farmer practices are still very basic. There is ample room for improvements, in particular for out growers to produce higher yields at lower cost prices and thus increase their margins. The objective of the proposed PMC “contract farming in North Sumatra for vegetable export to Singapore” was to increase the income of the contract farmers through improving production practices. The upstream PMC interventions aimed at improving production efficiency, more efficient use of better quality inputs, and improvement of agricultural practices in general. This will ultimately lead to increased yields and lower production costs. According to the director of Horti Jaya the demand for vegetables in Singapore is surging and Horti Jaya guaranteed to buy all surplus vegetables, produced by his contract farmers due to the PMC interventions, for the same price system as before. Hence the PMC is a continuation of the current contract farming practices, but through improvement of the current production practices, improved (financial) benefits for the farmers were expected. For sustainability purposes, the extension team of Horti Jaya would have a pivotal role in this PMC and would be trained to transfer the necessary knowledge to the contract farmers of Horti Jaya. To maximize the impact of the PMC, the interventions focussed on the cultivation of the main export products for Horti Jaya (volume wise), cabbage and potato. It was agreed between vegIMPACT and Horti Jaya management that in return for the training and development trajectory of Horti Jaya extension staff, the company would cover all logistical costs for PMC training activities (both ToT and ToF activities) at Karo locations. Table 1.1 shows the expected benefits for the participating farmers and the trader in this PMC pilot.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Participants Expected benefits Farmers  Improved production techniques  Improved yields of potato and pointed cabbage production  Reduced cost price through improved pest and disease management  Reduced cost price through rational usage of fertilizers Trader (Horti Jaya)  Better quality vegetables and more stable supply volumes  Increased product volume (higher sales volumes)  Improved nursery practices3  Improved capacities of Horti Jaya’s extension team

Table 1.1 Expected benefits of PMC business proposition for participating farmers and trader.

The PMC pilot preparations started in October 2014 and the pilot was wrapped up in November 2015.

3 Horti Jaya (trader) produces seedlings for distribution among the farmers (on the basis of a loan) vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

2 PMC Horti Jaya: approach and interventions 2.1 PMC partners Figure 2.1 provides an overview of the participants in the business propositions’ supply chain of the PMC contract farming in North Sumatra for vegetable export to Singapore.

Figure 2.1 Supply chain and actors in the PMC Horti Jaya.

Farmers practices and location Contract farmers of Horti Jaya are scattered over various districts in the Karo regency, but most of the participating farmers in the PMC activities are from the Berastagi district. The Karo region predominantly consists of Acrisol soils, rich in clay, with a pH between 5.5 and 7.5. Berastagi is located at an altitude of 1200-1400 meter above sea level. The driest month of the year is July, with 84 mm of rainfall and the wettest month of the year is November with 267 mm (Fig. 2.2).

Figure 2.2 Average precipitation and temperature Berastagi (10 years average data). Source www.climate-data.org. vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Only farmers with cultivation experience in cabbage or potato, the two most important Horti Jaya export products (sourced from out growers), were selected by Horti Jaya to participate in the PMC activities. These farmers normally use part of their land for contract growing for Horti Jaya and additionally they grow a range of other vegetables (such as carrot and hot pepper), which they individually sell to collectors and at the local traditional market. Farmers in the Karo regency typically cultivate about 0.5 – 4 ha of land (on average about one ha) that they either own or rent. Farmers producing vegetables on a Horti Jaya contract, use a cropping system (average of 2-3 different crops per year depending on the type of crops), whereas other farmers in the region hardly rotate crops at all. Horti Jaya does not contract farmers, if they have just grown the same crop as the planned contract crop on the plot farmers want to use for the contract. Similar as in other regions of Indonesia, most farmers in the Karo regency are member of a kelompoktani in order to benefit from governmental support. However, as explained in Section 1.2, the farmers in this region are very independent and most of the farmers interviewed during the PMC assessment trip were not interested in joint cultivation and marketing with other farmers. One of the reasons was that they had bad experiences with (informal) contracts with traders, creating unrest between farmers. As a result currently most farmers are only interested in individual contracts for one planting round. Most farmers interviewed already worked with Horti Jaya for a long period and they trusted its extension team. The farmers indicated that in the past they received some cultivation training from the local government, but those trainings were considered to be too theoretical. Farmers were very interested in practical field training. Farmers do not have a clear picture of the cultivation costs and the cost price of the various crops, because most of them do not record farm inputs and outputs. According to the extension team manager about 30-40% of the total costs of vegetables production consist of the costs of seeds/seedlings. Horti Jaya selected 24 farmers that would receive invitations for the training activities and the company committed to arrange all communication with those farmers. Educational background of these farmers was mostly senior high school, but two farmers went to university. After the interventions the Horti Jaya extension team was responsible to further transfer knowledge to other contract farmers.

