Markets for High-Value Commodities in Indonesia: Promoting Competitiveness

and Inclusiveness

ICASEPS

Knowledge, Tools and Lessons for Informing Design and Implementation of Food Security Strategies in Asia

A technical workshop and conference Kathmandu, Nepal

November 14-16, 2011

What is important about the topic?

Importance: We Address the “New Food Policy Paradigm”

Previous Food Policy Focus: Access to foods, income and price

Food policy should focus on

1.Lifestyle-induced dietary transformation 2.The impact of the expansion of modern food

retailing, distribution and wholesale firms, and “demand for product-specific characteristics”

(Timmer, 2008)

Hypermarket Penetration in Asia % Urban Shoppers using Hypermarkets Regularly,

2002-2009

86 88 81

75

58

26 16

98 90 90

59

71

45

22

0

20

40

60

80

100

120

Korea Thailand China Taiwan Malaysia Indonesia Singapura

2002

2009

Source: Nielsen, 2010

Project Objectives

1. Develop an improved understanding of consumer preferences for high-value food products, quality and different types of retail outlets.

2. Describe and quantify the patterns in restructuring of food supply chains for selected high-value commodities, including the differentiation into traditional and modern channels.

Project Objectives

3. Examine the patterns, determinants, and effects of

participation of farmers in restructured value chains for high-value commodities compared to traditional market channels.

4. Identify the policy and program implications at the national and local level to maximize the competitiveness and inclusiveness of the high-value agricultural sector.

INDONESIA

Survey Location (Producer and Consumer)

Lessons learnt from the

consumer survey

The hierarchy of lndonesian Government Administrative Living Area in Urban

No Government Hierarchy Level Number of Population

1. Municipal (city) More than 500,000

2. Kecamatan 26,000 – 200,000

3. Kelurahan 2,000 – 48,000

4. RW 200 - 2400

5. RT 80 - 600

Sample Selection – Urban Consumer Survey

o Stage 1 : Select cities within Java (based on population and size). a. Surabaya – largest (2.8M) ; 326.38 km2

b. Bogor – medium (949K); 118.5 km2 c. Surakarta – smallest (506K); 44 km2

o Stage 2 : - Select kelurahan within each selected city by proximity to modern

food retail stores by using map (in Surabaya and Bogor) - Select kelurahan by using grid line in the map (Surakarta) o Stage 3 : Randomly selected the Kelurahan

Sample Selection – Urban Consumer Survey

o Stage 4 : At each selected Kelurahan, ranked RWs and RTs based on “rough

income estimation” o Stage 5 : Randomly selected 2 RT at each selected kelurahan (over sample

the high-income RT) o Stage 6 : Listed all the HH at each selected RT o Stage 7 : Randomly selected the household

Sampling Result

Surabaya

Bogor

Surakarta

Pop Sample Pop Sample Pop Sample

Municipal 1 1 1 1 1 1

Kecamatan 31 20 6 6 5 5

Kelurahan 163 20 57 20 51 14

RW 174* 40 244* 40 20* 15

RT 1241* 40 1209* 40 108* 25

Household 2317* 600 1726* 280 915* 300

Note : * total population from randomly selected Kelurahan

Consumer Survey Questionnaire (16 Pages)

A. HH Characteristics B. Housing and Assets C. Cooking and Shopping

Attitudes and Behaviour D. Shopping Behaviour E. Food Consumption F. Non – Food Expenditure G. Retail Outlet Use,

Preferences Quality, Safety and Convenience

H. Factors in Food Choices I. Nutrition Attitudes and

Food Concerns J. Certification Awareness,

Purchases and Perception K. Certification L. Diet Related and Health

Management.

Modern Food Retail Format

Hypermarket Supermarket

Minimarket

Minimarket

Traditional Food Retail Format

Wet Market Wet Market

Small shop

Peddler Semi-permanent stalls

Consumers’ Perceptions of Modern Vs. Traditional Retail Formats

Commodity Price Quality Safety Trust the Product

Information Meat and Poultry WM (76%) WM (55%)

MM (33%) WM (51%) MM (34%)

MM (45%) WM 44%)

Fish and Seafood WM (81%) WM (55%) MM (33%)

WM (56%) MM (31%)

SS (47%) MM (44%)

Fruits WM (68%) MM (54%) WM (36%)

MM (54%) WM (37%)

MM (59%) WM (33%)

Vegetables SS (82%) WM (58%) MM (32%)

WM (55%) MM (34%)

WM (47%) MM (44%)

Milk and Yogurt (Dairy Products)

MM (37%) MM (54%) MM (58%) MM (65%)

Processed Food MM (45%) MM (67%) MM (73%) MM (77%)

WM (37%)

Rice WM (47%) SS (23%)

WM (36%) MM (25%)

WM (34%) MM (27%)

MM (36%) WM (31%)

Source : Toiba, Hery (2011) Note : WM = Wet Market; MM= Modern Market (Hypermarket and Supermarket); SS = Small Shops

