Small scale agro-enterprises provide opportunities for income generation: sweetpotato flour in East Java, IndonesiaAccepted August 1997
Dai Peters1 and Chris Wheatley2The International Potato Center TABLE OF CONTENTS:
Introduction 1. Research Objectives 2. Research Methods 3. Results and Discussion 4. Conclusions Summary References Rural development is frequently limited to the identification of problems/needs, and their resolution/satisfaction. The identification and realization of relevant opportunities is often neglected, potentially leading to misallocation of resources (Chambers, 1993). Rural poverty can be seen as a problem, but also as an opportunity for income generation. Small scale enterprises that process primary agricultural products offer rural households a means of adding value to their crops, of diversifying markets, and more importantly, of generating higher income. For example, Grabowski (1995) argues that rural nonagricultural activities led to farmer innovation, increased agricultural productivity, growth in the size of the domestic market, and consequently to economic development in Europe, Japan, Taiwan, and Korea. Park and Johnston (1995) also attribute the development success in Taiwan to higher rural incomes which generated market demand and increased available funds for education and health, and capital for rural enterprises, all of which contributed to the development of the country. Root crops offer much potential for rural income generation through small scale processing (Wheatley et al., 1996), as they are efficient producers of carbohydrate, capable of transformation using low cost technologies into stable intermediate goods (starch and flour), that are suitable for diverse markets in the food and feed industries. Cassava is processed into many traditional products on all continents, while more recently becoming a raw material for the food industry in several developing countries (e.g., Indonesia, Brazil, Thailand). Projects aimed at introducing cassava processing to communities which knew only fresh root consumption have been successful in Latin America, where benefits to cassava producers, processors and even consumers have been documented (Best et al., 1991; Henry, 1992). Sweetpotato, as the second most important tropical root crop after cassava, is also processed into starch in China, mostly within household enterprises (Marter and Timmins, 1992). In Sichuan, China small scale process innovations have diffused rapidly through sweetpotato starch processing households, increasing both efficiency and income generation potential (Wheatley et al., in press). In Indonesia, sweetpotato is a major root crop but is not processed on a significant scale (Gunawan, 1996). Besides some snack and street food production, and some sales to larger scale sauce producers, the bulk of the crop is consumed fresh. However, per capita fresh consumption generally declines as income and urbanization increase, both strong current tends in Indonesia (Gunawan, 1996). Farmer field schools for sweetpotato production in Central and East Java report increased fresh root price fluctuations in recent years (Braun, pers com.), and farmers are now interested in market diversification for sweetpotato (Braun et al., 1995). Although sweetpotato roots can be processed into many products (Woolfe, 1992), in any given location the range is much more restricted. Wheatley et al. (1996) proposed a methodology for selection of viable opportunities for small scale processing. This was applied to the sweetpotato production regions of East and Central Java, resulting in the selection of three sweetpotato production areas as potential piloting sites for new enterprises. Sweetpotato flour was shown to be the best opportunity for new product introduction (sweetpotato starch would face strong competition from cassava starch, which is inexpensive and widely available, and snack foods made from fresh roots have limited market potential). Sweetpotato flour has potential markets in both bakery and noodle sectors of the food industry, at both small and medium scales. Rising national wheat flour prices since 1994 have started to impact on Indonesia's flour users; national flour prices are controlled, but rose 40% between April and January 1997, to reach rupiah (Rp) 850 to 9503 (US$ 0.37 - 0.43) kg-1 at the retail price, depending on the region. As subsidies are lifted, a trend towards higher real wheat flour prices in Indonesia can be expected. The present study reports the results of an in-depth participatory assessment of the
feasibility of establishing a household-level sweetpotato flour processing enterprise in
East Java, through a synthesis of information on sweetpotato production, processing, and
market potential. For any enterprise to be feasible, all actors involved--sweetpotato
producers, flour processors, businesses using flour and final consumers--should benefit
