Caught in the clinch of cacao? : a study of contemporary farmer behaviour in Sulawesi

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MASTER THESIS

Caught in the Clinch of Cacao?

A Study of Contemporary Farmer Behaviour in Sulawesi

Mei-Mei van Dorth tot Medler

Student Number: 5933765

meimeivdorth@hotmail.com

June 2014

Master Contemporary Asian Studies

University of Amsterdam

Supervisor: Dhr. Dr. G. Nooteboom

Second reader: Mw. Dr. R.A. Rutten

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List of Figures and Tables

Figure 1: Rural household livelihood strategies 5

Figure 2: The Sulawesi cacao chain 20

Figure 3: Cocoa beans, world prices in US Dollars per Metric Ton, May 1989-May 2014 25

Table 1: Characteristics of farmers 61

Table 2: Interviews 61

Table 3: Activities conducted 61

Table 4: Causes of low productivity mentioned by farmers 62

Table 5: Solutions to low productivity mentioned by farmers 62

Table 6: Farmers’ sources of income 63

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1. Introduction

Pak and Ibu Sitra have been cacao farmers for more than twenty years. They have one son who goes to school in Makassar. Pak Sitra only speaks Buginese, which is the main language spoken in Soga, but his wife is able to speak some Indonesian.

“We have two hectares of land, on which we used to have one thousand cacao trees. Until 1999, the harvests of cacao were good: we could yield a maximum of 300 kilos in peak season and 200 kilos in mid-season. The rest of the year, we could always harvest a little. Nowadays, we can harvest at most 100 kilos in the peak season and hardly anything during the rest of the year. Three hundred trees have died because of pests and diseases, and from those that are left many are dying too. We have sprayed pesticides but it didn’t work. It’s difficult right now... We used to get additional income from my job as a tailor, but I had to stop one year ago because I got ill. Now, we are dependent on the income we get from selling coconuts and corn. It is just enough to get by, but it’s not a lot.”

The story of Pak and Ibu Sitra is typical for the situation of many cacao farmers in Sulawesi. The decreased productivity and pests that attack cacao are universal issues. Most farmers have to deal with integrating incomes and decreased productivity. According to some scholars, this indicates the last phase of the boom-and-bust cycle of cacao: after a period of high productivity and gains, the end of the cycle is characterised by low-yielding crops that are infected with diseases (Ruf, 2007, p.108; Hall, 2011, p.3). During the 1980’s and 1990’s, virtually all farmers with land in Sulawesi switched from swidden farming to the mono-cropped production of cacao (Li, 2002). When prices of cacao reached a peak in 1998, the majority of farmers were able to improve their standards of living, which can be seen from the large homes built during this period. The supportive macroeconomic policies of the government benefitted the growth of the sector and the relatively quick spread of cacao across the island (Nielson, 2007). In Sulawesi, more than 400.000 smallholders make a living from this cash crop, as well as many intermediaries, processors and traders of cacao (Fahmid, 2013).

Cacao is the main ingredient for chocolate and related products. It is an example of a global commodity as production and consumption are geographically dispersed: while production is concentrated in third-world countries, the majority is consumed in Western Europe and North America. Together they account for more than eighty percent of total world consumption. Asia’s share of total consumption has also increased from 13% to 15% between 2002 and 2011 (ICCO, 2012, p.2). After Ivory Coast and Ghana, Indonesia is the third largest producer of cacao; they produce about 15% of the world’s total. Currently, people around the world consume more than four million tons of processed cocoa beans per year and annual demand is growing at an annual growth rate of 1.2%. However, the growth of Indonesian supply cannot catch up with the increasing

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demand from other countries in Asia. This indicates a shortage of supply in Asia and raises concerns within the industry about future prospects of the sector (ICCO, 2012).

However, while global agricultural trade has increased, the production for export markets does not seem to enhance livelihoods as much as they once did and differences in terms of food security, incomes and inequality have increased (Borras Jr., 2009, p.7). While the cacao industry has interests in improving the productivity of cacao, farmers show different behaviour; many are looking to diversify their sources of income or completely switching to other crops (ibid, p.8). NGO’s seem to be balancing between the interests of the industry and the well-being of farmers. While the cacao industry believes that improving the functioning of the value chain can improve production levels and well-being of farmers, beliefs in a promising future of cacao are not shared by all farmers. The various problem discourses and resulting strategies represent different worlds, in which there seems to be a lack of understanding of farmer behaviour.

There are two main perspectives among many theoretical perspectives of rural development (Borras Jr., 2009, p.13). The first promotes the improvement of poor people’s access to markets, which reflects the above perspective of the cacao industry. The second suggest that farmers’ insertion into certain patterns of social relations is the cause of poverty, hence these relations should be analysed and changed through political processes (ibid). Although rural development thinking from the 1980’s and the Indonesian government promoted agricultural export-oriented strategies as a way to improve farmer livelihoods, farmers who entered these global value chains are nowadays increasingly struggling to meet their daily needs. It is this paradox that this thesis aims to explore deeper: the production of cacao for international markets as a way out of poverty actually seems to enclose farmers into a situation where they do not have many options left. This raises the question whether farmers are caught in the clinch of cacao or whether there are still other ways to agrarian change.

1.1. Research question and relevance

One goal of this thesis is to understand the options of farmers to change the current situation in which they have to deal with decreased yields and incomes from cacao. As they are part of the global value chain of cacao, their options are likely to be influenced by power relations of other actors in the chain. Therefore the political economy structures of the value chain will be central to the analysis. The pressure of the cacao sector to improve production levels, results in particular strategies aimed towards farmers. This thesis looks at farmers’ room to manoeuvre in the current situation and how their behaviour is influenced by other actors. However, Carr argues that it is not just an “imposition of the powerful in the weak”, because all actors are embedded in a particular

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context they cannot control (ibid, p.86). Therefore, I will also look at larger structural processes, specifically the impact of the boom of cacao. This leads to the following research question:

“How are cacao farmers’ options to stay in cacao or look for alternatives shaped and how do these options translate into particular strategies?”

In this thesis I argue that the particular characteristics of the boom of cacao have shaped the contextual setting and have set in motion irreversible changes, which influence the options and strategies of farmers today. However, I will also show that within the particular constellation of the cacao chain nowadays, some farmers have more agency than others to guide their acitivites in or outside cacao. When analysing farmer behaviour more closely, it becomes clear that there are considerable differences between farmers.

