Improving Cocoa Production in Aceh, Indonesia, 2009


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Improving Cocoa Production in Aceh, Indonesia, 2009

  1. 1. Global Young Leaders Programme Aceh Project 2009 Strengthening the Cocoa Value Chain for Sustained Growth in Aceh 1
  2. 2. Table of ContentsSection Table of Contents Pages 1 Executive Summary 3–6 2 Background 7 – 12 3 Business Opportunity 13 – 18 4 Business Model 19 – 29 5 Governance Structure G St t 30 – 34 6 Production and Operations 35 – 46 7 Marketing Strategy 47 – 49 8 Human Resources 50 - 53 9 Community Benefits 54 – 66 10 Financial Analysis 67 – 74 11 Risk Assessment and Mitigation 75 – 76 12 Implementation Plan 77 – 79 13 Conclusion 80 – 81 14 Appendix, Closing and List of Participants 82 – 84 2
  3. 3. Section 1:EXECUTIVE SUMMARY 3
  4. 4. Executive SummaryIntroductionEmerging from nearly 30 years’ of conflict, post-tsunami years post tsunamiAceh presents vast untapped business opportunities inresource-rich North Sumatra, Indonesia.Leveraging the global shortfall in quality cocoa supply andthe production potential of Acehnese smallholder farmers,we present a creative proposition of bringing togethervarious stakeholders through a corporate vehicle sourcingcocoa directly from farmers in Pidie District, Aceh. d ect y o a e s d e st ct, ceFarmers, traders, exporters and buyers will shareownership in a profit-driven yet socially-committedenterprise, Alami Kado PT. Alami Kado aligns interests of p , gall parties by restructuring the existing supply chain andimproving farmer capabilities and consistency in cocoaquality in the Pidie cocoa value chain. 4
  5. 5. Executive SummaryAlami Kado Key Success Factors:Alami Kado achieves alignment of interests through:• Providing market access and a clear price signal for farmers to upgrade their processes and cocoaquality, thus improving livelihoods • Providing technical training and assistance to farmers through strong and long-term partnerships with NGOs and/or donor agencies • Strategically positioning buyers to leverage on existing local networks and gaining direct access to suppliers • Maintaining a close relationship and obtaining support from local government Being true to its roots in Aceh, Alami Kado will propel Pidie to the global cocoa supply scene.Alami Kado Operations and Processes:The focus is to streamline and simplify farmers’ activities. This is based on getting them to provideconsistent quantities of quality wet beans Wet beans are collected through a system based on existing beans.logistical networks for processing at 6 units conveniently situated close to Pidie cocoa farms. Onecentral warehouse will be strategically placed in Biruen (50 km from new port Krukuh) for packaging andshipment. Through a tiered pricing system, and effective corporate governance, Alami Kado ensuresthat value gain is channeled throughout the value chain. This will be supported by investing in trainingthe farmers. 5
  6. 6. Executive SummaryAlami Kado Key Facts:Once initial f di of USD1 031 000 i obtained thO i iti l funding f USD1,031,000 is bt i d through share capital, h h it lAlami Kado will work towards the following targets:• Increase production levels from 450 tonnes/hectare at present to 825 tonnes/hectare in Year 5• Train 4000 Pidie cocoa farmers by year 3• Distribute profits to shareholders by year 4• Achieve three-fold increase in farmers’ income by year 5 yy
  7. 7. Section 2:BACKGROUNDBackground to AcehHistory and DemographicsCocoa Industry in AcehChallenges 7
  8. 8. Background to Aceh Map of Aceh and General Information• Located on the northern tip of the island f Sumatra th i l d of S t• Strategically located within the vibrant economic triangle of Malaysia, Si M l i Singapore and d Indonesia• 98.6% of population in Aceh is Muslim M li• Aceh is rich in natural resources especially oil, gas and conducive f agriculture d d i for i lt• Rice, coffee and cocoa are the main agriculture products in Aceh A h 8
  9. 9. AcehHistory and DemographicsThe History• 30 years of conflict ended in 2005 bringing peace and economic development opportunities to Aceh• Aceh was heavily damaged by the Tsunami in 2004 and the economic losses amounted to 97% of Aceh’s GDP• In the post tsunami era, Aceh s economic growth era Aceh’s has been primarily driven by reconstruction/ rehabilitation efforts supported by domestic and international aid• The future depends on a self-sustained economy self sustainedDemographics• Population (2005): 4,010,539• Land Area: 57,365.57km2• GDP Growth (without oil and gas,2006): 7.7%• GDP Per capita (2006): US$1,962.75• Net Export (% of GDP, 2007): 31.1%(Source: Aceh Economic Update, 2007, The World Bank) 9
  10. 10. Cocoa Industry in Aceh y• Indonesia has been the world’s third largest cocoa-producer since the 1980s.• Despite high end chocolate fetching upwards of US$200/kg among affluent consumers, the average price paid to farmers in Indonesia for their cocoa beans can be as low as US$2.00/kg• Cocoa has been identified as the major priority crop by the Aceh government for economic development and has received support from UNDP/APED• Global demand for cocoa has been outstripping supply to the extent that prices were up 30% (Cadbury, 2008)• All cocoa grown in Aceh is currently traded through Medan and transported by road• Cocoa is easily established within existing farm The number of cocoa systems as a cash crop and provides a quick and farmers in Aceh is regular i l income about 90 000 abo t 90,000 10
  11. 11. Challenges facing Cocoa Industry inAcehProductivity Challenges Organizational Challenges• Inconsistency in the supply of • Lack of effective organization high quality cocoa and mobilisation amongst cocoa farmers and others• Yield losses due to poor crop management, pests and disease problems • Lack of effective infrastructure in collection, processing and• Low cocoa farming skills warehousing g amongst farmers • Ineffective coordination and• Cocoa farmers lack adequate communication between major working capital ki it l supply chain stakeholders and support groups• Low farm gate prices and lack of price differentiation for quality cocoa lit 11
