isi revisi iii...aceh is blessed with abundant natural resources, mainly in the fisheries, forestry,...

Introduction

Patchouli oil being tested

The Indonesian province of Aceh, with a population of just over four 1million people , lies at the northern tip of the island of Sumatera. It is

O O O Ogeographically located between 2 6 north latitude and 95 98 south latitude with altitude - average of 125 meters above sea level, bordered by the Malacca Strait in the North, the North Sumatra province in the South, the Strait of Malacca in the East and the Indonesian Ocean in the West.

Aceh is considered to be the first place of entry of Islam in Indonesia as the first Islamic kingdoms, Perlak and Pasai, were established in this province. Aceh's political power reached its peak at the beginning of the 17th century, during the reign of Sultan Iskandar Muda. At the time, Islam was integral in the daily life style of the Aceh people. Today, Aceh remains a predominantly Islamic area with over 90% of its population being Muslim, earning the area the nickname Seuramoe Mekah (the Veranda of Mecca).

Administratively, Aceh is divided into five kotamadya (townships) and 18 kabupaten (regencies). The provincial capital is Banda Aceh. The total area of

2Aceh is 58,375.63 km (see Appendix 1), which primarily consists of forest and large estates. There are surrounding islands that are also a part of the province, such as Simeulue island, Banyak island, and Sabang islands. Sabang is a group of islands off the coast of Banda Aceh, which is situated at the tip of Sumatera Island and is considered to be the western-most part of Indonesia, marked by the monument kilometer nol (“zero kilometer”) in Weh island.

Aceh is blessed with abundant natural resources, mainly in the fisheries, forestry, agriculture and mining sectors. Despite its natural resources, a three decades-long protracted armed conflict between the Government of Indonesia and the Gerakan Aceh Merdeka (Free Aceh Movement or GAM) has

2 devastated the province's economy.

Aceh was also hit by the massive earthquake and tsunami of 26 December 32004, which had a negative impact on Aceh's economy. The tsunami led to an

outpouring of international humanitarian aid at levels never before seen. Over US$ 7.0 billion was pledged to assist in Aceh's relief, reconstruction, rehabilitation and recovery. The disaster also fostered a unique coalition between the Government, Non-Governmental Organizations (NGOs) and the private sector with a commitment to work on the sustainable

1 Aceh Population Census, 2005. Badan Pusat Statistik (Bureau of Statistics or BPS), www.dds.bps.go.id2 World Bank, 2008. “The Impact Of The Conflict, The Tsunami And Reconstruction

On Poverty In Aceh: Aceh Poverty Assessment 2008”, (Jakarta: World Bank).3 The western coastal areas of Aceh, including the cities of Banda Aceh, Calang, and

Meulaboh, were among the areas hardest-hit by the tsunami resulting from the Indian Ocean earthquake on 26 December 2004. While estimates vary, approximately 230,000 people were killed, and about 500,000 were left homeless. The total population of Aceh before the December 2004 tsunami was 4,271,000 (2004). The population as of 15 September 2005 was 4,031,589, a loss of almost 2% of the provincial population.

IN

TR

OD

UC

TI

ON

2

development of Aceh. Furthermore, a ministerial-level agency was created to manage Aceh's post-disaster recovery, Badan Rekonstruksi dan Rehabilitasi Aceh – Nias (the Agency for Reconstruction of Aceh and Nias or BRR).

After 4 years of reconstruction efforts, this mandate expired in April 2009 and with it, as many as 435 NGOs (including 326 international NGOs) and 27 international donors (including UN bodies) that implemented projects amounting to USD 6.4 billion finished their programs and left the province, ending the reconstruction and rehabilitation period in Aceh.

The period left major changes that have transformed Aceh quickly. Some socio-economic and political problems in Aceh were addressed, some problems remain, and several new problems were created. The most significant achievement is the return of peace to Aceh with the successful

4 signing of the Helsinki Peace Agreement brokered in August 2005, which was followed by the ratification of the Undang-Undang Pemerintahan Aceh (Law of Governing Aceh) in 2006 by the Government of Indonesia. Under the agreement, Aceh would receive special autonomy and Government troops would be withdrawn from the province in exchange for GAM's disarmament.

Since the agreement, Aceh has had two peaceful elections. A new Governor, Irwandi Yusuf, a former GAM negotiator, was elected in 2006. In 2009, new members for the Dewan Perwakilan Rakyat (Aceh Provincial Parliament or DPR) were elected and half of the seats were taken by Partai Aceh (the Aceh Party), the umbrella political party for former GAM combatants. These results signal the successful reintegration of the separatist movement into the Indonesian political mainstream.

Other changes are not as positive. Even after the rehabilitation and reconstruction period, more than five years after the tsunami, some problems

5remain, e.g. rampant poverty, the vulnerable state of the economy of Aceh, 6high unemployment, economic inequality, and other conditions, some of

which will be discussed in this study. Despite the billions of dollars invested 7in post-tsunami rehabilitation, the economic future of Aceh is uncertain.

4 The peace talks were facilitated by a Finland-based NGO, the Crisis Management Initiative, and led by former Finnish President Martti Ahtisaari. The resulting peace agreement was signed on 15 August 2005.

5 Aceh still has one of the highest poverty levels in Indonesia. The poverty level in Aceh ranks the 7th highest out of 33 provinces in 2009 according to the 2010 national census conducted by BPS. Source: VivaNews, 2010. “Angka Kemiskinan Di Provinsi Papua 34,8 Persen, Sedangkan Aceh 20,98 Persen”, 1st of December 2010, www.vivanews.com

6 The post-disaster reconstruction has been driving Aceh's economic growth since 2005, particularly in construction, services, trade, and transport. Unfortunately, many jobs in these sectors have disappeared as the bulk of the multi-billion dollar reconstruction efforts ended in 2008.

7 The Aceh economy continues to stagnate and high unemployment remains. For more information see, S. A. Rafiie, 2010. “Stagnan Ekonomi Aceh Tahun 2010”, Serambi, 12th of January 2010, http://www.serambinews.com

Nilam Aceh:A Study of the Patchouli Oil Industry

in Aceh, Indonesia

3

For the peace process to last and the economy to recover to pre-tsunami (or even pre-conflict) levels, Aceh needs to quickly generate employment and income opportunities for all Acehnese. This will require major new investments and financing from a variety of sources with investors participating as partners. In addition, the remaining NGOs and the private sector, collaborating through public-private partnerships, will need to increase their assistance to Aceh.

It is with this understanding that the Government of Aceh has intensified its effort to attract investors, domestic and foreign, to invest in Aceh. This document aims to provide potential investors with information on a specialty-product, Acehnese patchouli, and discusses how to purchase and invest in patchouli oil production in Aceh. It also provides some recommendations for the Government on how best to assist investors interested in Acehnese patchouli and how to improve the patchouli industry in Aceh.

The statistical data presented in this document were collected from official Government data, whenever it was available, and other sources such as the Chamber of Commerce, patchouli buyers and producers. The armed conflict, the earthquake and tsunami disaster, and the large reconstruction effort significantly complicate the collection of regional statistics, particularly on the production side. Some of the data do not seem to square well with data from other sources (even data from different units of the same Government). These inconsistencies may not be fully explained quantitatively but are verified by interviews with selected stakeholders in the field of investment and in the patchouli industry. Following the verifications conducted during the study, the broad trends discussed in this document remain valid.

IN

TR

OD

UC

TI

ON

4

1. Brief Background on Aceh

A patchouli distillery in Tapaktuan, Aceh Selatan (c.1930)

Aceh has a long history of trade with the world. It was a part of the th thimportant Silk Road sea route of the 15 to 19 century. The Sultanate of Aceh

was established initially as a small Islamic kingdom (in what is now the city of thBanda Aceh) during the 15 century. As was the case with most non-Javanese

pre-colonial states, Acehnese power – including its economic import and export activities – expanded outward by sea rather than inland. After the Portuguese occupation of Malacca in 1511, many Islamic traders passing the Malacca Straits shifted their trade to Banda Aceh and increased Acehnese

thrulers' wealth. By the early 19 century, Aceh had become an increasingly influential power due to its strategic location that enabled Aceh to control regional trade. In the 1820s it was the producer of over half of the world's supply of black pepper. The pepper trade produced new wealth for the Sultanate.

The Dutch colonial government declared war on Aceh on 26 March 1873 in order to secure its control over the economy in the Southeast Asian region. The war lasted over 30 years and ended in 1910. It was considered to be the bloodiest and costliest war ever undertaken by the Dutch Government. It nearly bankrupted the East Indies Colonial Government to the extent that at the end of World War II, unlike in other areas in Indonesia, the Dutch military never attempted to invade Aceh to reassert control over its ex-colony.

Population

Aceh is a region that experienced a long string of armed conflict that started from the first Dutch invasion in 1873, which ended in 1910. Aceh then suffered a civil war in the late 1940s between the aristocrats and the religious leaders. The region also went through an armed rebellion from 1953 to 1959, under the banner of Darul Islam (Islamic State), led by Daud Bereueh. The armed rebellion was revived by the establishment of Gerakan Aceh Merdeka (Free Aceh Movement or GAM) on 4 December 1977. The military force of GAM was small at that point in time and the army defeated the rebellion within two years. However, due to increasing civil unrest over unequal economic development, the Indonesian military turned the province into a Daerah Operasi Militer (military operations area or DOM) between 1989 and 1998, and some of the civilian population suffered rights abuses and other excesses of armed conflict. This status was lifted in 1998 and a momentary ceasefire was agreed in 2002. In 2002, the Government offered Aceh a special autonomy package that granted the province greater self-government. The Government of Aceh was allowed to formally introduce a form of shari'a, or Islamic law, in Aceh as part of the package. Moreover, Aceh was entitled to a larger revenue-sharing from its oil and gas extraction activities. However, the

6

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

agreement was barely enforced by the central Government, and violence erupted soon after. In 2003, president Megawati declared the Darurat Militer (military emergency) status and the conflict intensified. The earthquake and tsunami on 26 December 2004 forced the conflicting parties to reconsider the high and unsustainable costs involved in dragging out the conflict under an extreme post-disaster condition in Aceh. They agreed to a peace treaty in 2006, where the Indonesian Government yielded in part and finally gave Aceh Otonomi Khusus (special autonomy) status, providing it with a greater degree of autonomy from the central Government in Jakarta and restating the concessions of the 2002 special autonomy package, i.e. implementation of Islamic shariah law and greater revenue sharing of Aceh's natural resources. The Aceh Government is now empowered to construct a legal system independent of the national Government. An additional provision in the 2006 agreement is that Aceh is the only province in Indonesia where independent

8candidates may compete in the local elections.

The province has expanded administratively, with new districts formed by separating from the older districts (see Appendix 1). This was deemed necessary as Aceh is increasing in population while remaining a diverse region occupied by several ethnic and language groups with different developmental needs. The major ethnic groups are the Acehnese (who are distributed throughout Aceh), Gayo (in central and eastern part), Alas (in southeastern), Tamiang (in Aceh Tamiang), Aneuk Jamee (descendant from Minangkabau, concentrated in southern and southwestern), Kluet (in South Aceh), and Simeulue (on Simeulue Island). There is also a significant population of Chinese, who are influential in the business and financial communities. The

9 Acehnese language is widely spoken within the Acehnese population. The official language used for governance, education, and the law is Bahasa Indonesia, the official language of Indonesia. Aceh was once a meeting point for people from many nations, and among the present day Acehnese some individuals of Arab, Turkish, and Indian descent can be found. This diversity can provide complications in developing strategies for development. For example, the issue of highland and west coast separatism to form a new

8 This is fully discussed in M. Jafar, 2009. “Perkembangan Dan Prospek Partai Politik Lokal Di Propinsi Nanggroe Aceh Darussalam”, Master thesis with Universitas Diponegoro.

thAlso see NDY, 2009. “Partai Lokal di Aceh Siapkan Konsep”, Kompas, 19 of March 2009, http://regional.kompass.com

9 This is a member of the Aceh-Chamic group of languages, whose other representatives are mostly found in Vietnam and Cambodia, and is also closely related to the Malay group of languages. Acehnese also has many words borrowed from Malay and Arabic and was traditionally written using a Arabic script. Acehnese is also used as a local language in Langkat and Asahan (North Sumatra), and Kedah (Malaysia), and once dominated Penang. Alas and Kluet are closely related languages within the Batak group. The Jamee language originated from Minangkabau language in West Sumatra, with just a few variations and differences.


in Aceh, Indonesia

7

province (ALA – ABAS) overlays with ethnic differences (Aceh and Gayo), post-conflict grievances (former GAM and former militias) as well as economic underdevelopment among these regions.

Since the peace treaty in 2006, Aceh has gradually returned to a peaceful state. With its door now re-opened to the world, the Aceh economy has resumed its development along with the other provinces in Indonesia. Aceh's population is growing and there are economic opportunities to be gained in Aceh. This growth, however, is directly dependent on the success of the development strategies employed by the Government and the private sector. Currently, the population growth of Aceh is at a delicate balance. It may develop via three different scenarios: growth, stagnant and decline in numbers depending on how much the economy can support in the province.

The earthquake and tsunami disaster of December 2004 caused a significant decline in population (see Chart 1). The population is distributed unevenly, with most people living in towns or cities in the coastal areas (see Map 1), which explains the large number of victims of the tsunami. The influx of workers and migrants that followed the rehabilitation and reconstruction

10process seems to have put the population growth back on its previous trend, which, if it continues, will increase the population of Aceh to the 5 million mark in 2020 (trend A). Like most cultures in Sumatera, Acehnese have a

11tradition of merantau or long-term travelling to search for work. If the trend of population growth continues while the number of work opportunities is unable to keep up, Aceh can expect an out-migration of people of working age

12searching for work outside of Aceh. The population will either peak or decline (trend B or C) as the peace allows better opportunities for out-migration.

10 The problem is that local Acehnese, especially former GAM combatants, are not absorbed enough by the rehabilitation and reconstruction process due to a lack of capacity. For discussion on this issue see N. B. Said, “Ketidakadilan Ekonomi Sebab Dan Akibat Konflik Aceh”, Consilitation Resources, http://www.c-r.org

11 An account of the merantau tradition can be read in J.A. Siapno, 2002. “Gender, Islam, Nationalism And The State In Aceh: The Paradox Of Power, Co-optation And Resistance”, (London: RoutledgeCurzon), p. 148-149.

12 The issue of brain-drain has been discussed in R. Wortham, 2010. “ A Gendered Look thAt Disaster Response And Recovery: Post-tsunami Aceh, Indonesia”, 7 of June

2010; and in World Bank, 2009. “Aceh Growth Diagnostic: Identifying The Binding Constraints To Growth In A Post-conflict And Post-disaster Environment, July 2009.

8

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Notes:A = Positive growth resumes, rise in populationB = Stagnant growth, stable population by 2015C = Negative growth, population in decline by 2020

Chart 1: The Population of Aceh 1930-201013 with Growth Projections Up To 2020 (Millions)

13 Compiled BPS data. The population of Aceh was not adequately counted during the Indonesia 2000 census, much of it was estimated due to the insurgency which made counting difficult. However, results from the 2010 census have been published, with 4,486,570 people, of which 2,243,578 are male.


in Aceh, Indonesia

90,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

A

B

C

Mil

lion

s

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

14Map 1: Distribution of Settlements in Aceh

villagecitydistrict boundary

14 Provided by Aceh Green Secretariat.

10

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Growth

Economic growth is vital to sustain the growing population of Aceh. Aceh's economy has had minimal growth since the devastating disaster in 2004, which was primarily driven by the rehabilitation and reconstruction effort, with massive growth in the building/construction sector. Peace and the reconstruction program have changed the structure of the economy

15significantly. A free flow of workers from outside the province has made the job market in Aceh more competitive. This migration has also created new markets in Aceh as imports of goods have flooded the market. Service sectors now play a more dominant role, whilst oil and gas production is increasingly declining. The economy, however, continues to rely upon depleting oil and gas production and agriculture.

The trickle-down effect expected from the oil, gas and mining sector, which has been operating since the 1970s, has failed to materialize. Economic growth from the oil, gas and mining sector has been negative for seven years in a row (see Table 2), dragging the manufacturing industries and the overall economic growth of Aceh down with it.

15 World Bank, 2009.


in Aceh, Indonesia

11

16 BPS, “Aceh Dalam Angka”, versions from 1980 to 2010, (BPS: Banda Aceh).

12

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Secto

r19

97

199

8*

199

9*

20

00

*2

00

1*2

00

2*

*2

00

32

00

42

00

52

00

62

00

72

00

82

00

92

010

Agricu

lture

and

fisheries

22.3322.24

22.1822.14

22.1022.0

722.19

22.8022.0

821.36

22.7024

.96

26.41

27.12

Man

ufactu

ring

Ind

ustries

29.79

26.7424

.5722.9

621.71

20.72

20.4

719

.03

16.2913.56

12.5013.0

612.10

Electricity an

dW

ater Su

pp

ly

Bu

ildin

g/C

onstru

ction

Trad

e, hotels

and

restauran

ts

Tran

sport &

Com

mu

nication

Ban

kin

g & oth

er F

inan

cialS

ervicesG

overnm

ent,

Defen

se,&

Services

Oil, G

as and

Min

ing

GD

RP

10.87

0.19

0.17

0.15

0.14

0.13

0.12

0.14

0.16

0.17

0.18

0.23

0.28

0.37

0.36

6.806.78

6.46

5.98

5.114

.624

.134

.214

.294

.334

.384

.44

4.53

4.65

5.548.4

110

.45

11.9613.14

14.0

814

.02

13.8114

.46

15.1215.77

17.9919.0

419.4

8

5.45

5.03

4.72

4.4

84

.284

.354

.46

4.84

5.225.9

56.57

7.03

7.16

2.01

1.871.67

1.46

1.341.33

1.311.15

0.9

00

.95

1.01

1.09

1.201.35

4.10

13.02

4.9

35.52

5.97

6.316.58

6.817.89

10.4

615.26

16.8518.0

718.0

7

6.05

26.3226.55

26.7226.85

26.96

26.6626.4

125.75

25.09

20.16

12.158.34

8.13

100

100

100

100

100

100

100

100

100

100

100

100

100

100

26.00

Ta

ble

1: G

ros

s D

om

es

tic P

rod

uc

t of A

ce

h p

er S

ec

tor

16In

clu

din

g O

il, Ga

s a

nd

Min

ing

(%)

No

tes: * P

artial data (inco

mp

lete)** F

ollow

ing th

e 2002 special auto

no

my p

ackage, Law

n

o 18/2001, revenue sh

are for A

ceh fro

m o

il and gas

increased.

However, in nominal terms, the service sector remains relatively the same while the other main sectors are in decline (see Chart 2a). Government initiatives in 1993 have intensified the economic activities in the agricultural and manufacturing sectors, increasing their contribution to the real economy, which continued until the Asian Economic Crisis of 1997, culminating with the Reformasi (Reform) movement in 1998. Between 1998 and 2002, the armed conflict in Aceh intensified. As a result, growth in the agricultural and manufacturing sectors could barely keep up with the market. In terms of share of contributions to the economy, the agricultural sector stagnated while the manufacturing sector was in decline (see Chart 2b).

The enforcement of the Darurat Militer (Military Emergency or DM) status in 2003 by the Government maintained this condition. At the same time, Aceh received a larger share of revenue from the oil, gas and mining sector, which merely stabilized its share of contribution to Aceh's economy while neglecting the other sectors. Aceh's economy became dependent on the oil, gas and mining sector.

17 Aceh's economy has suffered tremendous shocks over the last few years. The tsunami, the large reconstruction effort and the rapid depletion of the oil and gas significantly complicate the elaboration of regional statistics, particularly on the production side. Some of the growth rates reported, such as the decline of almost 50 percent in oil and gas in 2008, do not seem to square well with data from other sources (such as production data from the Ministry of Energy and Mineral Resources). These inconsistencies may be the result of the deflators used to estimate growth rates. A comparison of the implied deflators at the Aceh and national level show large differences that may not be fully explained by differences in inflation levels. Using the same deflator in Aceh as in the rest of Indonesia would show a marked decline in agriculture and a somewhat slower decline in the mining sector in 2008. Despite potential inconsistencies in the GDP series, the broad trends discussed in this chapter remain valid.

17Table 2: Economic Growth in Aceh (%)

Notes: numbers mean negative growth * Preliminary figures.Red


in Aceh, Indonesia

13

Sector 2004 2005 2006 2007 2008 2009 2010*

Agriculture and fisheries

Oil, Gas and Mining

Manufacturing Industries

Electricity and Water Supply

Trade, hotels and restaurants

Building/Construction

Transport & Communication

Banking & other Financial Services

Government, Defense, & Services

Growth of GDRP

6.00

-24.00

19.50

0.90

-2.60

3.60

19.40

20.10

-9.60

17.80

-3.90

-22.60

-2.00

-16.10

6.60

14.40

-9.50

9.70

-10.10

-22.30

1.50

-2.60

12.00

48.40

7.40

10.90

11.70

4.40

1.60

-13.20

3.60

-21.60

23.70

13.90

1.70

10.90

6.00

14.30

-2.50

-10.10

0.81

-80.99

11.29

-0.86

4.39

1.36

4.90

1.20

-9.08

-4.42

3.13

-49.34

22.91

2.34

3.17

4.16

8.28

4.46

-2.47

-10.59

-5.44

-2.05

-0.09

-1.52

-3.98

-1.49

-0.31

-4.11

-22.71

-3.70

18C

ha

rt 2: G

ros

s D

om

es

tic P

rod

uc

t of A

ce

h

a. In

IDR

trillion

s

No

tes:* P

artial data (inco

mp

lete)** F

ollow

ing th

e 2002 special auto

no

my p

ackage, Law

n

o 18/2001, revenue sh

are for A

ceh fro

m o

il and gas

increased.

18 BPS, 1980-2010.

14

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

- 5 10 15 20 25 30 35 40

1975

96

17

19771978197919801

198

9821

3198

184

9

198519861987

9881

1989

1990199119921993

991

4199519961997

1998*1999*2000*2001*

20**

02

20032

400

20062007200820092010

20*

05

Agricu

lture

Man

ufactu

ring In

du

stries

Oil, G

as and

Min

ing

No

tes:

* P

arti

al d

ata

(in

com

ple

te)

** F

ollo

win

g th

e 20

02 s

pec

ial a

uto

no

my

pac

kage

, Law

n

o 1

8/20

01, r

even

ue s

har

e fo

r A

ceh

fro

m o

il an

d ga

s in

crea

sed

b. In

pe

rce

nta

ge


in Aceh, Indonesia

15104

0

508090

100

70 60 2030 -

Agr

icul

ture

Man

ufac

turi

ng

Indu

stri

esO

ther

sO

il an

d G

as

95

17

96

17

9771

1978

1979

10

98

11

98

9821

1983

1984

1985

1986

1987

1988

1989

1990

119

9

1992

1993

991

4

1995

1996

1997

1998*

1999*

2000*2001*2002**

20032

400

20062007200820092010

2005

Arehabilitation and reconstruction process. The realization that the oil and gas supply in Aceh is finite forced policy makers to concentrate more on non-oil and gas sectors.

ttention to other economic sectors finally returned, following the

Inflation

The task of improving economic growth was made difficult by the high inflation rate in Aceh. Persistent inflation means that Aceh's consumer price index (CPI) remains the highest in Indonesia. As a result, Aceh's cost competitiveness has declined, which is reflected in both inflation and wage data.

Overall, the inflation rate in Aceh followed the pattern of the national inflation rate. The destruction brought by the earthquake and tsunami in 2004 and the influx of foreign workers during the rehabilitation and reconstruction process has severely increased prices in Aceh, particularly in the capital, Banda Aceh (see Chart 3).

st19 Inflation.eu, http://www.inflation.eu, visited on 21 January 2011.

16

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Chart 3: Inflation Rate of Two Main Cities 19in Aceh (%, CPI yoy Dec-Dec)

Banda Aceh

Lhokseumawe

National

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-

10

20

30

40

50

60

70

80

After peaking at 41.5% in December 2005, inflation has continued to decline steadily and fell below 4% in 2010 and below the national Indonesian level of more than 5%. Although inflation has slowed down, CPI has registered steady increases since the tsunami. Using 2002 as a base, Aceh's CPI increased to 185.6 (June 2007) while the national CPI increased to 148.2. This is an important development as a high inflation rate has a real effect on economic growth in the province of Aceh.

Trade and Banking

Throughout the rehabilitation and reconstruction process, Aceh has struggled with a trade deficit. The rehabilitation and reconstruction process required a great amount of materials and other logistical needs to be imported to Aceh (see Table 3).

Table 3: Export From and Import To Aceh20 (Excluding Oil and Gas)

Notes: numbers mean trade deficit * Total up to June 2010.Red

The reconstruction and rehabilitation process also boosted consumer spending, which explains why the high import volume remains the same despite the end of the main reconstruction and rehabilitation activities in 2009 and the closure of the BRR. At the moment, the economy in Aceh is consumption-driven rather than production-driven. This is supported by the pattern indicated in the banking activities in Aceh (see Chart 4), which shows the differences between pre-disaster (before 2005) and post-disaster (2005 onwards) conditions.

20 BPS, 1980-2010.


in Aceh, Indonesia

17Ex

por

tIm

por

tD

iffe

ren

ce

Value(USD thousand)

Volume (Ton)

Volume (Ton)

530,070

83,761

433,573

68,237

96,497

15,524

189,355

47,770

12,960

12,842

176,395

34,928

206,912

56,895

190,747

15,999

16,165

40,896

23,172

13,698

381,908

29,960

-358,736

-16,262

268,642

88,088

325,568

25,876

-56,926

62,212

202,918

163,151

344,854

403,862

-141,936

-240,711

181,523

127,994

607,256

187,068

-425,733

-59,074

89,729

20,305

133,287

11,914

-43,558

8,391

2004 2005 2006 2007 2008 2009 2010*2003

Value(USD thousand)

Value(USD thousand)

Volume (Ton)

21Chart 4: Banking Activities in Aceh (IDR Trillions)

a. Bank Savings

21 Bank of Indonesia (BI), compiled from Bank Indonesia data, http://www.bi.go.id

b. Bank Loans18

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

20030

2004 2005 2006 2007 2008 2009 2010*

1

2

3

4

5

6

7

8

9

Regular savings

Limited savings

Check accounts savings

2003

0

2004 2005 2006 2007 2008 2009 2010*

1

2

3

4

5

6

7

8

9

Consumption loans

Capital loans

Investment loans

c. Bank Credits

Notes:* June 2010 figure.