Trader Horti Jaya (PT Horti Jaya Lestari) is a commercial vegetable producer and trader. The company owns 60 ha in the Karo regency, of which about 75% is in production, including 10 ha of green houses with hydroponic cultivation systems for high end products such as salads, herbs, beef and cherry tomato and paprika. In the open field Horti Jaya grows more conventional vegetables such as various types of cabbage and potato. They also do tests with new crops that have the potential of being contracted out to farmers in the vicinity. The company has a long history of sourcing conventional vegetables from small farmers in the vicinity of Karo. Horti Jaya also operates a modern packing, grading and processing facility, a seedling nursery and a small laboratory to test biological pesticides, all located in the Karo regency (Pict. 2.1). Horti Jaya aims to become a fully organic producer of greenhouse vegetables. The administration and sales departments of the company are located in Medan city.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Picture 2.1 Impressions of Horti Jaya packing facility and greenhouse (tunnel).

About 70% of the Horti Jaya products are being exported to Singapore, consisting of on average two 40 ft containers per week for sea transport (Pict. 2.2). In addition, high value and perishable products such as salads are transported to Singapore by aircraft. The company owns two retail brands, “Fresh Harvest” and “Highland Green”, but it also packs products under private label of Singapore retail brands, for example “Fairprice”.

Picture 2.2 Horti Jaya vegetables for the Singapore retail market.

Through a dedicated extension team (7 persons) that operates from the centrally located packaging facility in Berastagi, Horti Jaya works with about 200 small farmers/out growers at a time (Pict. 2.3). Each member of the extension team is assigned with a specific vegetable crop, so the team consists of different crop specialists. The team is coordinated and led by the extension manager, who also is the operational manager of the packaging and grading facility and the nursery. Each extension worker visits his farmers once a week and they record basic farm data that are related to the “Surat Perjajan Kerjasama4”, such as the number of plants in the field, crop development and expected yields. Horti Jaya only works with short term formal contracts for the duration of one crop cycle (one planting round). The company offers farmers a loan for seedlings (that are supplied from the Horti Jaya nursery) and that will be recovered through the harvested products. Before start of cultivation of a contract crop, Horti Jaya formally agrees with the farmers on the contract price to be paid for the harvested products, provided that the products meet the minimum

4 Surat Perjajan Kerjasama, is an agreement letter regarding the cooperation between farmer and Horti Jaya. vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

specifications of the company. If seedlings die, due to adverse weather conditions and/or poor management, contract farmers do not have to pay for the seedlings.

Picture 2.3 Extension team Horti Jaya with PMC facilitator and trainer Cabbage cultivation.

A major challenge for Horti Jaya is the commitment from farmers. Batak people are renowned for their individual and independent behaviour. Even though the management of Horti Jaya was interested in the training and strengthening of farmer organizations as conducted by the PMC team elsewhere in Indonesia5, they were convinced that it was impossible to organize farmers in the same way in the Karo regency. According to the extension manager such activities might even disrupt the current contract system. According to the Horti Jaya management current farmer yields can be improved considerably, and farmers could lower costs substantially. For example, because of poor pest and disease identification farmers use the wrong type of pesticide or apply too many pesticides. In addition, farmers use too many fertilizers according to the extension team. Until date, the extension team has never trained their contract farmers to improve their cultivation techniques. The downstream part of the Horti Jaya supply chain is very well developed. A professional sales team and system is fully operational, professional marketing and promotion activities are conducted and some strong consumer-oriented brands have been successfully launched in the Singaporean market. Horti Jaya has indicated that they can absorb and sell larger volumes of vegetables, but it is constrained by the supply volume upstream. Currently, the Horti Jaya out growers are not able to fulfil the growing demand for high quality fresh vegetables products.

Retailer(s) The vegetables are sold through the existing channels of Horti Jaya in Singapore. No PMC marketing support or promotional interventions were deemed necessary to support sales to retail.