  12. 12. Overall Scenario• The aid assistance including funding from donors is in decline hence threatening the sustainability of Aceh’s economic recovery unless self-reliant economic activity commences• Unstable supply from leading producer countries such as Ghana, Ivory Coast and Indonesia has motivated buyers to not only secure cocoa bbeans early, b t also i l but l invest it in farmers to improve yields and quality.• Consumer demand for organic fair trade and organic, specialty products has driven exporters such as Armajaro, Olam and others to pay closer attention to traceability and supply chain issues 12
  13. 13. Section 3:BUSINESS OPPORTUNITYBackground of Opportunity:Drivers and ConditionsMarket OpportunityInvestment 13
  14. 14. BUSINESS OPPORTUNITY:Drivers and Conditions• Chocolate consumption increasing with improving prosperity worldwide.• The supply of cocoa is also subject to volatility due to political instability from years of conflict in the producing nations.• Indonesia is one of the four regions in the world which p g produces significant volumes of cocoa.• Aceh is a rich and diverse province which is located within the vibrant economic triangle of Malaysia, Thailand and northern Sumatra. ACEH COCOA• Post tsunami and conflict resolution has lead the people of Aceh to commit to improving their standard of living and this includes reviving the cocoa industry.• Sustained economic activity is key to the alleviation of poverty and raising the income of farmers.• The building of a commercially well managed cocoa industry in Aceh can be a key contributor to economic growth in Aceh. 14
  15. 15. BUSINESS OPPORTUNITY:Market Opportunity• There is significant potential to produce higher grade cocoa through simple but well managed production process throughout the supply chain. chain• Potential increases in productivity can be realized through a business forum. Production in Aceh currently averages 400 kg per ha. as opposed to the international benchmark of 1000 kg per ha There ha. exists great potential to increase production through a new business model. ACEH COCOA• There is potential to increase the land areas for cocoa cultivation p through rehabilitation of land which has been neglected (24,739 ha – Aceh).• Organized domestic production and supply of good quality cocoa will increase the confidence of buyers in Aceh cocoa.• Through simple but creative training programmes and technical assistance for the farmers, quality cocoa could be produced which will lead to l d t an iincrease i th opportunity f i t in the t it for international t d ti l trade. 15
  16. 16. BUSINESS OPPORTUNITY:Investment• Improvement in productivity and increasing in crop areas will boost cocoa revenues in Aceh. This will both need and present investment opportunities.• A well structured b i ll t t d business model and i l d l d implementation plan will t ti l ill attract potential investors and help secure financial assistance from donors thereby transforming the supply chain in the industry. ACEH COCOA• The high price for cocoa being traded in the commodity market is a reflection of the sustained demand for the product. This should ensure good returns for investors.• Added benefit is the high social impact as per capita farmer income is projected to increase by threefold in 5 years, presenting a win- win situation. 16
  17. 17. BUSINESS OPPORTUNITY:Profits with high social impactThree-fold increase in farmer per capita income in five years USD Farmer Income Per Capita Farmers Income Per Capita (USD) 1,000 800 600 989 400 792 865 626 200 460 302 - Current Y1 Y2 Y3 Y4 Y5 17
  18. 18. PIDIE DISTRICT• The Pidie District of Aceh lies on the North Eastern area of the island• Banda Aceh local government has designated Pidie as a cocoa growth area• Cocoa production in Pidie began in 1980 with local communities planting cocoa plants with government assistance• Cocoa can be considered as the main perennial crop in Aceh involving thousand of small holders• The number of cocoa farmers in Pidie district is approximately 8,500The area under cocoa has graduallyincreased over the years. The cocoagrowing area in Pidie District extends fromlow altitude (close to sea) to the high landsnear the mountains. 18
  19. 19. Section 4:BUSINESS MODELAceh Cocoa Industry ConstraintsDemand and Supply ConstraintsD d dS l C t i tKey Success Factor – Alignment of StakeholdersStrategic Positioning in the Value ChainShareholding and Management Structure g gProposed StructureProposed Solution - OperationsRationale and Benefits of New Company 19
  20. 20. IV. Business ModelAceh Cocoa Industry ConstraintsCocoa has grown into a major incomestream for smallholders in Pidie over recentyears.However,•Continued growth is affected by inconsistentand poor quality bean production.•Widespread pest infestation (e.g. from thecocoa pod borer) is a major cause of poorcocoa bean quantity and quality.•Despite t i i i iti ti D it training initiatives, th adoption of the d ti fimproved farming and post-harvest methodshas been limited•Farmers are poor and lack access to capital.•The sector suffers from lack of alignment ofinterests amongst various parties. 20
