REGIONAL ECONOMIC DEVELOPMENT AND SUSTAINABLE PEPPER PROMOTION By P. Lyssens Agribusiness Advisor Swisscontact Kuching, 11 November 2013

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

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

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

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

a. Actors and activities along the pepper Value Chain in W-Kal (1) Production of 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

Price IDR 75,000 Price IDR 85,000 Price IDR 85,000 Price IDR 85,000 Price IDR 73,000 Price IDR 70,000 Price IDR 75,000 Price IDR 76,000 a. The value addition along the chain (2) Pepper Farmers Village Traders District Traders Province Traders Int’l Traders

Strength Steady demand, growing Good soil and climate conditions Long-term experience in pepper production, 75% as main business Critical mass of production in Singbebas to become interesting for buyers 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 Opportunities Increased demand from consumers for quality (sustainable products) Positive sector dynamics; farmers plan to increase production improve GAP Threats Palm oil as competitor Crop failures / over supply b. Key findings – SWOT for Pepper Singbebas H

c. Problem analysis, critical solutions Organization Low level of organization of farmers Group to access government programs No joint business activities Inputs Quality of seedling Dependency on money lender Subsiized fertilizers Production Low Know-how on GAP use of pesticides Diseases Trading Price fluctuation Price transparency ‘long’ trading chain Low bargaining position Intervention 1 Farm Group Organization Intervention 2 Training on good farm practice Intervention 3 Promotion for “sustainable “ white pepper

3. Applying the “Sustainable” white pepper promotion

a. “Sustainable” Pepper : Rationale - The market imposes it The consumer (mainly in the EU and US) becomes more demanding on 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.

b. Consequence of the rationale From Traditional Pepper to Sustainable Pepper Buyer / distributor explains to his supplier how the 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  Farmers in general have limited capacity to understand and implement these protocols. They need specific support / incentives from the buyers are necessary.  Buyers therefore have to establish closer (partnerhsips) and longer relations (term contracts) with their suppliers / farmers’groups or the trader/middleman Sustainability is about: 1. Biodiversity 2. Soil and water 3. Crop management 4. Health 5. Social Welfare 6. Waste Management 7. Administration

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 Precondition for the transition from "open market" to "sustainable market" Farmer / supplier - Willingness - Ability - Incentive Buyer / Intl Distrib - Willingness - Ability - Market - "Sustain" Market is large enough (saturation) - No competition from easier markets - Overkill in regulations, requirements,... Limitations to "sustainable market" promotion

Dishutbun (Dir. Plantation) Dishutbun Province (Chair of pepper WG): In charge of the policy framework to promote white pepper Dishutbun Districts: Implementers of the promotion programs Bappeda (Planning Board) plays a supporting role in terms of coordination and budget allocation. Universities Play the role of information and knowledge provider and also a service provider to Dishutbun or private sector market players Pepper Working Group H d. Who are our partners and what is their role in West Kalimantan? Selected Enterprises in the Sector Main actors in the value chain. Partners for 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

e. Action Plan for the promotion of sustainable Production Activities Identification of farmer groups / socialization Familiarization visit potential buyer; agreement process Start Certif. Sustain. Prod. (reg., mapping, pre- assesst,...) Internal control system (ICS) and Training of Trainers Strengthening farmers’group Pest and disease management training GAP analysis and subsequent corrective interventions Internal audit, test purchase, corrective action, final audit Harvesting / certification, first purchase

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”.