In post-disaster Aceh, the economy leans towards a cash-oriented economy, which is indicated by the rise of regular and limited savings and a decline in the use of check savings accounts. Loans are still predominantly for consumption and business capital use, and there are few new investments as indicated by the stagnant investment loans. Banks are providing more small credit services than the medium and macro credit schemes, mainly because of its perceived low-risk.


in Aceh, Indonesia

19

20030

2004 2005 2006 2007 2008 2009 2010*

1

2

3

4

5

6

7

8

9

Small credit

Micro credit

Medium credit

The Workforce

The workforce in Aceh is relatively well-educated compared to other provinces in Indonesia. The workforce has a high math and literacy rate (consistently above 90% of school-age upwards) and a well-balanced male to female ratio (see Chart 5). Unfortunately, there is a gap between the skills that are provided by the education system and the skills needed in the job market. For example, with the exception of the agriculture departments at universities, the schooling system does not teach students agricultural skills and techniques. This is despite the fact that employment in Aceh is still largely in the agricultural sector, which contributes significantly to the economy (see Chart 2). Similarly, those who work in the manufacturing sector require further training on the products they are producing, which was often not given attention to during their formal schooling. It is common for university graduates to work in the manufacture of products that have little or no relationship with their degree. As a result, despite the higher-than-average level of education, the main workforce tends to be categorized as 'unskilled.' A

22 study by USAID on labor, which also includes labor issues in Aceh, stated that:

The dominant need is for basic-skill-level workers; fewer opportunities exist for technical-level workers. Recent institutional trends point to the need for general employability skills and specific skill competencies. Based on the enterprise case studies, the dominant skills and competencies needed are in agriculture, including fisheries, and in agro-industry, to facilitate rural economic development. […] The youth workforce in Aceh needs employability skills, high school credentials, and job experience. […] Youth understand the value of job experience and openly express the need to have job experience in a bigger city. Youth look for a short-term job as a stepping-stone, participate in an apprenticeship or on-the-job experience, and find an actual longer-term job as part of this entry employment process. Informal social networks are the foundation for this informal job search. (USAID 2007: 3-4)

22 USAID, 2007. “Jobs for the 21st Century: Indonesia Assessment” , USAID Asia and Near East Bureau, March 2007. (Banda Aceh: USAID).

20

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Chart 5: Educational Background of Job Seekers Registered in 2008/2009 23at the Department of Workforce and Transmigration, Aceh (Thousands)

Notes: Primary school = Sekolah Dasar (SD)Junior High School = Sekolah Menengah Pertama (SMP) or class 7 to 9 or their

equivalent in religious schoolsHigh School = Sekolah Menengah Umum (SMU) or class 10-12 or their

equivalent in religious schoolsDiploma = D3 levelBachelors = S1 (Requires thesis. In developed countries this degree is not

considered to be equivalent to an Honours degree)Postgraduates = S2 (Masters) and S3 (PhD)

23 BPS, 1980-2010.


in Aceh, Indonesia

21Male Female

100

95

90

85

80

75

70

65

60

55

50

45

40

35

30

20

10

0

5

25

15

Uneducated Primary School Junior High School High School Diploma Bachelors and Postgraduates

24Chart 6: Population by Age Group in Aceh Province in 2009

24 BPS, 1980-2010.

According to the official data from BPS (see Chart 6), the workforce of Aceh in 2009 consists of the new workforce (those aged between 15 and 34 years of age, which is 36.90% of the population) and the mature workforce (35-60 years of age, 26.79%). This workforce (a total of 63.69%) must provide life support for those of unproductive age (0-14 years of age, 29.85%) and the retired or semi-retired (60+ years of age, 6.46%).

Development efforts in rural areas still revolve around the agricultural sector. The official employment status of workers over the age of 15 as provided by the Government (see Chart 6) indicates that work in the agricultural sector remains unreliable. The sector is dominated by unpaid workers (farmers' family members) or those who are self-employed with temporary/unpaid workers. The self-employed workers are entrepreneurs, some are land-owners, who have other main occupations such as trading, shop-keeping, transporting, and others. It is important to note that the manufacturing industry, while contributing nearly as much to the GRDP as the agricultural sector, is not employing many people. The agricultural sector, which is located in the rural areas, remains the highest absorber of the work force. It should be noted that there are children under the age of 15 in the workforce, especially in rural areas, but since they are technically illegal they are undocumented by the Government. Many of these underage workers help

22

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Ag

e (y

ears

)

In thousands

65+

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

0 50 100 150 200 250 300 350 400 450 500

Chart 7: Employment Status of Workers Over The Age of 1525 In Main Industry Sectors In 2009

There have been relatively large nominal wage increases in some sectors, which is reflected in Aceh's Upah Minimum Regional (Minimum Regional Wage or UMR). The UMR in Aceh is one of the highest in Indonesia (see Chart 8). During the first months of 2011, the province with the highest UMR is Papua (IDR 1,403,000 per month) and the lowest is Jawa Timur (IDR 705,000 per month). Aceh's UMR is IDR 1,350,000 per month, which puts it high above the national average UMR (IDR 992,875 per month).

Notes:1. Agriculture includes forestry, hunting and fishery sectors2. Other sectors include wholesale trade, retail trade, restaurants and hotels, community,

social and personal services, oil and gas, mining and quarrying, electricity, gas and water, construction, transportation, storage, communication, finance, insurance, real estate and business services

25 BPS, 1980-2010.

their parents to work in the fields or in the shops. These children, as they grow into the workforce over the age of 15, along with other family members (wife, unmarried relatives, etc), are classified as Unpaid Workers (see Chart 7).


in Aceh, Indonesia

23

600

500

400

300

200

100

0Regular

employeeSelf-employed

Unpaid worker

Self employed with temporary/unpaid employee

Employer Seasonal employee

Agriculture

Manufacturing industryOthers

Chart 8: Regional Minimum Wage (UMR)26 in Three Provinces (IDR/Month)

This has not always been the case. Prior to 2002, Aceh's UMR was near the national average. However, the Military Emergency status implemented in 2003 saw a rise in UMR as Aceh was now perceived to be a hard-to-work area given that movements of goods and people were more difficult. UMR spiked in 2005 to adjust to the high inflation at the time caused by the influx of foreign workers in post-tsunami rehabilitation and reconstruction process. The UMR in Aceh has not returned to its pre-2002 level, which was near the national average, even after the end of the rehabilitation and reconstruction period in 2009. The high minimum wage standard in Aceh today still does not adjust to the declining inflation rate. If this trend continues, it will render the workforce in Aceh as uncompetitive.

26 BPS, 1980-2010.

24

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Papua

Aceh

INDONESIA

Jawa Timur

1.500.000

1.400.000

1.300.000

1.200.000

1.100.000

1.000.000

900.000

800.000

700.000

600.000

500.000

400.000

300.000

200.000

100.000

0

Poverty

It is vital to discuss the issue of poverty when discussing economic development in Aceh. Poverty in Aceh remains significantly higher than in most of Indonesia (see Chart 9). The Government ranked Aceh the seventh

27poorest province in Indonesia of 2010. This alone has the potential to deter future investment in the province as poverty levels are sometimes associated with poor capacity of the workforce, poor infrastructure, poor governance and sometimes, poor security. Overall, the perceived high economic costs may cause Aceh to be considered as not yet conducive for investment.

Poverty levels increased slightly in Aceh in 2005 after the tsunami, but less than expected. The poverty level then fell in 2006 below the pre-tsunami level, suggesting that the rise in tsunami-related poverty was short lived and reconstruction activities and the end of the conflict most probably facilitated this decline. A large number of the Acehnese remain vulnerable, reinforcing the need for a transitional period after the reconstruction boom ends that allows the economy to adjust and stabilize without causing drastic changes that may exacerbate or create new social problems.

28Chart 9: Poverty Rate in Aceh (%)

27 BPS, 2010. “Aceh Dalam Angka 2010”, (BPS: Banda Aceh).28 BPS, 1980-2010.


in Aceh, Indonesia

25

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Aceh

Indonesia

35%

30%

25%

20%

15%

10%

5%

0%

Such drastic changes have happened in Aceh in the past. There was a period when the poverty rate in Aceh was lower than the national level (see Chart 9). This changed during the intensifying armed conflict between 1998 and 2002. The conflict reduced economic activities in the rural areas, and pushed vulnerable people into poverty. The imposition of the Military Emergency status in 2003 stabilized the economy and gradually lowered the poverty rate. This trend continues despite a slowdown due to the impact of the earthquake and tsunami in late 2004.

In a 2008 report, The World Bank indicates that Aceh is one of the 29provinces in Indonesia where poverty is still an important issue. The report

stated that:

Poverty in Aceh is significantly and positively related to living in a rural area and having agriculture as the main occupation of the household. As elsewhere in Indonesia, most poor are rural and work in agriculture. In fact, the overall size of this group may have increased over the tsunami period as some of the population shifted at least temporarily from tsunami-affected towns and cities on the coast towards rural areas. In contrast, economic growth in urban areas under reconstruction led to relatively faster income growth for the better-off (and most likely better educated). (World Bank 2008: 21)

Poverty in the rural areas of Aceh is sustained mainly due to isolation (poor infrastructure), which makes it difficult for rural farmers to deliver their produce to large markets in the cities. There are Government programs

30that are aimed at the poor in rural areas, but these barely make a dent in the rural poverty rate as public access to the programs remains a major problem. The effect of isolation is also evident in the large gap between rural and urban poverty rates (see Chart 10). The national rural-urban gap is lower. This suggests that the larger towns and cities in Aceh still offer a better chance to a better income.

29 World Bank, 2008. P.4.30 This includes steady programs such as the Pusat Kesehatan Masyarakat (Community

healthcare center or Puskesmas), Puskesmas Pembantu (Secondary healthcare center or Pustu), and the controversial Beras Untuk Penduduk Miskin (Rice for the poor program or Raskin).

26

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

Chart 10: Urban and Rural Poverty Rate 31in Post-Disaster Aceh (%)

In terms of distribution, it is interesting to note that the poverty rate in Aceh leans more towards the rural area, while in comparison, the national poverty rate is quite even in between rural and urban poverty rates (see Chart 10). This suggests that, after the earthquake and tsunami disaster, there has been a movement of labor in Aceh from rural to urban areas, leaving the poor in the villages. If this is the case, then in order to reduce rural poverty, there is a need for incentives to draw the workforce back into the rural areas.

31 BPS, 1980-2010.


in Aceh, Indonesia

27

2005 2006 2007 2008 2009 2010

National (Urban)

National

National (Rural)

Aceh (Urban)

Aceh

Aceh (Rural)35%

30%

25%

20%

15%

10%

5%

0%

What Does This Mean?

The population of Aceh is growing, but the economic growth, which is increasingly becoming less driven by oil and gas, is unable to create jobs fast enough to keep up with the growing workforce.

Agriculture remains one of the main contributors to the economy in Aceh and, because it is a labor-intensive sector, is the main absorber of the workforce.

The high inflation rate, trade deficit, high consumptive behavior, and high minimum wage are creating a vicious cycle that significantly slows the economic growth of Aceh.

Most of the workforce in Aceh are literate and reasonably educated but are relatively unskilled and unprepared for the job market.

The poverty rate in Aceh remains higher than the national average and poverty is focused in rural areas.

There are several points that can be highlighted from Aceh, those are:

Based on the above enumeration, it can be concluded that the agricultural sector is the most important non-oil and gas sector for improving the economy of Aceh. Investment in agriculture is an important part of the strategy to reduce unemployment and poverty in Aceh.

28

BR

IEF B

AC

KG

RO

UN

D

ON

AC

EH

2. Why Invest in Aceh?

Patchouli oil samples

Despite the challenges described earlier, Aceh still holds many business and investment opportunities. The province's geographic location alone, which is at the tip of the Malacca Strait that connects the Indian Ocean and the South China Sea, is an important asset in regional trade. In agriculture, Aceh produces palm oil, coffee, rubber, coconut, clove, sugarcane, cotton, chocolate, tobacco, pepper, nutmeg, areca nut and patchouli. Aceh is also rich in mining resources mainly oil, natural gas, copper, coal, gold, iron ore, mangan, and tin.

Business Support Facilities

Aceh has facilities that support business activities for export purposes. There are transport facilities already available in Aceh to deliver goods and products. Three main land routes in Aceh allow trucks to carry goods and products to the major cities. The north and east coast route stretches from Banda Aceh to Medan via Bireuen, Lhokseumawe and Langsa. The west and south coast route stretches from Banda Aceh to the border with Sumatra Utara province via Calang, Meulaboh, Blang Pidie, Tapaktuan and Subulussalam. The highland route stretches from Bireuen to the border with Sumatra Utara province via Takengon, Blangkejeren and Kutacane. The Government and USAID are currently building a main road between Banda Aceh and Calang to replace the seaside road that was destroyed by the 2004 tsunami. When completed, which is estimated to be in 2012, the road will greatly enhance economic activities along the west coast of Aceh.

th 32 33Land transport in early 20 century and today

32 Elephants carrying goods and materials from Koeta Radja (Banda Aceh) circa 1910. thSource: Tropenmuseum Collection, http://collectie.tropenmuseum.nl, visited on 10

January 2011.th

33 Trucks queuing to cross the Kartika bridge in Lamno, Aceh Jaya, in 9 of September 2009. Source: http://www.acehkita.com

30

WH

Y I

NV

ES

T I

N A

CE

H?

Map 2: Transport Routes in Aceh

Aceh has an international airport, which has a visa-on-arrival facility. International flights are available to/from Penang and Kuala Lumpur. There are also other airports in the province. Not all airports have complete facilities or have daily flights. Advanced schedule information and booking is required.


in Aceh, Indonesia

31

Aceh has several sea ports, including those suitable for deep sea ships. These sea ports are mainly former traditional ports located near a district capital. Consequently, most storage of goods and products are not located in the ports but in warehouses or shops in the nearby town or city. The lack of port warehouses means there is a limited amount of stockpiling conducted in the port area.

Most ports in Aceh are used for local fishing purposes. At the moment, the ports that have minimum facilities for large cargo ships – such as deep water berth and loading cranes – are the ports of Sabang, Krueng Geukeuh, Lhokseumawe and Meulaboh. Sabang is still in the middle of adjusting to the new Free Trade Zone status that was formalized in December 2010. Krueng Geukeuh currently is still inactive (its loading crane is borrowed from the nearby fertilizer factory, PT. PIM), while the Lhokseumawe and Meulaboh ports are still restricted to oil and gas shipping. In addition to facility limitations, the problems faced by ports in Aceh are the export-import volume imbalance. Ships are reluctant to deliver goods from Aceh because there are fewer goods coming into Aceh, making their transport route far less profitable. To avoid these difficulties, commodity gatherers and traders in Aceh generally bring their commodities to the port of Belawan in the province of North Sumatra.

Belawan is an international import-export port. It is a river basin harbor with good shelter that regularly loads or unloads a large amount of containers

34The Sultan Iskandar Muda airport (formerly Blang Bintang)

34 M. Anshar, 2009. “Tuntaskan Reintegrasi”, Serambi, 7th of August 2009, http://jakarta45.wordpress.com

32

WH

Y I

NV

ES

T I

N A

CE

H?

to/from deep water ships (anchorage depth 14m - 15.2m, cargo pier depth 4.9m - 6.1m, oil terminal depth 7.1m - 9.1m). It has complete facilities including fixed, mobile and floating cranes, warehouses, provisions, portable water, fuel oil, diesel oil, deck supplies, engine supplies and small drydock. Customs have a strong presence there and labor costs are lower than in Aceh.

Various business support facilities are available in most district capitals in Aceh. There are hotels, banks, hospitals, and immigration facilities available for use. Currently, most hotels in Aceh are 2 stars, however, the larger cities such as Banda Aceh and Lhokseumawe, have 3 to 4 star hotels. State-run national-standard hospitals are available in the district capitals, but those who wish to use international-standard hospitals must go outside of Aceh. The nearest international-standard hospitals are in Penang, Kuala Lumpur and Medan. Most immigration services can be conducted in the Government offices at Banda Aceh or Lhokseumawe. However, services that require access to consulates must be obtained in Medan, North Sumatera Province.

From the data presented in the previous sections, it can be assumed that any economic strategy that aims to increase economic growth and alleviate poverty in Aceh must begin by addressing the issues of how to improve agriculture in Aceh rather than relying too much on non-agricultural industries. Aceh can no longer rely on the diminishing revenues from the oil, gas and mining sector. The manufacturing sector is not growing fast enough to absorb the rising workforce. Only the agricultural sector, which is labor-intensive, can significantly reduce or halt the rise of the poverty level in Aceh.

The Government of Aceh has implemented several initiatives to accelerate development in Aceh, which rely mainly on improving the movement of products from the agricultural sector. Roads in the rural areas have been added and old ones have been improved. This allows farmers to sell their products in markets farther from their land thus adding an incentive to intensify production. Improvement of village infrastructure is also accelerated through the Peumakmo Gampong (village prosperity) program that grants funding for village level projects deemed urgent by the community.

The Government of Aceh has also exercised its newly granted legal autonomy to attract new investors, both national and international, to invest in areas that lag behind in development. As concluded at the end of the previous chapter, these areas are mainly rural and reliant on agriculture, which means future investments are encouraged to contribute to this sector.

Government Strategies and Initiatives


in Aceh, Indonesia

33

Badan Koordinasi Penanaman Modal (the Investment Coordinating Body or BKPM): This unit is directly responsible to the President of the Republic of Indonesia, and is mainly in charge of assessing and formulating national investment policy, coordinating and promoting foreign investment. It coordinates all investment activities in Aceh to ensure that they are in line with the Government's own long-term development plans.

Badan Investasi dan Promosi Aceh (the Aceh Investment and Promotion Body or BIPA): This unit provides information related to investment opportunities, suitable sectors and areas, potential local partners, laws and regulations.

Pelayanan Terpadu Satu Pintu (Integrated One-Stop Service or PTSP): This unit issues all the necessary permits required for establishing investment activities under one convenient centre.

Percepatan Pembangunan Daerah Tertinggal dan Khusus (the Development Acceleration for Isolated or Special Regions or P2DTK) program: This unit coordinates economic activities that are conducted in districts that are lagging behind in development. Currently, these districts are Bener Meriah, Simeulue, Aceh Barat Daya, Aceh Jaya, Aceh Singkil, and Gayo Lues.

Kantor Perwakilan Investasi dan Promosi Pemerintah Aceh (Government of Aceh Representative Office for Investment and Promotion) located in the Penang Development Centre Building, Bayan Lepas area, Penang: This unit provides information similar to the ones provided by BIPA aimed at potential foreign investors, but it mainly functions to introduce potential investors to contacts in the Government offices in Aceh.

Kantor Penghubung Pemerintah Aceh (Government of Aceh Liaison Office): This unit provides information similar to the ones provided by BIPA aimed at potential domestic investors. It also functions to introduce potential investors to contacts in the Government offices in Aceh.

Dinas Perdagangan dan Industri (the Ministry of Industry and Trade Unit): This unit is the competent authority for trade administration. Customs, under the Ministry of Finance administers, imports and exports in accordance with the policies made by the Ministry and existing laws that apply nationally and specifically in Aceh.

1.

2.

3.

4.

5.

6.

7.

For this purpose, the Government has set up several units (contacts for these units are listed in Appendix 6):

34

WH

Y I

NV

ES

T I

N A

CE

H?

Stasiun Karantina Pertanian Kelas I (1st class Agriculture Quarantine Station): The unit under the Ministry of Agriculture is responsible for carrying out animal, fish, and plant quarantine laws in accordance with the laws that apply nationally and specifically in Aceh.

8.

These Government units are set up to facilitate and accelerate the process related to investment in Aceh, with special emphasis on isolated regions of Aceh.

The Government has also started to build new power generators to supply more electricity in Aceh. Currently, Aceh has only 240 MW of electricity available, which is not enough to support the current industrial activities in Aceh much less support new ones. Approximately 60% of electricity is still supplied from the generator in Asahan, North Sumatera province. The first priority of the Government plan is the planned geothermal generator located in Mt. Seulawah Agam, which should provide enough energy to support expanding economic activities in Aceh. The generator is expected to operate in 2015.

th 35 36The port of Sabang in early 20 century and today

35 Photo of the port of Sabang circa 1903. Tropenmuseum collection. Source: Tropenmuseum, http://collectie.tropenmuseum.nl,

th visited on 23 January 2011.th

36 Photo of cruise ship MV. Amadea docking in Sabang on 21 April 2010. Source: Kompas Citizen Images, http://citizenimages.kompas.com,

th visited on 23 January 2011.

As part of the new Indonesian Law of Governing Aceh (UU no.11/2006), the Government has also revived the Sabang Free Trade Zone. The authority has been given recently with the signing of the Government Regulation on Administration Authority of Sabang (PP no.83/2010) on 20 December 2010. In Sabang, imports and exports are now exempt from the tax and duty that apply in other areas in Indonesia. Some licenses and other letters of authority can


in Aceh, Indonesia

now be processed directly in Sabang instead of in Banda Aceh or other cities in Indonesia (see the list in Appendix 2). This development has the potential to reduce the costs of import and export of goods and products to/from Aceh. Deregulation of the export sector is important to reduce costs by shortening the market chain between producers in Aceh and the overseas market. Instead of relying on the port of Belawan, which uses Indonesian tax and customs laws, producers in Aceh can have an alternative that might be lower in costs and therefore more profitable.

Another Government initiative is to prioritize the safeguarding of the natural environment of Aceh. A Moratorium on Logging has been in effect since 2006 and has helped in halting extensive deforestation of Aceh's primary forests. The Government is also reviewing all mining and plantation estate licenses to ensure that they follow the laws and regulations regarding the safeguard of the environment. The Government has also revised the Spatial Plans for the entire province of Aceh. This is to ensure a more controlled and environmentally friendly land use by communities and the business sector. These legal safeguards leave more opportunity for investing in agriculture by giving Acehnese products an added value, which is important especially in the current global market that increasingly favors environmentally-friendly or “green” products.

Finally, the Government has significantly improved security in Aceh to be more conducive to business activities. Five years after the peace agreement in 2006, communities have rejuvenated some of the agricultural plantations that had been neglected during the armed conflict (especially between 1998 and 2004). Long-established plantations for crops such as palm oil, coffee, rubber, and chocolate, have resumed international export. Transport has returned and has improved from pre-conflict levels. Most importantly, the security forces are increasingly successful in cracking down on criminal activities.

In the economic stimulus package of 2009 issued by the Indonesian Government, IDR 6.5 trillion (USD 540 million) was applied to income tax cutting or exemption. The Bureau of Taxation subordinated to the Department of Finance in Indonesia stated that those stimulation measures are mostly applied to the export-oriented sectors such as agriculture, fishery and manufacturing, which have been seriously impacted by the global financial crisis, including grain cultivation, livestock breeding and hunting in the sector of agriculture; marine fishing, marine culture and fishing services in the sector of fishery, food and beverage, sugar-making, textile processing, dairy and print publications in the sector of manufacture. Workers of these sectors with a monthly income less than IDR 5 million (about USD 410) can be

36

WH

Y I

NV

ES

T I

N A

CE

H?

37Chart 11: Annual Government Budget and Expenditure (IDR Trillions)

Tri

llio

ns

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Go

vt.

Exp

end

itu

reU

nsp

end

Bu

dg

et

Pro

po

sed

Go

vt.

Bu

dg

et

10

9

8

7

6

5

4

3

2

1

-

37Chart 11: Annual Government Budget and Expenditure (IDR Trillions)

Notes:* The proposed budget for 2011 is still being discussed by the DPRD (Provincial

Legislature) at the time of writing.

exempt from income tax. For workers whose annual income is below IDR 50 million (USD 4,100) or monthly income below IDR 4.8 million (USD 400), the income tax rate is 5%.

At the same time, the Government of Aceh has issued a new provincial law on investment (Qanun no.5/2009) that promised several incentives for investors. Chapter IX, Section 15, paragraph 5 states that “By the recommendation of the Government of Aceh or its districts/township according to their authority, the Government can give investment facilities in the form of: a) lower tax; b) duty free; c) zero tax on the import of investment-related items and raw materials into Aceh, and export of finished goods from Aceh; d) investment facilities, immigration services; and e) fiscal facilities.” Unfortunately, derivative technical implementation guidelines are yet to be created so the national regulations remain in place.

37 The 2000-2009 data were compiled from BPK audit reports obtained from BPS. 2010 is obtained from BPK is the Badan Pemeriksa Keuangan (State Auditor), the budget and budget realization for 2010 was taken from Aceh branch of GeRAK, an Indonesian corruption watch NGO (see: Serambi, 2010. “GeRAK: Realisasi APBA 2010 belum

thMenggembirakan * Daya Serap 6 SKPA di Bawah 80%:”, 4 January 2011, http://m.serambinews.com), and the proposed budget for 2011 was IDR 6.8 trillion (see: Serambi, 2010. “PPAS RAPBA 2011 Disepakati Rp 6,8 T * Dana Aspirasi Dewan

thRp 5 M/Orang”, 8 November 2010, http://aceh.tribunnews.com/news/ )


in Aceh, Indonesia

37

There are other initiatives that the Government can take to improve the economy of Aceh. The Government of Aceh is currently unable to use the vast amount of funding resources that is available due to the new revenue-sharing arrangements (see Chart 11). The reason for under spending in several of the consecutive years is often cited as poor capacity and lack of coordination between the executive and legislative branches of the Government. For example, the 2009 budget was approved late (April), which consequently led to a late tendering process and less time to implement the projects. Contractors began work late in the year (August) and only had 4 months in 2009 to complete their tasks as December is the time for the annual budget reporting. In contrast, the budget of 2010 was approved early (February) and the contractors had more time to implement the projects. However, the Government still under spent at the same level as the year before. This was mainly because of poor monitoring and supervision in the field that caused slower disbursement of payments. Verification of results of all projects had to be conducted at the same time and in a short period of time (November and December). Both cases indicate that despite the change in Government (the 2009 legislature is different from the 2010 legislature), the Government staff still needs improvement in work efficiency and project management.