  21. 21. IV. Business Model Demand and Supply Constraints Demand Supply pp y Constraints InertiaDemand Constraints Supply InertiaMulti-national buyers, processors and Farmers would like to receive highermanufacturers want to improve the quality prices for their crops via a direct relationship with buyers – as opposed toand consistency of their raw materials. traders.To achieve this, they need to establish However:closer and more efficient supplier •The market offers little pricerelationships. However, they: Solution: differentiation for higher quality beans.•lack incentives to move their procurement Therefore, smallholder farmers have littleoperations closer t th f ti l to the farmers without ith t Create a incentive to upgrade their production andany guarantee or influence over the company that post-harvest process. •At the same time cocoa bean collectors•face resistance from entrenched local aligns and traders have little incentives totraders. interests upgrade their supply chain 21
  22. 22. IV. Business Model Company s Company’s Strategic Positioning Domestic Production International Production Local Local Regional Collector Exporters Processors Multinational Manufacturers Food Markets MultinationalSmallholder Processors Farmers Multinational Processors Local and Multinational Manufacturers Trader Cosmetic Affiliate Multinational Markets Exporters Traders 22 Legend: Raw Product Processed
  23. 23. IV. Business ModelThe Company p y The brand l Th b d colours th t h that have b been chosen have their own meaning and representation. •Light brown represents cocoa •White emphasizes purity and White peace elementsIn the Acehnese language, •Red represents the community’s p y Kado means ‘A gift’ and richness in culture. Alami means ‘Natural’ 23
  24. 24. Partnership Architecture:Farmer Training and Stakeholder Dialogue Buyers/Investors Partnership $ Buyer Price Signal Donor / Financing Agencies g g Buyer FARMER TRAINING Technical Partnership Assistance Partnership 24
  25. 25. IV. Business Model Company’s Business Model: Alignment of Stakeholders • Maintain close and effective interaction with local government. • Gain development support for the local cocoa industry • Anticipate and mitigate impact on the company arising from potential government action or intervention. Government an Processors • Convince key p y y players that they will y nd• Form effective partnerships with donor NGO / Donor benefit from moving procurement closer agencies agencies and NGOs. Buyers to the supply.• Benefit from their expertise and • Buyers leverage on existing local resources in providing training to networks while minimising opposition smallholder farmers. from local traders. s Local Farmers & Traders • Link farmers and collectors to a ready market, which requires consistency in i supply and quality. l d lit • Provide impetus for farmers to organise themselves at the local level and upgrade their processes. • Empower farmers with the capacity to access and adopt better practices and also to be able to respond to market opportunities. • Allow participation of farmers, collectors and traders at shareholder level. 25
  26. 26. IV. Business Model Proposed Solution – Shareholding & Management StructureThe formation of a for-profit company, Alami Kado PT brings all together key cocoastakeholders (farmers, traders, exporters and end buyers) as shareholders. Alami Kado ProposedProposed Shareholding Structure Shareholding Structure • Alami Kado PT will have four primary shareholders • Exporters and Buyers/ Investors will provide cash for 30% Buyer(s)/ stake each Exporter Investors 30% 30% • Co-op shareholding of 20% is contributed as sweat equity • Collector / Trader shareholding is suggested at 10% cash, Trader, Co-Op, 10% contributed via sweat equity 20% 20% Alami Kado ManagementProposed Management Structure Structure HQ • Management Structure: Alami Kado PT will employ a CEO g p y who will manage the day-to-day operations (including field officers and processing and warehouse). The company will HQ Field Mgmt, have a Board of Directors to advise management. Operations Warehouse Field Mgmt, Processing Centres 26
  27. 27. IV. Business Model Proposed Solution - Company StructureFormation of Alami Kado PT: Aligning interests of all stakeholders Shareholding g Collector / Buyers / y Co-Op C O Exporter E t Structure Trader Investors Operating Company Business Farmer Farmer Bean Storage and Transportation Activities Training and Loans Processing Packaging Services Welfare Aceh Partners NGO Donor Agencies GovernmentStakeholder Objectives in Alami Kado PT Farmer… Collector / Exporter… Buyers / NGO / Donor Aceh Trader… Trader Investors… Investors Agencies… Agencies Government… Government - Receives loans, - Operates buying - Plays key role in - Gains direct - Provides funding - Develop training and units and QC providing access to and/or technical infrastructure for processing cocoa technical suppliers training to processing unit support to grow - Together co-op expertise in farmers, and warehouse p better crops and trader, leads g g designing collectors or and organizes processing units traders farmers and warehouse 27
  28. 28. IV. Business ModelProposed Solution – OperationsAlami Kado PT aims to boost the farmer’s capabilities and generate revenue via the following activities:Company Function p y Description pProcessing, Storage and The company will operate:Packaging - 6 Processing Units, serving approximately 300-400 farmers in the surrounding vicinity with fermentation, drying and sorting services. - 1 centralized Warehouse, to store cocoa beans and ensure the highest quality before shipping th lit b f hi i them t b to buyers.Loans, Finance and Insurance To alleviate farmer’s capital constraints through microloans as well as cropServices and personal insurance options.Trade Facilitation and Marketing Support farmers to sell their goods and promote Aceh cocoa.Technical Assistance and Training Focus training on farmers, collectors and traders in collaboration with key partners. The company will facilitate the provision of these services with the partners.In support of its business aims, the company will operate facilities including:• Processing and collection units• Warehouse• Transportation servicesAlami Kado PT will establish partnerships with key interested parties including the UNDP, Swiss Contact, the Aceh Government and NGO th A h G t d NGOs. 28