Average Share of Expenditures on Food in Various Retail Formats

Commo dities

Hypermarket

Super market

Mini market

Semi Perm. Stands

Small Shop

Wet Market

Peddler Other

Fresh Meat and Poultry 3.1 2.9 0.5 0.9 27.6 47.3 15.5 2.4

Fresh Fish and Seafood

2.6 1.6 0.2 2.0 5.9 63.2 21.4 3.1

Fresh Fruit 9.8 10.0 1.7 15.0 6.7 41.6 14.5 0.8

Fresh Vegetables 1.9 1.1 0.1 2.2 16.2 54.7 24.8 0.2

Fresh Milk and Yogurt 16.4 18.1 18.3 4.4 28.3 4.5 4.6 5.5

Processed Food 11.7 12.4 10.2 0.9 38.6 16.7 6.1 3.3

Rice 2.4 2.0 0.9 0.1 46.5 26.3 1.2 20.5

Source : Toiba, Hery (2011)

Share of Food Expenditures by Product: Modern vs. Traditional Retail Outlets

0

10

20

30

40

50

60

70

% o

f ave

rage

hou

seho

ld e

xpen

ditu

re s

hare

Fresh meat, poultry meat and offal Fresh fish and seafood Fresh fruits Fresh vegetables Fresh milk and yogurt Processed food items Rice

Traditional > 40% expenditure on

fresh meat, fish &FFV spent at wet market and >14% at peddler

Modern • < 10% expenditure on

fresh produce & vegetables spent at modern food retailers (MFR)

• 20% expenditure on fresh fruits spent at MFR

• 52% expenditure on fresh milk and 35% processed foods at MFR

Source: Toiba, Hery (2011)

Food Shopping Frequency: Modern vs. Traditional Food Retail Formats

0

5

10

15

20

25

30

35

40

45

% o

f urb

an h

ouse

hold

s

Daily 2-3 times per week Once a week 2-3 times per month Once a month < once a month never

Heterogeneity in use of outlets • Traditional

• Small shops, wet markets & peddlers are used on ≥ weekly basis by most (>65%)

• Modern • 10% shop ≥

weekly at hypermarkets & supermarkets

• 25% shop ≥ weekly at minimarkets

Source: Toiba, Hery (2011)

0

10

20

30

40

50

60

70

Heard Purchased Prefer to purchase

% o

f urb

an c

onsu

mer

s

Consumers' Awareness, Purchases and Perceptions Towards Credence Attributes on Fresh Food Products

Certified Organic

Pesticide Free

62% “aware” of organic & pesticide-free 32% previously purchased organic & pesticide-free 58-65% would prefer to purchase food products labelled as ‘certified organic’ or ‘pesticide free’

Urban Consumers’ Perceptions of Certified “Organic” and “Pesticide Free”

% of respondents who agreed that Certified Organic or Pesticide Free…

Stated Willingness-to-Pay for “Certified Organic” Food Products

• 65% - 69% willing to buy certified organic if price was “right” • On Average, Indonesian urban consumers were willing to pay a

price premium of 20% for certified organic products

• Not significant differences in premiums across product categories

Products

% Regularly Purchase [product]

Normal Price

(Rp/kg)

% willing to buy “certified organic”

if the price was right

Average Willingness to Pay

(% extra from normal price)

Chilli 98.5% 24,900 66.1% 19.5%

Mango 94.4% 7,500 65.6% 21.8%

Shrimp 75.9% 35,500 68.7% 19.5%

Chicken 96.3% 24,300 65.9% 18.4%

Lessons learnt from the

Producer survey

Sample Selection – Producer Survey (Supervised by Dr. Nicholas Minot (IFPRI)

Stages West Java Producer Survey (Chilli)

North Coast Java Producer Survey

(Shallot) Selected purposively major producing areas

Garut, Tasikmalaya and Ciamis

Brebes

Collected information and purposively selected for specific farmers (snow balling technique)

Farmers who supplied modern retail market (N= 113 farmers)

Farmers who adopted non-conventional farming method (N=160 farmers)

Systematic Random Sampling at subdistricts and villages for “traditional farmers”

Garut (24); Tasikmalaya (9) and Ciamis (9)

Low land: 45 villages Upland: 12 villages

Listed 150 – 300 HH farmers from total growers population in each selected village

Randomly selected 12 HH per villages

Randomly selected 10 - 12 HH per village

Randomly selected the household farmers

504 HH Low land: 540 HH Upland: 120 HH

Table 1. Household, farm characteristics, and income of traditional and modern chili farmers (mean values)

Variables Traditional Channel

Modern Channel

Total

Household Characteristics Household member 4.56 4.34 4.51 Age of respondent ** 46.24 43.86 45.79 Education of respondent *** 6.46 7.96 6.74 Experience in producing chili *** 9.44 6.74 8.93 Proportion of adult between 15 and 65 years 69.08 66.55 68.60 Proportion of adult over 65 years 2.39 3.92 2.67 Own of mobile phone 74.00 79.00 75.00 Distance to sub district market 6.06 5.46 5.95