5 Currently Horti Jaya extension staff has to negotiate and coach all farmers individually, which is very time consuming, if farmers would be organized in groups, they could centralize negotiations vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

2.2 PMC activities and interventions

ToT and ToF activities After an extensive training needs assessment of the Horti Jaya extension workers (Annex I), a set of six training modules was developed for this PMC (Table 2.1). Two three-day modules were developed by the PMC team, in collaboration with external subject matter specialists, exclusively for the extension team. These training sessions were designed with the purpose to upgrade the knowledge of the extension staff with regard to general vegetable cultivation and to prepare them for transferring knowledge to small farmers. In addition, four modules (each of four days) were developed around specific topics that would enhance farmers’ practices and support farmers to improve yields and lower costs. These modules consisted of both Training of Trainers (ToT) and Training of Framers (ToF) activities. Module topic Trainer 1. General vegetable cultural practices Dr. Ir. Agus Suryanto 2. Training of Trainers (ToT) techniques Mr Alfa Edison 3. Pest and disease management in vegetable cultivation Ir. Tonny K. Moekasan 4. General cabbage cultivation techniques Ir. Mohammad Aris 5. General potato cultivation techniques Ir. Wildan Mustofa 6. Occupational health improvement Ms Melliza Wulansari

Table 2.1 Topics of the PMC training modules and trainers.

The trainers were selected by the vegIMPACT PMC team on the basis of their practical knowledge and experience. Not all of these specialists had previous training experience. A senior PMC facilitator joined the trainers during their preparations and supported them with the development of the training materials fitting the needs of the Horti Jaya extension team, and to ensure a balance between practical and theoretical information. All extension workers were provided with a binder with the lesson material and supporting documents (Pict. 2.4). A short bio of all trainers is presented in Annex II.

Picture 2.4 Training manual and one of the ToTs.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Farm recording The purpose of farm recording was to accurately identify the factors with regard to knowledge, skills, agricultural practices, costs and physical conditions that positively or negatively affect the results (outputs) of farmers in the Berastagi district. A thorough analysis of these data was foreseen to be helpful for better understanding current farmers’ performance and for the development of best practices and recommendations. A four step data recording and analyses approach was designed by the PMC team in consultation with extension staff of Horti Jaya. (Fig. 2.3)

Figure 2.3 Farm recording approach for Horti Jaya contract farmers.

Following this approach, together with the extension team, simple farm recording forms were designed (Annex III) and tested (Pict. 2.5)

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Picture 2.5 Testing of farm recording forms with Horti Jaya extension staff and farmers.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

3 PMC results and evaluation 3.1 Training activities The six training modules were implemented as per planning (Fig. 3.1). Unfortunately and beyond control of the PMC and Horti Jaya extension team, the coaching activities planned for the period after the last training had to be postponed due to the eruptions of the Sinabung volcano. The volcanic eruption resulted in a temporarily shift in priorities of both farmers and Horti Jaya. A meeting to decide on future follow up activities by the PMC team was scheduled for November 2015. However, during that meeting it became clear that no further activities were possible due to internal issues within the Horti Jaya organization (Section 3.5). As a result the meeting turned out to become the PMC wrap up meeting.

Figure 3.1 Overview and planning of all PMC Horti Jaya interventions at location.

3.2 Transfering knowledge: from ToT to ToF In order to prioritise the dissemination of the newly acquired knowledge, the extension team was coached by the PMC team to formulate three key lessons per module that the team would actively start to disseminate to farmers. Other technologies would be transferred on the bases of actual and specific requirements in the field. After the first dissemination of these key lessons in ToF activities, it became clear that farmers were most receptive for receiving new knowledge, through informal sessions at lunch time (Pict. 3.1). Based on this, the PMC team planned to support the extension team with the development of “easy to digest” small knowledge chunks and supporting materials, that could be used in knowledge transfer sessions of 1 to 1.5 hours.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Picture 3.1 Lunch time ToF activities by Horti Jaya extension team for farmers.

At the time of the wrap up meeting, the extension team shared that they still had serious problems mobilising farmers for the lunch time dissemination sessions. They also felt that without external experts presenting new knowledge (such as during the PMC training sessions) farmers did not really value their input. 3.3 Key lessons per module and impact During a Focus Group discussion with the extension team an inventory was made of the changes in farmers’ practices with regard to the three key lessons of each training module6 (Table 3.1 - 3.5) according to the observations of the extension team. Module 1. General cultivation practices Key messages Practices before PMC intervention Practices after PMC intervention 1. Importance of proper Land was not cleaned from waste of Most farmers manually clean their land preparation previous crops and plastics remnants. land from crop waste of last planting round.

Manual land preparation. Land is prepared with rented hand tractor.

2. Proper usage of Farmers use (too) much fertilizer. Many farmers apply fertilizer fertilizer based on specific crop and growth stage of crop.

Timing of fertilizer application not Timing of fertilizer application synchronized with growth stage. often based on growth stage.

3. Importance of Farmers never apply mulch. Farmers still do not mulch. mulching Some farmers tried mulching once, but as many plants died in these mulched plots, they discontinued mulching.

Table 3.1 Farmers’ Practices before and after PMC interventions with regard to training module 1 according to extension team.