from the innovation. In this case, sweetpotato producers could benefit through more
diversified markets, reduced price fluctuations, and increased household income, flour
users could profit from decreased production costs and potential for increased sales
volumes, and final consumers could reap cheaper end products. It is possible that
sweetpotato production and processing into flour could occur within the same household,
but for the purposes of this study, the two activities are considered as separate
enterprises. Finally, there is a potential national benefit through reduced imports of
wheat flour. In addition to application of the results to East Java, the approach taken
may be of relevance to other countries, notably Kenya and Uganda, where potential for
small scale sweetpotato flour production has been identified as a processing alternative
for both traditional diets and as a food industry raw material (Gakonyo, 1992; Hagenimana
and Owori, 1996; Hagenimana et al., 1995; Omosa, 1994) but where "no
information could be obtained on the viability of processing sweetpotato into flour and
its marketing at the present stage" (Fleischer, 1996; p. 15). Return to Table of ContentsThe goal of the research in East Java was to determine the feasibility of small scale sweetpotato flour production for the market, through an understanding of the existing sweetpotato food system (production and market components/links) and other potential components resulting from the introduction of processing (sweetpotato flour production, marketing and utilization). The specific research objectives aimed to:
Return to Table of Contents
Primary data collection and participatory trials were conducted during June-July 1996. Data on crop production were collected using a survey instrument, processing costs and flour quality were established by on-farm sweetpotato processing trials, while market interest in sweetpotato flour (quality and price demand) was identified by another survey instrument and trials with flour-users. Return to Table of ContentsThree villages (Kenongo, Togokan, and Widorokandang), one from each district, were further selected for study. Between 74 and 97 households in each village were sampled for the crop production survey, depending on the size of the village4. In each village, 35-50% of all households cultivate their own land while the landless either rent or sharecrop. Both landed and landless farmers were included in the samples5. However, not all households cultivate all crop types; therefore, the sample size for the production survey of each crop type varied (Table 1; see library). Return to Table of ContentsReturn to Table of ContentsReturn to Table of Contents2.4 Trials with flour-users Return to Table of Contents
The results from crop production surveys provided information on production costs and yields as well as income per hectare for sweetpotato and other alternative crops. The processing trials resulted in a calculation of the variable processing costs for flour production from the fresh roots, based on labor costs and fresh root:flour conversion rates. Flour trials with users yielded data on the prices that they were willing to pay for the product. The final analysis integrates production, processing, and marketing aspects of sweetpotato flour production to determine the feasibility of producing sweet potato flour. Return to Table of Contents3.1 General characteristics of the three villages The calculation of competitive prices was complicated by the sweetpotato sales method in each village. In Togokan, sweetpotato, along with maize and peanuts, was sold by the tobasan system, in which sweetpotato is sold while still in the ground before harvest. In this system, the local collectors sample one or two plants in any particular field, estimate the tonnage one might harvest from that field, and offer a price for that specific field. Consequently, during the study neither the collector nor the producer knew the exact production, yield, or unit price of sweetpotatos from the local fields. The only known variables were area under cultivation and the total sales price for the roots from this area, from which prices could be calculated for various attainable yields. Thus, in order to compare the profit of sweetpotato with other crops, a sensitivity analysis was performed. Migration affected the labor cost for sweetpotato flour processing. The high migration rate in Togokan (to Malaysia, Hong Kong, and Saudi Arabia) has resulted in an aging farming population (average age in Togokan is 52), a labor shortage in the area, and an increase in the cost of agricultural labor (Rp 667/hour, derived from Rp 4,000 for 6 hours of work) In contrast, Kenongo had little out-migration. There, surplus labor has resulted in low agricultural labor costs of Rp 350/hr (Rp 1,750 for 5 hours of