MARKETS FOR HIGH-VALUE COMMODITIES IN

INDONESIA:
PROMOTING COMPETITIVENESS AND INCLUSIVENESS
PROJECT NOTE DECEMBER 2010

MTID PROJECT SPOTLIGHT

Nicholas Minot
INITIAL SITUATION

Figure 1: Supermarket in Surakarta, Indonesia

The markets for high-value agricultural commodities in Indonesia are being transformed by changes in food demand
patterns, manifested in the rapid growth of supermarkets, expansion of the food processing sector, and greater emphasis
on food quality and safety. Policymakers and participants in
the food system are concerned that small-scale farmers and
traders will be squeezed out of the supply chain by these
trends.

PROJECT APPROACH
This project is documenting the transformation of selected
high-value food chains: chili peppers, shallots, mangoes, and
shrimp. The goal is to better understand the rate of change in
these chains, the likely impact of these trends on different participants, and the policy measures that could ameliorate the
negative impact on small farmers and traders. Farmer surveys
are being used to examine production methods, constraints to
meeting higher standards, and perceived changes in the sector. Surveys and key-informant interviews with traders focus
on knowledge, attitude, and practices regarding quality and
food safety. A survey of urban consumers examines the determinants of demand for different types of food quality and
safety with the goal of understanding the rate of change in
consumer demand.

MAJOR RESULTS ACHIEVED

Based on the rapid reconnaissance studies and focus
groups of urban consumers, the project has identified some
preliminary findings. Chili peppers are a diverse category distinguished by color, size, shape, and spiciness. Supermarkets
buy chilies from specialized traders that assemble, grade, sort,
and package them. Chili sauce processors, on the other hand,
buy lower-quality chilies when the price is low. Commercial
shallot production is highly concentrated geographically, with
some districts on the north coast of Java practically dedicated
to shallot production. However, there appears to be little quality differentiation in shallots.

Figure 2: Traditional Market in Surakarta, Indonesia

Mango production is undergoing a transformation in
which farmers, particularly commercial farmers, are switching
to the gadung variety in order to meet growing urban demand.
Trader-sprayers play a critical role in matching supply to demand and facilitating input use. The shrimp sector is characterized by thousands of small-scale traditional producers competing with a few dozen much larger-scale industrial producers. A shrimp producer organization, representing larger
growers, plays a significant role, as does a variety of contract
production arrangements. Disease control and food safety are
major challenges in the subsector. The consumer focus group
discussions revealed that even among middle- to upperincome urban shoppers, traditional wet markets remain the
main source of fresh fruits and vegetables. Wet markets are
seen as offering fresher produce at a lower cost compared
with supermarkets. These preliminary results are being tested
and refined with stratified random surveys of farmers, traders,
and consumers launched in 2010.

EXPECTED IMPACT
Information about the magnitude, nature, and rate of
transformation of high-value agricultural commodity chains in
Indonesia has important implications for both government
policy and the design of programs by ACIAR (the donor) and
other international development agencies. The project will
identify the quality and safety criteria demanded by supermarkets and other modern buyers and the constraints that prevent small-scale farmers from meeting these standards. Thus,
it will inform the design of programs seeking to help small
farmers adapt to changing demand. Information on the rate of
transformation of food demand and the marketing system will
help policymakers and program designers prioritize efforts to
improve the efficiency of high-value markets and efforts to address equity concerns related to the exclusion of small-scale farmers from growing markets for high-value commodities.

Nicholas Minot (n.minot@cgiar.org) is a Senior Research Fellow with the Markets, Trade and Institutions Division of the International Food Policy
Research Institute.
Project collaborators: University of Adelaide
International Food Policy Research Institute
New Delhi Office
Michigan State University
Indonesian Centre for Agriculture, Socio-Economic
and Policy Studies (ICASEPS)
Center for Agricultural Policy and Agribusiness
Studies (CAPAS) Padjadjaran University
The International Food Policy Research Institute (IFPRI) is one of several international research centers supported by the Consultative Group on International Agricultural Research (CGIAR).
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This publication has been prepared as an output of the Markets for High-Value Commodities Project. It has not been peer reviewed. Any opinions stated herein are those of
the authors and do not necessarily reflect the policies of the International Food Policy Research Institute (www.ifpri.org).
Copyright 2010 International Food Policy Research Institute. All rights reserved. To obtain permission to republish, contact ifpri-copyright@cgiar.org.