6 Excluding Training module 2 on Training of Trainers (ToT) techniques vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Module 3. Pest and disease management in vegetable cultivation

Key messages Practices before PMC Practices after PMC intervention intervention 1. Importance of knowing pH of Farmers did not know (the Farmers know the pH value of soil and water importance of) pH of soil and their plots as well as the water. importance.

Horti Jaya measured pH pH is measured by Horti Jaya sporadically but not in a proper extension staff in a correct way. way. Farmers know how to correct the pH of their plots, e.g. by using lime if pH is too low.

Farmers still do not measure pH of water before spraying. In general, pH of surface water is high in this region, but the chemicals needed to reduce and stabilize pH are not readily available.

2. Importance of proper Farmers mix pesticides; Farmers still mix pesticides, but pesticide usage fungicides and insecticides (up to less (up to 3-4 per tank). 7 varieties per tank). Horti Jaya nursery no longer mixes pesticides.

Farmers only replace their nozzle Most farmers buy a new nozzle with a new one if it is broken. every 3 months.

Poor spraying technique of Farmers did not change farmers (e.g. spray volume too (reduce) spray volumes and high). spraying technique.

3. Importance of accurate pest Farmers identified pest and Many pest and diseases are and disease identification diseases often too late and/or now identified timely and wrongly (and as a result the correctly. proper pesticide was not used). However, identification is mostly done by the extension team (in cooperation with the farmers).

Table 3.2 Practices before and after PMC interventions with regard to training module 3 according to extension team.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Module 4. potato cultivation techniques Key messages Practices before PMC Practices after PMC intervention intervention 1. Importance Potato seed was not treated. Horti Jaya nursery is currently treating all potato of seed seeds with fungicide solution to prevent rot. selection and seed treatment 2. Proper Farmers use (too) much No changes in fertilizer application. usage and fertilizer. application of fertilizer

3. Importance Farmers do not give enough No changes. Farmers believe that when potato of sound water. plants get too much water the harvested products irrigation will rot quicker. According to the external PMC practices trainer this is not correct; to improve yields, the water should be applied regularly in sufficient quantities.

Table 3.3 Practices before and after PMC interventions with regard training module 4 according to extension team.

Module 5. cabbage cultivation techniques

Key messages Practices before PMC Practices after PMC intervention intervention 1. Importance of proper land Plant beds were too low. The farmers, who preparation and bed dimensions participated in the PMC training, all make higher planting beds. Most other farmers, who were instructed by the extension team to increase the height of their beds, did not adopt the recommended bedding height.

Corrective practices to improve Almost all farmers now use soil PH and quality (like using a soil balancer such as humic soil balancer) were not used. acid to prepare their land.

Farmers do not clean soil before new planting round. Planting beds are cleaner.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Key messages Practices before PMC Practices after PMC intervention intervention 2. Using correct planting space Farmers use planting space of Many farmers use planting 25 x 25cm. space of 35 x 35cm and 75 cm between planting beds. Not all farmers are able to adopt these planting distances because it also depends on availability of land. Cabbage yield and quality are better with the wider spacing.

3. Benefits of using flushing Most farmers do not use No new farmers started to technique7. flushing technique. Farmers use the flushing method, that already used the technique mainly because they do not did not use the tool/machine have the tool. shown by the external PMC trainer.

Table 3.4 Practices before and after PMC interventions with regard to Training module 5 according to extension team.

Module 6. Occupational health improvement Key messages Practices before PMC Practices after PMC intervention intervention 1. Importance of using proper PPE Farmers did not use specific Farmers still do not use Personal Protective Equipment specific PPE. (PPE).

2. Correct awareness of pesticide Farmers were not aware of risks No changes have been risks of pesticide usage for identified. themselves and for people in their environment.

3. Importance of proper storage of Farmers stored pesticide at Farmers now mainly store pesticide home. pesticides in a shed at their land or they hang it on the wall, so is out of reach for children.

Table 3.5 Practices before and after PMC interventions with regard to Training module 6 according to extension team.