What is the relevance of this approach? According to Borras Jr. (2009, p.9), central to the question of agrarian change is the role of agency of rural people in response to the politics of agrarian change. Livelihood approaches are key in development thinking to understanding agency of people, but have been criticised for ignoring the influence of politics and power as well as failing to incorporate the effects of economic globalization on livelihood strategies (Scoones, 2009, p.180). Scoones (ibid) argues that therefore political economy should be at the core of livelihood studies because it is gives insights in how different people gain access to the resources and assets needed to engage in certain activities. Bernstein et al. (1992, p.24) has attempted to accomplish this by looking at who gains and who loses and why. This gives insight to “processes of marginalisation, dispossession, accumulation and differentiation” (Scoones, 2009, p.187). In this thesis, I will incorporate political economy in farmer decision making, by connecting a global value chain approach with livelihood studies. According to Scoones (ibid) a challenge is to incorporate the influence of networks and connections with others in livelihood analysis, but to “remain firmly rooted in place and context”. This context is conditioned by histories of places and people. Therefore, I will analyse the effect of the history of boom and bust on my respondents’ behaviour. Specifically, boom-and-bust theory of cacao is used to explain the historical development of cacao, as it gives understanding in the current motivations of the industry to increase production as well in the social changes of cacao on farmers.

1.1. Thesis outline

The structure of the thesis is as follows. In chapter two the main theories which form the framework of my research findings are discussed. These theories follow from the structure of the research question, and include characteristics of crop booms, global value chain analysis and livelihood strategies. Chapter three will give an overview of the research setting and population as well as a

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justification of the research methods used. In chapters four, five and six the research findings are presented. Each chapter contributes to the understanding of the central research question, by giving answer to a sub-question. The following three sub-questions are formulated:

1. How are farmers inserted into the global value chain of cacao and how do relations with

other actors influence their position?

2. What are the problem perceptions of different actors and how do they translate into

particular strategies?

3. Which factors are important in shaping farmer behaviour and how does a combination of

these factors result in different types of livelihood strategies?

Chapter four discusses the structure of the Sulawesi value chain. Chapter five discusses the contrasting perceptions about the current situation; this gives insights in discourses of the various actors involved. Chapter six looks at how farmers make decisions. In chapter seven the research findings are analysed and connected to theory. Furthermore, this chapter gives a conclusion by giving an answer to the central research question.

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2. Theoretical framework

I use three main approaches to frame my research findings. First, some general features of crop booms in Southeast Asia will be explained, because the characteristics has had considerable impact on rural communities and it shapes farmers’ decisions and strategies today. Furthermore, the historical development of the crop boom has shaped the contextual setting of the global commodity chain of cacao today, which can explain the industry’s and NGO’s motivations to increase production and quality levels. Global value chain analysis gives insights in the political economy of cacao production and it shows farmers’ position in the global value chain of cacao. Livelihood theories will be used to understand the agency of farmers who are embedded in these political hierarchies.

2.1. Southeast Asian crop booms

To understand the impact of the boom of cacao on the various actors, this paragraph will explain the main characteristics of a crop boom. Cacao is an example of a world commodity that is known for its history of boom-and-bust cycles (Li, 2002). Hall (2011) gives several characteristics of tree crop booms in Southeast Asia. A crop boom occurs “when there is a rapid increase in a given area in the amount of land devoted to a given crop as a mono crop or near-mono crop, and when that crop involves investment decisions that span multiple growing seasons” (as cited in Hall, 2011, p.3). In general, crop booms are facilitated by two important factors: access to land and migration. Specifically, migrants benefit from ‘forest rents’; the fertile soil at the frontiers of primary forests. The clearing of these frontiers results in large scale deforestation and increased amount of lands farmed. Furthermore, Southeast Asian crop booms have been facilitated by a combination of rapidly rising market prices, direct and indirect support from the government and the availability of information. This results in profits for many (but not all) actors involved. The end of the boom is often a response to diseases, pests or falling prices, as well as a shortage of new forest frontiers (Hall, 2011, p.3-4). Apart from these commonalities, Southeast Asian crop booms each have their own biological and ecological characteristics, like their suitability for certain types of soil, seeds, climates and vulnerability to pests and diseases. They also have different financial, technical and labour requirements. Furthermore, the organizational frameworks may differ depending on the relative weight of the main actors. These actors are state actors, private companies, smallholders and landless people and together they shape the way that production is carried out (ibid).

Looking at Sulawesi, what makes the boom of cacao a typical one and what distinguishes it from other countries? Throughout history, production of cacao has shifted from one country to the next. Cacao grows best in tropical forest areas around the equator and needs both sun and rainfall. The trees start yielding after about five years, and continue to do so until they are about fifteen years

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old. After that, productivity and yields start to decline. After about twenty years, trees are old and are ready to be replanted. The end of the cycle is usually characterised by the low productivity of crops that are infected with diseases. This resulted in many farmers abandoning their farms and switching to different crops or moving to another area (Ruf & Schroth, 2004, p.108). After the decreasing yields in Malaysia, production of cacao moved to Indonesia. Favourable market conditions, the availability of (and access to) forested areas and big streams of Buginese migrants from Malaysia who provided information enabled the cacao boom in Sulawesi in the 1980’s and 1990’s (Jamal & Pomp, 1993). Because Sulawesi has mostly mono-cropped cacao farms, pests and diseases were able to spread more widely: nowadays the Cocoa Pod Borer has attacked most major growing regions, indicating the end of the cycle (Neilson, 2007, p.229).

However, considering the ecological conditions of cacao, Sulawesi has different pests than other growing countries, which might require specific genetic materials or inputs. When looking at the organizational framework, there are considerable differences with other major growing countries. The African sector is characterized by much more government intervention than the Indonesian cacao sector. Furthermore, cacao farmers in West Africa mainly conduct the fermenting process themselves, while Indonesian beans are mainly exported unfermented (Akiyama & Nishio, 1997, p.109). These varying relative weights of the actors involved might result in different farmer behaviour across regions and a different constellation of the cacao chain. Furthermore, cacao in Indonesia is mainly grown by former migrants from Buginese ethnicity, which might also explain different behaviour compared to other countries.

Franzen and Mulder (2007) looked at farmer behaviour in response to fluctuating prices in different regions. The relative prices of other crops appeared to be an important factor for farmers to switch. Although it appeared difficult to analyse price effects on farmers, in general farmers abandoned their cacao as a response to crashes in prices and diseases, and increased production and forest clearing in response to high prices (ibid, p.3842). Furthermore, high costs for inputs resulted in increased labour, while an increase in labour costs is an incentive to switch to another crop (ibid). Furthermore, because full-sun production of cacao compared to shade production requires lower labour costs and gives higher yields on the short term, many farmers in Sulawesi have shifted to full-sun cacao. This full-sun production requires the use of more expensive chemical inputs on the long term when people want to shift back to food crops as it decreases the fertility of the soil (Franzen & Mulder, 2007, p.3843).

To conclude, the Sulawesi chain shows typical characteristics from tree crop booms observed in Southeast Asia. However, the specific ecological conditions, institutional setting and demographic

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characteristics may result in a different organization of production. To understand how cacao production is organized in Sulawesi, I will use a global commodity chain analysis.

