Out with the Old, In with the New

The Local Value Chain Development Model, as implemented in Indonesia

Story by Cynthia Mulenga, SEED, WVA. Written by Justine Leach, International Programs.

“...this project made me remember that the work we do does help get people out of poverty. It really does. It makes me remember that what we do works!”

- Cynthia Mulenga

Cynthia Mulenga is a Research and Evaluation Advisor in the Social Entrepreneurship & Economic Development (SEED) unit in the International Programs Group. She recently went to evaluate pilot projects of an economic development model, the Local Value Chain Development (LVCD), implemented in Sikka and Flores-Timur ADPs on Flores Island and in Rote ADP on Rote Island, Indonesia. We spoke with Cynthia about the model, which focuses on helping poor producers to access better markets for their produce.

Cynthia, what effect is the LVCD model having on the local community?

In my visit I saw that the Local Value Chain Development model is in its own class. What we do does make sense and does yield results.

In the villages where the LVCD model has been implemented, farmers told me that the price they are receiving for their product has increased significantly. As a result, some of the farmers can now afford to build better and more permanent walls for their houses, rather than the bamboo walls they have had. The children we interviewed drew pictures to tell us that they now eat more food than in the

years prior to the project. More families can also now afford to send their children to university and college, which has not been the case in the past.”

What future will it facilitate for these farmers?

After three years working with the new LVCD model, we are now linking them with big buyers like makers of Mars bar, to buy their cocoa! The transformation is astonishing.

The government in the province of Nusa Tengarra Timur (NTT) has seen the success of the model and has asked World Vision to train government extension workers on the LVCD approach, so that it can be replicated throughout the region. If done successfully, this would see an adaptation of the approach rolled out to over 250 villages throughout the NTT region.

How have farmers responded to the LVCD model?

When I interviewed local growers, it was obvious their attitudes toward their produce had completely changed. Previously, they thought it a waste of time to look after their coconut palms.

Picture 1: Children in Duntana talk excitedly about how they now enjoy side dishes with their meals since their parents became involved in the LVCD project

These (coconut palms) are everywhere on the island. Every household has them and so they were never seen as a commodity of great value but as just another tree in their garden. Now they see the coconut’s value; they see it as money. So now they think about how to look after their palms and trim them to maximise the size of the coconut growth, because they know that to look after it means money and their whole outlook has changed. The children too, realise that the trees in their backyard are helping them go to school and so they help to look after them.

Picture 2: Local farmer Yasinta (in brown) explains to Cynthia how improved farming methods learnt through the LVCD project have led to better quality coconuts and cocoa, and therefore higher selling price.

What did you learn from your visit and evaluation of this project?

This experience has been very transformative for me. As someone who comes from a poverty stricken country, I have always thought that we need to increase production to feed the starving. I never thought about the actual market demand for these products.

I’ve worked for World Vision for 8 years and I realised during this evaluation that I had become a bit cynical. I was tired of defending World Vision and tired of challenging the way we work. But this project made me remember that it’s not just about ticking the boxes, the work we do does help get people out of poverty. It really does. It makes me remember that what we do works!

Can you give us an example of why you are so positive about the project?

I admit that I was initially sceptical about the success of this project. I thought in terms of other economic development projects that have been unsuccessful for World Vision in the past; but I was soon to change my mind!

I remember in one of my evaluation interviews, when I interviewed this man, thinking there was no way they could have changed their ways of doing business so dramatically. I wanted to hear the truth so I purposefully pushed with different questions to see if there was any let up in his conviction of what had taken place amongst the growers, and he replied, quite forcefully, with “Madam! Why would I continue to use the Ijon system1* when I can make more money taking my produce direct to 1 (pronounced e-john) System:Is a rural credit system where a local producer commits his farm produce to a lender, before harvest time, in return for a loan. The lender’s ‘loan’ is not in monetary form, but rather it is provided as essential household goods in return for a future harvest. Therefore this system keeps the producer in a perpetual state of debt as they are locked in to a cycle of

the buyers? The price of my product has increased dramatically. Where once it used to bring me 9,000 rupees, now it’s as much as 20,000 rupees for the same quantity. Nobody in my village uses the Ijon system anymore because there is no need to!”

What was the primary need for changing the way farmers marketed and sold their product?

The local people of Flotim have a variety of crops. Through the LVCD project they decided to prioritise working with 5 main types of crop; Copra (processed and dried coconut), candle nuts, cashew nuts, cocoa and coffee beans.

They were locked into a very old way of trading called the Ijon system* which they had been using for decades, and which perpetuated their poverty.

This system is where a lender/collector would come and look at the farmers’ produce still in the field, and say “I’ll take this entire crop to pay off your debt from 6 months ago”. Meanwhile they ‘lend’ them household goods such as rice and soap, against the crop that is still in the field, so that the producers are always trapped in a system of debt. This system has been going on for decades and was a way of life for these people. They were constantly trading their produce at a value rate set by the collectors and way before the crop ripened. This system perpetuated the farmers’ debt and they had no sense of the real value of their produce. This way of loan-sharking and selling was deeply entrenched in their culture, ensuring that farmers received very low prices, holding them in poverty.