  29. 29. IV. Business Model Rationale and benefits of new company1. The company provides a vehicle bringing together the interests of all parties, with direct economic benefits to farmers. farmers2. Farmers gain: • Loans as working capital, critical to enabling their daily cash flow needs. • T h i lt i i Technical training, enabling f bli farmers t f to focus th i efforts their ff t on boosting quality in their cocoa beans. • Direct access to a ready market of international buyers and exporters, providing understanding of their ultimate buyers needs. buyers’ needs • Possible dividend payouts from the company.3. Collectors and traders are acknowledged as crucial to Pidie district’s cocoa production as they enable and can help organise the farmers.4. International buyers and exporters b4 I t ti lb d t benefit f fi from: • Direct links with their supply source, ensuring the desired quality in production process. • Consistent cocoa supply at pre-negotiated prices. • Traceability of cocoa to the original supply source. 29
  30. 30. Section 5:GOVERNANCESTRUCTUREProposed Governance StructureGovernance Obligations and ActionsBoard of DirectorsMemorandum of Understanding 30
  31. 31. V. Governance StructureTo ensure consistent financial performance inIndonesia sIndonesia’s challenging business environment environment,transparent and effective corporate governance isvital.vital 31
  32. 32. V. Proposed Governance Structure:Ensuring Competitive and Consistent PerformanceCorporate Structure Legal Structure Articles of Association Shareholders Ensures fair representation of Shareholders and profit-sharing between all Agreement Transparent and p shareholders accountable Management Ensure implementation of Audit Board of Directors Agreement best management practices Management Team Partners Memorandum of Ensure long-term active Pidie District partnership in the Pidie Understanding Government cocoa value chain Technical Advisors (eg UNDP, Swiss Contact) 32
  33. 33. V. Governance Obligations and Actions:Board of DirectorsObligations Actions• Set S t corporate values t l • A t in b t i t Act i best interests of Alami K d PT t f Al i Kado• Provide strategic direction and management • Attend regular and ad-hoc meetings• Set corporate governance standards as required by the business• Oversee financial reporting • Adhere to company procedures• Ensure l E legal compliance l li • M i t i open flow of information Maintain fl fi f ti• Implement HR best practices • Provide full disclosure of personal - Fair wages interests - Health and safety standards • Maintain diligence and competence - Employee training• Implement risk management and internal controls - Operational - Financial - Environmental - Social• Implement environmental and social best practices 33
  34. 34. V. Proposed Governance Structure:Memoranda of Understanding Partner MOU ensures provision of: • land for warehouse Pidie District • road networks to speed up logistical process Government • other infrastructure Memorandum of Partner Understanding MOU • Provides funding framework Donors provide funding for technical • Defines precise role of technical assistance assistance (e.g. UNDP, USAID, • Identifies opportunities for technological Swiss Contact) improvement and logistical streamlining • Governance oversight 34
  35. 35. Section 6:PRODUCTION AND OPERATIONSFarmers Operation and ProcessCollector ActivitiesProcessing UnitsWarehouseSummary of Transactions in the Supply ChainProductivity Density of Pidie Cocoa AreaNumbering of Processing UnitsSeasonal Distribution of Cocoa HarvestCocoa Harvest AnalysisMost Efficient Transportation Arrangement 35
  36. 36. Farmers Operation Process p Training Wet Bean Cocoa Pod Pod Open for Collectors pick Waiting for Collection Beans up Beans Collection1) Farmers collect pods daily in their respective areas.2) After pods are collected, farmers then open pods to release beans.3) Beans are then spread out for 2 hours or until collectors pick them up up.Total Time: 1 dayFinal Output: Wet and Dry BeansWet Price Farmers get: 17,000 per kg 36
  37. 37. Collector Activities Training $ Beans transport Collectors Farm Gate Farm Gate to Processing Gather Beans Quality Control Record Keeping Units -Size -Farmer ID (Basket Label) -Mold -Weight (25 Kg minimum = -Disease 300 Pods) -Payment1) C ll t Collectors gather b th beans (b th wet and d ) (both t d dry).2) Quality Control for size, mold, and diseases.3) Record keeping for traceability and weight. Transaction happens here if beans pass quality control.4) C ll t Collectors th t then transport the beans to processing units (PU ) t th b t i it (PUs).Total Time: 1 dayFinal Output: Beans and Records 37
  38. 38. Processing Units Owned and Operated by Alami Kado PT (5 – 7 days) (2 – 4 hrs) (5 – 6 days) (5 – 6 hrs) Drying by Purchase Soaking in Solar Dryer Packing & Transport to by Fermentation Water and other Sorting warehouse Company methods1) PU accepts the bean for quality control and the record for accountability Transaction happens here accountability. here.2) Workers place beans in fermentation boxes with identification tags. Ferment for 5 – 7 days with mixing of bean every 2 days.3) Fermented beans are soaked in water for 2 – 4 hours.4) Workers then place soaked beans on solar dryers and other dryers. Drying takes 5-6 days. Solar dryers help minimize mold, maintain temperature, and can be operated in rainy season.5) Workers then sort dry beans to sort for quality and pack them in bags ready to be transported to the warehouse.6) Batches of beans with consistently low quality can be identified for accountability at the farmer level. Total Time: 11 – 14 days Number of Employee: 5 p y Equipments: Fermentation, Drying, Sorting, Packing, Computer 38