2.2. Global commodity chains

One of my objectives is to understand how farmers’ decisions are influenced by their position in a transnational production chain. Global commodity chain analysis helps to understand the particular configuration of a chain shows how actors are related and implicitly gives insights in power relations. There are various definitions of a commodity chain, but in general it refers to the connection of activities through which a commodity is extracted, produced and marketed until the end user (Ribot, 1998, p.307-308). Global value chain analysis examines power relations between international buyers and local producers, and looks at how developing countries that are involved in these chains can upgrade their activities or improve their situation (Gibbon, 2001, p.345). It helps to understand “who benefits from natural resources, how they benefit, and how those patterns of benefit distribution might be changed” (Ribot, 1998, p.308).

Global value chain analysis consists of several steps to map the distribution of benefits from natural resources and the processes behind it (Ribot, 1998). First, the different actors involved should be identified. Secondly, profits at every level of the chain should be examined through an analysis of prices and quantities of the commodity traded at each level. This shows the added value at each level of the chain. Third, the distribution of benefits should be analysed; this implicitly looks at power relations between the different actors. This shows who has access to markets, resources and means of production, and who has control to govern this access. The distribution of benefits also means looking at how the geographical distribution of actors and activities influence power relations. Finally, the mechanisms that control the distribution of these benefits should be mapped. This means explaining the institutional framework, which are the systems of formal rules and regulations as well as informal norms, values and conventions in and by which actors at different levels are embedded and shaped (Ribot, 1998, p.313). This analysis is useful to map the social and political-economic hierarchies and networks in which the farmers are embedded. It is possible that these hierarchies change over time, therefore the historical development of these patterns should also be analysed (Ribot, 1998, p.335). This will be done by looking at boom and bust cycle of cacao and the way that it shaped the chain.

2.2.1. Governance and upgrading

The extent to which farmers are able to deal with other actors is influenced by power relations in the chain. The power relations determine who has coordination and control on the way that production takes place. There are various theories about governance in commodity chains. According to Gereffi

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(1994, p.7), GCCs can be divided in producer-driven and buyer-driven chains. Producer-driven chains are mainly in sectors where production is capital- and technology intensive, and in which large companies coordinate production networks. Examples include the automobile, aircraft and computer industry. Buyer-driven chains are in sectors where production is more labour-intensive and where marketing plays a central role, such as garments and footwear. In buyer-driven chains trading companies coordinate relationships between other actors and dominate the market. The differences between the two types are the barriers to entry and determine to a large extent where control is situated (ibid). According to Gibbon (2001, p.346), the cocoa chain is an example of a buyer-driven chain, as coordination of the chain is mainly concentrated in ‘northern’ countries that control and determine production in ‘southern’ countries. The demand side of the cacao chain is concentrated; there is a limited amount of chocolate and confectionary producers. However, the demand is segmented with regards to the variety of the commodity; the final buyers need different mixes of cocoa qualities and types for certain products, like cocoa butter, powder or liquor. This is facilitated by a few large international trading companies, as individual suppliers or country-specific associations do not have the capacity to do so. The commodity traders profit mainly by handling large volumes rather than on capturing high margins on higher quality (Gibbon, 2001, p.351). Furthermore, barriers to entry into this specific function are very high because of the high requirements of capital (associated with the large volumes traded) and the knowledge of market information (ibid. p.351).

Other ways in which these chain governors exert power over lower level actors is by determining the conditions of participation in the chain. According to Ponte and Gibbon (2005), one way in which buyers govern the chain is by imposing quality standards on production. Because of the concentrated market power, lead firms are able to determine and manage quality standards which “shape the rules and conditions of participation” (ibid, p.3). Quality can be in terms of product characteristics, but also in terms of production processes and methods, often captured under ‘codes of conduct’. Lead firms argue that certain production processes and methods benefit lower-level actors because it ensures a sustainable supply and income in the future as well, reflecting environmental and socio-economic concerns (Ponte and Gibbon, 2005, p.12). At the same time, initiatives to give out certification for products that meet certain quality requirements benefit the lead firms and enable them to transfer value-adding activities to other actors. Hence, the way that lead firms are able to standardize quality standards on suppliers shapes the functional division of labour in the chain (ibid, p.22). Certification can therefore lead to the incorporation of some and exclusion of others.

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In a similar line of reasoning, Hall et al. (2011) argue that exclusion of people is determined by power relations. According to them, power relations determine who has access and control to resources and means of production. While Hall et al. focus on the exclusion from land, their concept is applicable to quality as well. They argue that all land use involve the exclusion of other people, in the sense that they cannot get access to the same land. Besides, “states intervene to set conditions in which selected groups are able to prosper and others are dispossessed” (ibid, p.11). Applying this to quality standards, for small-scale producers it might be difficult to obtain the required capital and inputs needed to meet the quality and production standards. Hence, the growing importance of process and quality standards imposed by the chain governors “become trade barriers for developing country producers” and “are often particularly challenging for small and medium scale producers who may lack the resources or skills to obtain and sustain the necessary certification” (UNCTAD, 2004, p.4). However, often lead firms provide farming inputs to farmers, so not to exclude farmers who cannot afford it. According to McMichael (2013, p.672), contemporary value chains are increasingly characterized by debt relations between corporations and farmers. Large companies provide farming inputs like seeds, fertilizers, growing practices and short-term credit in turn for farmers’ harvest. This forces the producer in a particular relation “that has the potential to become an instrument of control, debt dependency and dispossession” (ibid, p.671-2).

Proponents of globalization have argued that free trade will lead to economic growth and that access to markets will decrease poverty among farmers (Laven, 2010, p.18). Their solution lies in bringing markets to the rural poor, the rural poor to the market, or improving the functioning of the poor within this chain (Borras Jr., 2009, p.13). Upgrading activities can improve the position of farmers who are part of these transnational value chains, as they highlight the options that are available to producers to obtain better returns (ibid, p.25). The ways that wealth patterns in global commodity chains can be changed consists of various upgrading activities, as summarized by Gibbon (2001). Developing countries have several options to change the structure of the chain by upgrading their activities (Gibbon, 2001, p.345). The first is “capturing higher margins on exports of unprocessed raw material, by moving up the quality grade ladder, increasing volumes and reliability of supply” (ibid, p.352). The second opportunity is to produce new forms of existing commodities, for example by using gene-manipulated food crops that help to save on inputs. The third way of upgrading is through localizing commodity processing, which means that intermediate processing of raw materials should be done locally to add value to the product. This can be achieved through for example regulations and the stimulation of investments in processing business (Gibbon, 2001). Understanding in the availability of different upgrading opportunities, reasons to adopt particular upgrading strategies and why outcomes of these strategies for different farmers vary are still limited.