The Government is open to suggestions or plans that will help in development design and implementation and require medium-to-long term implementation. This is an opportunity for NGOs and the private sector to improve the agricultural sector through partnership and capacity building with the Government of Aceh, which will be mutually beneficial in the long run.

How to Invest in Aceh?

Overall, business investment in Indonesia is regulated by the Government of Indonesia and most of the regulations apply in Aceh due to the relatively new status of legal autonomy. Regional laws that specifically target the investment sector either have only been issued (thus implementing guidelines are not yet available) or are to be drafted. Most of the regulations adhere to international agreements that have been ratified by the Indonesian Government.

All the latest national and regional laws and regulation that apply to investment in Aceh and the necessary licenses that need to be obtained in order to start and run an investment venture in Aceh are summarized by the Badan Investasi dan Promosi Aceh (the Aceh Investment and Promotion Body or

38

WH

Y I

NV

ES

T I

N A

CE

H?

39Chart 12: Diagram for Application for Investment

38BIPA) and are included in Appendix 3 and 4. In accordance to the Head of BKPM Regulation no.12/2009, the process for investing in Aceh can be illustrated as follows:

Indonesia bans domestic and foreign investment in businesses in the following 9 sectors: cultivating and processing of marijuana and the like; collection/utilization of sponge; harmful chemicals, chemical weapons, weapons and related components; cyclamate and saccharine; alcoholic drinks; casino and gambling facilities; air traffic system providers, ship certification and classification inspections; management and operation of Radio Frequency Spectrum and Satellite Orbit Monitoring Stations; and mining of radioactive minerals.

38 Badan Investasi dan Promosi Aceh (BIPA), 2010. “Tatacara Permohonan Penanaman Modal”, August 2010, (BIPA: Banda Aceh).

39 Head of Badan Koordinasi Penanaman Modal (BKPM), 2009. Regulation no.12/2009.


in Aceh, Indonesia

39

COMMERCIAL PHASE

CONSTRUCTION PHASE

PREPARATION PHASE

Application Request

Application for Foreign Investment

Principle License

Application for

Domestic Investment

Principle

BKPM, PDPPM, PDKP BKPM

Regional Government

Permit

Central Government

PermitKITAS

PDPPM, PDKPM BKPM Immigration

INVESTORS

BKPM now has the application with all the permits, licenses, requests and recommendation letters that are required appended (see Appendix)

Foreign investment is prohibited in the following 8 areas: germ plasm cultivation; concession for natural forests; contractors in the field of lumbering; taxi/bus transportation services; small scale sailing; trading and trading supporting services; media services; motion picture production industry.

Conditions are attached to businesses between foreign and domestic capital in the following 8 areas: building and operation of seaports; electricity generation, transmission and distribution; shipping; processing and provision of potable water for public use; atomic power plants; medical services; basic telecommunications; regular/non regular commercial airliners.

Is This Enough to Invest?

The economic activities in Aceh continue to grow. Various infrastructure in Aceh is continually improved and expanded. Travel to and from the province has improved significantly from the conflict period and the new legal autonomy allows freer people (including workforce) movement. Aceh is gradually in the process of reintegration with the national and global economy. The question is whether this process will lead to further industrialization (i.e. less agricultural) of the Aceh economy or to Aceh remaining an agriculture-driven economy. The two cannot remain side-by-side indefinitely as the land available for use is increasingly limited. As the previous chapter indicated, the development of the agriculture sector should take priority as it provides mass employment for the workforce. Key actors in the agriculture sector in Aceh agree that the development of agriculture in Aceh must include activities at the farm level, the regional level and the provincial level. The Government of Aceh agrees with this conclusion and is currently coordinating spatial planning, land tenure reform and transparent and enforceable land ownership, all of which are prerequisites to agricultural modernization that will enable investment.

Agriculture in Aceh must have a competitive advantage for Aceh's products on national and international markets. This advantage must then be developed to reach a critical mass for product groups to attract global buyers. Since peace returned to Aceh, the Government has strived to improve its capacity in land management, environmental management, build suitable infrastructure (e.g. irrigation schemes, access to roads, new technology and innovation), and improve good governance.

A recent example of the Government's efforts is the launching of agricultural initiatives using the Peumakmue Gampong (Village Prosperity) program. As part of the Aceh Green Vision initiative, the Government has also

40

WH

Y I

NV

ES

T I

N A

CE

H?

urged actors that focus on competitive products (e.g. coffee, cocoa, palm oil and rubber) to develop their products under strict environmental performance and natural resource management objectives to avoid overuse of natural ecosystems and production areas. In addition, the Government is urging banks to improve access to credits and micro finance, especially for the agriculture sector.

With the current political will to develop agriculture in Aceh as described above, there is plenty of investment opportunity in the agriculture sector in Aceh. In addition to established high-volume products such as coffee, cocoa, palm oil and rubber, Aceh also produces small-to-medium volume products that can fetch high profits in select specialty markets. While export of high-volume products still encounter problems related to infrastructure, small-to-medium volume products do not encounter the same problems. These products can take advantage of various incentives that the Government offers and are not burdened by the costs of high-volume transport. Essential oils are included in these products and patchouli is the essential oil specialty product that Aceh produces as the following chapter will explain.


in Aceh, Indonesia

41

3. The Patchouli Sector in Indonesia

Patchouli cultivation

Trade in essential oils is one of the oldest and most profitable business 40ventures in the world. Essential oil can be obtained from various parts of a

plant, such as the roots, stems, twigs, leaves, flowers, or even the fruits. There are 150 to 200 species of essential oil-producing plants and approximately 70

41kinds of essential oils can be found in the world market. This section begins by discussing the general conditions of essential oils in the world market followed by an examination of a specific segment of the market, i.e. the patchouli oil sector in Indonesia.

World Trade in Essential Oils

Each essential oil has a different economic value. The raw materials that produce the oil have different chemical and physical characteristics. Once processed, they produce different volumes of oil. Consequently, the oils are priced differently. Most of the essential oils (72.58%) have a small market share and low demand volume. High demand volume is dominated by only nine varieties of essential oil (see Table 4). This has consequences for the type of essential oils exported from Indonesia. Although Indonesia produces a wide variety of essential oils, almost 85% of the volume/turnover of essential oils exported from Indonesia comes mainly from three products: patchouli,

42nutmeg and clove.

Table 4: Demand for Essential Oils 43in the European Fragrance Industry in 2006

The usage of essential oils also varies across the different types of application sectors (see Table 5). Currently, there are two types of markets: the common-use products and the niche specialty markets. Common-use applications (soaps, detergents, cosmetics, toiletries, household cleaners and air fresheners) hold a 74.36% share of the global market. The specialty market, which is for high-end items such as fine fragrances and other products, holds a 25.64% share.

40 E. Guenther, 1948. “The Essential Oils - Vol 3: Individual essential oils of the plant families Rutaceae and Labiatae”, (New York: Van Nostrand).

41 Bank Indonesia (BI), 2010. “Lending model information system for small-scale enterprises. Patchouli cultivation and oil industry".

42 S. Tekriwal, 2009. “Naturals in Indonesia”, Presentation in IFEAT Conference, Shanghai, October 2009.

43 Dewan Atsiri Indonesia (DAI), 2009. “Indonesian Essential Oil Industry and the role of DAI”, Presentation at International Seminar on Essential Oil (ISEO), 26-28 October 2009.

44

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

Demand Volume (ton/year)

1-10

Different Essential Oils

Number of Oil Varieties Share of Total Varieties

10-100100-1,000

> 1,000

90

25

8

1

72.58%

20.16%

6.45%

0.81%

44Table 5: Global Market for Fragrances by Application in 2006

The trade volume varies considerably across different application sectors. However, volume is not the only factor that determines or indicates the profitability of essential oils. For example, Indonesia is one of the major essential oil-producing countries. It is a supplier of patchouli, nutmeg, vetivert, cananga, citronella, massoi bark, sandalwood, cajuput, ginger, clove

45and its derivatives. The total volume of essential oils produced in Indonesia is 90,000-110,000 tons per year with a trade value of US$ 800 millions–US$

461.2 billion per year. According to Bank Indonesia, the export of essential oils from Indonesia is only a small proportion of the total export volume. However, since the prices for essential oils are relatively high, financial

47returns on the commodities are considerable.

44 Modified from: IAL Consultants, 2007. “An Overview of the Global Flavours and Fragrances Market. Press Release 16 April 2007”, (London: IAL Consultants), p.2.

45 Tekriwal, 2009.46 DAI, 2009.47 BI, 2010.


in Aceh, Indonesia

45

Market Application Value (USD) Share (%)

Common-use

Specialty

Total

Soaps and detergents

Cosmetics and toiletries

Household cleaners and air fresheners

Fine fragrances

Others

2,140.800.000

1,552.600.000

934.200.000

1,277.100.000

319.200.000

6,223.900.000

34.40

24.95

15.01

20.52

5.12

100

48Chart 13: Indonesia Imports and Exports of Essential Oils (USD billions)

Indonesia's rich biodiversity is the source of a wide variety of essential oils, of which many are in high demand on the global commodities fragrance market. In 2009, Indonesia was the second top rank producer of essentials oils

49in Asia and ranked seventh in the world. Indonesia exports essential oils without much added value and imports the flavor and fragrance formulations

50and compounds after value addition from overseas (see Chart 13). After a slight drop of export in 2006, it seems that the export value of essential oils from Indonesia has attained its highest value yet.

In order to maintain growth in this sector, export volume needs to be increased either by expansion and/or intensification of the production process. In order to do that, market opportunities need to be explored. The global market for essential oils is not evenly divided. It is dominated by three regions: North America, Asia Pacific and Western Europe. Together, they encompass 83% of the flavor and fragrance market (see Chart 14).

48 BPS, 1980-2010.49 H. Sostrohomitjojo, 2009. “The prospect of Indonesian essential oils”, Presentation at the

1st International conference on Science & Technology in Yogyakarta of Universitas Islam Indonesia, th26 February 2009, http://science.uii.oc.id/

50 Tekriwal, 2009.

46

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

4,00

3,50

3,00

2,50

2,00

1,50

1,00

0,50

0,00

2003 2004 2005 2006 2007 2008

Import

Export

51Chart 14: Worldwide Flavor and Fragrance Market in 1999

Currently, organic products are rising in demand at a different rate in different parts of the world, particularly in North America and Western Europe. Farmer groups have to apply for certification if they want their products to qualify as organic in the international market. The requirements for certification differ per country, but are usually intended to ensure quality and to promote trade in these commodities. Certification, however, is

52perceived by some as a 'controversial tool'. The quality standards and additional requirements that farmers have to adhere to in order to qualify for organic certification are high and many small scale farmers are not able to

53meet the costs. Certifying institutions, such as CCC in China, ECBS in the 54EU, the Australian Standard in Australia, and the VdS in Germany , call for a

51 Allured Publishing News Release, 2000. Cited by Leffingwell & Associates, thhttp://www.leffingwell.com, visited on 20 January 2011.

52 G. Auld, 2010. “Assessing Certification As Governance: Effects and Broader Consequence for Coffee”, The Journal of Environment Development, vol. 19, p. 217.

53 Auld, 2010. P. 225.54 SWA Sembada, 2009. “Mencari Solusi Di Tengah Gencetan Kendala Ekspor”, 29th

October 2009, http://swa.co.id


in Aceh, Indonesia

47

Western Europe25%

Middle East and Africa 6%

South America6%

Eastern Europe5%

North America32%

Asia Pacific26%

number of technical regulations, public and private standards, and 55conformity tests that are difficult to implement. The average small-to-

medium scale agriculture businesses still consider organic certification to be 56too expensive and are therefore not yet able to comply.

Moreover, some critics of organic certification even question the 'good intentions' of certifying organizations/countries and argue that the requirements of certification are being imposed on developing countries and serve as a non-tariff trade barrier. For instance, they consider the European Union – which has a large market for organic products – to impede the inflow of organic products from developing countries due to complicated and

57rigorous EU organic product legislation. These EU requirements make it difficult for developing countries to benefit from the increasing market opportunities for organic products in many European countries. The US is thought to impose a similar set of non-tariff barriers that affect the export

58capacity of Indonesian products.

This sentiment is shared by parts of the Indonesian business community and government actors that perceive certification to be another non-tariff

59trade barrier to bypass WTO regulations.

55 M. G. Martinez, 2004. “Impact of Organic Product Certification Legislation On Chile Organic Exports”, Food Policy, vol. 29, no. 1, p. 1.

56 SWA Sembada, 2009. 57 Martinez, 2004. P. 2.58 SWA Sembada, 2009. 59 Kompas, 2010.

48

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

21

18

15

12

9

6

3

-2005 2006 2007 2008 2009

15,28

17,14

19,8020,30 20,00

FrutaromRobertet SAT. HasegawaMane SASensient FlavorsTakasagoSymriseIFFFirmenichGivaudanAll Others

Notes: * Top 10 Total figures includes Quest International for Years 2004-2006 and excludes

sales of Frutarom for the same period, as 2007 was Frutarom's 1st year in the Top 10.61** F&F figures in the table above for Sensient Flavors are estimates.

The essential oil industry is not yet affected by the drive towards certification as the regions where they are produced are limited and they hold a virtual monopoly on the products. Unlike products that compete with those in the developed world, such as timber and estate oils (palm oil, soybean, rapeseed etc), essential oil is not yet considered to be a source of competition to the business industry in these countries. The only perceived threat would be if demand is not met by supply.

For the past few years, demand for essential oils is rising as indicated in sales volume (see Chart 15). The only time when sales slightly reduced was in

60 Leffingwell & Associates, 2010. "2005 - 2009 Flavor & Fragrance Industry Leaders", October 13, 2010, http://www.leffingwell.com

61 Figures on Sensient Flavors are estimates because reported sales of “Dehydrated products” (27% of reported F&F revenues) were removed from stated “Flavor & Fragrance Sales” of $525.7 million for 2001; 26% of reported F&F revenues of $572.2 million for 2002; 24% of reported F&F revenues of $594.7 million 2003; 23% of reported F&F sales of $648.3 million (restated) in 2004 and 23% of reported F&F sales of $670.6 million in 2005 in order to have a reasonable year to year comparison. In 2006, dehydrated products were 27% of the reported F&F sales, in 2007 & 2008 also about 27% of sales.


in Aceh, Indonesia

49

Chart 15: Estimated Sales Volume of Essential Oils to the Main Buyers 60in the Flavor and Fragrance Industry (USD billions)

The Global Demand for Patchouli

One of the essential oils with limited production scale is patchouli oil. Patchouli oil (Pogostemon cablin Benth) is one of the preferred essential oils in

63deluxe and fine fragrances. The global demand for patchouli oil is between 641,200 – 1,400 tons per year. It is used in all fragrance applications because of

its unique and complex proprieties which have no synthetic substitutes. Patchouli oil is considered to be a key ingredient of perfumery products. The primary components of perfume when mixed with patchouli alcohol (C H 6) 15 2

65will evaporate slower and their aroma is released over a longer period of time. The color of the patchouli oil ranges from dark orange to amber. It has a heavy and earthy fragrance and a spicy and strong smell which is long-lasting and

66distinguishes it from other oils. Patchouli blends very well with other oils such as with Bergamot, Clary Sage, Geranium, Grapefruit, Lavender, Lemon, Lemongrass, Lime, Litsea Cubeba, Mandarin, Myrrh, Neroli, Olibanum,

67Orange, Petitgrain, Sandalwood, Tangerine, Tea Tree and Ylang Ylang. Unlike other oils, the aging of patchouli oil is considered important by the

68industry as the odor becomes finer and fuller.

Patchouli oil is used as a raw material for a number of finished products, such as cosmetics, fragrances, antiseptics, pesticides, aromatherapy and as a

69fixative to bind other essential oils. It is a preferred ingredient in the cosmetic and related industries, because of the aforementioned chemical

62 Peak Indonesia, 2009. “Study Market Opportunities on Several Potential Commodities in Aceh Jaya”, Consultancy report prepared for Caritas Czech Republic, (Banda Aceh: Caritas Czech Republic), p. 69-70.

63 K. Vijayakumar, “Best Practices of Essential Oil Production System”, Presentation at International Seminar on Essential Oil (ISEO), 26-28 October 2009.

64 Tekriwal, 2009.65 Bioengineering Institute (BEI), 2006. “The Export Market For Patchouli Oil Is As

Fragrant As Its Aroma”, BEI News, vol. 5, no. 33, September-October 2006.th

66 PatchouliOils.com, http://www.patchoulioils.com, visited on 28 of January 2010.67 M.K. Mustakim, 2008. “Patchouli Oil Extraction By Using Hydro Distillation (Lab

Scale)”, BA Thesis for Faculty of Chemical and Natural Resources Engineering Technology, May 2008, (Kuala Lumpur: University Malaysia Pahang), p.12.

68 Guenther, 1948. P.564.69 Y. Nuryani, 2006. “Budidaya Tanaman Nilam”, Bilai Penelitian Tanaman Rempah Dan

Aromatik (Research Centre for Spices and Essential Oil Plants), p.1.

622009. Mostly, their market relies on small-to-medium scale suppliers. In such a system, there is no uniform product quality. The product's quality will very likely be compromised due to product mixing in order to meet demand volume. Therefore, it is in the interest of the buyers of these essential oils to assist producers in improving production quality and quantity and, as the drive towards certification of products increases, to assist small-to-medium scale producers to meet the minimum standards required for certification.

50

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

70characteristics. As of yet, there is no substitute for the use of patchouli oil in 71most of these finished products, which explains its demand in the fragrance

and flavor market.

Patchouli oil has always been highly demanded in Asian countries, which are also the places where patchouli was first discovered and cultivated. Patchouli has been an important ingredient in traditional Arabic and Asian medicine where people considered the oil to act as a stimulant, stomachic and to possess antiseptic properties. It is still used as an antiseptic and

72insecticide. After the 1960s the oil has become very popular in Europe and other parts of the world.

Indonesian patchouli oil is widely known as having the best quality in the world market. This is indicated by its occupation of 80 - 90% of the global

73market share. At the moment, there is not enough supply of patchouli to 74meet global demand. The volume of exports of patchouli oil has been

75increasing annually with 6% over the last 10 years and the annual worldwide 76demand for patchouli oil is between 1,200-1,400 tons. Since 80-90% of the

77production is currently being supplied by Indonesia, the country has a virtual monopoly on this commodity. This presents the patchouli industry in Indonesia with certain opportunities.

The production of patchouli oil in Indonesia is concentrated in three different regions: the provinces of Aceh, North Sumatra and West Sumatra. Other provinces (such as Bengkulu and Lampung) and several other regions

78in Java, are now putting an attempt to develop the commodities. Currently, Indonesian patchouli oil for export is mainly produced in Aceh, North

79Sumatra and West Sumatra. These practices are consistent with the global market share for essential oil mentioned earlier. The export of patchouli to the US is significantly higher than the export to the top five importing countries

80in Europe combined (see Chart 16).

70 C. Raghu, 2006. “Economics of production and marketing of patchouli in North Karnataka”, MA thesis for Department of Agricultural Economics, College of Agriculture. April 2006, p. 6.

71 J.T. Yuhono and S. Suhirman, 2007. “Strategi Peningkatan Rendemen Dan Mutu Minyak Dalam Agribisnis Nilam”, Perkembangan Teknologi Tanaman Rempah Dan Obat, vol. 19, no. 1, June 2007, p. 31.

72 R. Muragan and C. Livingstone, 2010. “Origin Of The Name 'Patchouli' And Its History”, Current Science, vol. 99, no 9, November 2010, p. 1274.

73 Patchouli Sumatra Technology (PST), 2008. “Perhitungan Perekonomian Usaha Minyak Nilam”, Technology R&D Series, May 2008.

74 BEI, 2006.75 BEI, 2006.76 Tekriwal, 2009.77 DAI, 2009.78 This is elaborated further in the “History” subsection of Chapter 4.79 BPS, 2010.80 Tekriwal, 2009; ICIS News, 2003. “Patchouli Oil Shows Upward Pricing Pressure in

F&F Market”, 2nd of June 2003.


in Aceh, Indonesia

51

Chart 16: Volume Range of Demand for Patchouli Oil from the 81Top 6 Largest Importing Countries in 2006 (ton/year)

The rest of the importing countries demand 800 - 940 ton per year or 82around two-thirds of the global demand for patchouli oil. The consumption

83need of patchouli oil in the world is about 2,000 tons per year while the 84market transaction of patchouli is between 1,200 – 1,400 tons per year,

which means there is at least a 600 – 800 tons per year supply gap of patchouli that is uncertain and needs to be met. Despite being the largest exporter of patchouli oil as mentioned earlier, Indonesian patchouli producers

85unfortunately are not able to fulfill this demand.

However, the shortage in supply also implies that patchouli has sizeable market prospects. This means that the profitability of the patchouli commodity will depend on the strategy used by the producers to improve the industry.

81 District Government of Tasikmalaya, West Java, http://www.tasikmalayakab.go.id/, stvisited on 1 of February 2010.

82 District Government of Tasikmalaya.83 Mustakim, 2008. P. 10.84 Mustakim, 2008. P. 9.85 Bisnis Indonesia. 2008. “Eksportir Sulit Penuhi Permintaan Nilam”, Bisnis Indonesia,

th 28 November 2008, http://inawan.multiply.com

52

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

United States UK France Switzerland Germany The Netherlands

250

240

230

220

210

200

190

180

170

160

150

140

130

120

110

100

90

80

70

60

50

40

30

20

10

0

There are three possible types of strategies that can be taken by producers, either on their own or together:

Streamlining the market chain between the growers/distillers of patchouli and the buyers. This requires further bypassing or overcoming the existing marketing mechanisms that involve various middle-men, brokers, re-exporters, etc. The main risk for this radical approach is that it will meet stiff resistance from existing actors in the market chain for patchouli and can only be accomplished through gradual and holistic approaches by all sides.

Improving the quality of the patchouli oil. This approach focuses on catering specific niche markets, such as aromatherapy. This requires extensive upgrading of skills, tools and equipments of the production process. The main problem of this approach is that it is expensive and requires significant capital investment as well as time to train the growers/distillers on new skills and technologies.

Increasing the volume of patchouli production. Growers/distillers need to increase their production output either by intensification practices, by the expansion of plantation areas, or both. Both approaches have risks. Intensification, if not done properly (e.g. use of the wrong fertilizers, too short a time in between harvests, over-capacity of distillation equipment), may decrease the quality of the product. Expansion will be faced with difficulties related to the use and availability of land (e.g. ownership dispute, spatial planning laws, land clearing prohibitions, environmental impacts and so forth).

1.

2.

3.

The choice to employ any of these strategies is based on a cost-benefit analysis by both producers and buyers. If a grower deems one strategy as more costly than the other, other actors in the industry may think differently. The main factor in determining any production strategy is the price and volume of the commodity in the market. Unfortunately, in the case of patchouli oil, the price is also part of the problem.


in Aceh, Indonesia

53

The Price of Patchouli Oil

The patchouli oil price fluctuates, which makes it difficult to attempt long-term planning for patchouli production. The price is affected by the volume that is available in the market and because currently Indonesia has a relative monopoly of production, anything that may specifically affect production in the country (changing policies on land use, changing export tax regime, climate change affecting the crop yield, etc) will have significant impact on the price of patchouli oil. Prices are sensitive to financial market turmoil. A clear example of this is the Asian Economic Crisis in 1997-1998,

86when the global patchouli price spiked temporarily.

After the onset of the 1997 … Asian economic crisis, with a falling rupiah, prices of export crops increased dramatically, and export-oriented farmers could enjoy a short-term gain. In the past, nilam, a crop introduced by the Dutch and long associated with shifting agriculture, was a significant cash crop in South Aceh's steep hills. As the value of the rupiah sank, coincidentally the US dollar value of the patchouli oil produced from nilam skyrocketed. These twin influences led to a drastic increase in the local price of patchouli oil from around 35,000 Rp/kg in 1995, first to 150,000 Rp/kg in early 1997 and then to around 1,080,000 Rp/kg at the beginning of 1998. Villagers cultivating nilam cultivation could reap windfall profits. With spiraling prices and the collapse of many cash jobs due to the economic crisis, the contagion of “nilam fever” (demam nilam) spread across South Aceh. Shopkeepers, public servants, and even forestry officials began to cultivate unused areas of land. In Sama Dua villagers began seeking plots of land to plant cash crops and farmers enthusiastically began opening dry ladang plots in the distant forest up to a five-hour walk away. However, the nilam boom was based on a commodity price fluctuation. By mid-1998, prices began to fall just as many of the crops were ready to be harvested. (McCarthy 2005:63)

86 J.F. McCarthy, 2005. “Between Adat and State: Institutional Arrangements on Sumatra's Forest Frontier”, Human Ecology, vol. 33, no. 1, February 2005. P.57-82.

87 According to the Governor of Bank Indonesia Darmin Nasution in 2011. Source: Okezone.com, 2011. “Infrastruktur Belum Memadai, Inflasi Luar Jawa Lebih Tinggi”,

th26 January 2011, www.okezone.com

There are also price differences of patchouli between different regions in Indonesia, mainly between the patchouli produced in Java and in Sumatera (including Aceh). The price difference in mid-January 2011 (see Chart 17) indicates that the average patchouli price in Sumatera is higher than the price in Java. However, the average price in Sumatera has a wider price range than in Java. This difference can be explained by several factors. The infrastructure (roads, ports, customs, etc) of the patchouli industry is better developed in

87Java. Labor is highly competitive as the minimum wage is near or even below

54

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

90Chart 17: Regional Price Difference of Patchouli in Indonesia (USD/kg)

the national average (see subsection 'The Workforce' in chapter 1). Javanese farmers are able to take on new methods of cultivation and production, and

88increase their productivity in a relatively short time. Farmers' organizations and unions in Java are also quite solid and active, which means better bargaining power when setting prices with middle-men and distilleries'

89owners.

88 For example, 7 Javanese provinces are in the top 10 – out of 33 provinces – of rice producing provinces in terms of productivity (5,050 – 5,805 kg/ha) while Aceh is ranked 17th (4,332 kg/ha), which is well below the national average of 4,998 kg/ha. Source: BPS, 2009.

