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Some supermarkets and specialized retail stores requires certification for organic products. However, there is no requirement for fully organic system certification; chemical
residue test from a certified laboratory is sufficient residue test for imidakloprid, cypererhin, diazinon, etc. Most of farmers and suppliers get their samples tested at Agro Chemical
Lab, West Java Agricultural Office in Lembang and Sucofindo Lab in Bandung. Organic system certification is only required for export.
In concentrated horticulture zones, the study estimates 5-10 per cent of small vegetable farmers are starting to participate in sales to the modern retail market channels,
mainly via the new suppliers mentioned above and a few groups directly. Very few of them have their product certified for chemical residue. This condition shows a low penetration of
the modern market restructuring in to the farmer’s level. Interestingly, the farmers participating in the new channel are small farmers – but they are the upper stratum of small
farmers in terms of education, landholdings, and capital. Some of them already invested in irrigation tanks and green houses. Their profit rates are also 10-30 per cent higher than
farmers in the traditional channels. Even more, farmers with free chemical residue certification received 50-100 per cent higher profit than traditional channel.
3.6 Value chain analysis: value added through certification
To clearly see the impact of certification to farmers, we will compare three value chains, traditional market channel, modern market channel without and with certification. To
make the analysis simple, we will apply the exercise to tomatoes only. The analyses show that the chain to supermarket with certification created the highest total value added in
which the specialized supermarket wholesaler creates the highest value added. In contrast, the supply chain to a traditional market creates the lowest value added where the traditional
retailer creates the highest value added. The following is an analysis of value chain of each channel.
3.6.1 Value chain of traditional market channel
Rural collector bought harvest from farmer in the field without grading. Collector then transports the harvest and sells to a wholesaler at his packing house. The wholesaler
performs sorting, grading and packaging. The trader from the retail market buys a mix ABC grade in a box at the wholesale market. He then loads-unloads, stores and sells in the
traditional retail market in Jakarta. Only few post harvest function performs in this chain. The total chain cost is Rp
1,281-1,597 per kg. The traditional retailer spent 12.2 per cent of the cost mostly for loading
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unloading, transport, weighing, and commission. The chain creates value added at Rp 1,800-1,900 per kg which 41.4 per cent is received by the traditional retailer, the highest
value added in the chain.
Figure 3.4 Value add of tomato on traditional market channel
3.6.2 Value chain of modern market channel without certification
When a farmer harvests tomatoes, he calls the farmer group. After harvest, procurement staff of the farmer group sorts and grades the harvest at the field. The group
charges a service fee of 10 per cent. By arrangement, the group sells and delivers graded tomatoes to the specialized supermarket wholesaler.
The specialized supermarket wholesaler received the tomatoes at his packing house. He re-grades and packages, transports and pays a rebate and fee 25 per cent of
cost to supermarket. Overall, the wholesaler has spent Rp 481 per kg. This chain creates Rp 3,600-3,700 per kg value added and the supermarket specialized wholesaler received
33 per cent of the total value added, the highest value added in the chain.
Figure 3.5 Value add of tomato on modern market channel
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3.6.3 Value chain of modern market channel with certification
Similar to the last market chain, when a farmer harvests tomatoes, he calls the farmer group. After harvest, procurement staff of the farmer group sorts and grades the
harvest at the field. The group charges a service fee of 10 per cent. By arrangement, the group sells and delivers graded tomatoes to the specialized supermarket wholesaler.
Figure 3.6 Value add of tomato on modern market channel with certification
As we can see, since certification is done by the supermarket supplier, most of the benefit is received by the wholesaler. In money value, farmers and farmers’ groups also
gain from the certification, but in term of percentage, the farmer and groups lose their value added share from 49 per cent to 42 per cent.
However, the wholesaler to supermarket also has to pay a rebate and fee 34-47 per cent which becomes the highest portion of the cost. At the supermarket’s retail-selling price
of Rp 9,200 per kg, the chain creates Rp 6,800-7,000 per kg value added. The specialized supermarket wholesaler received 50 per cent of the total value added, the highest value
added in the chain.
3.7 Conclusion