7 In cabbage production in the highlands of Java, fertilizer is often applied by first mixing it with water and then injecting it with a pipe in the soil near each of the plants: the so called flushing technique. The trainer of the cabbage module worked for a large commercial producer of cabbage in Java and he testified that this flushing technique leads to improved results. In Berastagi fertilizer is still applied on top of the soil near each plant. vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

The extension team expressed that, during the six months after completion of the training modules, the most frequently disseminated knowledge messages were:  Importance of proper maintenance and usage of spraying tools, checking sprayer before spraying and washing and cleaning the knapsack sprayer after spraying (training pest and disease management).  Replace worn out nozzles in time (training pest and disease management).  Proper planting space cabbage (training cabbage cultivation).  Proper fertilizer application and timing and specific fertilizer application per crop (training on general cultivation practices).  Proper pest and disease control (training pest and disease management).  Proper calculation of pesticides concentration and application (training pest and disease management).  pH measurement and usage of humic acid, a soil balancer (training on general cultivation practices). Based on this list it seems that the pest and disease management training was most appreciated by the extension team. Shortly after the end of the PMC trainings the Horti Jaya extension team stopped organising lunch meeting with small groups of farmers. Instead they continued to transfer knowledge to individual farmers. 3.4 Farm recording Even though the farm recording system was extensively tested and eventually endorsed by the extension team, it was never fully implemented. The PMC team contacted Horti Jaya frequently on the status regarding the recording activities, but received little response. During the wrap up meeting, the extension team shared that they had started to record data, but the data gathered with the farmers could not be handed over to the PMC team for a number of reasons, such as records were damaged by the rain; records were lost; there was no time for filling out the complete records; they forgot to bring the data back from farmers, etc. Another reason could have been the impact of the active Sinabung volcano that severely damaged the crops of most of the contract farmers of Horti Jaya and as a result obtaining complete data sets must have been difficult during that period. However, it also became clear that the manager of the extension team did not stimulate farm recording as he did not see the benefits of recording farm data for Horti Jaya. This attitude was in contrast with the opinion of the director of Horti Jaya, who had previously agreed on the planned farm recording and analyses. According to the director on Horti Jaya, the data of the sales department showed no increase in yield and quality of cabbage and potatoes during the PMC pilot period, and the overall supply of farmers to Horti Jaya (including of other products then potato and cabbage) decreased in 2015 because of the Sinabung eruption. Actual sales data were never shared with the PMC team.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Box. 3.1 Impact of eruption of Sinabung for cabbage cultivation Volcanic ash directly damages the cabbage leaves. In case of rain after an eruption the ash will stick more solid to the cabbage heads. Depending on the stage of cultivation, the crop needs to be harvested directly. By removing the outer leaves of the cabbage head, farmers still try to sell the product as long as it meets the (size) specifications of the trader. It is expected that only the plants in the last 25% of the cultivation period, can still be marketed. After a volcanic eruption farmers are often hesitant to directly continue planting new crops as most volcanoes, once active, can stay active for months or even years.

Picture 3.2. Illustrations from local media during last year’s eruptions.

Impact of eruption of Sinabung for potato cultivation Volcanic ash is slightly less damaging for potato farmers. Farmer will try to remove ash as soon as possible by shaking the plants. If only some of the leaves survive the (hot) ash, potatoes in the soil will continue to grow. If all the leaves die, the potatoes need to be harvested directly. Depending on the growth stage, potatoes can still be sold. In case the potatoes are too small to be marketed, farmers might be able to use them as seed potato.

To check the perceived changes in farmers’ behaviour as expressed by the extension team, the PMC team conducted also focus group discussions (FGD) with cabbage and potato farmers that attended three or more of the PMC training sessions. During the FGD the farmers’ practices (before and after the PMC trainings) related to training topics were discussed and the following results were recorded. (Table 3.6 – 3.8).

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Potato farmers Topics discussed Practices before PMC training Practices after PMC training Crop rotation Many farmers never rotate or Some farmers now alternate potato only rotate with one other crop. with other crops.

Knowledge on soil pH (value Farmers did not know the pH of Before planting, the pH is measured by and effect) their soils. Horti Jaya staff. Based on pH corrective action is taken or the land is considered not suitable for potato production (for Horti Jaya).

Mulching Farmers never mulch. Farmers still do not practice mulching. Reasons: too expensive, farmers are not familiar with the technique and do not see the benefits. Farmers tested mulching on one plot, but yield was lower than without mulch (proper records do, however, not exist).

Irrigation practices No specific irrigation schedule No changes, water is irregularly applied was used. during the growing season and fields. Or as farmers shared “Watering plants is up to god”.

Planting depth Potato seeds are planted at Some farmers now plant at the irregular depths. recommend planting depth. These farmers confirm to have more uniform plant growth.

Potato yield No change in yield according farmers.

Cost price (i.e. expenditure on Cultivation costs are perceived as No changes according farmers and they pesticide and fertilizer per unit high, but no data are available. still perceive a high cost price. product). Land preparation Land is not specifically prepared Farmers now clean their land before before cultivation. planting and correct soil pH (see above).

Table 3.6 Potato farmers’ practices before and after PMC interventions, according to farmers.