  39. 39. Warehouse (One for Company)Owned and Operated by Alami Kado PT $$ Trucks collect dry Quality Control and Storage Sale to Buyers beans from PUs Record Keeping1) Trucks sent to gather bags of dry beans from processing units and return to warehouse.2) Bags unloaded from the trucks for quality control and record keeping (computerized).3) Bags are put into storage facility/warehouse.4) Bags are ready to be shipped to buyers locally and internationally. Transaction happens here.Total Time: 1 – 2 days plus storage time. y p gNumber of Employee: 12Equipments: Trucks, Storage Facility, Computer 39
  40. 40. Summary of Transactions in the Supply Chain Wet Wet Dry Packaged Beans Beans Beans Beans Processing Farmers Collectors Warehouse Buyers $$ $$ Units $$Tiered - 19,500 – 24,000- 30,000 - 32,000 IDRPrice *assumes 9,500 IDR 20,000 25,000 conversion rate USD IDR IDR IDR*Incremental Price 20 25% 20-25% 25 – 28%Increase %I(Value Added) *Price Quotes are subject to market fluctuation, cocoa availability, and other relevant factors that may not be captured in this example. 40
  41. 41. Traceability in the Supply Chain ProcessingFarmers Collectors Warehouse Buyers UnitsBuyers of the d cocoa bB f th dry beans will b able t t ill be bl to trace where th b h the beans came f from at each step t h tof the value chain all the way to the farmer level.Traceability will be implemented through a simple system of:-RRecord k d keeping ( i (paper and computer) d t )- Farmer identification code- Labeling of beans in batches at all levels 41
  42. 42. The Productivity Density of Cocoa AreaBlue shade is Pidie which is the focus( productivity is 2.3K tons /annually); white shade is Pidie Jaya
  43. 43. Processing Unit Location Bandar baru Reubei Glumpang tiga Keumala Tangse GeumpangThere will be 6 P.U with capacity of 250 tonnes each. Two routes will be established; one from p y ; P.U 1 to P.U 4 (55km) and one from P.U 5 to P.U 6 (10km) 43
  44. 44. Warehouse Location New Port Krukuh WPidie Area BireunThe warehouse is strategically based in Bireun district which is 2 hours from Pidie and only 1 hour to the new port Krukuh. It is along the main road from Pidie to Medan. p g 44
  45. 45. Dedicated multi-purpose ALAMI KADOwarehouse • Only one hour to Efficient new port Krukuh transport logistics • Two hours from Pidie Bridge between • One stop service Buyer, B for B f Buyers andd Farmers traders and Coop • Cover Pidie at first stage Accommodate expanding to • Expand to cover other districts Pidie jaya, Bireuen , Aceh utara and Lhoksumawe; Cost • Similar cost as effective Pidie warehousingg Office space 45
  46. 46. Efficient Transportation Solution Seasonal cocoa harvest distribution by monthly percentage thl t 20% 18% 16% 14% 12% We need two 10% trucks for the 8% peak months 6% 4% 2% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecHarvest season varies tremendously every month, Peak harvest (from Nov to Feb) contributes to nearly 69% of annual productivity ;The peak 4 months is the focus of logistic; 46
  47. 47. Section 7:MARKETING STRATEGYTargets and PlanPotential PartnersBranding the Company 47
  48. 48. Marketing ApproachAlami Kado PT– Current landscape provides an optimal scenario for investment and engagement of cocoa industry in Aceh– Alami Kado Pt represents a coordinated approach to realizing the Aceh cocoa market’s immense potential and connecting market participants market s– Value Proposition of Alami Kadoo Qualityo Consistencyo Dependabilityo Traceabilityo Sound Governanceo High Social Impact 48
  49. 49. Marketing Approach •Align potential partner interests to achieve market growthPotential Partners •Highlight relationships in the region to raise profile of the cocoa industry •Engage all parts of the value chain to promote superiorPenetrate product to ultimately benefit the end buyer •Segment target market – local and international buyers •Set the brand of Alami Kado apart as image of enhancedDifferentiation quality, consistency and deliverability •Achieve market share growth 49
  50. 50. Section 8:HUMAN RESOURCESHuman Resources Management TeamHuman Resources – Total StaffOrganisational Chart g 50
  51. 51. Human Resources – Management Team Role Job Description CEO The CEO acts as the public face of the company, and as such engages in PR activities. Within the company structure he acts as a consensus builder between all shareholders. He defines the strategic direction for the company He will give special attention to the company. company’s role in the positive social transformation at the farmer level. He will be responsible for the day-to-day operations and logistics of company facilities. Requirements: We are looking for a person with 5 years of project management experience in Indonesia, preferably in Aceh. He will have had international exposure. The qualified person will be business oriented, able to interact with all stakeholders, and speak fluent Bahasa. The person shall adhere to strict ethical standards. Initial salary: 35 000 USD/year 35,000 USD/year. Finance Manager The finance manager is responsible for budgeting, financial reporting and forecasting. He will ensure the long term financial viability (health) of the company. He will be in charge of profit reinvestments and redistributions. He will help the cooperative with improved access to working capital, recommending the latter to international agencies (e.g. UNDP, Swiss Contact, USAID). He will explore new/other avenues for profit generation. Initial salary: 15 000 USD/year 15,000 USD/year. Field Facilitator/ The Acehnese field officer will act as the intermediary between farmers, collectors , NGO Training Coordinator trainers and the Forestry and Plantations Department. He will deal with bottlenecks on the ground and facilitate between stakeholders. Initial Salary: 10,000 USD/year HR / M k ti M Marketing Manager The primary task of the HR Manager is the recruitment and the retention of Operations staff. He will evaluate the needs for additional recruitment as production increases. In addition, he will be in charge of brand building and the cocoa bean certification process. Finally, he will give back office and administrative support. Requirements: A marketing degree. Initial Salary: 10,000 USD/year.We are an equal opportunity provider 51
