Agribusiness Supply Chain of Shallot and the Development Strategy in Kuningan Regency

Agribusiness Supply Chain of Shallot and the Development Strategy in Kuningan Regency, West Java

Tuti Karyani1) and GanjarKurnia

Abstract

Shallot productivity in Kuningan Regency was still low (7.4 ton/ha) and the price fluctuated. The objective of this research was to find out how the supply chain of shallot in Kuningan Regency was, who the agents involved were, and how their business processes was going on. The other objective was to set the strategy for the development of shallot agribusiness in Kuningan. The method used was qualitative method with the case study in Kelompok Tani Mitra Saluyu. The analysis used was descriptive and SWOT analysis. The research result showed that the agents involved in shallot supply chain were farmers/farmer groups – wholesale buyers or pre-harvest buyers – processors – big wholesale buyers – traditional central markets or retail markets. For fried onion, the factory made a relationship with instant-noodle companies such as Indofood and Wings Food, where fried onion was of complementary products for their products. The shallot agribusiness development strategy referred to the result of SWOT Analysis as follows: utilizing land by adopting new technologies and optimize water resources; the enhancing the value added of shallots by processing the crops by Farmer Groups Association/cooperative business unit, and accompanying the farmer groups to access credits from banks for capital strengthening.

Keywords:

Supply Chain, SWOT Analysis, Agroindustry

INTRODUCTION

In fulfilling domestic need for shallots (Allium ascolonicum, L), the government imported shallots every year. It was done because of the insufficiency of shallot supply to fulfill people needs for shallots, which was the result of the shallot production decline, especially during rainy season (General Directorate of Horticulture, 2015).

Kuningan Regency is one of shallot production centers in West Java, whose productivity was still below the expected target. Shallot productivity in Kuningan was still 7.4 ton/ha, while the expected target was 9.4 ton/ha. Beside for household consumption, shallots are needed for fried onion processing industry, and in Kuningan Regency, shallot processing agroindustry is very potential, which makes the need for the raw materials not able to be fulfilled by the production itself.

The other problem of shallot farming is the fluctuating price; sometimes the price could be very high, reaching Rp 80,000/kg, when the supply was lower than the demand, but sometimes when the crops were abundant, the price could fall into Rp 5,000/kg. So far, the cost production of imported red unions (such as those from Taiwan and Philippine) was still lower, compared to the domestic price, so that shallot importation was performed. Therefore, distribution and production setting of shallots as well as their domestic marketing are very important, so the objective of this research was to describe how shallot supply chain in Kuningan Regency really was, and how the development strategy was.

LITERATURE REVIEW

Shallot Agribusiness

Shallot or Allium Sp is an economically high-valued bulb, viewed from its function as food flavoring, food processing industry materials, and herbal medicine. Shallot becomes one of commercial vegetable commodities. As a commercial commodity, most of, even nearly all, shallot crops are for sale, instead of for the farmers’ consumption. Farming income is one of the forms of reward for the service of the managers (farmer), the workers, and the owned capital (including land), and is obtained from the production activities in farming (Tjakrawiralaksana, 1985). Farming is an activity of organizing or managing the assets and techniques in agriculture. Farming can also be defined as an activity of organizing agricultural production means and technology in an agriculture-related business (Moehar, 2001).

Shallot farming is usually done in irrigation and rainfed fields, even currently available in sand dunes (Setyono and Suradal, 2009). The optimal height for shallot plant growth is 0-450 meters above sea level. The technology used by farmers in shallot cultivation varies greatly, and so does the production.

Beside as fresh consumption in the form of flavoring, shallots are also consumed in the form of fried onions. It means that shallots have the value added that can be enjoyed by the agents of shallot processing into fried onions, which are usually made for culinary complement.

Supply Chain

According to Keith Oliver (1982), supply chain is a coordinated system of organization, activities, information, and resources involved in either physical or virtual movement of a product or service from producers to consumers. In his book, Hugos (2003, 2-3) gave several definitions of chain supply as follows:

“A supply chain is the alignment of firms that bring products or services to market.” (Lambert, Stock and Ellram (2001) in Hugos, 2003, 3).“A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to consumers.” (Ganeshan and Harrison in Hugos, 2003, 3).