Source: Sahara (2011) Note : *** significant at the level 1% ** significant at the level 5%

Table 1. Household, farm characteristics, and income of traditional and modern chili farmers (mean values)

Variables Traditional Channel

Modern Channel

Total

Farm Characteristics

Land size 0.70 0.8 0.72

Irrigated land 0.26 0.3 0.28

Area planted with chilli *** 0.34 0.48 0.36

Production of the largest plot 1.80 1.82 1.81

Productivity of the largest plot 9.04 8.50 8.94

Average chilli price over the last season*** (IDR/Kg) 6,233 8,323 6,628

Own of cattle/buffalo over the last 5 years 5.95 6.25 6.01

Own of tractor over the last 5 years 1.44 1.79 1.50

Own of water pump over the last 5 years 18.89 24.11 19.87

Own of storage house over the last 5 years ** 14.99 24.11 16.69

Buy/rent chilli land over the last 5 years 13.76 15.18 14.02

Water pump investment over the last 5 years 5.54 8.04 6.01

Spraying equipment investment over the last 5 years*** 43.33 63.39 47.08

Table 1. Household, farm characteristics, and income of traditional and modern chili farmers (mean values)

Variables Traditional Channel

Modern Channel

Total

Income Characteristics

Gross household income** 60.57 98.31 67.63

Net household income*** 22.8 32.66 24.65

Net chili income *** 6.13 13.67 7.54

Net income from other activities 16.71 19.03 17.14

Source: Sahara (2011) Note : *** significant at the level 1% ** significant at the level 5%

Table 2. Post harvest activities and number of buyers of chili farmer in traditional and supermarket channels (mean values)

Variables Traditional Channel

Modern Channel

Total

Activities prior to sale

Remove small or bad chili ** 80.08 92.86 82.47

Sort into different groups by size*** 8.00 40.18 14.02

Sort into different groups by color *** 14.58 54.46 22.04

Sort into different groups by quality *** 16.22 55.36 23.54

Put into bags or boxes*** 77.41 93.75 80.47

Keeping records

Keep record on the amount of pesticides *** 11.70 45.54 18.03

Keep record on the dates of pesticide application*** 5.95 14.29 7.51

Keep record on the chili prices*** 21.97 81.25 33.06

Keep record on the chili quantities*** 21.15 80.36 32.22

Source: Sahara (2011) Note : *** significant at the level 1% ** significant at the level 5%

Table 2. Post harvest activities and number of buyers of chili farmer in traditional and supermarket channels (mean values)

Variables Traditional Channel

Modern Channel

Total

Buyer

Have more than one buyer over the last 5 years** 66.32 56.25 64.44

Have more than one buyer over the last year 33.26 30.36 32.72

Buyer provide technical assistance*** 6.98 58.93 16.69

Source: Sahara (2011) Note : *** significant at the level 1% ** significant at the level 5%

Indonesian Food Policy

Ministry of Agriculture Medium Term Plan (2010-2014) Establish a communication, information, education and

promotion program of “food safety for fresh produce” Implementation of food quality and safety standards for

“processed food” at small to medium-sized enterprises or home industry

Mandatory certification for organic products (fresh and processed), fermented cocoa and Rib Rubber Sheet at the end of 2014

Contribution to Indonesian Food Policy Practical Lessons Traditional food retail market still play a significant role as the first

place for food shopping for most urban consumers Consumers with higher concerns about nutrition, food safety and

convenience also shop for food more frequently at modern food retailers

Demand for food products with credence attributes is growing in

urban areas

Supermarket participation for smallholder is influenced by education, distance to market, technical assistance, years of experience producing chilies, land size, and the number of buyers

Supermarket participation is associated with higher household incomes for farmers

Provide technical assistance for farmers: to facilitate farmers performance in order to meet the supermarkets’ standards

Contribution to Indonesian Food Policy

Investment Strategies Provide assistance for traditional food retailers to be

more innovative to meet the “new food demand” Create an incentive for smallholder farmers who have

implemented organic, pesticide free, IPM and GAP in their farming systems (e.g. certification)

Technical assistance in farming systems and supermarket standards will increase farmer’s participation in modern food retail market channel

Limitations and GAP Limitations and GAP It is necessary to conduct trader survey to examine

relationship with farmers, suppliers and modern food retailers

It is important to distinguish and address different chain actors in the value chain into different types of survey

This research only focused on domestic market, there is no information regarding international trade (export – import activities)

Limitations and Gaps

Scaling out, the issues that should be considered: Different level of priorities on food policy between

countries in Asia The scope of research

E.g. determine which sector of the value chain will be focused on?

scope of work = research budget Pilot Project? Multi stakeholder involvement (e.g. across

government agencies, private sectors and NGOs)?

Acknowledgement

• Research Colleagues : Hery Toiba and Sahara

• Dr. Wendy J. Umberger • Dr. Nicholas Minot • Prof. Randy Stringer • ICASEPS Colleagues (Research Team and

Data Management Team) • Enumerators

THANKS wahida@adelaide.edu.au