89 For example, two provinces in Java (Jawa Timur and Jawa Barat) won the Government's award on the province with the best performing cooperatives in Indonesia in both 2007 and 2008. See M.G. Munthe, 2010. “Pemerintah Pilih Daerah Penggerak Koperasi

thTerbaik” Bisnis Indonesia Online, 17 of June 2010, http://bataviase.co.id90 DAI, 2011. compiled from 2011 data, http://www.atsiri-indonesia.com/


in Aceh, Indonesia

55

Notes:

All prices are those offered in distilleries (not export prices), as listed in DAI website on 14 January 2011, converted to USD (currency exchanre rate of IDR 9,085 per USD).

Price range (lowest to highest)Average price

AverageAceh Tenggara

Pakpak Barat

Aceh Selatan

Pasaman Barat

Kuningan Karanganyar Banyumas Pemalang Average

J a v a S u m a t e r a

80

70

60

50

40

30

20

10

The price range affects the final profit share of the growers. A small price range suggests relative price stability, while a larger price range implies that growers have less bargaining power and are left at the mercy of the rest of the value chain (e.g. agents, middle-men, exporters, etc). At the moment, there is an excessive 'price discrepancy' within the domestic patchouli oil market. In Sumatera, there are still many middle-men. Also, some patchouli oil exporters hold a relative monopoly and can set the local buying price paid to rural

91producers without any check or control. The market has become excessively speculative. Overall, despite the higher quality of patchouli in Sumatera, the value chain is turning the patchouli industry into a high-cost industry with the growers benefitting the least.

Price is related to the quality of Acehnese patchouli oil. When determining the quality of a given patchouli oil, the most important factor is

92the level of the patchoulol (patchouli alcohol) and the Norpatchoulenol content. Patchouli alcohol (PA) provides the strong fragrance required by quality perfume producers. In general, essential crops are cultivated by farmers with limited capital and land who use a simple distillation process, with the result that quality and productivity are low.

91 Peak Indonesia, 2009. P. 44-46.92 F. Näf et al., 1981. Chim. Acta, vol. 64, no 5, p. 1387-139793 Payan Bertrand, 2010; DAI, 2010.

Chart 18: International Price of Patchouli (USD/kg) 93According to Payan Bertrand and DAI56

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

Notes:Payan Bertrand light patchouli oil = light patchouli is produced with stainless steel equipment producing yellow light iron-free oil.Payan Bertrand brown patchouli oil = brown patchouli is produced using traditional equipment.DAI = overall international patchouli price (uncategorized) according to Dewan Atsiri Indonesia (Indonesian Essential Oil Board or DAI).

Payan Bertrand light patchouli oil

Payan Bertrand brown patchouli oil

DAI

160

150

140

130

120

110

100

90

80

70

60

50

40

30

20

10

01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Price differences of patchouli are therefore affected by the quality of the distillation process. For instance, patchouli harvested in the same region but distilled using a different technique will yield different qualities of patchouli oil. Traditional methods that use iron equipment will yield brown-colored patchouli oil while those using the modern stainless steel equipment will yield yellow light iron-free oil, which is priced higher (see Chart 18)

Unfortunately, in the international market, there is no “premium' price established on the local level. There is no single cause for the price fluctuation of patchouli. Prices rise and fall mainly due to an accumulation of several factors. Some of the factors that contribute to the fluctuation of patchouli

94prices are :

Volume fluctuation: This is common for agricultural products, which rely on climatic conditions, rainfall, pests, etc. The most commonly mentioned reason behind the fluctuation of Indonesian patchouli oil is that the volume of patchouli oil is unable to meet the market demand.

Price speculation (see subsection on the value chain, chapter 4) : There are players in the market who look for short term profits by stockpiling, mixing patchouli oil from different regions to increase volume, price fixing, etc. These activities damage the long-term prospects for the product by making the market price more volatile and unpredictable.

Poor farming techniques: Farming techniques being followed in Indonesia are not keeping up-to-date with the most current and efficient systems. In the long run, an inefficient farming system is a significant economic burden for the growers and makes the industry uncompetitive and eventually unsustainable.

Reliance on one type of fuel (see subsection on environmental issues, chapter 4): Growers in Aceh still use firewood for heating the distillation units because it is more cost-effective than other fuels. Upgrading to oil or gas is a significant jump in production costs because of the steep increase in energy prices, thereby increasing the overall cost of production. At the same time, a 'greener approach' to production is increasing in demand among consumers. Farmers who cannot afford the change will find themselves in a shrinking market.

Pests and diseases: Crop damage due to the spread of a new disease in the farming areas can significantly reduce the volume of production and eventually the price.

94 Tekriwal, 2009; ICIS News, 2003.


in Aceh, Indonesia

57

The price fluctuation has significant impact on the sustainability of the industry that must be addressed in order to improve the production of patchouli oil. The next chapter examines how the aforementioned opportunities and obstacles shape the patchouli industry in one particular province, Aceh.

Slash and burn practices (see subsection on environmental issues, chapter 4): The nomadic farming system in Sumatera, where no particular area is used permanently for cultivating patchouli, means that the production is less intensive than in Java. Growers in Sumatera rely on land expansion to increase volume of production, which means they are limited by Government environmental policies (related to spatial planning). Large-scale patchouli estates cannot be created as long as growers do not use intensification methods and continue to rely on plantation expansion.

Changes in crop: Growers plant crops that give better returns. During the boom times, the prices of all commodities kept increasing sharply except for the price of patchouli, resulting in farmers moving to other crops, and thereby reducing production.

External economic factors: There are events that directly or indirectly affect the price of patchouli. The conflict in Aceh caused a decline in patchouli production volume from the region and helped to increase the price of patchouli. On the side of demand, the global economic downturn resulted in a severe reduction of demand for patchouli.

58

TH

E P

ATC

HO

ULI

SE

CTO

R I

N I

ND

ON

ES

IA

4. The Patchouli Sector in Aceh

Drying patchouli leaves and stem

The main aim of this section is to discuss the patchouli oil industry in Aceh. Aceh has a long history with the patchouli sector, which predates the establishment of the Republic of Indonesia. While the armed conflict has drastically reduced the patchouli production in Aceh, the recent peace has provided an opportunity to revive the patchouli industry in the region. There is considerable potential for the industry to develop. Aceh has land available

95for small to medium scale patchouli plantations. When the conflict between GAM and the Indonesian military intensified and especially forest areas became a security risk, farmers left Aceh to live in more secure areas. Large areas of fertile land were abandoned and remained to be so after the conflict came to an end and the security risks were removed. Therefore, as of yet, the available land is ready to be cultivated. Another reason for the availability of land can be explained by population scarcity due to the conflict and tsunami.

96Therefore, the demographic density in rural areas is relatively low. However, issues of spatial planning, land ownership and natural resource management

97are still problematic for the agricultural sector.

The climate conditions are favorable – e.g. tropical temperatures and 98adequate rainfall – and the soil is fertile. These specific characteristics of the

ecosystem in Aceh – and other parts of northern Sumatera – give the region a comparative advantage in patchouli production as opposed to other Indonesian regions. Moreover, Aceh is close to the important trading port of Medan which connects the industry with exporters and overseas buyers. Since the Government is committed to promote agribusiness as a viable economic sector, the patchouli industry in Aceh has the opportunity to capitalize on these opportunities and strengthen its productivity.

In order to determine why Acehnese patchouli is important to the global essential oil industry, the background and history of patchouli cultivation in Aceh must be considered. Identifying the specifics of Acehnese patchouli oil by focusing on its quality and the productivity of the industry is also an important consideration. Finally, the value chain needs to be examined in order to understand the various activities of relevant actors in the Acehnese patchouli industry and identify the linkages between these activities.

The value chain of the patchouli industry in Aceh suffers from a number of constraints that reduce the ability of farmers and distillers to produce

95 Aceh Green Secretariat, 2008. “Green Economic Development and Investment Strategy for Aceh, Indonesia”, July 2008, p.7, 15.

96 International Finance Corporation, 2006. “Aceh Palm Oil: Value Chain Analysis”, World Bank, August 2006, p.5.

97 Commonwealth Scientific and Industrial Research Organization (CSIRO), 2008. “Policy Note: Environmental Management For A Sustainable Economic Development Strategy For Nanggroe Aceh Darussalam”, March 2007, p. vii.

98 World Bank, 2009. P.31.

60

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

History

'The name 'patchouli' originates from the Tamil word pacchilai or paculli meaning green leaf. However, the plant is known under a variety of different

99names in different local languages. In Indonesia, people refer to patchouli as nilam (in Sumatra) or dilem wangi (in Java), which are names introduced during

100the Dutch colonial period.

The distillation of patchouli originated in British Malaya during the thsecond half of the 19 century. The most important distillation centers at that

point in time were the Penang island and the Straits Settlements in 101Singapore. After harvest, some of the leaves were exported to Europe and

processed in modern distillation factories, but the largest part of the distillation process was done by distillers in Penang and Singapore.

At the turn of the century, the focus of cultivation in British Malaya shifted to rubber trees, leaving the small patchouli distillers without an adequate supply of dried patchouli leaves. Therefore, they turned their attention to

102suppliers in Sumatera. Cultivation of patchouli in Sumatera – and Aceh in particular – intensified and dried leaves were subsequently exported to

103distillers in Singapore, Penang and Wellesley. However, the patchouli cultivators in Aceh started facing problems when the price of rubber decreased sharply after 1919 and planters in British Malay renewed their energy in cultivating patchouli. Subsequently, the export of Acehnese patchouli leaves declined leaving the planters with an oversupply of dried

104leaves. To solve this problem, it was decided to distill the leaves in Sumatera which signaled the beginning of the patchouli industry in this region.

thThe industry developed and by the mid 20 century Sumatra became the largest supplier of Patchouli oil in the world with Aceh as its main cultivation

105center. A small proportion of the oil was exported to Singapore, Penang and Wellesley through ports along the coast of Aceh, but for the most part, buyers transported the oil to Java. In Java, the patchouli oil from Sumatra was exported together with the small amount of Javanese oil to countries overseas.

patchouli oil. This ability is further weakened by the absence of a well developed support system for the industry in Aceh in terms of organizational infrastructure, human resource development and access to technologies and extension services. These constraints must be addressed in order to provide recommendations on how to solve them.

99 Muragan et al, 2010. P. 1274.100 McCarthy, 2005. P.62.101 Guenther, 1948. P.554.102 Guenther, 1948. P.554.103 Muragan et al, 2010. P. 1276.104 Guenther, 1948. P.554.105 Guenther, 1948. P.555.


in Aceh, Indonesia

61

The importance of the patchouli industry in Aceh diminished during the Second World War and the post war period when attention was shifted to other areas. However, after the 1997 Asian Economic crisis, the US dollar value of patchouli oil rose rapidly and the Indonesian rupiah devaluated. These two

107events led to a severe increase in local prices. The cultivation of patchouli became so profitable that people actually referred to this period as one of

108'nilam fever'. Patchouli production spiked, but returned to previous levels at the end of 1998 just when farmers were ready to harvest. To avoid similar mistakes, patchouli price has been monitored by Dewan Atsiri Indonesia (Essential Oil Board of Indonesia or DAI) since 2004. Price updates can now be accessed from its website.

106An old Dutch patchouli distillery in Tapaktuan, Aceh Selatan (c.1921)

106 The plaque says “Essential oil factory. Operational since 1921”. Source: A.Z. Akmal and Z. Surya, 2006. "Tapaktuan, A Tourist City Not Yet Sure of Itself" on Adam's

thGecko Blog, 4 February 2006, http://img137.imageshack.us/img137/5696/nilam0219th7rp.jpg

107 McCarthy, 2005. P. 62-63.108 McCarthy, 2005. P. 63.

62

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Notes: Production in Aceh

Production in Sumatra

Production in Other Regions

Production in Java

109 BPS, 1980-2010


in Aceh, Indonesia

63

109Chart 19: Share of Region in Patchouli Production in Indonesia

3.000

2.500

2.000

1.500

1.000

500

-1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

3000

2500

2000

1500

1000

500

-1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

stSince the beginning of the 21 century, Javanese growers/distillers have increased their production of patchouli oil (chart 19) and have replaced Aceh

110as the largest producer of patchouli since 2005. Some actors even argue that producers from Aceh are shifting their production site to other parts of Indonesia. However, this assumption is not supported by the relatively stable volume of patchouli production in Aceh since the 1980s (Chart 19).

Quality of Acehnese Patchouli Oil

The quality of patchouli oil is determined by the physical and chemical characteristics of oil. Its quality is mainly measured by the level of patchoulol (patchouli alcohol or PA), which is the largest chemical component of

111patchouli oil. PA contains norpatchoulene, which gives the patchouli oil a 112specific odor/scent. The oil from Acehnese patchouli (Pogostemon cablin

Benth) in Sumatera is considered to have the highest quality as it contains a 113high level of PA.

However, the PA level alone does not guarantee good quality. The Badan Standarisasi Indonesia (Indonesian Standard Body or BSI) has set several standards of quality for patchouli oil. International buyers also have their own set of standards. The table below compares three different standards, two from Payan Bertrand (a French buyer of patchouli oil from Indonesia) and one from the Government think-tank, the Balai Penelitian Tanaman Obat dan Aromatik (Research Center of Spices and Medicinal Plants or BALITTRO).

110 Tekriwal, 2009; ICIS News, 2003.111 T.G. Walker, 1969. “The Structure And Synthesis Of Patchouli Alcohol.”,

Manufacturing Chemist And Aerosol News, p.2.112 E. Trifilief, 1980. “Isolation Of The Postulated Precurser Of Nor Patchoulenol In

Patchouli Leaves”, Phytochemistry, no 19, p. 2464.113 Tekriwal, 2009; ICIS News, 2003.114 Compiled from Payan Bertrand and BALLITRO data.

114Table 6: Comparisons of Standards of Quality for Patchouli Oil

64

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

StandardSpecificGravity

RefractiveIndex

20(nD )

RotaryPower

PatchoulolLevel

(C H O) 15 26

CopaeneAlpha Level

(C H )15 24

IronLevel(Fe)

PayanBertrand(quality)

PayanBertrand(iron-freequality)

BALITTRO(Indonesianexportquality)

0.955 to0.970

at 20°C

0.955 to0.970

at 20°C

0.950 to0.975

at 25°C

1.5070 to1.5105

at 20°C

1.5075 to1.5100

at 20°C

1.5070 to1.5150

at 20°C

-57°C to-46°C

-55°C to-45°C

-48°C to-65°C

> 30%

> 30%

> 30%

Traces

< 0.1%

< 0.5%

n/a

n/a

< 25 mg/kg

The range of grades and prices of patchouli oil manufactured, offered, and promoted to the international market by the exporters in Indonesia is mainly based on the PA level, color and iron content, and the age of the patchouli oil. Most patchouli oil being offered on the market from Indonesia has a PA level of 30% to 36%. This high PA content is because the distillation is improved by

115using a fractionation columns device. The color of patchouli oil ranges according to its iron content. Patchouli oil distilled in traditional iron distilleries is contaminated by iron and usually has a brown color. Those issued from stainless steel distilleries have no iron content (iron-free) and therefore have a light yellow color. Patchouli oil that is further refined in fractionation columns, patchouli oil with low acidity level, and aged patchouli oils are sometimes available and promoted.

There are several sub-varieties of the patchouli plant in Aceh. The major ones are Tapaktuan patchouli in South Aceh, Lhokseumawe patchouli

116(North Aceh), and Sidikalang patchouli (Aceh Tamiang). They each have different physical and chemical characteristics. Tapaktuan patchouli has high adaptability, a green with a slightly purple stem color. Lhokseumawe patchouli also has high adaptability and a purple stem color. Sidikalang variety has high adaptability and a dark purple stem. The level of PA from these varieties varies: i.e. Tapaktuan (28.69-35.90%), Lhokseumawe (29.11-

11734.46%) and Sidikalang (30.21-35.20%).

115 A fractionation column is an item used during distillation to separate the mixture into its components.

116 Yuhono, et al, 2007. P.36.117 Yuhono, et al, 2007. P.37.

Patchouli main varieties in Aceh

Tapaktuan variety Lhokseumawe variety Sidikalang variety


in Aceh, Indonesia

65

The physical characteristics of patchouli, specifically the olfactory qualities in the case of the fragrance industry, also determine the quality and price of patchouli. Different buyers have different quality grading systems depending on their purpose of usage of the commodity. For example, a French buyer of patchouli, Payan Bertrand, purchases Acehnese patchouli to use for fragrance products. The buyer has a system to grade Acehnese patchouli. Payan Bertrand's natural ingredients perfumers classify the oil in three different grades based on color, specific olfactory profile and the patchoulol level (see Chart 20).

The color divides patchouli oil into two types of oil: the red, dark oil produced from traditional distillation units, and the clear oil produced with improved distillation methods using either traditional units or stainless distillation units. The market for dark colored or red oil is low end. Dark colored oil is used to make inexpensive perfume for the mass market. The high quality clear oil is selected according to the following requirements: oil has a patchoulol level above 30%, an olfactory spectrum that meets the “Acehnese patchouli olfactory range” (see Chart 20), and is well balanced (oils that are evaluated as “too moist” are not considered as valuable and will be supplied to the mass market).

118Chart 20: Acehnese Patchouli Grade Based on Olfactory Range

118 Payan Bertrand, 2010. Compiled from Payan Betrand data.

66

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Dry and woody notes

Underground notes, saltpeter, moisty

Earthy and humus notes Cocoa bean accent

Fresh and mettalicaccords

Acehnese base qualityAcehnese middle qualityAcehnese premium high grade qualityAcehnese patchouli olfactive range

According to this system, Acehnese patchouli oil has a range of qualities that will target different types of markets. Payan Bertrand's Acehnese base quality will target the entire perfume industry. It is considered to have a moisture and saltpeter profile, less woody notes, less cocoa bean accents, more fresh and metallic accents and an initial patchoulol level above 30%, with less fixative effects. Patchouli oil that falls into the Payan Bertrand's Acehnese middle quality range is targeted at the added value perfume industry. It is less moist, woodier, has a good patchoulol level, and a middle fixative effect. Payan Bertrand's Acehnese premium high grade quality requires patchouli oil that has the least saltpeter, a moisty note, the most cocoa bean accent, a high patchoulol value and a very fixative effect. This grade is aimed at the niche market for luxury perfume, aromatherapy and spas.

This grading system provides an opportunity to formulate production strategies that take advantage of the strengths of Acehnese patchouli oil. This is important because the high quality of patchouli oil from Aceh does not guarantee a good selling price. Although Indonesia is the largest producer of patchouli oil, the widespread practice of mixing patchouli oil of different qualities and the lack of proper cultivation and distillation technologies

119ultimately affect the quality, and reduce the selling price. Some exporters in Indonesia collect and blend different batches of patchouli oil in order to fulfill the quantity demand by international buyers. These exporters are not interested in catering for specific markets, which have stricter quality demands, but prefer to profit from bulk-selling at lower prices.

Currently, the local growers and distillers still lack the technological knowhow to apply the optimal distillation process. Their distillation techniques are still based on the ones employed since the Dutch colonial

120times. Distillers use crude technologies where:

119 Y. Nunyani, Emmyzar and Wiratno, 2005. “Budidaya Tanaman Nilam”, Sirkuler, no 12, p. 3.

120 Payan Bertrand, 2010; Tekriwal, 2009; ICIS News, 2003.

The distillery is designed using a second hand iron drum instead of stainless steel distillation units, which compromises quality by contaminating the oil with iron and giving the produced patchouli oil a darker brownish color.

The actual distillation units used in Aceh do not allow the use of controlled steam pressure and temperature. Therefore, the distillation of the leaves and sticks is not always entirely completed and the content of patchoulol and norpatchoulenol is lower compared to oil distilled in modern distillation units.


in Aceh, Indonesia

67

The local industry in Aceh does not have access to laboratory facilities to check the value and quality of the oil. Quality control, if conducted, is therefore limited to physical observations of the distillation results.

The patchouli oil from Aceh, regardless of its high iron content, is still considered to have better quality. However, when it is mixed with patchouli from other parts of Sumatra and from Java, the quality of oils from these regions improves while the quality of patchouli oil from Aceh devalues. This

121process also diminishes the value adding process.

Productivity of the Patchouli Industry in Aceh

In general, growers in Aceh increase the volume of patchouli production by expanding the area of plantation. This is not the best way to improve volume of production as it has a high cost in terms of damage to the environment caused by land clearing. The method also does not guarantee the maximum amount of volume that can be obtained because the land that is cleared may or may not be suitable for patchouli cultivation. The following analysis is based on official data from the Badan Pusat Statistik (BPS). While the reliability of official data from Aceh is questionable, the historical patterns that evolve are supported by other socio-economic sources that have had an impact on the patchouli industry and suggest that these data are reasonably good enough to represent the industry.

The area used for patchouli plantations in Aceh has risen and fallen since 1979 (see Chart 21). The patchouli land expansion includes the land clearing during the aforementioned 1997-1998 'nilam fever' in Aceh Selatan. The reduction of land use for patchouli followed the escalating conflict from 1999 to the earthquake and tsunami disaster in 2004. The subsequent expansion since 2005 is also indicative of the effects of the rehabilitation and reconstruction projects that infused the Aceh economy with a large amount of money.

In general, the production volume of patchouli in Aceh follows the same trend as the land clearing (see Chart 22). However, when the level of productivity is calculated using the two sets of data above, the result indicates that there is a steady decline in the level of productivity of the patchouli sector in Aceh (see Chart 23). Roughly interpreted, growers produced more patchouli for the same amount of land in 1979 than thirty years later in 2009 (a 30.54 kg/ha decline between these two years).

121 Peak Indonesia, 2009; 45.

68

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

122Chart 21: Area Used for Patchouli Plantations in Aceh (Ha)

123Chart 22: Volume of Patchouli Oil Produced in Aceh (Ton)

122 BPS, 1980-2010.123 BPS, 1980-2010.


in Aceh, Indonesia

69

Area (Ha)

8.000

7.000

6.000

5.000

4.000

3.000

2.000

1.000

-

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

20002001

20022003

20042005

20062007

20082009

Production in Aceh (Ton)

500

400

300

200

100

-

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

20002001

20022003

20042005

20062007

20082009

124Chart 23: Productivity of Patchouli Oil Production in Aceh (Kg/Ha)

124 Calculated from the last two charts. Compiled from BPS data.

Projecting from these trends, if using the 1979 productivity level as a standard, growers in Aceh today should have been able to produce 25 kg more patchouli oil from every one hectare of plantation, or for the 4,246 ha of land dedicated in 2009 for cultivating patchouli. Growers in the entire province of Aceh have missed out on a total of 129.68 tons of patchouli, which would have been worth approximately USD 5.5 million (using the 2009 DAI price). This indicates that there is plenty of room for improving the production level in Aceh without expanding the plantation area.

The Patchouli Value Chain in Aceh

The value chain of the patchouli oil production in Aceh is long, unstructured and complicated. There are several main actors in the value chain in Aceh: the growers, the distillers, the middle-men and the exporters/buyers.

The Growers

Patchouli is cultivated through nomadic agro forestry production. Patchouli cultivation is influenced by the fluctuating market price that makes it difficult to plan, project or calculate its total production numbers and trends. Usually, patchouli in Aceh is cultivated on mountain slopes or river

70

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Productivity (Kg/Ha)

150

125

100

75

50

25

-1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

125Chart 24: Value Chain of Patchouli Oil in Aceh

banks where the soil is fertile. Growers/distillers create small-scale monoculture or inter-cropping plantations in informal groups in order to share the land or the use of distillation facilities. There are no large-scale commercial patchouli plantations in Aceh.

A study by Caritas Czech Republic in 2009 discovered that most patchouli growers in Aceh were still cultivating on small scale monoculture plantations using slash-and-burn systems that depleted the soil nutrients

126resulting in impaired quality of patchouli plants. There was a lack of effort to improve the productivity of both cultivation and distillation. Intensive and permanent agriculture (permaculture) practices were only used by Javanese ex-transmigrant growers.

125 Payan Bertrand, 2010. Based on DAI data.126 Peak Indonesia, 2009. P.11.


in Aceh, Indonesia

71

Financial Support

Output

Grower/Distiller

Collection Points (Sub-) District LevelCollector in villages, during weekly traditional market

AgentMiddle men

(Amount depending on the remoteness of the area)

Exporter(Medan)

Overseas buyer

The Distillers

The growers usually distill their leaves using their own distillery or by 127paying for the services of a nearby distillation unit. This activity adds labor-

and capital costs. The production of patchouli oil includes the drying of leaves, the cutting of leaves, and the distillation process.

The production of oil depends on the distillation unit used. For instance, a 35-40 kg distillation unit can produce up to 900 – 1,500 grams of patchouli

129oil. If the plantation is remote (i.e. in the mountains or in areas far from the villages), the patchouli leaves have to be carried to the distillation facility, which also takes time.

In some villages, distillers purchase leaves from growers. This saves the growers time, transport and processing costs as well as provides them with a quick income. The leaves can be weighted, appraised and paid for by the distiller, or the leaves can be distilled for a fee (to compensate for labor, timber, and distillatory rent) which allows the growers to keep the produced oil and to sell at a later point in time.

128Patchouli harvesting in Teunom, Aceh Jaya (c.1930s)

127 Peak Indonesia, 2009. P. 70.128 Tropenmuseum collection. http://collectie.tropenmuseum.nl129 Peak Indonesia, 2009. P.69.

72

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

130An iron distillation unit

130 W.P. Mandiri, 2010. “Alat Penyulingan Nilam”, http://w11.itrademarket.com/131 Peak Indonesia, 2009. P.69-71.

The Middle-men

There are several ways to sell or collect patchouli oil from distillers. The most common practice is to sell patchouli oil to middle-men or tauké/toké in Acehnese terms. Price is often negotiated between growers/distillers and middle-men, but ultimately it is the middle-men that set the final price. There

131are several modus operandi for these middle-men. Some of these are:

Big traders: Some middle-men have an establishment in a village that serves as a collection point of patchouli oil sold by medium traders. The large establishments in Aceh are in Meulaboh (Aceh Barat), Kotafajar (Aceh Selatan), and Lhokseumawe. These establishments are usually funded by Medan exporters to serve as their regional suppliers.

1.


in Aceh, Indonesia

73

2.

3.

Patchouli growers that sell patchouli oil to middle-men are at a disadvantage during price negotiations because they can only produce very

132small volumes of patchouli. In the remote areas, such as in the highlands, the prices offered by middle-men are usually lower and are not regularly updated. This is because there are only a small number of middle-men, who virtually

133control the market due to a lack of competition.