Furthermore, Chopra and Meindl (2001) stated that supply chain has dynamic characteristic, yet it involves three flows to manage:

1. Flow of goods from upstream to downstream. The example is raw materials sent from suppliers to factories. After having produced, the products are sent to distributors, then to retailers, then to last users;
2. Flow of money from upstream to downstream;
3. Flow of information that can happen from upstream to downstream, or vice versa.

Another definition states that supply chain is a system whose constituents include material suppliers, production facilities, distribution services, and customers, which are connected by forward flow, feedback information, and financial capital (Stevens, 1989). Supply chain can also analogized as a form of industrial organization where both buyers and sellers who are separated by time and place can progressively increase ad accumulate values, in line with the movement of a product from one link to the other links (Hughes, 1994, Fearne, 1996, Handfield & Nichols, 1999).

Opportunity and Challenge

International trade globalization gives opportunities as well as challenges for the national economy, including for agribusiness. On the one hand, the agreements of GATT, WTO, AFTA, APEC, and other world trade organizations can give opportunities for agriculture sector in Indonesia if the agribusiness performed has competitiveness, yet on the other hand, they can be threats for agriculture commodities if they have no competitiveness. Competitive ability can be viewed from the comparative and competitive excellences.

Shallot is a potential horticulture commodity which has high multiplier effect in agribusiness system because it has strong connectedness to the sector of upstream agricultural industry as well as to on-farm agriculture, which can create added value for the production, and absorb workers through secondary agricultural activity (downstream agriculture). On the other hand, shallot is one the horticulture commodities which have quite high price fluctuation and sensitivity, particularly because of the change of demand and supply. This condition needs serious attention because it influences inflation.

By considering the potentials, opportunities, and challenges, it is needed the strategy for the development and growth of shallot agribusiness. The development and growth of shallot agribusiness as an excellent commodity that is well managed not only give prosperity for the farmers and the agents involved in the supply chain of shallots, but also, in turn, grow and develop the shallot central regions.

RESEARCH METHOD

The research object was agribusiness supply chain of shallots and the opportunities as well as the challenges to the development in Kuningan Regency. The research subjects covered the agents on each agribusiness sub-system (from upstream to downstream) involved in the chain. The research design used in this research was qualitative research, meaning that the researcher aimed at describing the research study in institutional role, and tried to understand the phenomenon of the research object as such (Idrus, 2007), while the research technique used was case study research technique with KelompokTaniMitraSaluyu as the case. According to Moehar (2002), study case is a method used to study a member of the target groups of the research subjects intensively or deeply.

Data Analysis Design

In identifying the supply chain, it was going to be used the mapping that would describe information flow, goods flow, money flow from each flow on each agent and on the whole.Furthermore, it was descriptively dug out about the opportunities and challenges regarding the development of shallot agribusiness, which in turn it would give recommendation to the policy of the development of shallot agribusiness itself.

In this research, the data analysis technique was SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. In SWOT analysis, there are three stages to perform: (1) Data Collection, (2) Data Analysis, and (3) Strategy Formulation. The stages can be elaborated in six phases, so that it was finally gotten the chosen alternatives of strategy. The phases are as follows: (1) identifying the strengths and weaknesses in internal environment, (2) identifying opportunities and threats in external environment, (3) making an internal factor matrix, (4) making an external factor matrix, (5) analysis phase, and (6) strategy formulation phase.

RESULT AND DISCUSSION

The Agents of Shallot Supply Chain and the Business Process in Kuningan Regency

1. Farmers

Farmers were the direct agents of shallot cultivation. Shallot cultivation in highland and lowland (rice field). In Kramat Mulya, shallots were planted in rice fields, most of which were tenements from crooked lands, while in Hantara Village, they were planted indry fields.

Farmers cultivated shallots in highland three times a year with the planting season in January, April, June, and October. In lowland, shallot plantation was done after rice harvest, in dry season around June for one planting season. The planting patterns which commonly occured in both regions were as follows:

1. Highland: shallot – corn/chili – shallot
2. Lowland: rice – rice – shallot

The used shallots seeds purposed for fried onion industry were those of Sumenep variety, while those for the purpose of consumption used Bima Curut variety. Sumenep variety had not been labeled yet, while Bima Curut variety had been. Sumenep variety came from Kuningan, Losari, and Tanjung, and according to some information, the labeled shallot seeds of Sumenep variety were going to be released. Most of the seeds were currently used from generation to generation, so that the result was, of course, that the productivity was less good.