work); in the few factories, these costs are as low as Rp 8,000/week. These differences were taken into account for calculating processing costs for each village. Return to Table of Contents3.2 Crop production costs: fresh roots The price fluctuations in Togokan in the past 10 years, based on the memory of two local sweetpotato collectors, indicate that serious price fluctuation is a relatively new phenomenon, beginning in 1993 (Figure 1; see library). The implication of such fluctuations for processing is that it keeps farmers from committing to a steady sales price to processors; farmers would only be interested in selling to processors when fresh root prices are low. Relative to the other two villages, the profits for all crops in Widorokandang were low. Sweetpotato, at current prices, could not compete with maize, rice, or vegetables7. However, this was partly due to a weevil infestation that plagued Widorokandang in 1995. Even though the average sweetpotato yield in 1995 was 16 ton/ha., the average annual yield in Widorokandang reaches 23 ton/ha. Due to the serious loss of profit in 1995, sweetpotato planting area was reduced by 68% in 1996 (Table 3; see library), resulting in the relatively high price of 1996, which reached Rp 225/kg prior to the peak season. It is worth noting that the costs of sweetpotato production for those who rent land is extraordinarily high (Rp 1,131,396/ha in 1995), which results in exceedingly low profitability for all crops, especially sweetpotato (Table 4; see library). Overall, sweetpotato would require a much higher price (or a higher yield) in order to compete effectively with rice, maize, and vegetable crops in Widorokandang. The findings in Kenongo portrayed a different situation. There, sweetpotato was already the most profitable crop, except for the six households that grew sweetpotato on rented land. The 1995 sweetpotato prices in Kenongo averaged only Rp 60/kg, which was considerably lower than those in Togokan or Widorokandang. The profitability was the result of the high yield of 29 ton/ha (Table 3; see library). Even with such a high profit, sweetpotato planting area was reduced by 67% in 1996 (Table 3; see library), suggesting an even higher profit margin during a normal season. The above findings suggested that a sensitivity analysis for Togokan and Widorokandang was needed to determine the threshold prices at which the profit of sweetpotato production might compete with the alternative crops. The prices necessary for sweetpotato to compete with other crops at various potential yields for Togokan and Widorokandang are presented in Tables 5 & 6 (see library). The 1995 sweetpotato price and the competitive threshold prices were calculated using the data in Table 4 (see library) as follows (all sweetpotato (SP) yields expressed in tons): 1995 sweetpotato fresh root price---------Rp/kg=(SP per ha gross income
: SP yield) : 1,000 kg As the sweetpotato price and the competitive prices naturally decrease with yield increases, it was important to estimate the approximate yields. Three collectors in Togokan estimated that 20 ton/ha would be considered a good yield while 15-20 ton/ha would represent an average yield. For the renters and sharecroppers, at yield=15 tons, the sweetpotato price would have to be at least Rp96/kg (Rp384/kg root price for processing flour) and Rp132/kg (Rp529/kg root price for processing flour) to compete with maize and rice, respectively. For those who cultivate their own land, the price would have to be Rp108/kg, Rp128/kg, and Rp120/kg to compete with maize, rice, and peanut, respectively. The fresh root cost decreases as yield increases. For example, if yield=20 tons, the fresh root price for those who cultivate their own land would be only Rp81/kg in order to compete successfully with maize (Table 5; see library). Sweetpotato yield in Widorokandang, as mentioned earlier, generally reaches 23 ton/ha, even though the average yield in 1995 was only 16 ton/ha, due to weevil attack. For those who rent land or sharecrop, at yield=20 tons, the fresh root price would have to be Rp99/kg (Rp396/kg root price for processing flour), and Rp85/kg (Rp339/kg root price for processing flour) in order to compete with maize and rice, respectively. For those who cultivate their own land, sweetpotato was more profitable than maize at its current price of Rp70/kg. In other words, the fresh root price could be as low as Rp63/kg and still be competitive with maize, but the fresh root price would have to be Rp76/kg (Rp303/kg root price for processing flour) in order to compete with rice (Table 6; see library). This sensitivity analysis was not necessary for Kenongo since sweetpotato was already the most profitable crop at current prices: the average sweetpotato price (Rp60/kg) in 1995 was sufficient to justify growing sweetpotato over the alternative crops (Table 