Opportunities for increasing domestic added value ofcocoa through trade regulation

Abstract

The operation of multinational companies on cocoa bean trade in Indonesia related to the liberalization policy on trade and investment in Indonesia permits for multinational companies to operate in Indonesia and liable to buy cocoa bean directly from farmers. The problem encountered is the domestic market liberalization gives rise to changes in market power and results ini the dominant position of multinational companies. This research aimed to (i) analyze the impact of the exercise of market power by cocoa multinational company, (ii) to analyze the possibility of deregulation of cocoa bean domestic trade, and (iii) to estimate the potential increase in added value of cocoa down-stream industry as a result of deregulation. Some steps of research conducted includes (i) desk research, (ii) field survey by interviewing samples of farmers, traders, exporters, processors, as well as other business participants, (iii) special interviews with key persons related to regulation as well as deregulation of domestic trade and down-stream industry development, and (iv) focussed group discussion involving related stakeholders of cocoa. The results showed that the impact of the exercise of market power by multinational companies refers to the decreasing market shares of national companies from 2007 to 2009. Based on the market power domination of multinational companies in one side and the lack of down-stream industry development in the other side, there is a possibility to deregulate the above policy by continuing the new regulation (export tax of cocoa beans, directing multinational exporters toward downstream industry by partnership with domestic-idle capacity processing industry and import tariff escalation for processed cocoa). By the new regulation, the opportunity to increase domestic added value becomes greater. This cocoa down-stream industry development will increase the potential domestic added value at least 10%. Key words : Liberalization, deregulation, cocoa beans, value added, down-stream industry.