According to the potato farmers the three most important changes after the vegIMPACT trainings and interventions:  Implementation of crop rotation, however this is only done by few farmers.  Farmers know the importance of the proper soil pH and how to take action.  Farmers are aware of the importance of occupational health and the risks of using pesticides.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Cabbage farmers

Topics discussed Practices before PMC training Practices after PMC training Planting distance On average farmers use planting Farmers use 35x35 cm planting space space of 25x25cm. with 75 cm distance between beds.

Fertilizer application (test Fertilizer is applied manually and Farmers apply fertilizer according to flushing) in general farmers apply too plant requirements and growth stage much fertilizer. of plants. Flushing technique is not implemented because farmers do not have the tool.

Crop rotation Rotating of crops is practiced by Crop rotation is still seldom practiced; a limited number of farmers. the general practice remains the rotation of cabbage and potato.

Proper land preparation and Land is prepared manually and Farmers use a rented hand tractor to height of planting beds planting beds are too low. prepare land and according to farmers results / yields are much better. Farmers construct slightly higher planting beds.

Yield Yield data are lacking but farmers argue that yields have improved considerably because of modified plant distances and higher planting beds.

Also the quality and size of the cabbage improved according to participants (in the past 16 pieces fit in a plastic crate and currently 12 pieces per crate). In the past 50-60% of their harvest was accepted by Horti Jaya and now 70- 80%.

Perception of cost price (i.e. Data are lacking but farmers state that expenditure on pesticide and they spend less on fertilizers and fertilizer per unit product) pesticides.

Table 3.7 Cabbage farmers’ practices before and after PMC interventions, according to farmers.

According to cabbage farmers the three most important changes in their practices after the vegIMPACT trainings and interventions are:  In general, farmers changed their mind set and they are more focussed on improving agricultural production.  Improved capability to identify pests and diseases and to control problems with effective pesticides.  Farmers clean their land from weeds and left over from previous planting before cultivation.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

General practices all farmers

Topics discussed Farmers’ Practices before PMC Farmers’ Practices after PM training training Mixing of pesticides Farmers mix up to 7 different Nowadays some farmers spray with one pesticides (fungicides and pesticide at a time and those farmers are of insecticides) in one knapsack the opinion that the harvested product is of sprayer tank. better quality. Others farmers still mix pesticides because they consider it more efficient (takes less time and hence less labour).

Measuring pH of spray Farmers do not measure pH of Farmers still do not measure pH of water water the spray water. before spraying, as they do not have a pH meter.

Spraying time Farmers spray in the morning. In the rainy season farmers still spray in the morning because in the afternoon it is usually raining. In dry season farmers change their practices, and tend to spray late afternoon.

Identification of pests and Farmers have difficulty with Farmers feel more capable to identify pests diseases proper and timely identification and diseases. Identification is often done in of pests and diseases. cooperation with the Horti Jaya extension team, but some farmers also identify pests and diseases themselves.

Personal protection Farmers never use PPE. Some farmers now use full protection gear, equipment when handling others are only partially protected (they do pesticides not use a mask) and one farmer still does not use any protection.

Storage of pesticide Most farmers store pesticides Some farmers still keep pesticide at home unsecured at home. (one of these farmer has put it in a locked cupboard) because of the risk that it is stolen from their field sheds. Some farmers moved all pesticides to their field shed, and one farmer even built a special closet with a lock for the pesticides (Pict. 3.4).

Fertilizer application Farmers use fresh manure. Farmers let fresh manure first mature (covered) before using it. They are of the opinion that the impact of using matured manure is large. Pests and diseases that are present in fresh manure are no longer being transferred.

Table 3.8 General farmers’ practices before and after PMC interventions, according to farmers.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Overall it can be concluded that farmers were more positive about the impact of the PMC interventions and trainings as compared with the Horti Jaya extension team. 3.5 Evaluation ToT activities after intervention During the interventions the Horti Jaya extension team always participated with great enthusiasm. The manager of the extension team did not participate in most of the activities. But keeping in view his job responsibilities, his absence did not surprise the PMC team. The extension team manager had different responsibilities; he was also the manager of the product grading, packaging and processing unit of Horti Jaya in Berastagi and of the nursery. He managed the two product streams of the company; produce from Horti Jaya itself as well as the products sourced from contract farmers. After the Sinabung calmed down, and the PMC team returned to Berastagi to evaluate activities and decide on follow up activities, it became clear that the manager of the extension team was not supporting the company’s overall mission to develop the capabilities of contract farmers in the vicinity. This Horti Jaya mission however, was the bases of the cooperation agreement between Horti Jaya and vegIMPACT in this particular PMC. As a result, as soon as the PMC intervention activities (that the Horti Jaya director agreed upon) were finalized, the extension team manager discouraged the extension team to spend any more time on the structural dissemination of knowledge to farmers and to stop recording farm inputs and outputs. Therefore, after the completion of the PMC trainings, knowledge was only transferred informally and on an individual bases to the farmers, if there was spare time. Another fact which affected the PMC pilot was that one member of the extension team died soon after the completion of the PMC trainings. Although two new extension staff were recruited by Horti Jaya and added to the team, they were not trained at all. From the beginning of the project it was clear that changing the practices of contract farmers in North Sumatra would take time. At the time of the wrap up, the extension team shared they believed farmers were really not receptive to new technologies and changes. At the same time, they admitted that they themselves have not invested much time in dissemination of the key messages. Despite the little supportive role of the extension team the number of behavioural changes as perceived by farmers is quite remarkable (see before and Pict. 3.3). The PMC team believes that if more time would have been available and with more commitment from the extension team the goals set for this pilot (increased yields and lower production cost) would have been feasible.