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It must be noted that these solutions to rural poverty are advocated by those who benefit from farmers staying in the production of cocoa. Upgrading theories merely approach development issues ‘from above’. According to Gereffi et al. (1994, p.12), a limitation of GCC analysis is that it lacks power to explain changing social relations between households and other actors. To also include a ‘bottom-up’ perspective, I will use a livelihood approach to analyse behaviour at household level.

2.3. Livelihood analysis

In the former part I have discussed upgrading opportunities from a value chain approach that might contribute to increased farmer income. However, according to Carr (2013, p.78), material goals are often not the only goals that households pursue. The goal of using a livelihood approach is to understand how farmers make decisions related to changing the current situation, and how these decisions are part of their overall livelihood strategies. In general, livelihood studies are concerned with the question how people live in a particular place and how they make choices between different activities (Scoones, 2009, p.172). The most commonly used definition was given by Chambers and Conway (1992): “A livelihood comprises the capabilities, assets (including both material and social resources) and activities for a means of living.” The focus of analysis is in general at the household level, often comprising several members. It is possible that more members influence farmers’ decisions to stay in cacao or to switch, so if relevant I will show how various members of the household relate to one another and influence decisions.

In contemporary development studies “livelihoods analysis rests on an implicit assumption that livelihoods strategies are principally, if not exclusively, efforts to address material challenges to well-being” (Carr, 2013, p.77). However, livelihood strategies include both social and material goals that often contradict (ibid). Understanding how farmers make decisions requires understanding how they balance certain inputs – referred to as capital, assets or resources- and how these capitals are used to engage in certain activities. Capabilities refer to what a person is capable of doing and being; this includes the ability to cope with stress and shocks, and to find and create new livelihood opportunities (Chambers & Conway, 1992, p.4). The combination of activities results in different livelihood strategies.

Livelihood analysis should start with the identification of access to and use of natural, financial, human, social and cultural capital. Natural capital is the availability of and access to natural resources. Financial capital includes cash, savings and assets. Human capital comprises a person’s skills and capabilities and determines the ability to find and create livelihood opportunities and to cope with stress and shocks (Chambers & Conway, 1992, p.4). Skills can be acquired through

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education and/or experience and influence a persons’ capabilities. They can also be inherent to the person himself. Social capital shows how actors engage with other actors to gain access to resources and activities. Examples are social organizations and kinship- or ethnic networks. Cultural capital is acquired through participation in cultural activities that are valued for their meaningfulness. Besides, it can create particular patterns of interaction through collective action. Hence, this can have an empowering function in the form of identity maintenance (Bebbington, p.1999, p.2034).

Apart from these five categories, the analysis should look at the context in which the household operates. The context involves engagement with markets and government actors, and the influence of natural forces like weather conditions, pests/diseases and environmental conditions. Historical developments and policy are also part of the context. Scoones (2009, p.178) argued that it is essential to central a political analysis in livelihood strategies because they have a large influence on the access to assets, activities and outcomes. This means that the influence of institutions and organizations on livelihood strategies should be analysed. This is where the livelihoods approach interacts with the global value chain analysis, because the latter exposes power relations and the way that farmers are influenced by power of institutions and organizations.

The combination of the various capitals and the influence of the context result in different livelihood strategies. These are agricultural production, livelihood diversification and migration. Examples of livelihood diversification are non-farming jobs, the involvement in community activities or exchange of labour or mutual assistance. According to Carr (2013, p.92) the livelihood strategies represent different ways of dealing with uncertainty and risk of factors in the context. The first type produces everything for markets in order to gain maximum income, which they use to buy food and goods. The rest they keep as insurance in times of falling prices. Those who maximize household income convert all their resources to increase financial income from agricultural production, which serves as a backup in times of falling production. The second type of farmers diversifies sources of income by differentiating their crops and activities. This way, they can always rely on their own food production, and at the same time have some money to spend. See figure 1 for a model of rural household livelihood strategies.

The adopted strategies also incorporate farmers’ perceptions of shocks and uncertainties about external forces. Because cacao crops are vulnerable to fluctuating weather conditions, risk perception is likely to influence farmers’ livelihood strategies. Risk can be described as “the probability that an event will cause harm” (Tucker et al, 2010, p.26). While according to Menapace et al. (2013) most farmers are risk averse, there are differences in levels of risk aversion between individuals. This is strongly influenced by social and cultural norms about what is harmful, as well as the perceived influence of the institutional context (ibid). Menapace et al. (2013) found that these

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differences in risk attitudes are linked to the subjective beliefs regarding the probability that an uncertain outcome will occur. They specifically looked at subjective beliefs of crop losses due to uncertain weather events. They found that historical losses have a strong influence on current perceptions (ibid, p.388). Furthermore, subjective beliefs and age were positively correlated; older farmers also had higher perceived probabilities, which corresponds with the findings of Harrison, Lau, & Rutström (2007) that risk aversion in general increases with age.

There are many ways that people deal with risks. In a paper of IDS, Hussein & Nelson (1998) argued that farmers can choose for agricultural intensification, livelihood diversification or migration amongst others. Jamal & Pomp (1993) found that smallholder-farming strategies appear to vary locally and may not be driven strictly by economic considerations. Many farmers were not aware of the exact returns from cocoa when they started growing it. The fact that neighbours had adopted the crop was seen as a signal of profitability (Jamal & Pomp, 1993, p.92). Furthermore, securing property rights and future income, a relatively high price compared to other agricultural products, quick maturation and yields throughout the year (no seasonality) were other reasons to adopt cocoa (Franzen et al., 2007, p.3840).

Figure 1: Rural household livelihood strategies

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3. Research methodology

This chapter will start with a description of the research setting and population. Next, I will give an overview and justification of the methods used. Furthermore, I will discuss obstacles and challenges faced during the fieldwork period. Finally, I will discuss some methodological limitations of the adopted methods.

3.1. Setting and population

On a warm and humid Tuesday afternoon in January, I arrived in the village of Soga. The journey took more than four hours, and after the crowded and polluted streets of Makassar (the main export port of cacao in South Sulawesi), the green surroundings and fresh air in the village were a welcome change. The last twenty kilometres of the road were unpaved hence we slowed down while passing through small villages – according to the driver typical cacao villages: the wooden houses on stilts with a large terrace on the first floor are typical for Buginese architecture and the wooden structures alongside the road are to dry cacao. The area was rather hilly but the views were hindered by cacao trunks, palm trees and other tropical vegetation. Finally, I saw two stones on the side of the road indicating that we had arrived in Soga. After some chitchat with the kepala desa (village head), it became clear that I was welcome stay in their house.

