POOR harvests and an increasing global appetite for chocolate drove the international price of cocoa to a 38-year high earlier this year.
This should be good news for Indonesia's smallholders, who own about 93 per cent of the nation's 1.5 million hectares under cocoa production - but it is not.
Cocoa exports from Indonesia - the world's largest cacao grower, after Ivory Coast and Ghana - have dropped. The country's 600,000 producers are also getting lower prices for their beans.
The fall in exports can be partially explained by the weather.
'The October-November period is supposed to be our second harvest, but heavy rain has destroyed our crops,' lamented Indonesian Cocoa Association chairman Zulhefi Sikumbang earlier this month. He estimated that output would fall from 550,000 tonnes last year to about 500,000 tonnes this year.
Last month, exports from South and Central Sulawesi, the country's main cocoa-growing region, fell 48 per cent to just 18,849 tonnes compared with 36,168 tonnes the month before.
The real problems producers face, however, have to do with the price. And this in turn is the result of decisions taken by policymakers in Jakarta.
In April, the trade ministry imposed a 10 per cent tax on the export of cocoa beans in an attempt to encourage the development of the local cocoa-grinding industry. The move was supported by the influential Indonesian Chamber of Commerce and Industry (Kadin) on the grounds that raw commodities should be used to support labour-intensive domestic processing industries.
The effect of the tax, however, has been to depress the income of cocoa farmers, as middlemen offer producers lower prices to compensate for the tax.
This is not the first time cocoa farmers have had cause to blame the government for their woes. Officials have long been criticised for their not tackling diseases that have ravaged the nation's cocoa crop. According to the Association of Indonesian Farmers, the government took no action when the cocoa pod borer first appeared in Central Sulawesi in 1987. As a result, says the organisation, the problem has now become widespread.
Low productivity is another issue. Agriculture ministry officials admitted this year that average cocoa production had fallen to just 0.5 tonne a hectare, below the ideal of 1.2 to 1.5 tonnes per hectare.
Meanwhile, efforts to use the export tax to promote the local grinding industry have had mixed results. Retail firm PT Sarinah, which runs the country's oldest department store, told Reuters last month that it plans to set up a cocoa-grinding business. PT Bumi Tangerang Mesindotama, the country's second-largest grinder, has also announced plans to double capacity to 80,000 tonnes by the middle of next year.
Foreign companies believed to have expressed an interest include ADM Cocoa and Olam International (both from Singapore), Guanchong Cocoa (Malaysia), and Cargill (Netherlands).
None, however, has announced any firm commitments.
Their prudence is understandable. 'The export duty might attract some people,' noted a spokesman for food manufacturer Mars, 'but it is an artificially created competitive advantage.'
Yes indeed. Given the strong opposition from cocoa growers, political pressure could force the government to lower or withdraw the tax at any time.
The logic behind the export tax is difficult to understand. While it may eventually encourage an increase in domestic processing, the lower farm incomes could discourage farmers from replacing ageing trees, thus undermining attempts to improve quality. Declining returns may even persuade producers to switch to alternative crops.
And by ensuring that local grinders have access to cheap raw material when world cocoa prices are high, the export duty does nothing to encourage the cocoa-grinding industry to improve its international competitiveness. Meanwhile, because the cost is passed on to cocoa growers, the tax effectively functions as a subsidy to cocoa grinders paid for by the producers.
A fairer policy needs to be formulated that will encourage the development of the local cocoa-grinding industry without burdening farmers.
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