Picture 3.3 The occupational health training made one of the farmers to build a small closet with lock to store pesticides in the field so kids can no longer be in easy contact with pesticide. vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

The outcomes of the wrap up meeting with the extension team, the interview with the extension team manager and the focus group discussions with farmers were evaluated with the director of Horti Jaya. He was very grateful for the information and efforts of the PMC team. He was also happy to hear about the impact – albeit limited - that was attained at farmer fields. The director confirmed that the mission of Horti Jaya, to support farmers to improve their livelihoods, remained unchanged. He expressed that he hopes and expects Horti Jaya to further develop the capabilities of the contract farmers based on the foundation of knowledge and capacities built with the farmers and his extension staff within the PMC pilot. But he also agreed with the analyses of the PMC team that, in view of the current internal situation, any follow up activities of the PMC team in Berastagi would not be sustainable at this time. He shared his hope that after an internal company reorganization, development activities could be geared up again by his extension team.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

4 Discussion and conclusions 4.1 Business proposition PMC Horti Jaya Due to the prolonged volcanic activities of the Sinabung, the PMC business proposition could not be tested properly. Furthermore, Horti Jaya’s internal diverging opinions on developing the capabilities of contract farmers were not favorable for exploiting the full potential of the PMC interventions. Without proper endorsement of the line management of Horti Jaya, the extension team members were not able to actively and structurally continue transferring knowledge to the contract farmers. Nevertheless focus group discussions with selected contract farmers of Horti Jaya showed some promising and positive changes in their farming practices thanks to the PMC trainings. However, more time is needed to assess whether these changes lead to a sustainable and lasting impact and if other contract farmers will adopt these and other new practices as well. The director of Horti Jaya still firmly believes in the long term objective to further strengthen the relation between Horti Jaya and contract farmers in the Karo regency, among others through enhancing the agronomic skills of the farmers. He expressed his hope that “knowledge seeds” sown by this PMC pilot, will reap results and benefit for farmers and Horti Jaya alike in the long term. 4.2 PMC contribution to vegIMPACT objectives The PMC pilot Contract farming in North Sumatra for export purposes accomplished the following:  Improved agricultural knowledge base of extension team Horti Jaya  Development of farm (input / output) recording system  Successful transfer of vegetable cultivation knowledge and practices to some Horti Jaya contract farmers. This PMC pilot has contributed to the specific vegIMPACT objectives as presented in Table 4.1.

vegIMPACT objective PMC contribution Remarks increased vegetable + Short term impact small, among productivity others due to the eruption of mountain Sinabung. Some cabbage farmers perceived higher yields after adoption of recommended and improved practices. reduced pesticide use per unit + Short term impact small, due to product eruption of mountain Sinabung. However, some farmers indicated that they are now better able to identify pests and diseases, which eventually reduced the usage of pesticides.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

vegIMPACT objective PMC contribution Remarks reduced production costs per + Short term impact small, due to unit product eruption of mountain Sinabung. However, some farmers stated that they now use less pesticides and fertilizers, and produce at lower costs. increased financial margins for ? This could not be measured due to farmers among others the volcanic eruption of the Sinabung and the absence of reliable farm records reduced occupational health + Some farmers indicate to have risks improved their practices with regard to storage of pesticide, safe application methods and they stated to be more aware of the risks of pesticides. Explanation: + = PMC positively contributed to specific objective - = PMC had negative effect on specific objective ? = Uncertain effect of PMC on specific objective

Table 4.1 Summary of contribution PMC contract farming in North Sumatra for export purposes to vegIMPACT objectives.