4; see library). Return to Table of Contents3.3 Processing costs Processing costs for the three villages were calculated from these and other on-farm trials (Table 8; see library). The costs presented here are based on the best possible scenario: using a shredder instead of a hand-held grater (estimated from data supplied by an entrepreneur who experimented with a shredder), paying the lowest possible wages, using a press to speed up drying, and using a fine 0.5 mm sieve to avoid hand sifting. Based on these assumptions and the trial data, the analysis indicates that it costs Rp508 in Togokan, Rp364 in Widorokandang, and Rp156 in Kenongo to process one kg of flour on farm (Table 8; see library). The wage discrepancy among the three villages account for most of the drastic differences in processing costs. Return to Table of Contents3.4 Marketing In most cases of the participatory trial, the flour-users required that product appearance remain unchanged (i.e., sweetpotato flour should be as white as wheat flour). This was especially critical for the noodle factories, which were not flexible in promoting new products. In addition, the level of noodle factory interest varied with the size of the factory, since their daily production volume affected the level of potential savings. For example, a small noodle factory owner in Blitar, after experimentation with 25% sweetpotato flour substitution, was only willing to pay Rp200-300 kg-1 for the flour (in June 1996, the wheat flour price was Rp750). The potential daily savings for this small factory, at 25% substitution, would only amount to Rp11,625 ($5.00), if the savings per kilo of sweetpotato flour is Rp250 (Table 10; see library). A large noodle factory using 6 tons of flour per day, however, would save Rp375,000 ($160) per day if the price was 25% cheaper. Thus, to justify the effort needed to change raw materials, a small factory would need a substantial price discount on sweetpotato flour. In July 1996, during the time of the market study, most interested users stated that a sweetpotato flour price 25-30% lower than the wheat flour price (approximately Rp560 to Rp600) would be acceptable. If the wheat flour price increases to Rp900, it may be assumed that the acceptable sweetpotato flour price to users would increase, but perhaps not quite to the extent of Rp675 (25% lower than wheat). Return to Table of Contents3.5 Synthesis of production, processing, and marketing
survey results Economic feasibility of sweetpotato flour production must take the concept of sustainability into consideration. This means that feasibility must be established by a persistent and acceptable profit gained from the difference between the potential market price and the costs (fresh root + processing ) of producing the flour. Therefore, the potential profits under a variety of fresh root prices were examined. The various prices taken into consideration were: 1) the prices at which farmers were willing to sell the roots (obtained by survey), 2) the prices at which sweetpotato would be competitive with rice and maize (see Tables 5 and 6 in library), and 3) for Togokan, the lowest and highest sweetpotato prices during the past 10 years (see Figure 1 in library). Total costs of producing a kilo of sweetpotato flour were the sum of these various fresh root prices with the fixed processing costs calculated from the trials (see Table 8 in library). Potential profits from sweetpotato flour were derived by subtracting costs of producing a kilo of flour from the market price of the flour (Table 12; see library). The analysis shows that Kenongo, where both the processing cost and fresh root prices (1995 price and farmers' demanded price) are relatively low, has the potential to turn a profit, especially if the market price rises to Rp650 kg-1 (Table 12; see library). High processing cost in Togokan makes sweetpotato flour processing unprofitable at all fresh root prices. In Widorokandang, only the farmer who cultivates his own land can make sweetpotato marginally competitive with other crops, and then only if sweetpotato yield reaches 25 ton/ha or more (Table 12; see library). This marginal competitiveness, combined with the technical difficulty--the harvest time coincides with the rainy season--makes the feasibility of sweetpotato flour in Widorokandang unlikely. Return to Table of Contents3.6 Sociological and agronomic opportunities for processing in
Kenongo The extensive irrigation and drainage system in Kenongo allows for any cropping
pattern: sweetpotato may be planted and harvested at any time, regardless of the season.
This possibility of continuous sweetpotato harvesting puts Kenongo in a position where
fresh root prices fluctuate constantly. For example, during June 1995, prices ranged from
Rp30 to Rp160 kg-1, while in October they ranged from
Rp20 to Rp170 kg-1. (Figure 2;see library).