How did the model go about addressing these problems?Of course, increased productivity in response to market demand and therefore increased sales means more money, which means more money to spend on sending children to school, on books, on clothing and food, and better child wellbeing; which, of course, is our ultimate aim.

The LVCD Model works to understand the market environment in the area. Then in response to this market environment, the LVCD facilitates the local producers to engage with the actors in the market such as buyers and service providers. Essentially, it’s for farmers to engage with other parties to increase their ability to sell their products at a better price. In an effort to meet the market demands, local producers may often need to increase their production levels, improve the quality of their produce and add value to their products by processing them. The LVCD project model facilitates all this.

And how do the farmers trade now, after the LVCD model?

One major method of Collective trading is done once a week, auction style, with buyers coming to bid.

producing in exchange for household goods such as rice, cooking oil, washing soap etc. This perpetuates a hand-to-mouth existence for local producers.

Picture 3: Cynthia (front row, centre) with Indonesian women who have seen the price of their produce double since the LVCD project began.

The produce is taken to an agreed selling point and handed over to the Gapoktan committee made up of the respective Poktan representative from about 10 villages. The Poktan groups like a cooperative are committees set up at village level by local government and made up of representatives from the community. ‘Poktan’ and ‘Gapoktan’ are the Indonesian names of committees at the 2 different levels. The chairperson of each Poktan may sit in at the auctions.

Before the project, these Poktans and Gapoktans were relatively weak structures, with very few producers actually selling collectively through them. The LVCD project has served to reinvigorate these groups which now function regularly on their own.

What were some other issues farmers were faced with?

There were issues with Cocoa production and not producing enough so they would have to take their cocoa to the buyers themselves as there wasn’t enough to entice the buyers to come to them. There were transport problems as most of the farmers don’t have vehicles, so they

needed to produce more in order to get the buyer to come to them.

Then there was the problem of how to get the most from your cocoa trees. The farmers were not maximising the productivity of their trees since they lacked the knowledge of how to increase the production in the trees they already had.

How did the LVCD model address these issues?

The program worked with the villagers on the problem of maximising productivity. After some discussions amongst themselves, they decided to send one person from the village to get training on cocoa production, on the condition that they would then came back to the villages and share this knowledge on how to increase the production in the trees they already had.

Who are the key people behind explaining this new Model to the farmers?

There are Market Facilitators. Their role is to understand what the products are and what the issues are surrounding the marketing of these products. For example, posing the question: Are they just producing this because they always have? That is to say, there is the historical element of ‘Well, we’ve always grown this so we shall continue to grow the same product in the same way ’; or because there is a real need for it. For example, coconuts: Does the marketplace want the whole coconut or a dried product derived from the coconut such as copra? Another example is banana production; are they producing too many and therefore oversupplying the market? So the Market Facilitator’s role is to understand what the product is, what the demand is for, and what the marketability of that product is in order to sell it successfully.

The second major part of their role is to assist the producers to work together through a learning journey that gradually builds their knowledge, skills and ultimately confidence in accessing the better markets. The Market Facilitator is very intentional in coaching and mentoring producers to mobilise themselves, meet with new prospective buyers, gather critical market information, and then use that information to make better production and selling decisions.

END

Picture 4: A Gapoktan member after selling the produce from the local producers

More about the LVCD Model:

Jock Noble, is the Manager of SEED at WVA. Jock, along with Olivia Davidson (in the beginning) and Chris Rowlands, have developed the LVCD Model.

The Evaluation team was led by Cynthia and she was joined by Chris Rowlands, an Economic Development Consultant for the LVCD model, based in Perth, and Lerina Sinaga, the Economic Development Consultant for both the Business Facilitation Model and LCVD Model based in Indonesia.

They were joined by the Market Facilitators for two of the ADPs, Diana M. Johannis and Robert Raya, the monitoring and evaluation officers of both ADPs and two staff members (DME and Economic Development) from the National Office as part of the Evaluation team.

EXPLANATORY NOTES:

The Ijon (pronounced e-john) System:

Is a rural credit system where a local producer commits his farm produce to a lender, before harvest time, in return for a loan. The lender’s ‘loan’ is not in monetary form, but rather it is provided as essential household goods in return for a future harvest. Therefore this system keeps the producer in a perpetual state of debt as they are locked in to a cycle of producing in exchange for household goods such as rice, cooking oil, washing soap etc. This perpetuates a hand-to-mouth existence for local producers.

SEED Models:

The Business Facilitation Model (BFM) is the oldest model developed by SEED and has been piloted in Indonesia and Kenya; the Local Value Chain Development (LVCD) model is the second oldest and has been piloted in 3 sites in Indonesia. Micro Franchising is a new model which is being piloted in Tanzania, and Youth Engagement has just been approved as the latest model in the SEED team.