The next day Pak Desa took me to the village office where statistics about Soga are displayed on large posters. The importance of cacao seemed obvious; according to the village statistics, the majority of land is cultivated with cacao and the main profession is petani kakao (cacao farmer). However, Pak Desa told me that before cacao people planted corn and tobacco, and later also cotton. Because the harvests of these crops were not good anymore, some people went to Malaysia as migrant labourers where they found jobs on large cacao plantations. They came back with information about this cash crop and in the beginning of the eighties people started to plant cacao. By the nineties, almost everyone in Soga was bearing the fruits from cacao and earning an income from this crop.

Soga is a small village located in the district of Marioriwawo, Soppeng regency, South Sulawesi. South Sulawesi is the largest contributor of cacao beans (31.9%) in Indonesia and in Marioriwa, one of the most prominent crops is cacao (Kecamatan Marioriwawo, 2011). Therefore, the village of Soga was situated in a relevant area for my research. According to the statistics in the village office, Soga has 1746 inhabitants, of which 824 male and 922 female. All inhabitants are Muslim. Besides, all inhabitants are from Buginese origin, which is the ethnic group that introduced cacao in Sulawesi and hence has a strong history of cacao farming (Li, 2002). They are spread across three dusun (hamlets) called Bellalao, Pallawa and Tongronge. There is a river that passes by Pallawa

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and Tongronge, which is used for recreational fishing and the transport of bamboo to other districts. There are 550 kepala keluarga (family heads), indicating the number of households. The main profession is petani (farmer) and is almost equally divided between men and women (436 and 411 respectively). Other professions include construction workers, cattle holders, government officials, small- and medium entrepreneurs. The main commodity is cacao and is grown on 793 hectares with an average yield of 400 kg/ha. The second commodity is coconut and is grown on 60 hectares with an average yield of 1200 kg/ha. Candlenut is grown on six ha with an average yield of 500 kg/ha1_. These statistics are from 2008 but are currently changing and yields from cacao are not as high as they once were. Most farmers in Soga have plots between one and two hectares. The main crop is still cacao, but many farmers also grow alternative crops. Doing research in this village gave me the opportunity to study a cacao community closely and see how interaction (or lack of interaction) with external actors has influenced cacao farmers’ lives. See table 1 for an overview of characteristics of my respondents.

Table 1: Characteristics of farmers

Variable Sample average

Gender (1=male, 0=female) (%) 62,5

Buginese ethnicity (%) 82

Muslim (%) 100

Age 46

Number of household members 3,6

Farm size (ha) 2,6

Number of locations 2,6

Number of trees 662

Number of years in cacao 20

Labour use

Family labour only (%) 56

Hired labor (%) 46

Family members working off-farm (%) 38

Total number of informants 32

1_{These amounts were indicated in kwintal per hectare but converted here to kilogram per hectare, as only}

very rarely my informants indicated their yield in kwintal. 1 kwintal = 100 kg.

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3.2. Research methods

The methods chosen are closely linked to my research question and theoretical approach.

The central research question is: “How are cacao farmers’ options to stay in cacao or look for

alternatives shaped and how do these options translate into particular strategies?”

This question can be divided in to parts. One part looks at the context in which farmers are embedded, assuming that their behaviour is to some extent shaped by their position in the global value chain of cacao. The second part is focused on understanding farmers’ behaviour. As follows from the theoretical framework, I use global value chain analysis to analyse the perceptions of various actors and to understand why wealth in the cacao chain is distributed in a particular way. Mapping the various actors and gaining insights in their perspectives and how they are related was therefore part of my fieldwork. Furthermore, I use a livelihood approach to understand farmer behaviour and strategies. Because qualitative interviewing gives insights into the observations, activities and experiences of others (Weiss, 1994), this was my main method chosen. I conducted semi structured, in-depth interviews with different actors: people from the industry (cacao exporters and grinders), NGO’s and non-profit organizations, local government officials, intermediaries and cacao farmers. See table 2 for an overview of conducted interviews. Besides semi-structured interviews, I also had many informal, unplanned conversations that gave me insights in local culture, traditions and beliefs.

Apart from interviewing farmers, my most important method in the village was participant observation. Schensul et al. (1999, p.91) describe this method as a process of learning through presence at or involvement in the daily or routine activities of participants in the research setting. It can also give insights in socio-economic differences between farmers and patterns of social cooperation. According to Schensul et al. (1999, p.97), an observation setting is a location where behaviour and activities occur that are relevant to understanding the context of the study. Understanding the context of my research involves understanding the cacao chain and inherent power relations. Therefore, I attended several meetings of projects initiated by NGO’s where I could observe the behaviour of and interaction between different actors. These events also offered material for follow-up interviews, for example the way that farmers perceive external help. In the villages, I did observations in order to gain insights in social differences between farmers. Patterns of differences in appearances, income or lifestyles can show a ranking in the way that people are related to each other (Schensul et al., 1999, p.111). I mainly looked at housing structure and materials used as indicators of wealth. See table 3 for an overview of conducted activities and the information obtained.

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3.3. Methodological limitations

When I arrived in the village and found out that Buginese was the main language spoken. Even though I took a language course Indonesian for two weeks, in the beginning of my fieldwork period the language barrier was a major challenge encountered. In the first weeks in the village I was therefore always accompanied by Asad, the field facilitator from a local NGO called PayoPayo that introduced me in the village. Asad was my most important gatekeeper into Soga, because he was the only person who spoke Bahasa Indonesia, Buginese and basic but understandable English. Sometimes I made voice-recordings of the interviews, but often this was not very useful because the conversations were partly in Buginese, which I was not able to transcribe.

Asad’s company connected me to him (and the local NGO) during my entire stay in Soga and it is likely that the content of the information I gathered was influenced by the way that farmers perceived Asad. In addition, for the selection of farmers I was dependent on his judgement. I asked him to visit pioneers of cacao, farmers with more land, and farmers who are currently struggling more than others. He suggested people we could interview, so my informants were partly based on his connections in the village, but we also visited farmers he had never met before.

A limitation of my research is the difficulty to do comparative conclusions based on quantitative data of all farmers in the sample. In my interviews I tried to ask comparative questions about land, yields, household characteristics, education etc. However, sometimes farmers did not know the exact yields, and sometimes the interviews did not yield answers to all questions. More comparative data could have benefitted my research and is a something for future research to improve. Before arriving in Indonesia, I formulated a research question in which the focus was on farmer decision-making. However, I found out that often farmers do not have a choice but that their options are shaped by various factors. The focus on decision might have biased the answers in the beginning.