Prices fluctuate daily, so fixing the harvest date is a speculative decision. However,
this price volatility ensures a year-round supply of relatively cheap sweetpotatoes. The
cheapest price seen in Kenongo, revealed by the village head, was in 1993 when he sold
12.5 tons for Rp40,000, an equivalent of Rp3.2 kg-1. All
these agronomic and sociological factors point to a positive opportunity for sweetpotato
flour processing. Return to Table of Contents
The goal of this study was to determine the feasibility of increasing rural income through agro-processing enterprises in three districts in East Java. The results have broader global implications for African and other Asian sweetpotato producing areas. The study found that Kenongo, located close to a large city but isolated from any alternative income-generating activities, may be well suited, economically, sociologically, and agronomically, to benefit from small sweetpotato flour enterprises. This finding coincides with the experience in Vietnam where sweetpotato starch processing is most attractive in districts which combine proximity to a large urban market with a paucity of local non-farm employment opportunities (Wheatley, 1996). However, this study has clearly identified two technical concerns that need to be addressed before sweetpotato flour processing can be considered feasible from the production and processing perspective: (a) the browning effect during processing (only one of the three trials in Kenongo yielded white flour), and (b) the unexpectedly low conversion rate. The former adversely affects flour color, reducing market acceptability, while the latter reduces the economic benefits from flour processing (Table 14; see library). Based on the findings of this study, follow-up technical research has been designed to address the issues of flour color and conversion rate. To improve flour color, treatments involving peeling, more extended soaking of shreds prior to drying, use of sulfite and citrate additives during soaking, and a locally-made press for rapid dewatering of shreds, will be evaluated. This follow-up research will involve participation of the women in Kenongo. In addition, a wider range of local varieties will be screened for whiteness and root:flour conversion rates. The feasibility of sweetpotato processing cannot be adequately determined until this follow-up research has been completed and analyzed. This study, linking production and processing with marketing, has identified the necessary sociological, agronomic, and economic environment for income generation through sweetpotato flour processing. Moreover, it has identified two technical areas of research which need to be resolved before feasibility can be usefully determined. These findings are relevant to East Java as well as to other sweetpotato producing, and wheat importing, areas for establishing sweetpotato-based agro-processing enterprises. In addition, sweetpotato flour processing has the potential to decrease ever-increasing wheat imports in Indonesia (Table 15; see library). At a 5% substitution rate, the potential savings from Indonesian wheat import reductions would be US$ 40,000,000 (203,000,000 metric tons), based on the 1995 import volume and value (Table 15; see library). It is clear that the small-scale marketing and processing trials employed in this
study, which were fast and inexpensive to conduct, provided excellent quantitative and
qualitative information. These trials were not only useful in identifying technical issues
for resolution, but also in stimulating awareness of potential sweetpotato processing
opportunities through the involvement of the local women's groups. This could make the
establishment of future pilot enterprises an easier task, if justified. The methodology
developed in this study may also be adapted to the conduct of most agricultural processing
research concerned with linking production, processing, marketing, and technical
considerations. Return to Table of Contents
Sweetpotato processing was identified as a potential value-adding agro-enterprise to
increase rural income in East Java, Indonesia. A pre-feasibility study was conducted,
linking sweetpotato production with processing and marketing. Data were collected on
sweetpotato production-calendar, costs, prices, and profits-to determine fresh root prices
at which sweetpotato would be competitive with alternative crops (rice, maize, and
peanuts). Participatory processing trials were conducted with farmers to determine labor
inputs and processing costs, and identify the problems and opportunities associated with
the processing procedures. Sweetpotato flour was used in trials of products (noodles,
bread, cake, and various snacks) with flour-using enterprises, helping to identify the
flour quality required by users, substitution rates, and the prices users are willing to
pay for the flour. A synthesis of results from these production, processing, and marketing
studies indicated that Kenongo village in Malang district had the greatest potential to
profit from such an enterprise. Investigations into the sociological and agronomic aspects
of the village further confirmed this possibility. However, the study also identified two
technical considerations-flour color (browning during processing) and fresh root:flour
conversion rate-that need to be addressed before pilot flour production can be justified.
Based on these findings, follow-up technical research on control of browning during
processing and conversion rate enhancement was recommended for Kenongo, involving a local
women's group. |
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