Academic journal article Asian Social Science

Can Indonesia Cocoa Farmers Get Benefit on Global Value Chain Inclusion? A Literature Review

Academic journal article Asian Social Science

Can Indonesia Cocoa Farmers Get Benefit on Global Value Chain Inclusion? A Literature Review

Article excerpt

Abstract

The purpose of this paper is to analyze the potential benefit of Indonesia cocoa farmers in the global value chain inclusion. The fact that there is a gap between international price and farmer's price is due to existence of power asymmetry especially on supply side. This paper uses global value chain perspective and the existence of internet innovation in food supply chain network by reducing the power asymmetry with a benchmark from developed and emerging market. We recommend some issues need to be intervened and resolved by the government, before the farmers could benefit on global value chain inclusion by internet adoption. On the other hand, telecommunication infrastructure deployment and increasing internet penetration are the necessity, and education on benefit of ICT inclusion in daily operation is becoming the next step. This conclusion supports the role of ICT in agriculture which is providing access to the market, financial inclusion, and access to technology.

Keywords: Indonesia cocoa farmers, cocoa global value chain, competitiveness, internet adoption

1. Introduction

In Indonesia, cocoa is the 3rd seed export commodities after palm oil and rubber. According toMinistry of Economic Affairs Republic of Indonesia (2011) Indonesia istop 2 cocoa producers which a contribution of 18% in the global market, while according to ICCO (2013) Indonesia is the top three world producers after Cote d'Ivoire and Ghana. In national level, cocoa also earn the third largest export commodity after palm oil and rubber. The cocoa export trading in 2009 reached USD 1.38 billion (derived from cocoa beans and processed). Demand for cocoa beans for America and Europe reached 2.5 million tons per year (MoEARoI, 2011).

Most of cocoa producers are developing countries while the final product manufacturers are based in developed counties such as USA, Europe, and Japan as shown in the Table 1 and Table 2.

Based on interview by KPPU (2009) to Government Agency, Association of Indonesia Cocoa, Association of Indonesia Cocoa Farmers, and academics, the top seven problems in Indonesia cocoa are:

(1) Processing industries have difficulties finding fermented cocoa.

(2) Low productivity and quality of Indonesia cocoa plants.

(3) Cocoa pest and disease

(4) Lack of financial support to the farmers

(5) Too many intermediaries in the cocoa trading chain

(6) Importers demand for non-fermented cocoa

(7) Increasing demand on export of cocoa

Research by Rifin (2013) using Revealed Comparative Advantage (RCA) and Almost Ideal Demand System (AIDS) tools, Indonesia has a comparative advantage on producing cocoa beans although it is still below Ivory Coast, Ghana, and Nigeria. This research also concludes that Indonesia and Ghana's cocoa beans are complementary in the international market and recommends cooperation between two countries to get the most benefit on the increase of world demand.

2. Global Value Chain

A value chain is the full range of activities that firms and workers do to bring a product or service from its conception to its end use and beyond. The activities that are included in a value chain are design, production, marketing, distribution and service/support to the end user. All the activities in a value chain can be done by a single firm or divided among a number of firms. They can be contained within a single geographical location or spread over wider geographic regions/countries. When the chain of interrelated activities to bring out a product or service from concept to complete production and delivery to final consumers is divided among multiple firms in different geographic locations, it is known as the Global Value Chain (CTCS, 2013).

Through the globalization, the majority of developing countries, including the poorest, are increasingly participating in GVCs. GVC links in developing countries can play an important role in economic growth, domestic value added created from GVC trade can be very significant relative to the size of local economies. …

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