Another limitation is the use of case studies and the extent to which generalizing statements can be made. The representativeness of Soga for the current situation in South Sulawesi can be questioned. However, to deal with this limitation I also visited Bantaeng, another district in South Sulawesi. Bantaeng area has different demographic characteristics; the main ethnicity is not Buginese but Makassarese and they speak a different language. Furthermore, the geographic situation was also different from Soga; close to the sea and roughly three levels where different crops could grow. The lower level was especially suitable for rice. In the middle level farmers mainly grow cacao, maize, clove. The higher level was more suitable for the cultivation of fruits, clove, cacao and coffee. I thought it would be interesting to see whether people faced with different options make different decisions and if ethnicity had influence on cacao growing. However, this did not seem

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to be the case. The main difference with Soga was that people in Bantaeng adopted cacao about fifteen years ago, hence according to the cycle of cacao productivity has only recently started to decline. Furthermore, the moment of adoption of cacao is an explanation why cacao farmers in Bantaeng are known to be poorer. I noticed that the houses in general were considerably smaller than in Soga and less well maintained. The later moment of adoption (after the boom in 1998) might explain why people did not benefit as much from increased incomes than in areas where people started to plant cacao in the 1990’s. From the interviews with six farmers and two NGO’s I learned that the majority of farmers who used to have cacao have switched to clove during the past years because of decreased productivity of cacao and because the suitability of the land to grow clove.

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4. The Sulawesi cacao chain

The Sulawesi value chain of cacao consists of various actors and activities. Each actor adds value in a different way, which shapes the distribution of benefits along the chain. The interaction between various actors might influence behaviour of farmers, as well as the particular characteristics of the market. Therefore, this chapter explores the position of farmers in the cacao chain. The central question of this chapter is: How are farmers inserted into the global value chain of cacao and how do

relations with other actors influence their position? To give an answer to this question I will address

several aspects of global value chain analysis as described in the theoretical framework. This analysis also includes the impact of the institutional setting. I will start with identifying the actors involved.

4.1. Actors and activities

The Sulawesi cacao value chain consists of many different actors who perform a different range of activities. Figure 2 shows the sequence of the various actors involved. The production process starts with the growing and harvesting of cacao by smallholder farmers. Farmers sell their beans to local collectors, who are often cacao farmers themselves. Local collectors transport beans by motorbike or car to a bigger village where they sell to local traders. They perform the function of an intermediary providing farmers’ access to markets. Local traders collect cacao on sub-district level and normally have more capital than local collectors. Sometimes they buy beans also directly from farmers, but they mainly collect them through smaller collectors. The beans have to be dried before they can be processed; this is done by farmers, local collectors or traders. According to a US AID report, only ten percent of Sulawesi beans is processed locally for domestic markets (Panlibuton & Lusby, 2006). Therefore, local traders bring most of their beans to the warehouses of multinational exporters. The cacao market in Sulawesi is dominated by five multinational exporters: Cargill, Continaf, EDF & Man, Olam and Archer Daniels Midland. Together, they trade about eighty percent of Indonesian cacao beans (ibid, p.4).

The exporters and traders sort and grade the beans on quality and sell the beans on the world market to processors (also called grinders). One of the largest processor in Sulawesi is PT Effem (a subsidiary of Mars/Masterfoods), who sells processed cacao products to other Mars manufacturing plants and to Ceres Group, the only regional processor in Indonesia (Panlibuton & Lusby, 2006). Processors transform dried beans into a variety of products, including cacao paste, powder, liquor and butter. These are used by manufacturers for the production of chocolate and related products. Manufacturers sell their products to retailers. The last step in the value chain is the consumption of these products by more than three billion people around the world (World Cocoa Foundation, 2014).

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Figure 2: The Sulawesi cacao chain

4.2. Relations with other actors

The above gives an overview of the cacao chain and shows the sequential steps in the production process. Whereas the image of a chain suggests that the relations between the actors are linear, farmers are also related to other actors than local collectors. Understanding how actors are interrelated is important to understand how farmers are inserted into the cacao chain.

Farmers’ interaction with the government is limited. There has been a project in the past to increase production levels in which the government provided pesticides through farmer organizations. However, according to my informants, in practice this program involved little interaction with farmers: the government only provided pesticides but without giving much assistance on how to use them. In 2009, the Indonesian Department of Agriculture has set up the Gernas program. This four-year program was aimed at renewing, rehabilitating, intensifying and expanding the cacao sector (especially in Sulawesi) and involved investments for this end in all levels of governments (Muhajir, 2011, p.22). In Soga, the majority of farmers have used the seeds provided by the government for side grafting. Next year, they can harvest the fruits from these trees.

There are many different developmental organizations in Sulawesi, conducting different types of activities. In Soga, there is one community organization active called PayoPayo that focuses on the well-being of farmers. Their activities are community based initiatives and consist of assisting on farming practices as well as diversifying farmers’ sources of income. Any farmer who wants to join is welcome, but the farmers involved are mainly acquaintances from each other.

Until recently, there was no direct interaction between farmers and the industry (e.g. buyers or processors in Makassar). During my fieldwork, one of the largest NGO’s called Swisscontact started a project in Soga to increase productivity and quality of cacao. The project is carried out on behalf of Cargill and the farmers who participate can sell their cacao directly to Cargill’s buying station. If the quality of their beans meets certain standards farmers receive a higher price. Swisscontact aims to increase farmer incomes by providing technical assistance on growing cacao. Only one farmer group can enter and they have certain requirements for participation: individual farmers need to have a minimum of three hundred trees on at least 0.5 hectares. The maximum age of participation is sixty and farmers have to be able to read and write. They have to pay Rp 20.000 to participate (they receive lunch and a snack in return) and have to attend the farmer school every Monday from nine until five o’clock. According to Pak Desa, this is quite expensive and intensive, but

Farmers _CollectorsLocal Local Traders centers/ Buying

Exporters Processors Manufacturers Retailers Consumers

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the promise of inputs, assistance on improving quality and production in return for higher prices should motivate farmers to participate. In total thirty farmers can enter the project, which takes six months. After that period, another farmer group can join. In total, the project will last two years, trying to reach a total of 3000 farmers in Marioriwawo district.

In Bantaeng, an affiliate community organization from PayoPayo performs similar activities with farmers. Just like in Soga there is no direct interaction with industry players. According to a NGO worker from VECO, this is because the number of hectares and productivity levels are too low for the industry to invest in projects. VECO is mainly funded by the Belgian government and tries to improve the connection between farmers and the industry, by empowering farmer organizations as centres of knowledge transfer and to give farmers better access to markets. They work together with Rainforest Alliance (RA), a non-profit organization that focuses on conserving biodiversity and developing sustainable commodity chains. By facilitating certification for VECO, RA tries to improve farmer incomes through assisting on farming practices that increase quality and at the same time protect the environment. The certified beans should also make it more attractive for the industry to invest in projects in Bantaeng region. Because the total production capacity is still too low, there are no requirements for participation in the project: all farmers are welcome to join. In contrast with the project of Swisscontact in Soga, farmers are not guaranteed a market or higher price for their certified products, as the industry is not yet participating.