The Exporters/Buyers

As of yet, patchouli oil is not exported to overseas countries from ports in Aceh. Middle-men sell the patchouli oil they have gathered to exporters or buyers based in larger cities with an international port, usually in Medan, Padang or Jakarta where the international price of patchouli is established following market supply and demand.

The trading activity of patchouli oil is considered risky because of the price volatility of patchouli. Price speculation is common. These factors cause unstable production of patchouli oil in Aceh. Oversupply or shortage of patchouli oil often happens depending on the market price.

Because exporters are not involved in the production process and do not deal directly with growers/distillers, they set prices by relying on information given by the middle-men. The isolation of the production areas - due to characteristics of the terrain and poor infrastructure – requires the involvement of middle-men who collect and deliver patchouli oil to exporters. Both producers and exporters rely on these middle-men. Consequently, the number of middle-men increases due to this reliance and the patchouli value chain becomes long and complicated.

For the last five years, there has been an increase of patchouli production in other areas of Indonesia. Foreign fragrance companies have begun to be involved in the value chain, which has introduced more competition in the sector. This is expected to shorten the value chain as small and medium traders will have a greater opportunity to sell their produce directly to buyers.

Medium traders: There are also middle-men that have their own shop (in order to collect and sell other commodities) or work at their homes in the villages. They buy patchouli oil from growers and collecting traders.

Collecting traders: These middle-men collect patchouli oil at buying points during the weekly uroe peukan (literally: 'market day') in the villages.

132 Peak Indonesia, 2009. P.68-69.133 Peak Indonesia, 2009. P.72-73.

74

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Overall Market Conditions

The market demand for patchouli is relatively high, but the price of patchouli is very volatile. Although the international price is determined by world markets, some large exporters can control the local prices through stockpiling or market-dumping practices. Trade of patchouli oil from Aceh is dominated by exporters based in Medan, which affects the price given to the middle-men. Eventually the price trickles down to the growers and distillers.

Growers have poor leverage to negotiate for better price as they still sell their products independently; produce lower quality patchouli oil due to poor distillation equipments; and lack the knowledge on patchouli varieties that are most suitable for a particular region. Price information is crucial for growers in order to increase their bargaining power with traders. The prices listed in Chart 18 are all annual prices, which do not represent the volatility of the patchouli price on a weekly or even daily basis. Better information on prices will enable growers to determine the best time to sell their products.

A crucial factor to the proper functioning of the value chain in Aceh is the 134relationship between the actors. The growers and middle-men usually have

long-term relationships that go beyond the trade in patchouli oil. Some have kinship relationship, or live as neighbors in the same village. Big growers usually sell their patchouli oil to medium traders and some even sell directly to wholesalers. Special accommodations are made in order to maintain these relationships. Some collectors are willing to go to small farmers to buy their patchouli oil thus cutting the transportation cost. They also accept patchouli oil in small quantities (500-2,000 gram) from small growers. Big growers usually prefer to sell their patchouli oil to medium traders/agents or even wholesalers. Mutual trust is maintained through long-term relationships and communication. Growers are guaranteed a 'fair price' that will reduce the possibility of losses (reduced profits) if the price declines, while traders are guaranteed a steady supply of patchouli oil. In Aceh Jaya and Aceh Barat, most of patchouli oil traded by the traders is delivered to the same exporters, which means the structure of their relationships is similar to a cartel. These strong relationships on multiple-levels need to be addressed if any change in the value system is to be attempted.

Future Directions

Currently, the volatile market price of patchouli discourages any long 135term business perspectives among growers. People find it difficult to

commit to long term projects and use various rationales to explain it, such as reasons connected to the recent conflict in Aceh, reasons of infrastructure damage caused by the 2004 disaster, all of which have actually changed for the

134 Peak Indonesia, 2009. P.70-73.135 Peak Indonesia, 2009. P.70.


in Aceh, Indonesia

75

better in the past six years. Before, small entrepreneurs were hesitant to deal with large amounts of money or take on projects that would require transportation because of security issues during the martial law. Thus, they had to look for possibilities to make quick money that would not require large investments or high stakes. This attitude still lingers despite improving conditions, and prohibits growers/distillers to organize and be less risk-aversive.

Small growers and SMEs still have difficulty to access credit facilities and make use of business support systems, such as a well developed infrastructure, training facilities and so forth. The financial support from banks and non-financial institutions for patchouli-growers is very limited. Financial institutions are hesitant to provide credit to the agronomic sectors, or to any business sectors in Aceh in general, due to the high Non-Performing

136Loan (NPL) rate in the province for several years in a row. Credit is difficult to attract because there is – as of yet – no sense of structure in the patchouli industry. There is an absence of established legality in the industry which would allow the actors to organize credit facilities themselves.

136 In 2010, Mahdi Muhammad, the Head of Bank Indonesia, stated the following: “The NPL limit set by BI is 5%. If it is more than that, monitoring and swift action must be taken…NPL in Aceh has increased from 4,4% in September 2010 to 5,2% in October 2010, which exceeds the limit” (translated from Indonesian). Source: Waspada, 2010. “Kred i t Be r masa l ah Banyak d i Aceh” , 30 th December 2010 , http://www.waspada.co.id

76

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

The Patchouli Sector in Java: A Model Value Chain

The value chain of the patchouli sector in Java is different from the patchouli sector in Aceh discussed in earlier chapters.

137Chart 25: Value Chain of Patchouli Oil in Java

In the District of Kuningan, Java, the value chain is more organized and shorter than in Aceh. The interaction between the actors participating in the chain is more efficient due to a number of reasons.

The relationship between growers and distillers is organized and well 138structured. The growers in Java are not participating in the distillation

process and can thereby concentrate on the cultivation of patchouli without having to address all the extra work and costs related to

139distillation. Once they harvest, they can sell their dried or wet leaves to distillers in their village. These distillers have access to large scale distillation units. The centralization of distillation in Java is beneficial to the production process because it allows a division of labor. The large distillation unit is operated by 1 or 2 skilled workers with the knowhow and time to invest in optimizing the distillation process. Therefore, they are able to guarantee a sustainable quantity and quality of oil. This

1.

137 Payan Bertrand, 2010. Based on DAI data.138 DAI, 2009.139 Interview with Mr. Dede Anom Sasrudi, production manager on distillation design,

thheld on 11 February 2011.


in Aceh, Indonesia

77

Financial Support

Output

GrowerCooperative

(large scale distillery crops)

Distillerlarge skill distillery

SME/Coop

Agent Exporter

Overseas Buyer

2.

centralization also results in lower production costs, since the farmers no longer have to use the smaller distillation units thus diminishing labor costs. Also, the technology used in the large distillation units (e.g. the use of fire pipes and recycled fuels) reduces the amount of fuel. Taking these factors into account – better quality and lower production costs – means that centralization strengthens the bargaining power of growers and distillers vis-à-vis exporters.

The interaction between the exporters/agents and distillers is well organized. The exporters supply their distillers with weekly updated

140information on oil prices and give them financial support. These close linkages reduce the dependence on middle-men. This benefits both parties, since the distillers have the financial capacity to sustain their production and the exporters can rely on a regular supply of oil. With the support received from exporters, distillers are capable to provide their patchouli growers with needed financial capital, thus securing their supply of leaves.

The Government and the banking sector are involved in the patchouli industry. Because the cooperatives and SMEs engaged in the industry are legal and recognized entities, the banking sector is willing to provide financial services. Moreover, the Government contributes by

141establishing support systems and required equipment.

The short value chain in Java encourages foreign companies to invest and establish branches in Java to form partnerships with exporters at the production level.

3.

4.

140 Interview with Mr. Dede Anom Sasrudi.141 Interview with Mr. Dede Anom Sasrudi; Interview with Ir. Fitri Agustiyono,

thproduction consultant on distillation design, held on 11 February 2011.

The relatively small amount of actors in the value chain and the healthy competition among distillers, agents and exporters in Java guarantee equitable margins for all actors. This condition increases the sustainability of the patchouli industry in Java. It is a condition that should be emulated in the Acehnese patchouli industry.

78

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Environmental Issues

The way the patchouli industry is organized in Aceh presents a few additional problems. The industry relies on the use of timber as the only economically viable source of fuel during distillation and therefore has a large demand for wood. Moreover, in order to expand the areas of land for patchouli cultivation, farmers clear forest land by chopping down trees and cutting and burning woodlands. These logging activities may cause harm to the environment and - if environmental degradation continues - can lead to

142landslides and floods.

There is no uniform characterization of slash and burn practices. Practices differ per region and different actors use different definitions. For instance, some studies prefer to use the term 'shifting cultivation' or 'swidden cultivation' to avoid the negative connotation associated with 'slash and

143burn'. Nonetheless, in Aceh, slash and burn practices are considered to be a potential threat to the surrounding environment, especially when farmers

144cultivate patchouli on slopes. The following section will discuss these environmental concerns by focusing on two levels: the cultivation level and the distillation level.

Cultivation Level: Slash and Burn Practices

The environmental issues faced by the plantation level have to do with the 145method of cultivation in some regions along the west coast of Aceh. In these

parts, patchouli is cultivated in mountainous areas that are environmentally 146fragile. Due to the abundance of forest in Aceh, farmers can easily move

between areas and use whatever piece of land seems suitable at the time. They cultivate the soil via slash and burn practices. First they cut or burn the trees and then clear the area for the cultivation of patchouli. The ashes of the burned trees mix with the soil and increase the fertility. The farmers resort to these practices because the cultivation of patchouli requires rich nutritious soil and by making use of slash and burn practices, farmers aren't necessitated to buy

147any additional fertilizers. After one or two harvests, the fertility of the soil depletes and the weeds increase. Instead of buying fertilizers to improve the soil, growers move to other areas in the forest and repeat the process of slash and burn. Their previous plot of land will not be able to be used for another 15

142 Jakarta Post, 2007. “Aceh To Implement Logging Moratorium”, 17th of March 2007; Jakarta Post, 2009. “Illegal Logging Continues In Aceh Despite

thMoratorium”, 27 of October 2009.143 C. Padoch, M. Pinedo-Vasquez, 2010. “Saving Slash-And-Burn To Save

Biodiversity”, Biotropica, vol. 42, no 5, p. 551.144 M. Noordwijk, E. Mulyoutami, N. Sakuntaladewi, and F. Agus, “Swiddens In

Transition: Shifted Perceptions On Shifting Cultivators in Indonesia”, World Agroforestry Centre, Occasional Paper no 9, 2008, 39.

145 Peak Indonesia, 2009. P. 68.146 Noordwijk et al, 2008. P 36.147 Peak Indonesia, 2009. P. 68.


in Aceh, Indonesia

79

148 L. Feintrenie, S. Schwarze, and P. Levang, 2010. “Are Local People Conservationists? Analysis Of Transition Dynamics From Agroforests To Monoculture Plantations In Indonesia”, Ecology and Society, vol. 15, no 4, 2010, p 1.

149 Noordwijk et al, 2008. P 39.150 Feintrenie et al, 2010. P 1.151 Jakarta Post, 2007.152 Jakarta Post, 2009.153 Interview with Ir. Fitri Agustiyono, production consultant on distillation design,

held in Banda Aceh on 9th February 2011.154 Peak Indonesia, 2009. P. 101.155 Peak Indonesia, 2009. P.11.

148to 20 years. Therefore, a consequence of the slash and burn system in West Aceh is that it actually depletes the soil nutrients.

Slash and burn cultivation in West Aceh leads to a nomadic farming system and prohibits the farmers from using the land for permanent agriculture or plantation use. Moreover, farmers believe that patchouli is best cultivated in newly opened forests and fear that permanent agriculture will

149 affect the yield due to the possibility of pests and diseases. The main limitation of a slash and burn cropping system is its low cropping intensity. If the patchouli industry aims to increase agricultural expansion and cultivation, farmers have to reduce the fallow length. This means that the period of time between cultivation has to be shortened in order to increase the

150yield and meet market demands.

When farmers are still reliant on slash and burn practices, one possible consequence of intensification is that it might lead to deforestation. In order to prevent the depletion of forest lands, the Government of Aceh has issued a

151policy to implement a moratorium on logging activities. Permits for logging activities are no longer issued by local authorities and logging activities have become illegal. However, government law and regulation on illegal logging are

152 not enforced properly. Moreover, there is a special provision in the moratorium of logging that says that communities living near non-protected forests may log trees as long as it is used on site instead of being transported

153outside of the area. These developments have therefore not restricted the farmers to continue chopping trees.

The introduction of multi-cropping in Sumatera may be one of the possible solutions to this problem since it would require farmers to plant and harvest on the same piece of land multiple times a year. It would end the nomadic farming system and prevent farmers from clearing additional forest

154 land. Multi-cropping requires farmers to plant more than one species a time. This will reduce the chance of crop failure. However, multi-cropping is more labor intensive in terms of planting and harvesting as opposed to slash and burn practices and will increase labor costs. Moreover, farmers are not familiar with intensive agriculture that would require the use of fertilizers

155and pest management systems.

80

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Production level: use of wood

Another environmental issue has to do with the reliance on timber as a fuel source. Distillers are required to use a large amount of wood in the oven/boilers of their distillation units. Wood is not the most efficient fuel source that can be used for distillation purposes. Chart 27 shows that, compared to other fuel sources such as coal, oil and gas, wood is the least efficient in terms of productivity. For example, during a distillation process of 1 hour a distiller would require 29.41 kilogram of wood as opposed to 18.41 kg

156of lignite coal, 8.21 kg of oil and only 5.12 kg of natural gas. The efficiency of wood as the preferred fuel during distillation is therefore questionable.

The efficiency of wood is not dependent on the size of the distillation 157 unit. Although a relatively larger distillation unit – e.g. a 300kg unit as

opposed to a 100kg unit – can distill the same amount of leaves in a shorter time frame, the amount of wood needed to achieve the right amount of heat also increases. The benefit of working with a 300kg distillation unit is that it can distill the leaves in fewer batches and therefore reduces operational costs – i.e. labor costs, distillation rent, transport costs. However, it does not decrease the amount of fuel needed.

Nonetheless, wood seems to be the only economically viable fuel source. Chart 26 illustrates that the prices of natural gas and oil, even though these are more efficient fuels – far outweigh the cost of wood. Even when the government subsidies are taken into account, the cost of wood per kilogram is far below the costs of competing fuels. It can therefore be assumed that – at present - it's not feasible for farmers to use other fuel sources than wood. Therefore, the amount of timber that is needed to effectively manage the distillation process remains a challenge and increases the dependence on the forest.

156 DAI, 2011.157 Interview with Ir. Fitri Agustiyono.


in Aceh, Indonesia

81

158Chart 26: Cost of Different Fuel Used for Distillation (USD/kg)

159Chart 27: Efficiency of Different Fuel Used for Distillation (kg/hour)

158 DAI, 2011.159 DAI, 2011.

82

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

Wood Lignite Coal Bricket CoalOil

(Subsidised)Natural Gas(Subsidised)

Oil(non-Subsidised)

0,72

0,50

0,29

0,12

0,060,02

0,80

0,70

0,60

0,50

0,40

0,30

0,20

0,10

-

WoodLignite CoalBricket CoalOil (Subsidised)

Natural Gas(Subsidised)

Oil(non-Subsidised)

5,12

8,21 8,21

14,35

18,01

29,4130,00

25,00

20,00

15,00

10,00

5,00

-

Wood prices differ per area. For example, along the west coast of Aceh, wood can cost up to IDR 100,000 per m³ while in Lhokseumawe (North Aceh) the price is merely IDR 40,000 per m³. These price differences are partly explained by the quantity of available wood and the quality of the type of wood due to the fact that different wood types produce different energy

160levels. For instance, more expensive wood will have a higher heating value (e.g. kcal/m³) than cheaper varieties. This implies that the cheaper the wood, the greater the amount needed for distillation.

Distilleries usually purchase their wood from nearby sites. Preferably, the distillation units are based in forest areas where distillers can easily access the wood. This reduces the costs of transport and labor. However, the reliance on timber as the only fuel source can cause complications in the future due to the

161MoU 'Aceh Green' of the Provincial Government and the moratorium on 162logging activities. Although, as already mentioned, law enforcement

163remains an issue, it is quite possible that the costs of energy for the patchouli industry in Aceh will rise in the near future. Nevertheless, although there does not seem to be an alternative for wood in the immediate future, there are ways to manage the amount of wood. This calls for strategies to manage the plantations, the distillation facilities, and the relations between the two in order to achieve an optimum and sustainable production level of patchouli oil.

Currently, there are initiatives undertaken by the industry that focus on reducing the amount of wood in distillation units. These initiatives center on technological improvements that will increase the distillation efficiency and

164on the search for alternative economically viable fuels.

In terms of technological innovations, there are two developments that are worth mentioning. As of yet, some efforts are made on developing a new distillery model. This new distillation unit will have a boiler with a larger diameter in order to expand the heated area. This will maximize the heating value of the wood. The second ongoing innovation is the use of water pumps in the distillation unit. At present, distillers can only refill the boiler with water by opening it and pouring the water into the boiler manually. However, by opening up the boiler, steam manages to escape and in order to regain the required steam pressure, more wood is needed. In order to solve the problem of steam loss, some of the distillers have started working with water pumps. Water will flow via the water pump into the boiler without the distiller having to open the boiler.

160 Interview with Ir. Fitri Agustiyono.161 'Aceh Green' is the GoA's policy to achieve environmentally sustainable

development in the province. For more information, see: Aceh Green Secretariat, 2008. “Green Economic Development and Investment Strategy for Aceh, Indonesia”, July 2008.

162 Jakarta Post, 2009.163 Aceh Forest Environment Project (AFEP), 2008. “Draft Aide-Memoire”, Third

World Bank Supervision Mission, February 2008, P.34.164 Interview with Ir. Fitri Agustiyono.


in Aceh, Indonesia

83

Another ongoing development is the search for alternative fuel sources that are economically viable. The industry is looking into the possibility of using palm oil kernel as fuel. This is the oil derived from the kernel of the palm fruit. Palm oil kernel has the potential to be more cost effective than the use of wood for distillation purposes. However, at present, the kernel can only be

165delivered in large volume and the suitability for storage is still unclear.

Finally, the growers/distillers can decrease their reliance on wood by 166stockpiling their dried patchouli leaves. If the process of drying is done

correctly, patchouli leaves can be stored for at least 6 months. Afterwards, the leaves can be distilled in a relatively larger volume, which will increase the efficiency of the distillation process. However, the problem of transport remains to be a key challenge and farmers will have to be induced to stock their leaves instead of trying to immediately sell them after harvest.

Is There Room for Expansion?

This section so far has highlighted several problems and opportunities for those who are interested in the patchouli industry in Aceh. These factors will be discussed in next section. For now, it is sufficient to say that currently there are challenges and limitations to the industry, but there are also opportunities that are worth exploring and investing in. Investing in the patchouli industry in Aceh is not an easy venture, but the gains are worth the effort.

Newcomers to the patchouli industry in Aceh have different factors to consider when starting up their business. Growers have to consider factors such as the availability of land (i.e. ownership, land-use permits, suitable terrain, climate and temperature, land clearing permits), the availability of skilled labor (i.e. local workers or migrant workers, trained or untrained, experienced or entry-level, local minimum wage, labor laws), the availability of transport infrastructure (i.e. distance to distilleries, marketplace, villages, cities, how to reach them and the costs), and existing local prices (i.e. from collectors, agents and distillers) and of course, the planting requirements (i.e. availability of seedlings, fertilizers, pests control, harvesting and workers gears, and the related costs).

Distillers have a different set of factors to consider. First, the location of the distillatory (i.e. distance to plantations, access to main road). Second, the type of distillation equipment (i.e. material, capacity, speed of operation, quality of produced oil, operator required, type of fuel). Third, the availability of fuel (i.e. proximity to fuel source, volume of available fuel, sustainability). Fourth, business relationships with known local collectors and agents (i.e. for

165 Interview with Ir. Fitri Agustiyono.166 Interview with Ir. Fitri Agustiyono.

84

TH

E P

AT

CH

OU

LI

SE

CT

OR

IN

AC

EH

pricing calculations). Fifth, available labor (same as growers). Sixth, updated information on fluctuations of product price, fuel price, transportation costs and wages.

Collectors, agents, middle-men, exporters and buyers have only two important non-technical factors to consider: the context of the area of production, and establishing relationships with actors in the existing value chain. Technical factors include knowledge of transport and export laws, the related Government office, the official administrative costs involved, and similar to the distillers, updated information on prices (global, national and local), existing rate of fees, transportation costs, and other overhead costs.

Some of the factors above have been discussed in earlier sections. At the moment, there may still be some factors that complicate large-scale investment in the patchouli industry, but there are developments in Aceh that are gradually meeting these investment needs. The following section will summarize and discuss these factors and explain how they will affect future investment in the patchouli sector of Aceh.


in Aceh, Indonesia

85

5. Analysis of the Patchouli Industry in Aceh

Patchouli distillation equipments

Strengths Weaknesses

Availability of fertile landSuitable ecosystemAvailable labor force in agriculture

Immediate:

Medium to long term: Comparative advantage due to production of superior quality of patchouli oil A relatively high educational attainment of Acehnese peopleHistorical ties with patchouli productionImproving and expanding information dissemination technology (e.g. mobile phones, internet)

Opportunities Threats

Volatile market pricesLow market prices may result in growers abandoning cultivation or lose incentives to invest in their businessesLack of knowledge, skills and practice on production of quality patchouli oil

Immediate:

Medium to long term: Growers have little information on market prices and therefore have poor bargaining power Lack of required technologies (use of small distillation units with iron drums instead of steel drums) to produce better quality and yield of patchouli oil

Improved security in the regionImproved transport infrastructure

Immediate:

Medium to long term: A strong commitment of the Government to promote agriculture as a viable economic sectorGovernment expansion of the energy sector by building more electric generators

Pests and diseasesImmediate:

Medium to long term: Lack of alternative fuel sources with high energy efficiency that will reduce environmental damage Competition from other plantation products such as palm oil, cacao, coffee, etc. Lack of access to credit to improve and increase the production of patchouli oil due to banks' reluctance to provide loans to growersChanging weather patterns, which are becoming more erratic

Inte

rnal

Ex

tern

alThe following analysis is based on the data that has been presented in the

preceding chapters. It analyses two main factors that are considered to be crucial to the patchouli industry in Aceh, i.e. the production capacity in patchouli oil and the value chain of patchouli production in Aceh. The analytical tool being used is the SWOT analysis. It helps to examine the relationship between the patchouli industry in Aceh and its environment by evaluating its strengths, weaknesses, opportunities and threats. By doing so, the SWOT analysis summarizes internal and external factors that shape the immediate and long term prospects of the patchouli industry.

The production capacity of the Acehnese patchouli industry

The SWOT matrix for the production capacity in patchouli oil in Aceh looks as follows:

Table 7: Production Capacity in Patchouli Oil in Aceh

88

AN

ALY

SIS

OF T

HE

PATC

HO

ULI

IND

US

TR

Y I

N A

CE

H

Most of the entries in the matrix have been thoroughly discussed in earlier chapters. Some of them are inter-linked. For example, the volatile market prices directly relate to the willingness of farmers to invest in their patchouli businesses.

The matrix is divided in 'immediate term' and 'medium to long term' entries. The immediate term entries can or have already been dealt with by the Government and/or actors in the value chain. For instance, some of the internal strengths of the patchouli industry in Aceh – e.g. the favorable ecosystem, accessibility of land for small scale patchouli cultivation and the available labor force in agriculture – provide the region with an immediate comparative advantage as opposed to other Indonesian regions. This advantage is further expanded by recent developments external to the patchouli industry, such as the 2006 peace agreement and current government efforts to improve local infrastructure. The Acehnese patchouli industry can take advantage of these visible strengths and opportunities on the short term.

However, entries that are identified as medium to long term cannot be tackled immediately. For example, it takes time to induce growers/distillers to use better technologies in order to improve the yield and quality of their patchouli oil. These entries require long-term planning, decision-making, and commitment on implementation in order to address the weaknesses and threats, improve the strengths and capitalize on the opportunities.

Some of the entries in the matrix are key factors in influencing the production capacity of Aceh's patchouli industry and warrant further discussion. These factors are discussed below.

One of the internal weaknesses of the production capacity in patchouli oil is that growers have little information on market prices and therefore have poor bargaining power. As explained in previous chapters, the prices of patchouli oil are fluctuating and this prevents farmers from planning and projecting the quantity of production. Growers do not receive regular price updates and therefore lack the ability to adjust their production accordingly. This internal weakness may be offset by the improvement and expansion of information dissemination technologies. Information technologies such as mobile phones and internet are an internal strength of the industry and positively affect the production capacity. The use of mobile phone and internet technology has penetrated the district capitals and their use continues to grow in the province faster than the development of other infrastructure such as roads or bridges. Growers/distillers have to be induced to take full advantage of the spread of information technology to connect better with buyers in national or international markets. This will lead to a more stable price and better bargaining power for the growers/distillers.


in Aceh, Indonesia

89

Another important internal weakness is the lack of knowledge, skills and practices on production of patchouli oil. Although the education level of the Acehnese workforce is relatively high compared to the national average; the knowledge and skills of workers are not aligned to the needs of the industry. They therefore lack the specific skills needed to improve the production capacity of patchouli oil, e.g. knowledge on necessary cultivation practices, marketing skills, etc. This weakness is being addressed by the Government who is committed to promote agriculture as a viable economic sector. One example of its commitment has been the effort to revive the Government Penyuluh (trainer of trainers) Program. The program offers extensive trainings on agricultural practices to bridge the current skills gap. The initiative stopped during the armed conflict, but has been reactivated recently. As of yet, the government is conducting trainings for rural growers in other plantation crops (e.g. palm oil and chocolate). If there is enough demand to expand this capacity building program to the patchouli sector, it will significantly increase the production capacity of growers and distillers.

A third external threat is the lack of required technologies to improve the production capacity of the patchouli industry in Aceh. An important reason why the industry lacks access to these technologies is due to the banks' reluctance to provide loans to growers. Unfortunately, banks are still citing the lack of security to justify their reluctance. This has a number of reasons. For one thing, agriculture is considered to be a risky sector. A range of uncontrollable activities can affect agricultural output that will lead to fluctuating incomes for farmers. Banks are therefore generally hesitant to take the risk. Moreover, Aceh seems to be singled out as even riskier than the other provinces in Indonesia with regard to bank loans. As described in earlier sections, the Non-Performing Loan (NPL) rate in Aceh remains high, and even doubled in 2010 as opposed to 2009. This problem is being addressed by the Government of Aceh, who has repeatedly encouraged the banks to provide loans to the agricultural sector. The results so far are less than promising.