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Annex I Extracts training needs assessment extension staff

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Annex II Short bio of subject matter trainers NO 5 4 3 2 1 Alfa Edisson, S. Sos Edisson, Alfa MustofaIr. Wildan Mohammad SP Aris, Ir. Tonny K. Moekasan Dr. Ir. Suryanto Agus MSc NAME Trainer/Consultant Entrepreneur Manager Area Marketing Researcher Senior Lecturer Senior OCCUPATION Soedirman University Purwokerto University Soedirman Science and Bachelor Social Political Bogorof Institute Agriculture Bachelor Agriculture, of Malang Bachelor Agronomy Muhammadiyahof University Bandung Bachelor RayaAgriculture, of University Doctoral Malang Ecology Plant Brawijaya University MSc UGMProduction Plant Jogjakarta MalangBSc Brawijaya University Production Plant EDUCATION Perhimpunan SETARA Perhimpunan Hikmah FarmCV. Indonesia Indonesia Aura CV. Seed IVEGRI Malangof Brawijaya University Faculty Agriculture INSTITUTION development rural community and breeding potato production breeder vegetables market for export cabbage production Disease and Pest Vegetable Ecology Plant EXPERTISE with HIVOS, Agriterra HIVOS, with project joint development, Koperasi farmer group, Strengthening producer potato seed IVEGRI, Indofood. APN, HPSP, CIP, with activities potato join trainer, (cabbage exporter) Farm PT. Consultant Java Green (vegetables) Indonesia in Mission Taiwan Technical Expert, Assistant (potato) and vegIMPACT) Australia APR WUR Train (Hortin, Chain, the Many research with join program Indonesia of Bank Potato of Cluster, Consultant Malang University Brawijaya Head Research of Field EXPERIENCE Purwokerto Bandung Malang Bandung Malang ADDRESS 0812 34678972 0812 32770100 08122387 890 0811 2615271 0812 2001967 PHONE [email protected] [email protected] [email protected] [email protected] [email protected] EMAIL

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Annex III Farm plot recording froms PENCATATAN DATA BUDIDAYA KENTANG/KUBIS/XBC/TERONG/……………………..

Nomor Petani Nama Petani : Desa : Kecamatan : Kabupaten :

Luas lahan yang ditanami (p x l) m2 Varietas : Asal benih yang ditanam : Benih bersertifikat : (ya/ tidak) Jumlah benih yang ditanam : (kg/kw/ton/phn) Ukuran benih yang ditanam : (gram) Benih Generasi (G) ke : Harga benih yang ditanam (per kg/phn) : Rp Total harga benih Rp. Tanggal tanam : Jarak tanam : Nilai Sewa Lahan : Rp Tanaman sebelumnya yang ditanam :

Hasil Panen (kg atau ton) Per Plot Per Hektar Harga/Kg Total (Rp)

Jumlah Quality A

Jumlah Quality B

Jumlah Quality C

Jumlah Quality D

TOTAL

PENGOLAHAN LAHAN/PLOT TRAKTOR □YA □TIDAK Rp. MANUAL □YA □TIDAK Rp.

ALAT YANG DIMILIKI □SPRAYER □POMPA AIR □SPRINKLER □POWER SPRAYER ALAT LAIN □……………………………………………… ALAT SEWA Rp. /plot

PETUGAS LAPANG:

(______)

vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra

Komoditi : ______Minggu ke: No Petani : ______1

Nama Petani : ______Tanggal: Lokasi (desa, kecamatan, kabupaten) : ______Luas lahan (panjang. lebar and area m2) : ______

Kegiatan Budidaya contoh:Pupuk dan pestisida yang digunakan (per plot)** Tanggal Kegiatan (*) yang dilakukan Nama Pestisida atau Pupuk Jumlah (dlm unit kg/ml) Harga/unit (Rp)

(*) persiapan tanam, pengolahan tanah, pemasangan pupuk kandang, pemasangan mulsa, tanam, pemupukan, pemasangan ajir, pengguludan, pengendalian hama dan penyakit, panen dan pasca panen dan lain-lain

Air yg digunakan (per plot)** Tanggal Jmlh hari pengairan mggu yl Jumlah (liter) untuk tanaman fokus Jumlah air/total luas Harga/plot (Rp)

Tenaga Kerja yang digunakan (per plot)** Tanggal laki - laki (orang hari) Upah laki-laki (Rp) Wanita (orang hari) Upah wanita (Rp)

Kondisi dan observasi tanaman (plot)** OPT Penampilan Tanaman Jumlah tanaman

Hama

Penyakit

Status

** TANAMAN FOKUS

SARAN TINDAKAN vegIMPACT report 26. Product Market Combination Contract farming in North Sumatra