  52. 52. Human Resources – Total StaffFacility HR Resources No of Headcount Total Headcount Budget Required Required Facilities Per Facility over all Facilities (per annum, USD) • CEO • Finance Manager • Field Facilitator/ N/A 4 4 $70,000Mgmt Team Training Coordinator • HR / Marketing Manager • Account clerk: 1 (part (part- time) • Processing: 5 (2 QC ($2,595/month forWarehouse officers, 3 store 1 10 10 all 12 employees) x keepers) 1 Warehouse = • Drivers: 2 $31,140 • Guards: 2 • Processing: 3 (of which ($1,120/month forProcessing 1 store-keeper) 6 5 30 all 5 employees) x 6Units • Guards: 2 (working in PUs = shifts) $80,640Total C Company Resources Required 7 44 $181,780 $181 780Additional • Part time Consultant $2,500 / 6 months = assisting in cocoa 1 (Part-time) 1 (Part-time) $15,000Resources brandingTotal Budget Required 45 $196,780 52 *data source: Local Traders, YLP Analysis
  53. 53. Human Resources – Organizational Chart ( (Total Headcount: 45 incl 1 part-time consultant) p ) CEO (1)Headquarters(Total HC: 4) Field Facilitator / HR & Finance Training Marketing Manager (1) Coordinator (1) Mgr (1) Quality ProcessingWarehouse Accounts Control Storekeeper (1) Guards (2) Technician Drivers (2)(Total HC: 10) Clerk (1) Officer (2) (2) StorekeeperProcessing (1)Units (5resources perunit x 6 Units Processing= Total HC: 30) Technicians Guards (2) (2) 53
  54. 54. Section 9:COMMUNITY BENEFITSProgram Targets, Activities and ImpactDemonstration Plot - ConceptImplementation of Demonstration PlotsBest PracticesCommunicationFarmer Field SchoolTraining ScheduleSocial Benefits 54
  55. 55. Programme Targets, Activities & Impacts• The Community Programme is designed to support p p pp proposed Business Model with 3 key y initiatives which are the demonstration plot, farmer field school and communication outreach• The key 3 initiatives will bring the community together so as to, increase the level of productivity and awareness. Most importantly, importantly the increase in productivity will also improve per capita farmer income by more than 3 times over the period of 5 years• To maintain a sustainable industry it is vital to incentivise the farmers, the first link in the chain. This is best achieved by ensuring improved income per capita 55
  56. 56. Demonstration Plot - Concept• A commitment to improved quality & productivity through sustainable farming practices• A facility that demonstrates best practice and invests in expanding the knowledge of local farmers to realise greater revenue• A training ground that can also be used for research and analysis• A concept that can be easily replicated to complement/support the processing units• The demonstration plot is also a place for investors to visit and view the process 56
  57. 57. Demonstration Plot – Concept – The location is an important consideration – Our recommendation is to use an existing farm which is 1 hectare – In selecting the farm, a collective decision from the community should be made to y avoid any negative sentiment issues – The farmer will be given the necessary training and assistance to develop his land. – The farmer will draw a minimum monthly wage – The demonstration plot will be funded through the partners of Alami Kado – Our partners will have the responsibility of p p y coordinating and monitoring the demonstration plot as part of a planned programme 57
  58. 58. Best Practice• Farming Practices to be implementedStudies show that majority of farms in the Pidie district don’t use basic farming techniques and thedemonstration plot will implement the following practices -Frequent Harvesting -Prunning -Sanitation of pod husk -Fertilization -Bio-Control -Side Grafting g• Cash Crops – Farmers operating demonstration plots will be trained in the farming of additional crops adding to resources for food, security and income stability ddi t f f d it di t bilit 58
  59. 59. Best PracticesImproving the harvest cycle • The weakness of harvest pattern in Pidie is due to the fact that peak harvest takes l t k place d i th wet season i N during the t in November and D b d December b • Good cocoa pruning techniques lead to a more conducive harvest pattern, with regards to seasonality, thereby reducing the rate of mouldy beans • Availability of cocoa bean dryers is important to the p y y p process • Ensuring the consistency in supply Best practices lead to a positive change in harvest season 59
  60. 60. Demonstration PlotsFinancial Requirements The effectiveness of a demonstration plot leads to a potential of 400kg of increased cocoa production per hectare per year (based on a study that was done in Sulawesi by the Sustainable Cocoa Enterprise Solutions for Smallholders (SUCCESS) Alliance – Indonesia) 60
  61. 61. Connectivity and Traceability• Connecting the farmers through a visible and disciplined process is key to bringing the change in mindset required. – Implement a registration system, connecting farmers to the warehouse to ensure traceability – Each farmer receives an identification card, capturing information on quality, quantity q antit and consistenc of prod ction consistency production – This system will also provide visibility to the payment process, including payment of training – Regular communication updates via SMS to farmers on initiatives such as training dates, outcomes of training and updates on pricing 61