This lack of access to credit is compounded by the lack of investors that are willing to invest in Aceh. They cite security (i.e. criminal activities, extortion, corruption, etc.) as a major concern. Security has been improving in Aceh since the peace treaty in 2006, but the image of an unstable Aceh still remains and diminishes investors' enthusiasm to invest in Aceh. This problem needs to be addressed and requires an extensive advocacy campaign to all economic actors (e.g. bankers, investors, exporters, transporters).

90

AN

ALY

SIS

OF T

HE

PATC

HO

ULI

IND

US

TR

Y I

N A

CE

H


in Aceh, Indonesia

91

A final important external threat is the lack of economically viable alternative fuel sources. At the moment distillers are reliant on wood for distillation purposes. Wood is not the most efficient source of energy when compared to other fuels such as natural gas and oil. However, the prices of these alternative fuels far outweigh the costs of wood. Growers/distillers are therefore not able to afford these other fuels and remain dependent on wood as the only economically viable option. This dependence will undoubtedly cause problems in the near future, due to the Government's Moratorium on Logging policy that restricts access to timber.

92

AN

ALY

SIS

OF T

HE

PATC

HO

ULI

IND

US

TR

Y I

N A

CE

H

The value chain of patchouli production in Aceh

The SWOT matrix for the value chain of patchouli production in Aceh is as follows:

Table 8: Value Chain of Patchouli Production in Aceh

Strengths Weaknesses

Inte

rnal

Ext

ern

al

The global reputation of patchouli oil from Aceh is well established

Information exchange:

Other factors:The essential oil industry in Indonesia is becoming more organized (e.g. the establishment of DAI, Asosiasi Minyak Atsiri Indonesia)Indonesia is already the largest exporter of patchouli oil Research centers are established in Indonesia to improve the production of essential oil (e.g. the Balai Penelitian Tanaman Obat Dan Aromatik in Bogor, the Agriculture Faculty at Universitas Syiahkuala in Aceh)

Opportunities Threats

There is no reliable data on production and quality control The different actors don't cooperate or share information which increases production costsThere is no reliable system for cost price calculations and the market price is highly speculative and unstableUnorganized and fragmented production system (absence of interaction between different actors in the value chain)


Other factors:There is no visible connection between improvement in quality and premium market price Actors are risk-aversive and lack long term business perspectives

Establishment of cooperatives can help in stabilizing the price Government's ability to establish fixed prices with the industry

An increasing demand for patchouli oil in the local and international market Quality control can be established through labeling The availability of niche markets that prefer quality to quantity (e.g. aromatherapy)

Devaluated quality of oil due to mixing of various batches of patchouli oil from different growing areas Lack of a well developed business support system

Lack of a well developed supporting infrastructure (e.g. power cuts and red tape) Global economic downturn may compromise demand for Acehnese products

Transport:Establishment of cooperatives will help improve and monitor the quality, as well as coordinate collection and transport

Transport:Difficulty for growers/distillers to directly access the market Export-import is still reliant on passage via Medan instead of going directly through a port in Aceh Long supply chain from farmer to overseas buyer adding to the overall cost of the final product


Other factors:

Transport:


Other factors:

Transport:The optional expansion of the market due to the increasing number of Free Trade agreements (bilateral and multilateral) between Indonesia and other countries

Transportation infrastructure is poor Market is dominated by a small group of exporters in Medan that control the market


in Aceh, Indonesia

93

The most important factors related to the value chain concern the transport of the product to the market and the information exchange system. These factors will be discussed below.

Internal and external problems related to transport are a key concern for the industry. Roads, bridges and ports are not yet developed properly. The lack of a well established transportation infrastructure reduces the investment potential of Aceh and increases production costs for actors in the value chain. Growers/distillers have difficulty transporting their oil to local markets, rural and urban areas are not well connected and exporters encounter cumbersome, expensive procedures when trying to ship their products to international markets. The improvement of transportation infrastructure is the primary responsibility of the Government. Reconstruction after the tsunami has led to improvements in infrastructure and government attention should be directed to both the maintenance of existing infrastructure and the development of new roads, bridges and ports.

The transport of patchouli oil to the market can be further improved by addressing the many coordination problems between actors in the value chain. These problems relate to the management of patchouli collection, its distillation, and its delivery to the market. Currently, the growers/distillers in the Acehnese value chain are not organized. Their lack of organization makes it impossible for individual farmers to access the market, pay the high transportation costs and successfully negotiate with middle-men for better prices. Growers/distillers can try to overcome these barriers by organizing themselves, either in the form of cooperatives or small companies. The aim is three-fold. First, farmers and growers can gain strength in price bargaining due to their strength in numbers. Second, the chain of middle-men will be shorter because there are less collection points and buyers can go directly to the cooperative's distilleries to purchase patchouli oil. Third, product quality control will be easier to conduct as patchouli oil can now be labeled according to the distillery where it is produced. Eventually, distilleries will be able to compete with each other on quantity and quality, which will improve the market value of the overall patchouli oil in Aceh.

The second important factor related to the Acehnese value chain is the method of information exchange. One of the internal weaknesses threatening the industry is the lack of cooperation between actors in the value chain. They are unwilling or unable to share information with each other which ultimately increases production costs. This also leads to other weaknesses, such as the lack of reliable data on production and quality control and the absence of a reliable (commonly accepted) system for cost price calculations.

It has already been mentioned that the lack of information on market prices by growers can be overcome by the improvement and expansion of information dissemination technologies. However, these technological solutions will prove to be insufficient if the actors are still unwilling to share information. Improving collective trust between actors in the patchouli industry, especially between the growers and distillers, is vital to take full advantage of the communication technology.

A possible solution to improve information exchange is to strengthen the various patchouli actors' organizations (e.g. the cooperatives, the national boards, farmers associations). These organizations should emphasize on sharing information between their members in order to strengthen their bargaining power. By organizing themselves, farmers can pool their assets, skills and time to meet collective needs and increase their leverage vis-à-vis other actors in the value chain. This will make market price speculation more difficult, reduce the range of market price fluctuations, and stabilize the market price in the long term. Ultimately, stable prices are in the best interest of all actors in the Acehnese value chain.

This section has identified the internal and external factors that shape future prospects of the patchouli industry. This analysis provides the basis for some ideas and policy options that are proposed in the next section.

94

AN

ALY

SIS

OF T

HE

PATC

HO

ULI

IND

US

TR

Y I

N A

CE

H

6. Recommendations

Patchouli plantation in Aceh

This study has provided an overview on investment opportunities and barriers in Aceh with a special focus on the patchouli industry. In doing so, it has discussed the (international) market potential of Acehnese patchouli; elaborated on its price and quality and examined the functioning of its value chain. Key issues have been pointed out in the SWOT-analysis and include the lack of commercial linkages between farmers and the market; the gap in required skills and technological knowhow to produce high quality patchouli oil; the difficulties in managing scarce natural resources such as timber; the weakness of information dissemination within the value chain; the weak supporting infrastructure and the limited access to credit. A structured and well organized production system is conducive to enhancing the capacity of the industry and improving market access. The following are some ideas and policy options that can help strengthen the patchouli industry in Aceh.

Information Dissemination: To overcome information failures among the relevant actors in the patchouli industry, the value chain can be structured and shortened by improving the dissemination of information within the value chain. Information technology may be used to overcome the lack of information on market prices. Growers and distillers should be made aware of the advantage of new information technologies – mobile phones, internet, social media, etc. – to their ability to do business and overcome information failures. Growers will be able to respond more quickly to market signals and adjust their marketing strategies accordingly.

Information Infrastructure: The industry should increase its efforts in establishing a reliable centralized information system in market information and cost price calculation. This will hopefully encourage other actors to contribute to the system, such as:

1.

2.

Growers may be encouraged to establish cooperatives, associations or other groups that will improve their leverage in the local market and strengthen the amount of trust between them.

Partnerships between the different actors in the chain may be developed through long term contracts, quality control systems and (financial) support.

The Government can facilitate information dissemination by improving cost price calculation systems and thus helping the formation of an informal system of fixed minimum prices.

~

~

DAI is currently working on a coordination system with all the actors.

~

96

RE

CO

MM

EN

DA

TIO

NS

Capacity Building: Enhancing skills and technological knowhow of growers and distillers through training and transfer of knowledge. In order for the patchouli industry in Aceh to bridge the gap in skills, the supply of skills training should be aligned with the needs of the industry. Trainings can be focused on improvement of cultivation skills and technological knowhow, but should also cover other areas such as marketing, branding and so forth. This means that all actors in the industry should have a common understanding of which areas require additional skills. The improvement of required skills and expertise should therefore be a joint effort of Government – e.g. expanding the Penyuluh program – and the actors in the value chain. Producers may invite experts from outside the region to provide skills training and interested buyers can be encouraged to commit to the transfer technologies and knowhow.

Strategic Partnerships: Fostering entrepreneurship by enabling a business environment for the patchouli industry. The patchouli industry cannot develop successfully if it is not able to rely on the support of the service sector, e.g. transportation, ports, banking sector, reliable electricity, etc. Therefore, the Government of Aceh may identify entrepreneurship and a supporting service sector as a key concern by increasing its efforts to promote farmers' and distillers' access to credit, continue the development of the Free Trade Zone in Sabang and reorganize regulations and (tax) incentives to the industry. Moreover, the GoA can facilitate the ability of farmers/distillers to organize themselves – e.g. by encouraging legalization / registration of cooperatives and SMEs and streamlining business regulation – thereby making them eligible for (financial) support.

Environmentally Friendly Alternatives: Reducing the reliance on the use of timber as a fuel. Both Government and the patchouli industry may increase their efforts to decrease the amount of timber used during the distillation process. They can do so by facilitating the use of more cost effective technologies (e.g. water pipe) or by encouraging the use of alternative fuel sources (e.g. oil, gas, electricity) through subsidies.

Quality improvement: In order to access niche markets, fine and luxury perfumes or aromatherapy, the industry should focus on the establishment of a control quality system and encourage the certification of patchouli oil.

3.

4.

5.

6.


in Aceh, Indonesia

97

7. Quantity improvement: Increased volume of production is required to stabilize the market for patchouli oil. The production volume in other parts of Indonesia has exceeded those in Aceh, however, the need to meet global demand remains. Acehnese patchouli oil needs to be integrated to and strengthen the overall Indonesian patchouli production, particularly the low-to-medium grade patchouli. A national-level coordination system is required and it is in the interest of Acehnese producers to support national-level initiatives such as those initiated by DAI, Bank Indonesia, farmers association, etc.

98

RE

CO

MM

EN

DA

TIO

NS

References & Appendices

Patchouli leaves

Books, Journal Articles and Theses

Aceh Green Secretariat. 2008. Green Economic Development and Investment Strategy for Aceh, Indonesia. Policy document. July 2008.

AFEP. 2008. Draft Aide-Memoire. Internal memo. Third World Bank Supervision Mission, February 2008. Banda Aceh: Aceh Forest Environment Project.

Affandi, A.S. 2011. 2010, Tahun Kelanjutan Perdagangan Bebas dan Skema Rejim thNeoliberal. Institute for Global Justice, 13 January 2011. URL:

http://www.progresifjaya.com

Auld, G. 2010. “Assessing Certification As Governance: Effects and Broader Consequence for Coffee”, The Journal of Environment Development, vol. 19

BIPA. 2010. Tatacara Permohonan Penanaman Modal. Policy document. August 2010. Banda Aceh: Badan Investasi dan Promosi Aceh.

BKPM. 2009. Head of BKPM Regulation no.12/2009. Policy document. Banda Aceh: Badan Koordinasi Penanaman Modal.

BPS. 1980-2010. Aceh Dalam Angka. Banda Aceh: Badan Pusat Statistik.

CSIRO. 2008. Policy Note: Environmental Management for a Sustainable Economic Development Strategy for Nanggroe Aceh Darussalam. Policy document. March 2007. Canberra: Commonwealth Scientific and Industrial Research Organization.

DAI. 2009. “Indonesian Essential Oil Industry and the role of DAI”, Presentation at International Seminar on Essential Oil (ISEO), 26-28 October 2009. Bogor: Dewan Atsiri Indonesia.

Guenther, E. 1948. The Essential Oils - Vol 3: Individual essential oils of the plant families Rutaceae and Labiatae. New York: Van Nostrand.

Feintrenie, L.; S. Schwarze; P. Levang. 2010. “Are Local People Conservationists? Analysis Of Transition Dynamics From Agroforests To Monoculture Plantations In Indonesia” in Ecology and Society, vol. 15, no 4. 2010.

IAL Consultants. 2007. An Overview of the Global Flavours and Fragrances Market. Press Release. 16/04/2007. London: IAL Consultants.

ICIS. 2003. “Patchouli Oil Shows Upward Pricing Pressure in F&F Market” in ICIS News 02/06/2003.

IFC. 2006. Aceh Palm Oil: value chain analysis. International Finance Corporation paper. August 2006. Jakarta: World Bank.

100

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

ISEAS. 2003. Indonesia's Population: Ethnicity and Religion in a Changing Political Landscape. Institute of South East Asian Studies. Singapore: National University of Singapore.

Jafar, M. 2009. “Perkembangan Dan Prospek Partai Politik Lokal Di Propinsi Nanggroe Aceh Darussalam”, Master thesis with Universitas Diponegoro.

Martinez, M.G. 2004. “Impact of Organic Product Certification Legislation On Chile Organic Exports”, Food Policy, vol. 29, no. 1

McCarthy, J.F. 2005. “Between Adat and State: Institutional Arrangements on Sumatra’s Forest Frontier” in Human Ecology, vol. 33, no. 1, February 2005.

Muragan, R.; C. Livingstone. 2010. “Origin of the name ‘patchouli’ and its history” in Current Science, vol. 99, no 9, November 2010.

Mustakim, M.K. 2008. Patchouli Oil Extraction By Using Hydro Distillation (Lab Scale). BA Thesis for Faculty of Chemical and Natural Resources Engineering Technology, May 2008. Kuala Lumpur: University Malaysia Pahang.

Näf F.; et al. 1981. Chim. Acta, vol. 64, no 5.

Noordwijk, M.; E. Mulyoutami; N. Sakuntaladewi; F. Agus. 2008. Swiddens in transition: shifted perceptions on shifting cultivators in Indonesia. Occasional Paper no 9. 2008. Nairobi: World Agroforestry Centre.

Nunyani, Y.; Emmyzar; Wiratno. 2005. “Budidaya Tanaman Nilam” in Sirkuler, no 12. Bogor: Balai Penelitian Tanaman Rempah Dan Aromatik.

Padoch, C.; M. Pinedo-Vasquez. 2010. “Saving Slash-And-Burn To Save Biodiversity” in Biotropica, vol. 42, no 5.

Peak Indonesia. 2009. Study Market Opportunities on Several Potential Commodities in Aceh Jaya. Consultancy report prepared for Caritas Czech Republic. Banda Aceh: Caritas Czech Republic.

PST. 2008. Perhitungan Perekonomian Usaha Minyak Nilam. Technology R&D Series, May 2008. Lampung: Patchouli Sumatra Technology.

Raghu, C. 2006. Economics of production and marketing of patchouli in North Karnataka. MA thesis for Department of Agricultural Economics, College of Agriculture. April 2006.

Siapno. J.A. 2002. Gender, Islam, nationalism and the state in Aceh: the paradox of power, co-optation and resistance. London: RoutledgeCurzon.

Sostrohomitjojo, H. 2009. “The prospect of Indonesian essential oils”, Presentation at the 1st International conference on Science & Technology in Yogyakarta of Universitas Islam Indonesia, 26/02/2009. URL: http://science.uii.oc.id/


in Aceh, Indonesia

101

Tekriwal, S. 2009. “Naturals in Indonesia”, Presentation in IFEAT Conference, Shanghai, October 2009.

Trifilief, E. 1980. “Isolation Of The Postulated Precursor Of Nor Patchoulenol In Patchouli Leaves” in Phytochemistry, no 19.

USAID. 2007. Jobs for the 21st Century: Indonesia Assessment. USAID Asia and Near East Bureau report. March 2007. Banda Aceh: USAID.

Vijayakumar, K. “Best Practices of Essential Oil Production System”, Presentation at International Seminar on Essential Oil (ISEO), 26-28 October 2009.

World Bank. 2008. The Impact Of The Conflict, The Tsunami And Reconstruction On Poverty In Aceh: Aceh Poverty Assessment 2008. Jakarta: World Bank.

World Bank. 2009. Aceh Growth Diagnostic: Identifying The Binding Constraints To Growth In A Post-conflict And Post-disaster Environment. World Bank report. July 2009, Jakarta: World Bank.

Yuhono, J.T.; S. Suhirman. 2007. “Strategi Peningkatan Rendemen Dan Mutu Minyak Dalam Agribisnis Nilam” in Perkembangan Teknologi Tanaman Rempah Dan Obat, vol.19, no. 1, June 2007.

News Articles, Websites and Blogs

Anshar, M. 2009. “Tuntaskan Reintegrasi” in Serambi, 07/08/2009. URL: http://jakarta45.wordpress.com

BEI. 2006. “The Export Market For Patchouli Oil Is As Fragrant As Its Aroma” in Bio Engineering Institute (BEI) News, vol. 5, no. 33, September-October 2006.

Bisnis Indonesia. 2008. “Eksportir Sulit Penuhi Permintaan Nilam” in Bisnis Indonesia 28/11/2008. URL: http://inawan.multiply.com

Jakarta Post. 2007. “Aceh to implement logging moratorium” in The Jakarta Post 17/03/2007.

Jakarta Post. 2009. “Illegal logging continues in Aceh despite moratorium” The Jakarta Post 27/10/2009.

Kompas. 2010. “Taktik Dagang: Sertifikasi Bukan Demi Lingkungan, Tetapi Bisnis” in Kompas 28/02/2010. URL: http://cetak.kompas.com

Munthe, M.G. 2010. “Pemerintah Pilih Daerah Penggerak Koperasi Terbaik” in Bisnis Indonesia Online 17/06/2010. URL: http://bataviase.co.id

NDY. 2009. “Partai Lokal di Aceh Siapkan Konsep” in Kompas 19/03/2009. URL: http://regional.kompas.com

102

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Okezone.com. 2011. “Infrastruktur Belum Memadai, Inflasi Luar Jawa Lebih Tinggi” in OkeZone website 26/01/2011. URL: www.okezone.com

Rafiie, A. 2010. “Stagnan Ekonomi Aceh Tahun 2010” in Serambi 12/01/2010. URL: http://www.serambinews.com

Saputra, H. 2010. “Korban Tsunami Aceh Masih Tinggal Di Barak Pengungsian” in Media Indonesia 31/10/2010. URL: http://www.mediaindonesia.com

Serambi, 2010. “GeRAK: Realisasi APBA 2010 belum Menggembirakan * Daya Serap 6 SKPA di Bawah 80%:”, 4th January 2011, http://m.serambinews.com

Serambi, 2010. “PPAS RAPBA 2011 Disepakati Rp 6,8 T * Dana Aspirasi Dewan Rp th5 M/Orang”, 8 November 2010, http://aceh.tribunnews.com/news/

SWA Sembada. 2009. “Mencari Solusi Di Tengah Gencetan Kendala Ekspor” in SWA Sembada 29/10/2009. URL: http://swa.co.id

VivaNews. 2010. “Angka Kemiskinan Di Provinsi Papua 34,8 Persen, Sedangkan Aceh 20,98 Persen” in VivaNews website 1/12/2010. URL: www.vivanews.com

Walker, T.G. 1969. “The Structure And Synthesis Of Patchouli Alcohol” in Manufacturing Chemist And Aerosol News.

Waspada. 2007. “Aceh Gelar Kongres Bahasa Daerah” in Waspada 6/11/2007. URL: http://www.waspada.co.i

Waspada. 2009. “BKRA: Tak Ada Lagi Pengungsi Tsunami Yang Tinggal Di Barak” in Waspada 7/11/2009. URL: http://www.waspada.co.id

Waspada. 2010. “Kredit Bermasalah Banyak di Aceh” in Waspada 30/12/2010, http://www.waspada.co.id

Wortham, R. 2010. “A gendered look a disaster response and recovery: post-tsunami Aceh, Indonesia” in W h y D e v . o r g 07/06/2010. URL: http://www.whydev.org/a-gendered-look-a-disaster-response-and-recovery-post-tsunami-aceh-indonesia/

Interviews

Interview with Ir. Fitri Agustiyono, production consultant on distillation th thdesign, held in Banda Aceh on 9 and 11 of February 2011.

Interview with Mr. Dede Anom Sasrudi, production manager on distillation thdesign, held on 11 February 2011.


in Aceh, Indonesia

103

Appendix 1. Map of Aceh

104

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Location: 1º 40' - 6º 30' N, 94º 40' - 98º 30' WLegal establishment: UU RI No. 24/1956, UU RI No. 44/1999, UU RI

No. 18/2001, UU RI No. 11/2006 (UUPA or LoGA)

Important dates: 7 December 1959 (establishment), 4 December 1977 (Establishment of GAM), 15 August 2006 (peace treaty)

Capital: Banda Aceh (formerly Koeta Radja)Governor: drh. Irwandi Yusuf, M.Sc.Area: 55,390 km²

167Population: 2,621,271 (1980), 2,903,425 (1990), 3,409,900 (2000), and 4,486,570 (2010)

Density: 75.96/km²Kabupaten/District: 18Kotamadya/Township: 5Kecamatan/Sub-district: 227Villages: 5,862

168Ethnic groups: Aceh (50.32%), Javanese (15.87%), Gayo (11.46%), Alas (3.89%), Singkil (2.55%), Simeulue (2.47%), Batak (2.26%), Minangkabau (1.09%), others (10.09%)

Religion: Islam (99.85%), Christian (0.15%)169Languages: Aceh, Tamiang, Gayo, Alas, Kluet, Jamee,

Pakpak, Singkil, Sigulai, Lekon, Devayan, Haloban, Nias, Bahasa Indonesia (Indonesian official language).

167 BPS, 1980-2010.168 Institute of South East Asian Studies, (ISEAS), 2003. “Indonesia's Population:

Ethnicity and Religion in a Changing Political Landscape. Singapore”.th

169 Waspada, 2007. “Aceh Gelar Kongres Bahasa Daerah”, 6 November 2007, http://www.waspada.co.id


in Aceh, Indonesia

105

59.0

5 130

.39

57.16 152.32

3,503.27

122.54

40

.60

40

.84

42.27

46.78

204

.62 37.78

94

1.70

567.45

84.52

20.17

128.27 13.9

2 4

1.23 83.81

259.72

123.75 4

8.39

2,927.9

52,686.0

06,286.0

13,4

77.92

64.0

03,0

86.95

4,318.39

4,9

46.0

04

,231.41

2,185.00

1,90

1.212,125.12181.0

6262.4

11,4

90

.603,812.9

91,9

56.725,719

.583,363.721,4

54.0

9

118.00

1,073.60

1,391.0

0

172,896

350,225

359,280

529,74

6224

,209

378,278175,32920

2,00

3178,85210

2,213389

,024

80,279

170,50

414

8,90

4125,9

91

76,892

250,9

92

79,59

2138,670121,870

30,64

7132,85867,316

Meu

laboh

Janth

oId

i Rayeu

kL

hok

suk

on

Sigli

Tak

engon

Tap

aktu

anK

utacan

eS

ingk

ilB

ireuen

Sin

aban

gL

hok

seum

awe

Lan

gsaB

langp

idie

Calan

gK

arang B

aruB

langk

ejerenS

uk

a Mak

mu

eS

imp

ang T

igaR

edelon

gS

aban

gM

eureu

du

Su

bu

lussalam

Aceh

Barat

Aceh

Besar

Aceh

Tim

ur

Aceh

Utara

Ban

da A

ceh*

Pid

ieA

ceh T

engah

Aceh

Selatan

Aceh

Ten

ggaraA

ceh S

ingk

ilB

ireuen

Sim

eulu

eL

hok

seum

awe**

Lan

gsa**A

ceh B

arat Daya

Aceh

JayaA

ceh T

amian

gG

ayo Lu

esN

agan R

ayaB

ener M

eriah

Sab

ang**

Pid

ie JayaS

ub

ulu

ssalam**

Aceh

Ten

gahA

ceh S

elatanA

ceh U

taraA

ceh B

aratA

ceh U

taraA

ceh T

imu

rA

ceh S

elatanA

ceh B

aratA

ceh T

imu

rA

ceh T

enggara

Aceh

Barat

Aceh

Ten

gah

Aceh

Besar

Pid

ieA

ceh S

ingk

il

UU

no.24

/1956

UU

no.24

/1956

UU

no.24

/1956

UU

no.24

/1956

UU

no.24

/1956

UU

no.24

/1956

UU

no.24

/1956

UU

no.24

/1956

UU

no.0

4/19

74U

U n

o.14/19

99

UU

no.4

8/199

9U

U n

o.48/19

99

UU

no.0

2/200

1U

U n

o.03/20

01

UU

no.0

4/20

02

UU

no.0

4/20

02

UU

no.0

4/20

02

UU

no.0

4/20

02

UU

no.0

4/20

02

UU

no.4

1/200

3

UU

no.37/20

00

UU

no.0

7/200

7U

U n

o.08/20

07

29/12/19

5629

/12/1956

29/12/19

5629

/12/1956

29/12/19

5629

/12/1956

29/12/19

5629

/12/1956

04

/06/19

7420

/04

/199

90

4/10

/199

90

4/10

/199

921/0

6/200

121/0

6/200

110

/04

/200

210

/04

/200

210

/04

/200

210

/04

/200

20

2/07/20

02

18/12/200

3

21/12/200

40

2/01/20

07

02/0

1/200

7

District/

To

wn

ship

Cap

italP

op

ula-170

tion

Area

(km

²) D

ensity

(per k

m²)

Origin

alD

istrict/T

ow

nsh

ipB

asis of L

awD

ateF

orm

ed

Cu

rrent K

abupaten (Districts) an

d K

otamadya (T

own

ship

s) in A

ceh:

No

tes:* T

he p

rovincial cap

ital** Kotam

adya (tow

nsh

ip)U

U=U

nd

ang-U

nd

ang (th

e Ind

onesia statu

te of law)

106

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

170 BPS, 2010. Compiled from the 2010 National Census.


in Aceh, Indonesia

107

Ap

pe

nd

ix 2

. L

ist

of

La

ws

an

d R

eg

ula

tio

ns

R

ela

ted

to

In

ve

stm

en

t

Law

s an

d R

egu

lati

on

sL

evel

Su

bje

ct

Law

s an

d R

egu

lati

on

s o

n I

nve

stm

ent

UU

no

01 th

1967

Ten

tang

Pen

anam

an M

odal

Asi

ngU

U n

o 11

th 19

70 T

enta

ng P

erub

ahan

Dan

Tam

baha

n U

U n

o 1

th 19

67U

U n

o 05

th 19

68 T

enta

ng P

enye

lesa

ian

Per

selis

ihan

Ant

ara

Neg

ara

Dan

War

gane

gara

Asi

ng M

enge

nai P

enan

aman

M

odal

UU

no

06 th

1968

Ten

tang

Pen

anam

an M

odal

Dal

am N

eger

iU

U n

o 12

th 19

70 T

enta

ng P

erub

ahan

Dan

Tam

baha

n U

U n

o 6

th 19

68U

U n

o 08

th 19

95 T

enta

ng P

asar

Mod

alU

U n

o 32

th 19

97 T

enta

ng P

erda

gang

an B

erja

ngka

Kom

odit

iP

P n

o 10

th 19

99 T

enta

ng T

ata

Car

a P

emer

iksa

an D

i Bid

ang

Per

daga

ngan

Ber

jang

ka K

omod

iti

PP

no

20 th

1994

Ten

tang

Pem

ilika

n Sa

ham

Dal

am

Per

usah

aan

Yan

g D

idir

ikan

Dal

am R

angk

a P

enan

aman

M

odal

Asi

ngP

P n

o 83

th 2

001 T

enta

ng P

erub

ahan

Ata

s PP

no

20 th

1994

PP

no

36 th

1977

Ten

tang

Pen

gakh

iran

Keg

iata

n U

saha

Asi

ng

Dal

am B

idan

g P

erda

gang

anP

P n

o 19

th 19

88 T

enta

ng P

erub

ahan

Ata

s PP

no

36 th

1977

PP

no

35 th

1996

Ten

tang

Per

ubah

an A

tas P

P n

o 36

th 19

77Q

anun

no

5 th

200

9 T

enta

ng P

enan

aman

Mod

alK

eppr

es n

o 12

th 19

99 T

enta

ng K

omod

iti Y

ang

Dap

at

Dija

dika

n Su

bjek

Kon

trak

Ber

jang

kaK

eppr

es n

o 41

th 19

96 T

enta

ng K

awas

an In

dust

ri

Ind

ones

ian

Law

Ind

ones

ian

Ind

ones

ian

Ind

ones

ian

Ind

ones

ian

Ind

ones

ian

Ind

ones

ian

Gov

ern

men

t R

egu

lati

on

Gov

ern

men

t R

egu

lati

on

Gov

ern

men

t R

egu

lati

onG

over

nm

ent

Reg

ula

tion

Gov

ern

men

t R

egu

lati

onG

over

nm

ent

Reg

ula

tion

Ace

h L

awP

resi

den

tial

Dec

ree

Pre

sid

enti

al D

ecre

e

For

eign

inve

stm

ent

Am

end

men

t an

d s

up

ple

men

t la

w n

o. 1

yea

r 19

67

Set

tlem

ent

of d

isp

ute

s b

etw

een

sta

tes

and

n

atio

nal

s re

gard

ing

fore

ign

dir

ect

inve

stm

ent

Dom

esti

c in

vest

men

tA

men

dm

ent

and

su

pp

lem

ent

act

no

6 th

19

68

Cap

ital

mar

ket

sC

omm

odit

y fu

ture

s tr

adin

gE

xam

inat

ion

pro

ced

ure

s in

th

e fi

eld

of

futu

res

trad

ing

com

mod

ity

Ow

ner

ship

of

shar

es in

com

pan

ies

esta

bli

shed

in

fore

ign

inve

stm

ent

fram

ewor

k

Am

end

men

t of

reg

ula

tion

no

20 t

h 1

99

4

Ter

min

atio

n o

f fo

reig

n b

usi

nes

s ac

tivi

ty in

th

e fi

eld

tra

de

Am

end

men

t of

reg

ula

tion

no

36 t

h 1

977

A

men

dm

ent

of r

egu

lati

on n

o 36

th

19

77

Cap

ital

inve

stm

ent

Can

com

mod

ity

futu

res

cite

th

is a

s th

e su

bje

ct

Ind

ust

rial

are

a C

an c

omm

odit

y fu

ture

s ci

te t

his

as

the

sub

ject

108

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Kep

pres

no

73 th

200

0 T

enta

ng K

omod

iti Y

ang

Dap

at

Dija

dika

n Su

bjek

Kon

trak

Ber

jang

kaK

eppr

es n

o 96

th 2

000

Ten

tang

Bid

ang

Usa

ha Y

ang

Ter

tutu

p D

an B

idan

g U

saha

Yan

g T

erbu

ka D

enga

n P

ersy

arat

an

Ter

tent

u B

agi P

enan

aman

Mod

alK

eppr

es n

o 11

8 th

200

0 T

enta

ng P

erub

ahan

Ata

s Kep

pres

no

96

th 2

000

Kep

pres

no

119

th 2

001 T

enta

ng K

omod

iti Y

ang

Dap

at

Dija

dika

n Su

bjek

Kon

trak

Ber

jang

kaP

erpr

es n

o 27

th 2

009

Ten

tang

Pel

ayan

an T

erpa

du S

atu

Pin

tu

di B

idan

g P

enan

aman

Mod

alK

epka

bkpm

no

21SK

1998

Ten

tang

Pel

impa

han

Kew

enan

gan

Pem

beri

an P

erse

tuju

an D

an F

asili

tas S

erta

Per

izin

an

Pel

aksa

naan

Pen

anam

an M

odal

Dal

am N

eger

i Ter

tent

u K

epad

a G

uber

nur

Kep

kabk

pm n

o 38

SK19

99 T

enta

ng P

edom

an D

an T

ata

Car

a P

erm

ohon

an P

enan

aman

Mod

al Y

ang

Did

irik

an D

alam

R

angk

a P

enan

aman

Mod

al D

alam

Neg

eri D

an

Pen

anam

an M

odal

Asi

ngK

epm

eneg

inve

st n

o 15

SK19

93 T

enta

ng T

ata

Car

a P

erm

ohon

an

PM

DN

Dan

PM

AP

P n

o 08

th 2

004

Ten

tang

Per

ubah

an A

tas

PP

no

01 th

1998

Pre

sid

enti

al D

ecre

e

Pre

sid

enti

al D

ecre

e

Pre

sid

enti

al D

ecre

e

Pre

sid

enti

al D

ecre

e

Pre

sid

enti

al D

ecre

e

Min

iste

rial

Dec

ree

Min

iste

rial

Dec

ree

Min

iste

rial

Dec

ree

Gov

ern

men

t R

egu

lati

on

Bu

sin

ess

fiel

ds

clos

ed a

nd

op

ened

wit

h s

pec

ific

re

qu

irem

ents

for

inve

stm

ent

Am

end

men

t of

pre

sid

enti

al d

ecre

e n

o 9

6 th

20

00

Com

mod

itie

s th

at a

re s

ub

ject

to

lon

g-te

rm

con

trac

tsO

ne

stop

ser

vice

in t

he

fiel

d o

f in

vest

men

t

Del

egat

ion

of

auth

orit

y ag

reem

ent

and

gra

nti

ng

faci

lity

lice

nsi

ng

and

inve

stm

ent

Imp

lem

enta

tion

to

the

Gov

ern

or o

f th

e in

teri

or

spec

ific

Gu

idel

ines

an

d a

pp

lica

tion

pro

ced

ure

s fo

r in

vest

men

t th

at is

est

abli

shed

for

dom

esti

c in

vest

men

t an

d f

orei

gn in

vest

men

t

Ap

pli

cati

on p

roce

du

res

for

dom

esti

c an

d f

orei

gn

inve

stm

ent

Am

end

men

t of

reg

ula

tion

no

01

th 1

99

8

PP

no

17 th

1988

Ten

tang

Pen

yele

ngga

raan

dan

Pen

gusa

haan

A

ngku

tan

Lau

tP

P n

o 51

th 2

002

Ten

tang

Per

kapa

lan

PP

no

69 th

200

1 Ten

tang

Kep

elab

uhan

PP

no

37 th

200

2 T

enta

ng H

ak D

an K

ewaj

iban

Kap

al D

an

Pes

awat

Uda

ra A

sing

Dal

am M

elak

sana

kan

Hak

Lin

tas

Alu

r L

aut K

epul

auan

Mel

alui

Alu

r L

aut K

epul

auan

Yan

g D

itet

apka

nK

epm

enpe

rind

ag n

o 55

6MP

PK

ep10

1999

Ten

tang

Org

anis

asi

Dan

Tat

a K

erja

Bad

an P

enga

was

Per

daga

ngan

Ber

jang

ka

Kom

odit

iK

epm

enta

mb

no 2

202.

K20

1M.P

E19

94 T

enta

ng P

embe

rian

Su

rat I

zin

Pen

yelid

ikan

Pen

dahu

luan

Pen

anam

an M

odal

A

sing

Ata

u P

anan

aman

Mod

al D

alam

Neg

eri D

i Bid

ang

Per

tam

bang

an

Gov

ern

men

t R

egu

lati

on

Gov

ern

men

t R

egu

lati

onG

over

nm

ent

Reg

ula

tion

Gov

ern

men

t R

egu

lati

on

Min

iste

rial

Dec

ree

Min

iste

rial

Dec

ree

Imp

lem

enta

tion

an

d e

xp

loit

atio

n o

f th

e se

a tr

ansp

ort

Sh

ipp

ing

Har

bor

R

igh

ts a

nd

ob

liga

tion

s of

for

eign

sh

ips

and

ai

rcra

ft in

imp

lem

enti

ng

the

righ

t of

ar

chip

elag

ic s

ea la

nes

pas

sage

flo

w t

hro

ugh

th

e ar

chip

elag

o se

a d

efin

edW

ork

ing

pro

ced

ure

of

the

sup

ervi

sory

boa

rd o

f tr

ade

com

mod

ity

futu

res

Per

mit

gra

nti

ng

pre

lim

inar

y in

vest

igat

ion

In

vest

igat

ion

of

fore

ign

in

vest

men

t or

dom

esti

c in

vest

men

t in

min

ing.

Law

s an

d R

egu

lati

on

s o

n T

ran

spo

rt

PP

no

12 th

200

1 Ten

tang

Impo

r D

an A

tau

Pen

yera

han

Bar

ang

Ken

a P

ajak

Ter

tent

u Y

ang

Ber

sifa

t Str

ateg

is Y

ang

Dib

ebas

kan

Dar

i Pen

gena

an P

ajak

Per

tam

baha

n N

ilai

PP

no

07 th

200

7 T

enta

ng P

erub

ahan

Ket

iga

Ata

s PP

no

12 th

20

01P

P n

o 39

th 19

98 T

enta

ng P

erla

kuan

Paj

ak P

erta

mba

han

Nila

i D

an P

ajak

Pen

jual

an A

tas B

aran

g M

ewah

Di K

awas

an

Ber

ikat

(Bon

ded

Zon

e) D

aera

h In

dust

ri P

ulau

Bat

amP

P n

o 13

th 2

001 T

enta

ng P

enun

daan

Kem

bali

Ber

laku

nya

PP

no

39

th 19

98K

epm

enke

u no

219

KM

K.0

1199

5 T

enta

ng T

ata

Lak

sana

Pab

ean

Ata

s Pem

asuk

an D

an P

enge

luar

an B

aran

g D

ari D

an K

e P

ergu

dang

an K

awas

an B

erik

at

Gov

ern

men

t R

egu

lati

on

Gov

ern

men

t R

egu

lati

on

Gov

ern

men

t R

egu

lati

on

Gov

ern

men

t R

egu

lati

on

Min

iste

rial

Dec

ree

Imp

ort

and

or

del

iver

y of

cer

tain

tax

able

st

rate

gic

in n

atu

re r

elea

sed

fro

m im

pos

itio

n

valu

e ad

ded

tax

Th

ird

am

end

men

t to

reg

ula

tion

no

12 t

h 2

00

1

Tre

atm

ent

of v

alu

e ad

ded

tax

an

d s

ales

tax

on

lu

xu

ry g

ood

s in

bon

ded

are

a (b

ond

ed z

one)

B

atam

isla

nd

ind

ust

rial

are

aD

elay

s re

turn

ap

pli

cab

ilit

y of

Reg

ula

tion

no

39

th 1

99

8 C

ust

oms

pro

ced

ure

s on

inco

min

g an

d o

utg

oin

g go

ods

from

an

d in

to b

ond

ed w

areh

ousi

ng

Law

s an

d R

egu

lati

on

s o

n T

ax a

nd

Du

ties


in Aceh, Indonesia

109

Appendix 3. Summary of Application Procedures

Applying for Investing in Aceh

The following is a summary of all the necessary licenses that need to be obtained in order to start and run an investment venture in Aceh. They are summarised by the Badan Investasi dan Promosi Aceh (the Aceh Investment and

171Promotion Body or BIPA) from the latest national and regional laws and regulation that apply to investment in Aceh (see Appendix 3 above).

The Izin Investasi (investment application) is submitted to one of the PTSP offices at BKPM, PDPPM or PDKPM. The application can be submitted by a foreign Government, a foreign citizen, a foreign business entity, or one of them in partnership with an Indonesian citizen or legal organisation. The application uses the hard or soft copy of the Lampiran I form (see Appendix 5) along with other proof of identity:

A letter from a related office from the foreign Government involved

A copy of Passport for foreign citizens

A copy of the Articles of Association (in English and Indonesian)

A copy of the KTP (ID card) for Indonesian citizens

A copy of the organisation's Charter (including any ammendments) and its certification from the Ministry of Law and Human Rights to apply for an Indonesian Business Unit

A copy of the Nomor Pokok Wajib Pajak (Tax Identification Number or NPWP) for applications from Indonesian citizen or organisation In the absence of a legal organisation or a Board of Director, the form is signed on top of a materai (duty stamp)

An original and duty-stamped Power of Attorney from the Board of Director if applicant is representing a company

~

~

~

~

~

~

~

171 BIPA, 2010.

110

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Investment Principle License

The application for the foreign investment principle license is submitted to the PTSP at BKPM by attaching:

Registration letter for organisations that have registered

A copy of the organisation's Charter (including any ammendments)

A copy of the organisation's Charter (including any ammendments) and its certification from the Ministry of Law and Human Rights to apply for an Indonesian Business Unit

A copy of the Nomor Pokok Wajib Pajak (Tax Identification Number or NPWP) for applications from Indonesian citizen or organisation

a. Applicant's proof of identity:

b. Activity plans

Explanation of the production process that includes lists of materials and production flow chart

Explanation of the activities if in the services sector

c. A letter of recommendation from related Government unit, if necessary

d. An original and duty-stamped Power of Attorney from the Board of Director if applicant is representing a company

Investment Expansion Principle License

The application for the investment expansion principle license is submitted to the PTSP at BKPM by attaching:

a. A copy of the Business License

b. A copy of the organisation's Charter (including any ammendments) and its certification from the Ministry of Law and Human Rights to apply for an Indonesian Business Unit

c. A copy of the Principle License and its ammendments

d. A copy of the latest Laporan Kegiatan Penanaman Modal (Investment Activity Report or LKPM)

e. An original and duty-stamped Power of Attorney from the Board of Director if applicant is representing a company


in Aceh, Indonesia

111

~

~

~

~

~

~

The application is submitted to the PTSP at BKPM, PDPPM or PDKPM by using the the hard or soft copy of the Lampiran V form (see Appendix 5)

Investment Change Principle License

Foreign and domestic investments can change their type of business, share of partnership and the time for project completion. The change in share of partnership must have an Investment Change Principle License (share percentage, name and citizenship of the foreign investors). The application for change of investment must attach:

A copy of Lampiran IV: Izin Prinsip Penanaman Modal (the investment principle license)

A copy of A copy of the organisation's Charter (including any ammendments)

In changing the type of business (type and production capacity), the application must include activity plans:

~

~

~

Explanation of the production process that include lists of materials and production flow chart

Explanation of the activities if in the services sector

A letter of recommendation from related Government unit, if necessary

~

~

~

In changing the share of partnership (percentages) the application must include:

~

Minutes of the Stockholders' General Assembly Meeting

Proof of identity for the new shareholder

A complete chronology of the company from its founding to the present

~

~

~

A copy of the latest Laporan Kegiatan Penanaman Modal (Investment Activity Report or LKPM)

~

The application is submitted to the PTSP at BKPM, PDPPM or PDKPM by using the the hard or soft copy of the Lampiran IX form (see Appendix 5)

112

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Foreign Company Representative Office License

The Kantor Perwakilan Perusahaan Asing (Foreign Company Representative Office or KPPA) outside of the financial sector must have a license. Application for the KPPA license is submitted to the PTSP at BKPM using the Lampiran XI: Formulir Kantor Perwakilan Perusahaan Asing (foreign company representative office form). The KPPA license is then signed and issued by the Head of BKPM or similarly appointed officials cc-ed to the related Government unit.

Business License

a. To be able to start the implementation of commercial operation/production activities the company must obtain a Business License unless otherwise stated by sectoral regulations.

b. To be able to start the implementation of commercial operation/production activities of its expansion project, the company must obtain the Business Expansion License unless otherwise otherwise stated by sectoral regulations.

c. Domestic investment companies that do not require facilities are required to apply for Business License at the time of commercial production.

d. Investment companies that already have Business Merger License must apply directly for a Lampiran XVI-B: Izin Usaha Penggabungan Perusahaan Penanaman Modal (Business License for Merged Investment Company)

e. Investment companies that already have Business License can make amendments to their Business License (including changes project location, the type of production/product diversification that do not require additional machinery/equipment within the scope of the Basic Standard for Industrial Classification, inclusion in the company capital, and to extend the Business License) by submitting an application for Lampiran XVI-C: Izin Usaha Perubahan (Business Change License).

f. The Business License applies as long as the company still conducts its business unless otherwise stated by sectoral regulations.

g. The Business License application form is submitted to the PTSP in charge of issuing Principle License/Business Expansion Principle License/Business License.


in Aceh, Indonesia

113

h. On the basis of Principle License/Business Expansion Principle License/Business License issued by BKPM before the enactment of Perka No.12/2009, the application is submitted to the PTSP of BKPM, PDPPM or PDKPM located outside the industrial area using the hard or soft copy of Lampiran XIII form. Those who are located within an industrial area use the hard or soft copy of the Lampiran XIV form (see Appendix 5)

i. Lampiran XIII: Formulir Izin Usaha Diluar Kawasan Industri (Business outside of the industrial zone license form) or the Lampiran XIV: Formulir Izin Usaha Didalam Kawasan Industri (Business within the industrial area license form), which include:

- The Laporan Hasil Pemeriksaan (Inspection Results Report or LHP) for Business License or Business Expansion License that require duty facility for import of items and materials

- A copy of the organisation's Charter (including any ammendments) and its certification from the Ministry of Law and Human Rights to apply for an Indonesian Business Unit

- A copy of Principle License/Business Expansion Principle License/Surat Pemberitahuan Persetujuan Presiden (Presidential Letter of Approval or SPPP)/Business License

- A copy of the Investment Extension Principle License

- A copy of NPWP (tax identification number)

- Proof of land ownership:

A copy of land ownership certificate issued by a Pejabat Pembuat Akte Tanah (notary or PPAT)

A copy of land lease letter of agreement

- Proof of ownership/lease of building:

A copy of Izin Mendirikan Bangunan (License to build property or IMB) or

A copy of building lease letter of agreement

- A copy of izin gangguan (UUG/HO) or SITU Surat Izin Tempat Usaha (Place of Business License or SITU) PBL Amdal

- A copy of the latest Laporan Kegiatan Penanaman Modal (Investment Activity Report or LKPM)

114

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

- A copy of Analisa Dampak Lingkungan (environmental impact analysis or Amdal) or Uji Kelayakan Lingkungan (environmental suitability test or UKL) or Upaya Pengelolaan Lingkungan (environmental management effort or UPL) for business located outside of the industrial area

- Fulfilment of other regulations from related Government units/region

- An original and duty-stamped Power of Attorney from the Board of Director if applicant is representing a company

k. The company must report any changes of the details of the Business License including project location, type of production/product diversification without the addition of machinery by submitting an application with data supporting the proposed changes

l. The company must report any changes of the details of the Business License by submitting a letter of notice for the PTSP that issued the license so the changes can be recorded


- Document stating the decision made by the Stockholders General Assembly Meeting and the Merger acte that has been approved by the Minister of Law and Human Rights

- A copy of the Business Licence, the Principle Licence/Investment Licence and its ammendments



j. Lampiran XV: Formulir Izin Usaha Merger (business merger license form) in hard or soft copy attached with:


in Aceh, Indonesia

115

Duty Facility to Import Machinery

a. Investors that have obtained the Investment Principle Licence from the PTSP of either BKPM, PDPPM or PDKPM can apply for duty facility to import machinery by submitting an application to the PTSP at BKPM using the Lampiran XVII form attached with:

- Hard and soft copies of the list of machines based on the BKPM Investor Module


- A copy of the Nomor Pokok Wajib Pajak (Tax Identification Number or NPWP) for applications from Indonesian citizen or organisation

- Nomor Induk Kepabeanan (customs identification number or NIK);

- Angka Pengenal Importer (importer identification number) whether API, API-T or API-P

- Nomor Pengukuhan Pengusaha Kena Pajak (business establishment tax payer number)

- Manufacturers require a flowchart explaining the production process that includes the types of materials

- Needs calculation for the production machinery capacity that is adjusted to the type of production as listed in the Investment Principle License

- A blueprint of the factory and the machine/equipment layout or the technical diagram of the building/construction

- Mining related companies must include a letter of recommendation from a technical unit and from the Head of Authority in Asahan for engines obtained from PT. INALUM

- Technical data or brochure of the machinery

- A copy of the Investment Principle License

- Mining related companies must include the Working Contract with the owner of the Kuasa Pertambangan (mining license or KP) along with a copy of the KP



116

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

b. The machinery import facility approval is valid for 2 (two) years and can be extended according to regulations

Changes or Additions on Duty Facility to Import Machinery

a. Investors that have obtained the Machinery Import Facility Approval from the PTSP of either BKPM, PDPPM or PDKPM can apply for changes or additions on duty facility to import machinery by submitting an application to the PTSP at BKPM using the Lampiran XIX form attached with:

- Reason for the change or addition to the facility to import machinery

- Hard and soft copies of the list of machines based on the BKPM Investor Module







- Needs calculation for the production machinery capacity that is adjusted to the type of production as listed in the Investment Principle License

- Technical data or brochure of the machinery




- A Letter of Approval to ease duty for imported machinery


in Aceh, Indonesia

117

- A report on the realisation of the importation of the machinery by providing evidences in the form of a Pemberitahuan Impor Barang (imported goods declaration or PIB) that has been approved by the Duty and Customs Directorate


b. The Letter of Approval will be issued no later than 7 (seven) working days

Time Extensions to Import Machinery

a. Investors that have obtained the Machinery Import Facility Approval from the PTSP of either BKPM, PDPPM or PDKPM can apply for time extensions to import machinery by submitting an application to the PTSP at BKPM using the Lampiran XXI form attached with:

- Reason for the time extension to import machinery


- A copy of Machinery Import Facility Approval letter

- A copy of the Pemberitahuan Impor Barang (imported goods declaration or PIB) that has been approved by the Duty and Customs Directorate


b. The Letter of Approval will be issued no later than 4 (four) working days

Transfer of Assets

The regulation on the transfer of machinery and/or goods and material must refer to the regulation issued by the Duty and Customs Directorate.

