Highlights of the cocoa industry in Indonesia
Valentine is identical to chocolate as a gift. Valentine’s Day is more of an enormous commercial farce than anything, but it’s nice to have a minimum of having the choice to celebrate the International Day of romance. But some people in Indonesia don’t want people to possess that option in the least.
Indonesia is facing a situation where the second-deepest drop by cocoa production volume between 2019 and 2020 season, compared to other producing countries, the pandemic COVID-19 pressure on demand and the operation of the cocoa industry according to the International Cocoa Organization (ICCO).
Will the Cocoa Industry in Indonesia survive? What is the prospect in the future? Keep reading to learn more about the potential of the cocoa industry in Indonesia.
How Valentine Celebrations in Indonesia?
Valentine’s Day celebrations became controversial and even lately reaped some rejection in Indonesia. Several government agencies in several regions have banned Valentine’s Day celebrations arguing that Valentine’s traditions do not fit the local culture and customs. There are nonsecular authorities announcing prohibitions on Valentine’s Day celebrations that has become an annual event in Indonesia (Coconuts Jakarta, 2018).
Valentine’s Day is considered incompatible with Indonesia’s ideology and culture and will potentially cause some negative issues. Nevertheless, it is not mentioned that the circulars did have any particular sanctions imposed on those that break the rule.
Furthermore, the Indonesian Ulema Council, through its local branches in some regions, appealed to Moslems within the country to not celebrate Valentine’s Day, which contains values that are considered to be against the Islamic Sharia. The rejection of – and or the selection to not celebrate – Valentine’s Day in Indonesia is usually associated with religious ideology (Antara News, 2020).
Besides the controversy of celebrating Valentine’s Day in Indonesia, Indonesian still give chocolate to their loved ones on this special day. It has become a global culture that chocolate is the international food of Valentine’s Day.
Overview Cocoa Industry Indonesia
Even though celebrating Valentine’s Day is controversial enough and not part of our culture, chocolate is still an important part of Valentine’s Day. However, chocolate and cocoa are something that we cannot separate from how it is producing.
Within these past years, about 25 years, Indonesia’s cocoa sector has experienced good progress and massive growth, driven by smallholder farmer participation’s rapid expansion. Indonesian smallholders contribute most of the national production, thus outperforming big state plantations and enormous private estates. Indonesia currently has approximately 1.5 million hectares of cocoa plantations. The most Indonesian cocoa-producing region is the island of Sulawesi, which accounts for around 75 percent of Indonesia’s total cocoa production.
In terms of cocoa export, Indonesia has become the world fourth largest of cocoa export exchange earnings from the agriculture sector (after vegetable oil, rubber, and coconut). However, the bulk of Indonesia’s cocoa export constitutes raw beans rather than processed cocoa, meaning that Indonesia loses out on added value revenues. Indonesia’s cocoa beans’ essential destination countries are Malaysia, the USA, and Singapore (Indonesia Investment, 2017).
However, because of the pandemic’s uncontrolled situation, cocoa production in Indonesia is facing the second-deepest drop in between 2019 and 2020. Indonesia, as the cocoa producer that rank in the worlds sixth-largest, will be expected to see some output dip by 20,000 tons year-on-year (YoY) to 200,000 tons, which it will run from month to month, especially from October to September, consistent with an ICCO report made available to The Jakarta Post on October 2 (Jakarta Post, 2020).
Challenges: Traditional Farming Method
The two biggest challenges of the cocoa industry in Indonesia other than the negative impact of COVID-19 are from the farming method and the quality of the cocoa beans instead. Both challenges are related and improvement in farmer’s knowledge about cocoa beans and how to process them is needed to tackle those challenges.
Lack of knowledge on cocoa cultivation
Small and Medium Industries (IKM) Indonesia which is engaged in the cocoa industry do not have knowledge related to cocoa bean processing and processing machines. The majority of the cocoa farmers generally still use local seed sources (random) which are susceptible to disease and have low productivity, minimum in terms of providing production inputs (especially fertilizers) and cultivation management, especially pruning, and controlling pests and plant diseases (Ening et al., 2019). So until now, Indonesian cocoa farmers have only been directed to produce dry, fermented cocoa beans that will be sold to milling companies to be further processed into intermediate products such as chocolate paste, cocoa powder, and cocoa butter. Actually, this is not a bad condition in business. However, it is unfortunate that local cocoa farmers only get added value from the dry cocoa beans they have produced (Antara News, 2020).
Quality of cocoa beans
Regarding the lack of knowledge about cocoa cultivation, local farmers are still applying traditional methods of cultivating cocoa so that productivity is low. The low cocoa production is also caused by the age of the cocoa beans that are too old and also the lack of nutrition provided (Marketeers, 2018). The result is that Indonesian cocoa beans have a high acidity level due to low levels of fat and the taste of pernicious compounds (Ramadhanty, 2020).