  62. 62. Farmer Field School Concept• A 3-year Farmer Field Schools (FFS) programme to be implemented by trainers from three sources: – Farmers from the community of Pidie – Employees of Dinas Perkebunan (DISBUN) – Employees of local agencies• The FFS co cep teaches farmers e S concept eac es a e s through practice, on-farm observation and farmer led research.• The Training of Trainers (TOT) approach will be applied and each session will have a class size of 50 trainees. The Trainers are then expected to train 20 farmers in a year. y• Farmer teachers are initially schooled on their own plot, then paid monthly when they begin training others.• Farmers will receive accreditation upon completion of training. 62
  63. 63. ImplementationLocation: To ensure engagement and connectivity, training locations will be identified g g y, g collectively by the Training Coordinator, farmers, community leaders and staff from DISBUN.The curriculum/modules: The modules will prioritize areas of importance that would increase productivity level in a consistent manner. Core to the module will be the knowledge to combat the Cocoa Pod Borer (CPB) pest by using the PsPSP, a low cost low input cultural method for controlling the CPB and other pests cost, as well as for increasing tree productivity.Record: Participants will receive one logbook to write all business activities. This is an exercise in record keeping on a day-to-day basis that would enable farmers to obtain actual data on their activities to provide a tool for comparison, analysis, reflection and improvement of future business activities. acti ities 63
  64. 64. Training ScheduleActivity Duration Participants Training coordinator community coordinator,Identification of location 1 day leader, farmers, staff from DISBUNprogramme socialization i.e problem and solution Training coordinator, farmers, 1 dayanalysis staff from DISBUNImplementation of FFS modulesa. Basic ecosystem & ecological farmingb. Cocoa Pod Bearer lifecyclec.c Fertilizationd. Sanitatione. Pruning Training coordinator, farmers, 6 monthsf. Side grafting staff from DISBUN (12-16g. Standardization & quality of beans meetings)h. Cashh C h crops t generate i to t incomei. Usage of logbookTotal number of trained / skilled farmers by Year 3 = about 4,000 farmers 64
  65. 65. Social ImpactsImprovements in Income and Livelihood• Improvement of income level for farmers due to productivity increase.• Livelihoods increased with education and training. g• Community model leads to further communication and conflict resolution that has impacted Aceh for some time.• Encouragement of women to take leadership roles as farmer teachers and students. 65
  66. 66. Environmental BenefitsEnvironmental• Best practice leads to/promotes sustainable farming.• Solar cocoa bean dryers allow for sustainable energy production. 66
  67. 67. Section 10:FINANCIAL ANALYSISFarmers’ Income (Pidie Area)Company Operating IncomeCompany Operating CostsCompany Net IncomeWorking Capital and InvestmentsBalance Sheet 67
  68. 68. Growth in Farmers Income Per Capita(Pidie District) Current Y1 Y2 Y3 Y4 Y5Total Number of Hectares in Pidie Area 2,741 2,741 2,741 2,741 3,507 4,272Total Production (kg) 2,362,000 2 362 000 2,755,667 2 755 667 3,149,333 3 149 333 3,543,000 3 543 000 4,596,320 4 596 320 5,796,231 5 796 231Cost of Good Sold (mm Rupiah) 28,344 35,066 43,762 53,762 76,162 104,880Sales (mm Rupiah) 39,579 52,169 67,045 83,236 117,306 162,197Net Income (mm Rupiah) 11,235 17,103 23,283 29,474 41,144 57,317Net Income per Capita (USD) 302 460 626 792 865 989 Farmers Income Per Capita (USD) 1,000 800 600 989 400 792 865 626 200 460 302 - Current Y1 Y2 Y3 Y4 Y5 Business with Direct Farmer Participation 68
  69. 69. Company Operating Income Projection y g j (Rupiah mm) Y1 Y2 Y3 Y4 Y5 Commission Income from Sales 1,679 2,303 2,850 4,546 7,340 Interest Income from Loans to Farmers 303 473 629 928 1,277 Total Operating Income 1,982 2,776 3,479 5,473 8,618 Revenue (Rupiah mm)10,000 Key Revenues for Company: 8,000 Processing 6,000 Trading 4,000 Co-financing Co financing working capital 2,000 for farmers - Y1 Y2 Y3 Y4 Y5 Commission Income Interest Income 69
  70. 70. Company Operating Cost Projection y g j Rupiah mm Y1 Y2 Y3 Y4 Y5 Salary and Wages y g 1,727 , 1,886 , 2,059 , 2,249 , 2,456 , Farmer training costs 342 6,840 6,840 - - Legal fees 238 - - - - Consultancy for brand building 143 285 285 - - Miscellanous 257 280 306 334 365 Office Offi expenses, including rental i l di l 14 16 17 19 20 Cost of running demonstration centre 3 3 3 3 4 Total Operating Costs 2,722 9,309 9,510 2,605 2,844 Operating Costs (Rupiah mm) 10,000 10 000 8,000 6,000 4,000 2,000 - Y1 Y2 Y3 Y4 Y5 Salary and Wages Farmer training costs Legal fees Others 70
  71. 71. Company Net Income Projection y j Y1 Y2 Y3 Y4 Y5Net Income (mm Rupiah) -909 -6,726 -6,255 2,582 5,426Net Income (USD 000) -96 -708 -658 272 571 Net Income (USD 000) 800 600 400 200 - -200 Y1 Y2 Y3 Y4 Y5 -400 -600 -800 800 71
  72. 72. Funding Requirements and Structure g Funding RequirementsRupiahs mm Y1 Y2 Y3 Y4 Y5Total Capital Expenditure 636 - - - -Profit after tax -909 -6,726 -6,255 2,582 5,426Depreciation 127 127 127 127 127Net operating profit -782 -6,599 -6,128 2,709 5,553Increased in working capital 1,130 577 618 1,383 2,279Capital Adequacy for Working Cap Lending Business 1,262 707 3,113 6,317 6,031Total Funds Required 3,810 7,883 9,858 4,991 2,757Peak Funds Requirements (mm Rupiah) 21,552Peak Funds Requirements (USD 000) 2,269 2 269 Proposed Funding StructureUSD Thousands ShareGrants (UNDP / Government / USAID / Other Agencies) 1,509 Capital 33%Balance Share Capital 760 Buyers / Investors 30% Exporters 30% Farmers Coop 20% Collectors 20% Grants 67%