Application for Customs Facility to Import Items and Materials

a. Investors that have obtained the Duty Facility to Import Machinery can apply for Approval of Items and Materials Import Facility by submitting an application to the PTSP at BKPM using the Lampiran XXIII form.

b. Companies that use domestic production machines (at least 30% of the components are domestic) can be given facilities for 4 (four) consecutive years with no extension

118

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

c. Application for the Approval of Items and Materials Import Facility must be attached with:

- Hard and soft copies of the list of items and materials based on the BKPM Investor Module






- Needs calculation for the items and materials that is adjusted to the type of production as listed in the Investment Principle License

- A blueprint of the factory and the machine/equipment layout or the technical diagram of the building/construction

- Mining related companies must include a letter of recommendation from a technical unit and from the Head of Authority in Asahan for items and materials obtained from PT. INALUM

- Technical data or brochure of the items and materials




- A copy of the Pemberitahuan Impor Barang (imported goods declaration or PIB) that has been approved by the Duty and Customs Directorate or a Bill of Sale for domestic machinery

- A copy of the Approval of Items and Materials Import Facility



in Aceh, Indonesia

119

d. The approval of items and materials import facility is valid for 7 (seven) years

Changes or Addition on Customs Facility to Import Items and materials

a. Investors that have obtained the Approval of Items and Material Import Facility from the PTSP of either BKPM, PDPPM or PDKPM can apply for changes or additions on duty facility to import items and materials by submitting an application to the PTSP at BKPM using the Lampiran XXV form attached with:

- Reason for the change or addition to the facility to import items and materials





b. The Letter of Approval will be issued no later than 7 (seven) working days

Time Extensions to Import Items and Materials

a. Investors that have a business licence and have obtained the Approval of Items and Materials Import Facility but is unable to complete the import within 2 (two) years can apply for a time extension to import items and materials for 1 (one) year starting from the end date stated in the Duty Facility to Import Machinery letter of approval

b. Investors that have obtained the Approval of Items and Materials Import Facility from the PTSP of either BKPM, PDPPM or PDKPM can apply for time extensions to import items and materials by submitting an application to the PTSP at BKPM using the Lampiran XXVII form attached with:

- Reason for the time extension to import items and materials



120

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES



c. The Letter of Approval will be issued no later than 4 (four) working days

Importer Identification Number for Producers

Investors that import machinery/items and materials/other production support by themselves must have a Angka Pengenal Importir Produsen (Importer Identification Number for Producers or API-P), which can be obtained by applying to the PTSP at BKPM using the Lampiran XXXI form in order to receive Lampiran XXXII (the API-P identification card). The Lampiran XXXI form must be attached with:



- A copy of the Investment Principle License and other licenses issued by related Government unit


The Letter of Proposed Income Tax Facilities will be issued no later than 5 (five) working days

Request for Income Tax (PPh) Facility

Investors involved in certain business sectors or in certain areas may be given a proposal for income tax facilities. The application form for income tax facilities for investors, domestic taxpayers and cooperatives must be submitted to the PTSP at BKPM using the Lampiran XXIX form attached with:


- A copy of Letter of Domicile for the company office issued by the kelurahan (local village head) office


in Aceh, Indonesia

121

- A copy of the investment principle license

- A copy of the business license


- A copy of the Tanda Daftar Perusahaan (company registration letter or TDP);

- 2 (two) of the latest photo (color, red background 3x4 cm)

- A copy of a valid Izin Mempekerjakan Tenaga Kerja Asing (IMTA) for foreign workers

- A copy of a valid Kartu Tanda Penduduk (identification card or KTP) for Indonesian citizens


d. API-P will be issued no later than 4 (four) working days

e. API-P is valid since activated and apply in all territories of Indonesia while the company is still active

f. Owners of API-P must re-register with the PTSP at BKPM every 5 (five) years since the date of issue, and must be conducted no later than 30 (thirty) working days after it expires

g. For every change in the data submitted for API-P the owner must apply for the change of API

h. The application to change API-P is submitted to the PTSP at BKPM using the API-P form and card attached with:

- The original API-P;

- Letter of missing item from the police if the old API-P card is lost/missing





122

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES







I. API-I will be issued no later than 4 (four) working days and is valid since activated and apply in all territories of Indonesia while the company is still active

Employing Foreign Workers

Investors and Kantor Perwakilan Perusahaan Asing (foreign company representative office or KPPA) that will employ Tenaga Kerja Asing (foreign workers or TKA) must obtain the Letter of Approval for their Rencana Penggunaan Tenaga Kerja Asing (workplan to employ foreign nationals or RPTKA). The request for the Letter of Approval is submitted to the PTSP at BKPM using the Lampiran XXXIII form attached with:

- A copy of the Investor Registration Form or the Principle License Form



- A copy of the company's organigram or diagram of the organisation's structure

- A Letter of Appointment for an Indonesian national to work as assistant to the TKA being employed

- A copy of a valid Bukti Wajib Lapor Ketenagakerjaan (proof of employment reporting) as required by law (UU no. 7/1981)

- A Letter of Recommendation from the Directorate General office related to the investment activities


in Aceh, Indonesia

123


The Letter of Approval for the RPTKA is issued no later than 3 (three) working days. Any changes or extension of the RPTKA, such as changes in working positions, location and number of TKA, must have approval that can be requested by submitting Lampiran XXXIII form to the PTSP at BKPM if the working area crosses between two provinces, or the PTSP at PDPPM if the area is just in 1 province. The application to change or extend the RPTKA must be attached with:










- A copy of the Letter of Approval for the RPTKA


The Letter of Approval to extend the RPTKA is issued no later than 3 (three) working days

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

124

Working Visa

TKA that will work in Indonesia for an investor that has an approved KPPA must have a Working Visa that is issued by the Kantor Perwakilan Republik Indonesia (Indonesian Government Representative Office) abroad. In accordance to the regulations related to workforce and immigration, companies that employ TKA must obtain a Working Visa recommendation (TA.010) from the PTSP at BKPM using the Lampiran XXXV form attached with:


- A copy of a valid Passport for the TKA in question

- An original Curriculum Vitae signed by the TKA in question

- A copy of educational certificate or diploma and proof of past employment in English and in Indonesian

- A copy of the minute from the Stockholder General Assembly Meeting (RUPS) on the appointment for the positions of Director and Commissioner

- A Letter of Appointment for an Indonesian national to work as assistant to the TKA being employed

- 1 (one) of the latest photo (color, red background 4x6 cm)


The Working Visa Recommendation (TA.010) will be issued no later than 1 (one) working day and is valid for 2 (two) months since the date of issue.

Permit to Employ Foreign Workers (IMTA)

Companies that employ TKA must obtain the Izin Mempekerjakan Tenaga Kerja Asing (License to Employ Foreign Nationals or IMTA). An investor that has an approved KPPA can submit an application for IMTA for TKA with a valid Working Visa. The application can be submitted to the PTSP at BKPM using the Lampiran XXXV form attached with:

- A copy of the Working Contract between the company and the TKA

- Proof of payment for the Dana Kompensasi Penggunaan TKA (Compensation Fund for Use of TKA) from a bank appointed by the Ministry of Workforce and Transmigration

- A copy of an insurance coverage for the TKA


in Aceh, Indonesia

125

- A copy of the the letter of approval for the issuance of a visa



The Letter of Issuance for IMTA will be issued no later than 3 (three) days and is valid for 1 (one) year, which can be extended. The application for extending the IMTA must be submitted within 30 (thirty) days before the IMTA expires. Companies that want to extend their IMTA must submit an application using Lampiran XXXV to the PTSP at BKPM if the TKA will be working in more than one province, or the PTSP at PDPPM if within one province but in more than one district, or PTSP at PDKPM if only within one district, and attach:

- A copy of the Letter of Issuance for IMTA

- Proof of payment for the Dana Kompensasi Penggunaan TKA (Compensation Fund for Use of TKA) from a bank appointed by the Ministry of Workforce and Transmigration

- A copy of an insurance coverage for the TKA

- Plans for capacity building of the Indonesian citizens that assist the TKA




The Letter of Extension of IMTA will be issued no later than 3 (three) days

Exporting Products

The basic export administration regime of Indonesia is based on two decrees: Ministerial Decree No. 558/MPP/Kep/12/1998 released by the Department of Industry and Trade in 1988 and Ministerial Decree No.01/M-DAG/PER/1/2007 released by the Department of Trade in 2007. Indonesia exercises export control by dividing exports into four broad categories. The export restrictions in Indonesia are:

1. Prohibited: Indonesia bans the exportation of certain live fishery products, rubber of low quality, rubber materials, crude leather of reptiles, ferrous scrap/waste(except if originating in Batam Island), round wood and wood chips, CITES protected wild animals and natural plants, and urea. Besides, all exports to Israel are prohibited.

126

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Companies and individuals must, before exporting, obtain a certificate of trading business (Tanda Daftar Usaha Perdagangan or TDUP), a permanent business trading license (Surat Izin Usaha Perdagngan or SIUP) or an industrial business license issued by the Department of Technology based on relevant laws, together with a registration certificate (TDP).

Letter of Credit is obligatory for export products basing on natural resources. On January 5. 2009, the Indonesian Department of Trade released the Decree No.1/M-DAG/PER/1/2009 specifying that Letter of Credit (L/C) is obligatory for export products based on natural resources, including unprocessed, or processed but not finished primary products (e.g. coffee, palm oil (CPO), cocoa, rubber products, tin bars and minerals including coal, manganese ore sand, copper ore sand, nickel ore sand, aluminum ore sand, iron ore sand, zircon ore sand, galena, and zinc ore sand). It also specifies that the number of L/C must be attached to the export declaration (PEB), and the payment of L/C must be realized by domestic authorized banks for dealing in foreign exchange. The regulation took effect on March 3. 2009. Currently, there are only two banks in Aceh that has the authority to issue L/C and they are Bank Mandiri and BCA. At the end of 2008, the Central Bank Indonesia issued new measures for export credit: the commercial banks may sell export notes receivable to the central bank and pay the exporters after receiving the payment. It will greatly shorten the settlement circle which is usually 6 months.

2. Supervised: Export approval requirements must be met for supervised products, including certain live bovine animals, live fish, palm nuts/kernels, lead and bauxite ores/concentrate, petroleum oils, urea fertilizer, crocodile leather, unprotected wild animals and plants, unprocessed silver/gold, and waste/scrap of metals, etc.

3. Regulated: Indonesia also conducts licensing and quota administration over regulated exports, involving coffee, textiles and clothing, rubber, plywood or similar laminated wood, teakwood, and mixed rattan and semi prepared rattan.

4. Unregulated: Indonesia has multilateral and bilateral free trade agreements, for example, with China and the ASEAN countries.


in Aceh, Indonesia

127

Checklist Notes:

General

Letter of Order (L/O)

Letter of Credit (L/C)

Terms and Conditions (T/C) Terms and conditions to understand the L/C

Related to tax/levy

Commercial Invoice (C/I) Made by exporter.

Packing List (P/L) Made by exporter during packing.

Bill of Lading (B/L) Made by the shipping company. Date must not precede date on P/L

Airways Bill (AWB) Made by the airway company.

Phytosanitary Certificate

Certificate of Origin

Fumigation Certificate

Pre-Shipment Survey Report

Certificate of Weight

Health CertificateRadiation Free Certificate

Required data:Shipper nameConsignee nameNotify PartyEstimated Time of Arrival (ETA)Port of LoadingPort of DestinationName of Vessel2nd CarrierVoyage NumberDate of DepartureGoods DescriptionPackagingChop & SignatureQuantity of GoodsShipping Marks

Container Number Seal Number

Name and address of exporterName of destination recipientName of the company that must be contacted by the ship

Port of departure and name of countryPort of destination and name of country

Name of ship in case of transhipment

'Shipped on Board', 'Freight Prepaid', 'Shipper Count & Stowed'

Shipping documents must be printed on stationary paper with name and logo All goods must have a Harmonised System Number (HS number or Nomor HS). Goods description that must match the HS number in the HS List Catalogue (available in bookstores or the customs’ website at www.beacukai.go.id)

Basic & Destination of Goods subject to Export TaxCalculation of export tax is based on:o Export Check Price (HPE)o Signed Letter of Proof of Deposit (STBS)o Payable Promissory Notes (SSB)

172Document Checklist for Export

172 This checklist is not to be taken as a guide as regulations keep on changing depending on where the shipment is made. Please confirm or check on the most recent requirements.

128

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Where to Obtain These Permits

Although Aceh has special legal autonomy, most of the permits must still be obtained outside of Aceh, specifically in Jakarta. These documents are usually related to the immigration requirements for Kartu Izin Tinggal Terbatas (limited stay permit card or KITAS) regarding TKA work and stay permit.

Documents that can be obtained in Banda Aceh are Formulir Isi Biodata Pendatang – Warga Negara Asing (foreigner biodata form or FIBP-WNA), Kartu Izin Pendatang – Warga Negara Asing (temporary residence card for foreigner or KIP-WNA), Multiple Exit Re-entry Permit (MERP), (immigration control book or POA), Surat Keterangan Lapor Diri (certificate of police registration or SKLD), Surat Keterangan Susunan Keluarga Pendatang (foreigner family registration or SKSKP), Surat Keterangan Tempat Tinggal (residency certificate or SKTT), and the Surat Tanda Melapor (report certificate or STM).

Documents that are required in order to obtain the KITAS in Jakarta are the IMTA, the Employment Report (as per UU no. 7/1981), RPTKA, Visa Recommendation (TA.01), VBS (Telex VITAS to The Indonesian Embassy). These documents have been discussed earlier.

RPTKA(Dept. of Manpower)

TA-01(Dept. of Manpower)

VITAS/VBS(Dept. of Immigration)

IMTA(Dept. of Manpower)

KITAS, POA, MERP(Dept. of Immigration)

SKLD, STM, SKPPS, SKTT

(Dept. of Manpower)

Employment Report(Dept. of Manpower)

Notes:Visa must be picked up at an Indonesian Embassy

Require fingerprinting

Document will be processed parallel

Sequence of Obtaining All Documents for TKA

The best first stop to obtain these documents is in the PTSP office at the Governor's office or at the BKPM office. They will direct applicants to the proper offices for some of these documents.


in Aceh, Indonesia

129

Appendix 4. Checklist of Forms and Letters

The following table is a checklist of all forms, letters and permits that must be appended to any request to invest in Aceh.

130

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

IIIIIIIVV

VI

VII A

VII B

VIII AVIII B

IXXXI

XII

XIII

XIV

XVXVI-A

XVI-B

XVI-CXVII

XVIII

XIX

Formulir PendaftaranPendaftaran Penanaman ModalFormulir Izin PrinsipIzin Prinsip Penanaman ModalFormulir Izin Prinsip Perluasan Penanaman ModalIzin Prinsip Perluasan Penanaman ModalSurat Pengantar Permohonan Perubahan Penyertaan Dalam Modal PerseroanSurat Penolakan Permohonan Pendaftaran/lzin Prinsip/lzin Usaha

Formulir Laporan PerubahanSurat Pencatatan PerubahanFormulir Izin Prinsip PerubahanIzin Prinsip PerubahanFormulir Kantor Perwakilan Perusahaan AsingIzin Kantor Perwakilan Perusahaan AsingFormulir Izin Usaha Diluar Kawasan IndustriFormulir Izin Usaha Didalam Kawasan IndustriFormulir Izin Usaha MergerIzin Usaha/lzin Usaha Perluasan

Izin Usaha Penggabungan Perusahaan Penanaman Modal (Merger)Izin Usaha PerubahanFormulir Permohonan Fasilitas Impor MesinSurat Persetujuan Fasilitas Impor MesinFormulir Permohonan Perubahan/Penambahan Fasilitas Impor Mesin

Registration formInvestment registrationPrinciple license form Investment principle licenseExtension principle license form

Investment extension principle licenseLetter of application for amendment of investment in equity capitalLetter of rejection for the application for registration/principle license/business permitChange report formChange of registration letterChange principle license formChange principle licenseForeign company representative office formForeign company representative office licenseBusiness outside of the industrial zone license form Business within the industrial area license form Business merger license form Business license/business expansion licenseBusiness license for merged investment company Business change license Machinery import facility application formMachinery import facility approvalApplication form for changes/additions of machinery import facility

Lampiran/Appendix Title Explanation


in Aceh, Indonesia

131

XX

XXI

XXII

XXIII

XXIV

XXV

XXVI

XXVII

XXVIII

XXIX

XXXXXXI

XXXII

XXXIII

XXXIV

XXXVXXXVI

XXXVII

XXXVIIIXXXIX

XL

XLI

XLIIXLIII

Surat Persetujuan Perubahan/Penambahan Fasilitas Impor MesinFormulir Perpanjangan Waktu PengimporanSurat Persetujuan Perpanjangan Waktu Impor MesinPermohonan Fasilitas Impor Barang dan BahanSurat Persetujuan Fasilitas Impor Barang dan BahanFormulir Permohonan Perubahan/Penggantian Persetujuan Fasilitas Atas Impor Barang dan Bahan

Surat Persetujuan Pemberian Fasilitas Bea Masuk Atas Perubahan/Penggantian Barang dan BahanFormulir Perpanjangan Waktu Pengimporan Barang dan BahanSurat Persetujuan Perpanjangan Waktu ImporFormulir Permohonan Fasilitas Pajak PenghasilanUsulan Fasilitas PPhFormulir Angka Pengenal Importir Produsen (API-P)Angka Pengenal Importir Produsen (Kartu API-P)Formulir Penggunaan Tenaga Kerja Asing (RPTKA)Rencana Penggunaan Tenaga Kerja Asing (RPTKA)Formulir IMTA dan TA 01Rekomendasi Visa Untuk Bekerja (TA.010)Izin Memperkerjakan Tenaga Kerja Asing (IMTA)Surat KuasaSurat Kuasa (Bahasa Inggris)Surat Kuasa Substitusi

Surat Kuasa Substitusi (bahasa Inggris)Surat Persetujuan Hak SubstitusiSurat Persetujuan Hak Substitusi (bahasa Inggris)

Approval of changes/additions of machinery import facility

Import time extension form

Approval of time extension of machinery import Application for items and materials import facilityApproval of items and materials import facilityApplication form for change/replacement of items and materials import facility agreementApproval on change/replacement of items and materials duty facility

Form for time extension for items and materials import Approval of time extension for items and materials importApplication form for income tax facilitiesProposed income tax facilitiesImporter identification number for manufacturer (API-P) FormImporter identification number for manufacturer (Card API-P)Plan for use of foreign workers (RPTKA) formPlan for use of foreign workers (RPTKA)IMTA and TA 01 FormsWorking Visa recommendation (TA.010)License to employ foreign workers (IMTA)Power of attorneyPower of attorney (English)Power of attorney for substitution (Indonesian)Power of attorney for substitution (English)Approval for substitution rightsApproval for substitution rights (English)

Appendix 5. Seaports and Airports in Aceh173Seaports in Aceh

Seaport District Harbor Type Pilotage Supplies

Meulaboh Aceh Barat

Natural coastal harborAnchorage depth 7.1m - 9.1m.Cargo pier depth 1.8m - 3m.Oil terminal depth 1.8m - 3m.

Estimated time of arrival (ETA) message required.

Fixed cranes available.Provisions and portable water are available.

Krueng Raya Aceh Besar

Open roadstead harbor.Very small harbor.Anchorage depth 23.2m – over.Cargo pier depth 6.4m – 7.6m.


Limited repairsPoor shelter

Lhok Kruet Aceh Jaya

Natural coastal harbor with good shelter.Very small harbor.Anchorage depth 14m - 15.2m.


Kota Binjai Aceh TamiangNatural coastal harbor.


Provisions available.

Birem Bayeun Aceh TimurNatural coastal harbor.



Ranto Panjang Aceh TimurNatural coastal harbor.



KruengGeukeuh

Aceh UtaraNatural coastal harbor.


Fuel oil is available.

KualaLangsa Langsa

River basin harbor.Harbor entrance restricted due to tide.Very small harbor.


Provisions Available.

173 Data from Ports.com. URL: http://ports.com

132

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Lhokseumawe

Blang Lancang Lhokseumawe

Coastal breakwater harbor.Harbor entrance restricted due to overhead limits. Anchorage depth 23.2m – over.Cargo pier depth 4.9m - 6.1m.Oil terminal depth 11m - 12.2m.

Estimated time of arrival (ETA) message required.Pilotage compulsory and available.

Mobile cranes available.

Lhokseumawe

Estimated time of arrival (ETA) message required.Pilotage compulsory and available.

Fixed cranes available.Provisions and portable water available.

Natural Coastal Harbor.Anchorage depth 11m - 12.2m.Cargo pier depth 4.9m - 6.1m.

PidieFixed cranes available.Sigli

Open roadstead harbor

Provisions and portable water available.

Sabang

Estimated time of arrival (ETA) message required.Pilotage compulsory.

Sabang Natural coastal harbor.

Mobile cranes available.Provisions, portable water, fuel oil and diesel oil available.Medium drydock available.

SingkilEstimated time of arrival (ETA) message required.

SingkilNatural coastal harbor with good shelter.


174Airports in Aceh

174 Compiled from Dinas Perhubungan dan Transportasi data.

FacilitiesAirport District Type Destinations

Sultan Iskandar Muda Aceh Besar International

Domestic

Kuala LumpurPenangMedanNagan RayaSimeulue

Airbus class or similar.Visa-on-arrival.Public transport.Daily flights.

Teuku Cut Ali Aceh Selatan Domestic Medan

Fokker 27 class or other series. Public transport. Non-daily flights.


in Aceh, Indonesia

133

Alas Leuser Aceh Tenggara Banda AcehMedan

Fokker 27 class or other series. Non-daily flights.

Domestic

Malikussaleh Aceh Utara Medan


Domestic

Rembele Bener MeriahFokker 27 class or other series. Non-daily flights.

Domestic Medan

Cut Nyak Dhien

Nagan Raya


Domestic Banda AcehMedan

Maimun Saleh Sabang Banda Aceh


Domestic

Lasikin SimeulueFokker 27 class or other series. Non-daily flights.

DomesticBanda AcehMedan

134

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Appendix 6. Gayo Coffee: A Case Study on the Benefits of Certification

In order to provide a clearer presentation of what can be done to improve the conditions of the patchouli industry in Aceh, it is necessary to compare it to other cases in Aceh and Indonesia, preferably cases of successful industries of other commodities. This section will describe the Gayo coffee case, which is

175selected because it is a success story in the same province, Aceh.

The highlands of Aceh, often called Gayo land, have produced one of the most famous commodities in Indonesia: arabica coffee. There are only three places in Indonesia where arabica coffee is produced and exported, and one of them

176is the highlands of Aceh. Despite its long-time production, coffee farmers in the highlands suffer from similar problems as patchouli (and other commodities) growers in Aceh, i.e. poor access to information on market prices, domination of exporters in Medan, and the lack of quality control.

In 2006, Koperasi Serba Usaha (Business Cooperative or KSU) Arinagata was formed in Takengon, Aceh Tengah, by the director of the export company Arvis Sanada CV. KSU Arinagata is a coffee producing cooperative that works with organized coffee farmers and produces certified organic and fair-trade coffee from the Gayo highlands. The green coffee beans of KSU Arigana are exported to several countries in Europe, North America and Asia. KSU Arinagata's main aim is to organize and empower its coffee farmers. The cooperative has a total of 1,470 members and 1,879 hectares of land.

KSU Arinagata positions itself in the market by focusing on producing certified fair and green coffee beans. In 2007 the cooperative received the UTZ certification for organic production and in 2008 gained the fair-trade license 'FLO-CERT' from Germany. These licenses have helped to increase the market potential of KSU Arinagata. The cooperative is now able to pay its farmers a premium price for their products.

The company exported 12 containers of green coffee beans in 2010 for IDR 35,000/kg and earned an average of IDR 7.6 billion/month. With increased profit, the cooperative improves the growers' income and has helped the community by investing in education, constructing a small bridge in the village and establishing public washing facilities.

The case study of Gayo Coffee is a clear example of successful branding. Due to certification, KSU Arinagata has been able to enter international markets and pay its growers a fairer price than the price received by other coffee growers in Aceh Tengah, whose coffee beans are arguably of the same quality. The added value given by the branding has helped the cooperative growers in breaking through the new market of organic coffee.

175 Arvis Sanada, 2011. www.arviscoffee-sumatra.com, visited on 28th January 2010; Okezone, 2011. www.okezone.com, visited on 28th January 2011.

176 The others are the Mandheling coffee of North Sumatra, and the Toraja coffee of South Sulawesi.


in Aceh, Indonesia

135

Appendix 7. List of Contacts

Government Units:

Badan Koordinasi Penanaman Modal (BKPM)The Investment Coordinating BodyAddress: Jl. Gatot Subroto No. 44, Telex 62654 BPKM IA, Jakarta 12190.http://www.bkpm.go.idPh: (+62 21) 5252008, 5250023Fax: (+62 21) 5227609, 5254945

Badan Investasi dan Promosi Aceh (BIPA)The Aceh Investment and Promotion BodyAddress: Jl. Jenderal A. Yani No.39, Banda Aceh, Provinsi Aceh, Indonesia 23122.http://www.nad.go.idPh: (+62 651) 23170, 22697 (Contact Person: Fakhrizal)Fax: (+62 651) 23171

Biro Ekonomi Kantor Gubernur AcehThe Economic Bureau of the Governor'sOffi ce of AcehAddress: Jl. T. Nyak Arief No.129 Banda Aceh, Provinsi Aceh 23114, Indonesia.Ph : (+62 651) 7551377/7551327Fax: (+62 651) 7553119

Kantor Dagang dan Industri (KADIN) AcehThe Chambers of Commerce AcehAddress: Jl. T. M. Pahlawan No. 7Banda Aceh, Provinsi Aceh, Indonesia.Ph: (+62 651) 20371Fax: (+62 651) 28380E-mail: [email protected]

Pelayanan Terpadu Satu Pintu (PTSP)Address: Jl. T. Nyak Arief No.129 Banda Aceh, Provinsi Aceh 23114, Indonesia.Ph: (+62 651) 7554075Fax: (+62 651) 7551333

136

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES

Percepatan Pembangunan Daerah Tertinggal dan Khusus (P2DTK) The Development Acceleration Program for Isolated or Special RegionsAddress: Kantor BAPPEDA Aceh, Jl. Tgk. Daud Beureueh, Banda Aceh, Provinsi Aceh, Indonesia.http://bappedaacehprov.go.idPh: (+62 651) 21440Fax: (+62 651) 33654

Kantor Perwakilan Investasi dan Promosi Pemerintah AcehThe Government of Aceh Representative Office for Investment and PromotionAddress: Penang Development Centre Building, Bayan Lepas area, Penang, Malaysia.

Kantor Penghubung Pemerintah AcehThe Government of Aceh Liaison OfficeAddress: Jl. Indramayu No. 1, Jakarta Pusat, Indonesia 10310. Ph: (+62 21) 3142163, 3919419Fax: (+62 21) 3100326

Dinas Perdagangan dan IndustriThe Ministry of Industry and Trade UnitAddress: Kantor Dinas Perindustrian, Perdagangan, Koperasi dan UKMProvinsi Aceh, Jl. Pocut Baren No.11, Banda Aceh, Provinsi Aceh, Indonesia.Ph: (+62 651) 32428, 32429Fax: (+62 651) 32428

Dinas Kehutanan dan PerkebunanThe Ministry of Forestry and PlantationAddress: Jl. Sudirman No.21 Banda Aceh, Provinsi Aceh, Indonesia.http://www.acehprov.go.idPh: (+62 651) 42277Fax: (+62 651) 43628

Stasiun Karantina Pertanian Kelas Ist1 class Agriculture Quarantine Station

Address: Jl. Komp. Bandara Sultan Iskandar Muda, Blang Bintang, Provinsi Aceh, Indonesia. Ph: (+62 651) 635608


in Aceh, Indonesia

137

Banks (Main Branches Only):

BCAAddress: Jl. T. Panglima Polem, No. 38-40, Banda Aceh, Provinsi Aceh, Indonesia. http://www.klikbca.com/sme/product.html?s=34Ph: (+62 651) 21026

Bank MandiriAddress: Jl. Tgk. H.M. Daud Beureueh No. 15-H, Banda Aceh, Provinsi Aceh, Indonesia. http://www.bankmandiri.co.id/english/article/corporate-pi01.aspPh: (+62 651) 23981

138

RE

FE

RE

NC

ES

& A

PP

EN

DIC

ES