4.3. Added value

The actors are related to each other through value adding activities at each level of the chain. Because the goal of this chapter is to understand how farmers’ position is influenced by relations with others, this section will look at how farmers can add value to the process.

According to the industry, farmers can add value by fermentation and drying of cacao beans. This process starts after the cacao pods are harvested and cut open. The fermenting is done to get rid of the layer of pulp and to develop the chocolate flavour in the beans. It takes three to seven days and can be done by piling the beans into heaps or by using special fermenting boxes. The first method is mainly used in Africa; in Asia the use of boxes is more common (World Cocoa Foundation, 2014). Partially fermented beans are dried for one or two days and considered of lower quality than beans that are fermented for three to five days (Akiyama & Nishio, p.109). In Soga there were only five fermenting boxes that were provided by the government a few years ago. However, the boxes are hardly used, because farmers say that the price for fermented and unfermented beans is the same. Instead, most farmers dry their beans in the sun for several days on bamboo platforms, which reduces the moist level in the beans (drying is the extended process of fermenting). After drying,

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they sell their beans to one of the four local collectors. All farmers said that they sell to the local collector that offers them the highest price. They receive a different price for wet and dry beans, based on the average quality of the beans. One farmer explained:

“We don’t know the difference between high and low quality, we just know that if we dry the beans for three or four days we get a higher price. We would like to ferment the beans but we don’t know how to do it.” (Ibu Ami).

As follows from this quote, one way to receive a higher price is by drying the beans longer. In Soga, the lack of (sufficient) equipment and knowledge to ferment the beans is the first problem that limits the possibility for farmers to add value. Secondly, because local collectors do not offer a higher price for fermented beans it is comprehensible that there is no real incentive to invest in the fermenting process. This shows how the options of farmers to add value and bargain over prices is limited due to a lack of knowledge and a dis-functioning of the market; even if farmers add value, the difference in price is little. Because there are no official pricing systems that local collectors have to comply with, they simply tell farmers that they cannot pay a higher price because local traders also pay them a lower price.

There is some horizontal integration in the form of farmer groups, consisting of a maximum of twenty-five farmers. There are eight farmer groups, mainly for the distribution of fertilizers, pesticides and knowledge sharing about farming practices. Three of them are women farmer groups, mainly for social gatherings and Arisan, an informal lending rotation scheme. However, farmer groups do not have a function to sell cocoa collectively; all farmers sell their cocoa individually to local collectors, hence they do not have collective bargaining power. Most farmers do not know what happens to the beans after they have sold them, only that they are “brought to Makassar for export”.

In Bantaeng, the situation is slightly different. A local collector explains why farmers tend to sell their beans wet:

“There are many collectors so farmers are not motivated to increase the quality because the difference in price is only a little. There would only be an incentive to increase quality if a local trader would buy from them directly. However, the latter doesn’t want to buy wet beans because they have to spend additional labour costs on drying the beans. Besides, the local traders don’t have enough space to dry beans from all farmers. Therefore local collectors are needed.” (Local collector Bantaeng)

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Thus most farmers prefer to sell their beans wet because they need quick cash. This offers local collectors an opportunity to add value, because local traders prefer to buy dried beans.

To conclude, farmers can add value by fermenting the beans or drying them longer. The first option is difficult because of a lack of knowledge. Drying beans gives farmers a slightly higher price, and the decision to do so differs among farmers. This can be understood partly by the financial benefit they receive from adding value. The way that prices and quality are determined and benefits are distributed can be understood by controlled implicitly shows power relations in the chain. This will be discussed next.

4.4. Prices and quality

According to Mr. Engbers, the President Director from Mars Indonesia, fundamental factors in the determination of world prices of cacao are demand and supply. Furthermore, there are external factors like the political situation in other cacao producing countries, weather forecasts, and speculations on the world market that influence the price. Over the years, the price of cacao has been relatively high compared to other commodities like maize or rice. See figure 3 for world prices of cacao. This figure shows that prices were already very high in the 1980’s. In 1998, world prices reached a peak compared to the years before, partly because of the high demand for cacao. Currently, the price fluctuates around USD 3000 per metric ton, meaning a converted price of more or less Rp 35.000 per kg.

Figure 3: Cocoa beans, world prices in US Dollars per Metric Ton, May 1989-May 2014

According to Mr. Engbers, margins for the industry are rather low. “A drop in prices of only a few dollars already has a big impact on traders and grinders” (Mr. Engbers, 2014). This is also confirmed by Gibbon (2001, p.351), who mentioned that traders mainly make profits by trading large volumes

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than by capturing high margins on the commodity traded. According to Mr. Engbers, currently the market is very competitive, because there is increasing demand from other Asian countries, while production levels in Indonesia have shown less growth. “It shouldn’t be difficult for farmers to sell their beans, because local collectors are very eager to buy”. The price of cacao can change daily and according to Mr. Engbers “a rise in prices on the New York Stock Exchange almost immediately leads to a rise in prices at farmer level, unless he is dependent on one buyer because of debts and he has no choice whom to sell to.” However, from my interviews I found out that most farmers don’t know the prices in Makassar and that they always receive more or less the same price. The only indication of market prices is through the price the local collectors offer them.

According to a local trader in Bantaeng, the price is based on standards as determined in Makassar. The average moist percentage of beans is determined with a special measuring tool. The ideal moist percentage of dry beans is seven percent, and the market price in dollars is based on this standard. The difference in moist percentage is subtracted from the market price. The highest allowed moist percentage is twenty percent. So for example: the price for dry beans is Rp 30.000/kg. The average moist percentage of the beans is 9%. Then the price paid is 30.000 * 0,98 = Rp 29.400/kg. Usually, each actor has a margin of two to three thousand rupiahs. However, the local trader explained that currently, there are a lot of waste materials from the trees which influence the quality of the beans, so there are big differences in quality. However, the margin is the same so the simply mix it before selling it to buyers in Makassar.

Farmers in Soga told me that usually they can bargain a few hundred Rupiahs per kilogram. In Bantaeng, farmers who dry their beans simply lay them on the asphalt. According to a worker of Rainforest Alliance, farmers do not know that this negatively affects the quality of their beans. The farmers in Bantaeng receive an average price per litre of wet cacao. The local collectors dry the cacao themselves and sell the dried cacao per kilogram. The conversion between these measurement scales offers them an arbitrage opportunity. Some farmers in Bantaeng said they do not bargain because they don’t know the market prices and they don’t get the price they ask anyway. Pak Haji Taro on the other hand said that he gets price information from Bantaeng city and he sells to the local collector with the best price. He also said that he receives a higher price if his beans are from a higher quality grade. These examples show that the bargaining position of farmers depends on knowledge about market prices and quality of their beans, but that the space to negotiate is limited.

