Vegetable value chains in Eastern Indonesia–a focus on chilli

SADI-ACIAR research report, October 2007
Benjamin White with Phillip Morey, Dr Ronnie Natawidjaja, Dr Wendy Morgan

Executive summary

Indonesia, the fourth largest market in the world with a population of 220 million in 2005, is forecast to reach almost 250 million people by 2015, making it a large food market.

Consumption of fresh food is increasing and urban based consumers are becoming more health and convenience conscious. This has opened up opportunities for the modern retail sector to expand further into fresh foods, such as the offer of hydroponic and organic vegetables.

Indonesia has over 17,000 islands and this provides a major challenge to distribute fresh products nationally. Most of Indonesia's locally produced fresh vegetables (cabbage, potato and chilli) are distributed throughout Indonesia in non refrigerated transport. However, there is increased use of airfreight for select high value fresh vegetables for inter-island trading where there is shortage of local supplies.

The traditional wet markets still dominate fresh food trade however there is an increasing trend of food purchases at modern retail outlets. Most supermarkets and hypermarkets in Indonesia have expanded their share of the retail market with the opening of new stores throughout major cities in Indonesia and with an increased emphasis on fresh food and higher value lines, such as hydroponic and organic vegetables. Both Matahari Hypermart and Hero supermarkets are now offering a full range of ingredient vegetables and other food items essential for Indonesian cooking. In the vegetable section, there is now a full range of chilli (five varieties), ginger, onions, garlic, pepper etc.

Indonesia's vegetable production has increased by an average of 8% per year since 2001 from 6.9 million tons to reach more than 9 million tons (excluding almost 31 million tons of mushrooms) in 2005, from almost one million hectares of land; an average yield of 9.6 tons per hectare. The main vegetables grown in Indonesia (besides mushrooms) are cabbages, chilli, potato, shallots/onions and tomato.

There are 33 provinces in Indonesia that produce over 20 types of vegetables; however 85% of all vegetables are grown on the islands of Java and Sumatra. The major vegetable producing provinces are: West Java (35.6%), Central Java (13.3%), East Java (11.9%) and North Sumatra (10.3%); these four provinces account for over 70% of all vegetable production.

Imported vegetables accounted for only 4% of total consumption in Indonesia in  005.

East Indonesia accounted for only 11.6% of the volume of all vegetables produced in Indonesia in 2005 yet has 16.0% of the population; this represented an average of 28.7 kg per capita compared to an average across Indonesia of 39.8 kg per capita. Therefore Eastern Indonesia is a net importer of vegetables, with supply mainly from Java.

North Sulawesi (274,134 tons) and South Sulawesi (256,153 tons) are the main vegetable producing provinces in Eastern Indonesia in 2005 with 52% share of all vegetables from the 13 provinces in Eastern Indonesia.

The province of South Sulawesi has a topography and climate that is suitable for vegetable production and hence grows a wide range of vegetables for local consumption and inter-island trading. South Sulawesi produces about 256,000 tons of vegetables from almost 55,000 hectares of land; an average yield of 4.7 tons per hectare. The main vegetables grown in South Sulawesi are: cabbage (25.4%), chilli (15.3%), yardlong bean (7.9%), leek (6.5%) and tomato (6.3%).

The main issues, related to vegetable supply, for retailers in Makassar, the capital of South Sulawesi are:

• Consistency in quantity with a lack of local vegetable supply from Sulawesi, especially in the rainy season with retailers requiring to source supply from Java.

• Lower quality of local fresh produce compared to product sourced from Java.

• Large price fluctuations for some vegetables like chilli.

Production of chilli in Indonesia has been increasing by an average of 20% per year since 2001 to reach over 1 million tons in 2005 from about 190,000 hectares; accounting for about 12% of vegetable production. Over 60% of chilli is produced in Java with west Java (198,000 tons) being the major source of large chilli and east Java (143,000 tons) being the major source of small chilli. There is a wide variation in yields of large and small chilli.

The chilli sauce manufacturing industry is based on the island of Java (which has over 60% of all chilli production for fresh and processing) with 10 major companies and 12 manufacturing plants.

A value chain analysis of four supply chains of chilli found that supply to supermarket gives the highest return to farmers. The lowest value chain is a channel to traditional markets.

The major issues facing the chilli industry in South Sulawesi are:

1. Low productivity

2. Benefiting from opportunities for value adding on the farm

3. No post harvest or cold chain management

4. Market development opportunities

5. Weak farmer bargaining power

It is recommended that there is a need to link smallholders to more dynamic markets such as channels to modern retailers and the food processing industry. Technical assistant to farmers is also needed on more efficient cultivation technology to increase productivity and the application of post harvest handling.

Available for download at http://www.aciar.gov.au/system/files/sites/aciar/files/node/3943/Final+report+SMAR-2007-042.pdf