  73. 73. Company Balance Sheet yRupiahs mm Y1 Y2 Y3 Y4 Y5Cash 17,741 9,858 2,663 3,209 5,276Inventory 507 774 1,064 1,698 2,741Receivables 623 933 1,261 2,010 3,246Short-termShort term loans to farmers 4,208 4 208 6,564 6 564 9,677 9 677 15,994 15 994 22,025 22 025Total Current Assets 23,079 18,130 14,665 22,911 33,289PP&E, net 509 382 254 127 -Total Assets 23,588 18,511 14,919 23,038 33,289Share Capital 7,218 7,218 7,218 7,218 7,218Grants 14,334 14,334 14,334 14,334 14,334Short term debt for lending 2,946 4,595 7,258 12,795 17,620Accummulated Reserve -909 -7,635 -13,890 -11,309 -5,883Total Liabilities & Equity 23,588 18,511 14,919 23,038 33,289 73
  74. 74. EXIT STRATEGY• The business is profitable in year 4 onwards f• A profitable and financially stable company is likely to attract good valuation based on future y g cash flows• Farmers, Cooperative, Traders and Buyers are long term stakeholders, who could consider stakeholders buying out “exiting investors”• New investors could replace “exiting investor” Profits with Social Impact 74
  76. 76. Risk MitigationRisk Implication Mitigation Measures Risk Level Farmers’  lack of  F ’ l k f L Low‐quality beans and  li b d •T i i Training programs for farmers with financial  f f i h fi i l education in proper  unsecure supplies compensation for time opportunity cost cultivation and harvesting  • Cooperatives dividends used to invest in  techniques training, creating continuous improvement  H cycle of harvestsProduction riskProd ction • Quality control and traceability through all  Quality control and traceability through all levels (collectors’ level, process units and  warehouse) Quality control in  Loss of quality and  • Strategic location of processing units close to  transportation and  quantity, such as  farmgate (10 kilometer radius) M storage beans going moldy beans going moldy • Standardized warehouse management for Standardized warehouse management for  quality control  Cocoa price volatility  Fluctuation in profits • Alternative revenue streams throughMarket risk complimentary agriculture practices taught M through the training modules Potential conflict of  Inefficient decision  • Clear decision making procedures in theGovernance interest between  making Management and Shareholders’ Agreement torisk stakeholders ensure open flow of information, transparency H and efficiency Non performing Non‐performing loans Negatively impact on Negatively impact on • Apply stringent approval process Apply stringent approval processFinance risk Profit & Loss account • Restructure loan to become performing  L loans 76
  77. 77. Section 12:IMPLEMENTATION PLANShort Term ImplementationMid-Long Term Implementation 77
  78. 78. Mid-Long Term Implementation Midterm Long Term Year 2 Y Year 3 Y Year 4 Y Year 5 YGovernance Independent financial auditing Directors responsible for corporate governanceHuman Continue to recruit people to address operational requirements as volume increasesResourceProduction/ Continue to Increase Development and expansion of processing units coordinate with equipment at and collection centersOperations farmers to plant Processing seedlings to cover Facilities and unused land Warehouse to cover increased productivityMarket Continue to enhance market presence Work ith ffili t W k with affiliates on continuous efforts to promote Aceh cocoa ti ff t t t A hPresenceCommunity Local Agencies to continue the training program 78
  79. 79. Short Term Implementation Short Term 1-6 months 6-12 monthsGovernance Setup a company in Indonesia Directors responsible for corporate governance Establish Board of Directors, which is accountable to the shareholders. Obtain government approval. Prepare and sign legal documentsHuman Resource Identify and employ management team (4) Coordinate current field workers for operations process (hire 16) Recruit operations teamProduction/ Setup processing units and collection centers Coordinate with farmers to plant seedlings to Coordinate with collectors to guarantee supply cover unused landOperations to the Processing UnitMarket Presence Build communication with local and Enhance market presence of high quality Aceh international buyers cocoaCommunity Set up the demonstration plots Local Agencies to set up farmer schools and start the training program 79
  80. 80. Section 13:CONCLUSION 80
  81. 81. Conclusion• Aceh is open for business.• We W propose a unique corporate structure for the agricultural sector that is i t t t f th i lt l t th t i commercially focused, yet works in favor of improving farmer livelihoods.• The key success factors are: • The Th creation of a business model th t b i ti f b i d l that brings t together f th farmers and collectors d ll t with exporters and international buyers/investors. • The share holder mix aligns the interests of all parties to build a financially viable and socially responsible company. • Improvements to ensure consistent supply and improved quantity th I t t i t t l di d tit through: h - Strategic partnerships to ensure farmers acquire the skill-sets through training and education, - Access to working capital for farmers - Al i K d Pt proactively strengthening th cocoa value chain. Alami Kado Pt. ti l t th i the l h i • The precondition for farmers to organize themselves, which will ensure exporters and international buyers/investors closer procurement to the source of supply (ie. Smallholder farmers).• The model is replicable and modular, creating business opportunities for scaling up operations, and including other districts. 81
  82. 82. Section 14:APPENDIX 82
  83. 83. Thank you If you are interested in this investment opportunity, please contact Chandran Nair at GIFT at ( (852) 3571 8103 or ) @g 83
  84. 84. List of Participants Marcella Cheung g Emilia Rahman Noor Azmi Ibrahim Fazul Ikmar Som Norshahzan Halin Bob Van Damme Yanyang He y g Siwat Vilassakdanont Sanjay Jain Xiaojuan Wang Jack Liu Becky Yang Xinru Mo Amanda Yik Cindy Rafanelli Anna Young Chaow Chiun Ong Hong Zheng 84