At all levels of the chain, prices are determined according to the average quality of the beans. However, the way that quality is determined at different levels of the chain varies. Many of the farmers in Soga said that they do not know the difference in quality grades, only that there is a

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difference between dry and wet beans. Therefore, the price they receive depends on the judgement of local collectors and their bargaining position is limited. Local collectors can usually distinguish quality based on experience. Ibu Merawa, a local collector in Walimpong explained: “Sometimes it is dangerous, because farmers cheat. They mix wet and dry cacao and tell me that everything is dry.” Pak Justan, a local collector in Gantarang Keke adds that sometimes trading cacao is like gambling. Because local collectors often don’t know the exact prices at the time of buying, they have to incur a risk of paying farmers a higher price than the price they receive from local traders. Therefore, it is important that local collectors have a good eye for quality differences and have good connections with farmers.

Apart from checking the beans manually, quality can be checked with a special measuring tool called ‘jarum’. This is a needle which measures the moist percentage of the beans, and costs about twenty million rupiahs. Because for local collectors and most traders this is very expensive, most traders remain dependent on their own judgement. Local traders usually have contacts in Makassar so they receive daily price information. Based on the average price in Makassar, they determine the average price for wet and dry beans they pay to local collectors.

While local traders buy both dry and wet cacao, most buyers in Makassar only buy dry beans. Some buyers in Makassar also accept wet beans, but they cut thirty percent from the price. The buyers in Makassar use special measuring tools to determine the genetic traits of the beans; like bean count (number of beans per 100 grams), fat content, moist percentage, waste materials and flavour. These characteristics are important for global buyers of cacao, who seek different quality grades of beans for their products (Panlibuton & Lusby, 2006, p.7). At Cargill’s buying station in Makassar for example, samples of the bags are taken but the identity of the source is kept anonymous in order not to be prejudiced about the quality. Accordingly they pay the local collectors an average price. Two local traders explained:

“Sometimes the average quality is too low and the exporters refuse the batch. In that case, we have to take the beans back, dry them again or mix them with other beans to increase the average quality. But then we have to incur the transport costs twice.”

Besides, they have to store the beans longer which deteriorates the average quality. Actually, just like local collectors, local traders also incur a risk because they often do not know if the average quality they deliver in Makassar will be sufficient or not.

The way that quality is determined along the chain implicitly reveals the power relations between actors. At each level, there is information asymmetry in which the higher-level actor has an informational advantage. The buyers in Makassar have advanced measuring equipment and

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laboratories, to which local traders do not have access. Therefore, the buyers are able to set a price based on scientific standards. Local traders know market prices but their measurement tools are less proficient hence they have to bear the risk that the average quality of their batch is too low. Local collectors can distinguish quality, but they are unsure about market prices at the time of buying. Also, they incur the risk that local traders don’t want to buy their wet cacao which means they make a loss. At the lowest level of the chain, farmers lack both knowledge about market prices and quality standards. The way that prices and quality are determined shows the power of the buyers in Makassar. However, power relations are not only based on who has power to determine prices and quality standards, but also by access to markets and resources needed for production. This will be discussed next.

4.5. Access to markets and resources

This paragraph will evolve around the following question: how do farmers have access to markets and resources needed for the production and sale of cacao and how is this access controlled? This also involves explaining the institutional setting in which the cacao chain is embedded.

Access to markets involves the marketing and sale of beans and price information. The latter has been discussed in the preceding paragraph. Marketing and sale of beans is mainly facilitated by local collectors. In a few cases, farmers said that they go to the market in a bigger city to sell to a local trader directly, but only when they have large volumes to sell. Currently because production levels are low, apparently the income is not worth the effort, hence all farmers in Soga sell to local collectors. One farmer explained that together with other farmers he is trying to organize collective action:

“We want to bring the cacao to Makassar directly so we don’t have to sell to a local collector anymore. However, this is difficult because it takes a lot of time to collect cacao from all farmers. Besides, some farmers cannot wait very long because they need immediate cash to buy rice. But it is only profitable to bring cacao to Makassar if we share the transport costs with more people.” (Pak Wap).

This quote shows that collective action is difficult because actors need quick cash. If they bring the beans to a buyer in Makassar collectively, it takes several days before the farmers receive their money. This explains why the latter remain dependent on local collectors for the sale of their beans. Local collectors have transport facilities to bring larger amounts of beans to a bigger city and they have contacts with local traders. Farmers often do not have transport facilities and contacts. Besides, they want quick cash, so they are better off selling to a local collector who comes by their

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houses twice a week than to a local trader who comes maybe once a week and whom they don’t know.

The resources needed for cacao can be divided in natural, human and financial resources. Natural resources include land and seeds for cacao trees. In Soga, there is no more empty land for new cacao. Most farmers own their plot of land on which they grow their cacao individually. Access to land is not restricted by the industry or government but rather determined by the land appropriation at the time of adoption of cacao. Seeds and planting materials are sometimes distributed by the government, and currently through Swisscontacts’ project. Seeds with specific genetic traits are developed by the industry and distributed through projects. Access for farmers therefore depends on their ability to enter such projects. As shown before, only thirty farmers can enter the project of Swisscontact, hence access to this planting material is limited to most farmers. Human resources are labor force and farming or personal skills that determine the ability of farmers to produce cacao (or another crop). Many farmers learned how to plant cacao from family or neighbours. The control over these resources is to a large extent influenced by the farmers themselves. Financial resources are needed to buy assets needed for farming, for example pesticides, fertilizers and seeds. Some farmers have savings at a bank. However one farmer explained:

“I would like to switch to something else but I don’t know what…. Besides, I don’t have the capital to switch and I can’t get a loan at a bank. If the government would provide seeds, I still don’t know how to plant it.” (Pak Titu).

Thus a lack of access to finance may be a restriction for farmers to change their current situation. Access to markets and resources can also be shaped by the regulatory system. This is discussed in the following paragraph.

4.6. Institutional setting

The Indonesian cacao chain is characterized by relatively little direct intervention of the government compared to other agricultural commodities; there are no price controls, no exclusive trade licensing agreements or export quotas and there is no marketing board. In combination with a supportive macroeconomic policy in the 1980’s (competitive exchange rate policy and low inflation rates at that time), these factors has benefitted the Indonesian cacao expansion (Akiyama & Nishio, 1997, Panlibuton & Lusby, 2006). Indirectly, the facilitating role of the government is important: the government invested in improving infrastructure and schools in rural areas of South and Southeast Sulawesi, which contributed to the growth of the cacao area at that time. Commodities in Indonesia

Caught in the clinch of cacao? : a study of contemporary farmer behaviour in Sulawesi

MASTER THESIS