Regional Economic Development and Sustainable Pepper Promotion

1. Regional Economic Development and Sustainable Pepper Promotion By P. Lyssens Agribusiness Advisor Swisscontact Kuching, 11 November 2013

2. Table of Content • 1. Regional economic development (RED) in West Kalimantan (programme, objective) • 2. The RED methodology • 3. Using the “sustainable pepper promotion” in the RED programme

3. 1. The RED programme • RED (Local and Regional Economic Development) is a cooperation project between: • the Indonesian Planning and Development Agency (BAPPENAS) and • the German Federal Ministry of Economic Cooperation and Development (BMZ). • Implemented by • the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)/ Swisscontact (SC) • strives to increase regional competitiveness through a more sustainable path to economic growth

4. The RED objective in West Kalimantan RED is supporting the region of Singbebas, • city of Singkawang • districts Sambas and Bengkayang. Focusing on the regional and provincial priorities and promoting: • the tourism sector; • the white pepper value chain • the creation of an enabling business environment H

5. 2. The RED Methodology • Value chain analysis • SWOT (Strength, Weaknesses, Opportunities and Threats) • Identify critical solution: ... “sustainable” white pepper H

6. a. Actors and activities along the pepper Value Chain in W-Kal (1) • Production of 4.432 tons of dried WP on an area of 9190 ha with average productivity of 0.48 WP ton/ha. • Farmers (more than 20,000), traders and input suppliers have an average of 14 years experience in the pepper business • Ethnically diverse • Average 26% of total plot size is dedicated to WP farming • 75% of farmers state pepper as main income source. • 90% of farmers plan to increase production of WP • Gender specific activities • Pepper is sold through multiple traders before being sold on the international market with limited grading and sorting

7. Village traders (collectors) Price IDR 70,000 Activity: Drying Bengkayang District Farmer Big Trader Tanjung Broker Kab. Bengkayang Activities: Defoliation, Soaking, Peeling Pinang Singkawang and Drying Activities: Sorting & Grading Activities: Sorting, Grading & Packing Farmer Village Sub-district Subah Activities: Defoliation, Soaking, Peeling Big Trader and Drying Kab. Sambas Broker Jakarta Pontianak Activities: Sorting & Farmer Village Activities: Grading Sambas District Collector Trader Sebubus Sorting, Grading & P acking Sub District Paloh Activities: Defoliation, Soaking Exporter Activities: Drying Peeling and Drying Malaysia Border area Farmer End Village: Telok Melano Village Temajok (Malaysia) Buyer Activities : Defoliation, Soaking, Peeling and Sold to Malaysia Drying When the price is high a. The value addition along the chain (2) Pepper Farmers Village Traders District Traders Int’l Traders Province Traders Price IDR 73,000 Price IDR 75,000 Price IDR 85,000 Price IDR 73,000 Price IDR 73,000 Price IDR 75,000 Price IDR 85,000 Price IDR 76,000 Price IDR 85,000 Price IDR 70,000 Price IDR 73,000 Price IDR 70,000

8. b. Key findings – SWOT for Pepper Singbebas Strength Weakness • Low level of organization • Problems of input quality • Low productivity • Long supply chain (high price fluctuation, limited bargaining, limited share of value added) • Environmental issues • Steady demand, growing • Good soil and climate conditions • Long-term experience in pepper production, 75% as main business • Critical mass ofproduction in Singbebas to become interesting for buyers Threats Opportunities • Palm oil as competitor • Crop failures / over supply • Increased demand from consumers for quality (sustainable products) • Positive sector dynamics; • farmers plan to increase production • improve GAP H

9. c. Problem analysis, critical solutions Intervention 3 Promotion for“sustainable “ white pepper Intervention 2 Training on good farm practice Intervention 1 Farm Group Organization

10. 3. Applying the “Sustainable” white pepper promotion

11. a. “Sustainable” Pepper : Rationale • The market imposes it The consumer (mainly in the EU and US) becomes more demandingon quality and the environmental impact of goods he buys • Food related regulations The national food and safety bodies become stricter  “Sustainable” distributors and regulators ensure necessary mitigation measures are taken.

12. b. Consequence of the rationale From Traditional Pepper to Sustainable Pepper • Buyer/ distributor explains to his supplier howthe pepper has to be cultivated, ... according to sustainable principles. •  Additional requirements/ specifications; A new “Knowledge Transfer” on the product delivery. A transfer of information with: 1. a higher complexity, which can be 2. codified (leading to standard procedures) and 3. a capacity of the supplier to accomodate to the new requirements •  Farmersin general have limited capacity to understand and implement these protocols. They need specific support / incentives from the buyers arenecessary. •  Buyerstherefore have to establish closer (partnerhsips) and longer relations (term contracts) with their suppliers / farmers’groups or the trader/middleman Sustainability is about: • Biodiversity • Soil and water • Crop management • Health • Social Welfare • Waste Management • Administration

13. b. Consequence of the rationale Necessary steps - Socialization of the " sustainability concept" - Mapping of interested actors - Identification of product specification, requirements and expected capacities to meet them - Identification of existing gaps and needs - Identification on process to fill the gaps and needs - Identification of responsibility of related actors to put the process in place (faciltation, agreement), - Farmers organized - Farmers’ technical capacities increased Limitations to "sustainable market" promotion Precondition for the transition from "open market" to "sustainable market" - "Sustain" Market is large enough (saturation) - No competition from easier markets - Overkill in regulations, requirements,... Farmer / supplier - Willingness - Ability - Incentive Buyer / Intl Distrib - Willingness - Ability - Market

14. d. Who are our partners and what is their role in West Kalimantan? Pepper Working Group Selected Enterprises in the Sector Mainactors in the value chain. Partnersfor Dishutbun: designing and implementing changes to enhance competitiveness. Commercial incentives are their driver. By choosing “sustainable” white pepper the programme aims at a strong partnership between farmergroups and anchor enterprises / buyers H

15. e. Action Plan for the promotion of sustainable Production

16. Conclusion • By November 2013, the RED programme in West Kalimantan has: • More than 120 dynamic, motivated farmers • Organized in farmers’groups (pre-cooperatives) • On the way to be certified in “sustainable”pepper for about 70 – 100 ton / year • Trained in GAP • Working hand in hand with the administration (extension workers) • Possibly with IPR (locally branded product) • Looking for more buyers / traders to work with and partner with the farmers and purchase Sustainable White Pepper. • On its way to prove that West-Kalimantan is improving its competitive position in the pepper sector by promoting “Sustainable White Pepper”.