Deregulation and Development in Indonesia

By Farrukh Iqbal; William E. James | Go to book overview

CHAPTER 8

Sulawesi’s Cocoa Boom: Lessons of Smallholder Dynamism and Hands-off Policy1

Akihiko NishioandTakamasa Akiyama

Indonesia’s cocoa sector expanded dramatically during 1980–1994 with production rising at a compounded average rate of 26 percent per annum, taking the level of output from 10,284 tons to 271,127 tons and making Indonesia the world’s third largest cocoa producer after Cote d’Ivoire and Ghana. Exports of cocoa beans reached $166 million in 1993, making this one of Indonesia’s major agricultural exports. The objective of this chapter is to discuss the reasons for the sector’s phenomenal expansion. Two conclusions emerge from our analysis. First, a major factor behind the sector’s growth was the relative lack of government intervention in the production and marketing of cocoa. Second, government nevertheless played an important role in providing adequate infrastructure to make the cocoa business a profitable one for smallholders to enter. These conclusions are based on an investigation of cocoa farming and distribution on the island of Sulawesi that accounts for the bulk of Indonesia’s production.

While there are three categories of cocoa producers in Indonesia, namely, smallholders, private estates, and government-owned estates (PTPs), about 80 percent of incremental production during 1980–1994 came from smallholders whose share in total output increased from 10 percent in 1980 to 27 percent in 1985 and 72 percent in 1994. This was clearly the most dynamic producer group in the system and is also the focus of this chapter.

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