All plantation commodities have been affected by the spread of the Covid-19 virus. Lockdown regulations implemented globally have limited productivity due to restrictions on the entry of labor, fertilizers, and seeds to cocoa plantations. Besides, the weak global economy also harmed trade in the cocoa industry. In Indonesia, the government helps subsidize the seeds needed for plantation commodities. This assistance is expected to be implemented stably and equitably so that the cocoa industry can survive this pandemic situation.
According to ICCO data, Indonesia’s cocoa grindings are expected to dip by 7.000 tons YoY to 480.000 tons in 2020. ICCO also stated that although at the time of writing economies were gradually opening, a speedy recovery is not expected. The decline in domestic cocoa demand is also driven by decreased demand as retailers closed shop while Indonesian cities implemented large-scale social restrictions (PSBB) (Jakarta Post, 2020).
For instance, publicly-listed chocolate producer PT Wahana Interfood Nusantara (COCO) saw its sales drop by half due to the lockdowns. The company’s revenue fell 47% YoY to IDR 47.6 billion (USD 3.2 million) during the January-June 2020 period. The company stated the reason behind this drop is many malls were closed such that tenant COCO customers were unable to run as usual.
A Solid of the Annual Increase in Global Demand for Cocoa
In ICCO, Cocoa production has generally shown resilience, but concerns remain as COVID-19 prevails (Jakarta Post, 2020). That’s why the cocoa industry’s opportunities are significant because the World Cocoa Foundation expects to ascertain a substantial annual increase in global demand for cocoa, primarily thanks to the globe’s ever-increasing chocolate consumption.
Meanwhile, some organizations like the International Cocoa Organization (ICCO) expect global cocoa consumption to exceed production by 17,000 tons in 2015 on the back of weak harvests in Ghana and Indonesia as cocoa-producing regions in both countries are battling inclemency and diseases. As such, the worth of cocoa should increase. In April 2015, ICCO’s noted that the daily cocoa price averaged USD 2,868 per ton, down by USD 14 compared to the typical price within the preceding month.
Jusuf Kalla said the consumption in Indonesia is on the increase and should grow by 25%. But on the other side, chocolate consumption is low in large Asian economies. For instance, India and China – which, together, account for nearly 40% of the entire global population – only consume 250 grams of chocolate per person per annum (Indonesia Investment, 2015).
How to Enter Indonesia’s Cocoa Industry
To start a business in the Indonesian cocoa industry, some regulations are fully described in Law of Republic Indonesia No. 39 of 2014 which generally explains that all natural wealth belongs to Indonesia and has an important role and great potential in economic development. This law also describes the planning and operation of plantations in Indonesia.
Indonesia’s Minister of Agriculture Regulation No.09/Permentan/OT.140/1/2013 specifically explains that cocoa is one of the leading commodities of spices and fresheners developed to meet export needs and technical guidelines for the development of parent plants and cocoa gardens, therefore their management is under the control of Indonesia’s Ministry of Agriculture.
What are the requirements to start this business?
There are certifications that a company must have to operate a business in this industry. Because the cocoa commodity in Indonesia is under the auspices of Indonesia’s Ministry of Agriculture, there is a specific certification in plantation affairs that must be owned by the company.
- Seed Certification: a series of activities to issue certificates for seeds carried out by a certification agency through field inspection, laboratory testing, and supervision as well as fulfilling all requirements for distribution.
- Seed Quality Certificate: a statement regarding the fulfillment / fulfillment of quality requirements given by the certification body to the certified seed group at the request of the seed producer for the seed.
This certificate is a must-have for anyone who wants to process cocoa in Indonesia. For more information regarding standard operational procedures for determining seed source, certification of seeds, and evaluation of seed sources of cacao plants in terms to get the certification, it is well stated in Indonesia’s Minister of Agriculture Regulation No.90/Permentan/OT.140/9/2013.
BRIGHT Indonesia is the Answer If You Find a Right Local Partner
Indonesia, as the world’s fourth largest cocoa exporter, has a lot of potential to upscale the system. Cocoa business in Indonesia is not only about the horticultural farming but also need to intensify the food processing mechanism in order to produce a better quality of chocolate.
Getting the right local partner is one of the solutions to tackle the challenges in entering the industry in new countries, especially in Indonesia. BRIGHT Indonesia provides several services such as Market Insight Research, Business Registration and Establishment and Business Partnership Engagement that can bridge the needs of companies wishing to enter the Indonesian market by considering regulations and the right way of doing business. Our strategy consulting services domain focuses on supporting private sector clients with comprehensive and specialized development regarding the company’s needs and also the public sector for a broader scope. The services will help your business to:
- Secure the agreement between our foreign client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
- Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
- Help our foreign client companies obtain the work and stay permit for your foreign employee in the Indonesian office: expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).
- Link our foreign client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.
BRIGHT Indonesia always strives to give excellent services designed only to fulfill your company’s needs. Also, BRIGHT Indonesia has a great understanding of the relations. Besides being a professional, BRIGHT Indonesia is a delightful company and never lets you down. For more information, email to email@example.com.
Co-written with Alifia Berizky