The way the farmers processed shallot bulbs into seeds was that they were just dried manually by hanging them on shelves in the farmers’ kitchens. However, during rainy season, the drying process of the bulbs to be made as seeds was done by smoking, so that the hanged bulbs would keep dry and not covered with mold or not rotten. Then, fungicide spraying was done with dithan and pondazep, which was one spraying. 250 ml fungicide could be used to spray 2-3 tons shallots. The purpose of spraying is to make the onions not covered with mold during the drying process into seeds.

The production phase consisted of land preparation, tillage (making ditches, nourished plots (guludan), land texture/plots improvement), plantation, stitching, and maintenance of the plants (watering, fertilization, pest control, weeding). After 2-3 months, the shallot would be ready to harvest.

The land availability in Kuningan Regency was limited only to about 463 Ha, so that the business development was not in the shallot cultivation, but rather focused on processing shallots into fried onions. However, with the limited land availability, the cultivation business of shallots could be intensively performed, so that it could fulfill the needs for raw materials in fried shallots industry. The production cost of shallots was Rp 7,500,000 per hectare, while the income was between Rp 9,000,000 and Rp 15,000,000 per hectare.

Post-harvest treatment for shallots included storage and cleansing. The harvested shallots were stored for 2 days, then the roots and stems/leaves were removed, then they were sent to the warehouse. The treatment cost was about Rp 500 per kg. The storage for fresh shallots by using cholestorid could last for two months. To get good price, there was a Ministry of Trade’s program regarding warehouse receipt which previously ever ran in Kuningan, and was managed by the farmer group association (Gapoktan). However, after the warehouse had been built, the warehouse receipt system had not worked because it had not got banking support.

1. Farmer Groups/Farmer Group Association

Farmer Groups played their role as the farmers’ place for knowledge, most of which was related to cultivation techniques. There were several activities done by the farmer groups as follows:

1. Holding regular meeting once a month, discussing the condition of the forthcoming activity plan;
2. Preparing input production for farmers, including fertilizers, medications, and tools rented such as cultivator and handsprayer.

The other role, which was to strengthen new farmers’ economy, could be attempted through the formation of a pre-cooperative. Farmers agreed to pay the main and obligatory dues. The main due was Rp 50,000 while the obligatory due was equivalent with 10 kg rice per planting season. This attempt of the farmer groups to collect fund would be developed into a cooperative.

Farmer Group Association consisted of three groups, each of which had 15 farmers. The role of the farmer groups or farmer group association in farmer development activities, counseling about cultivation, and preparing the means and infrastructure of production for the members of the farmer groups or the farmer group association, in our opinion, still lacked. The intensity to hold meetings was still low because of the respective farmers’ bustles. The active role of the farmer groups or the farmer group association could have been felt if there had been some government programs that had to be performed.

1. The Processors of Shallot into Fried Onion

The need for raw shallots in fried onion industry could reach 500 tons a month. This need was fulfilled from various production centers in West Java (Majalengka, Bandung, and Cirebon) and outside West Java (Brebes). Shallot was divided into 3 grades: Quality 1 mesh 4, Quality 2 mesh 10. For the fried onion industry need, the Quality 2 was used. The target of this fried onion market was Indofood and Wings Food who used fried onion as a complementary matter for instant noodle, while the shallot with the Quality 1 was for export, and for traditional market, they were usually mixed (not graded).

For the interest of fried onion industry, it was necessary the shallots of Sumenep variety. The process was cleansing, mincing into small pieces, and processing. If it is described, it will be as follows:

Figure 1. The Process from Shallots into Fried Onions

The processors of onions had 53 units, consisting of 41 formal work units and 12 non-formal units. The employees recruited were 443 people, with the investment value 4.098 billion. The partnership with Wings Food and Indofood had been lasting for a long time, more than 10 years.

1. Wholesale Buyers

Wholesale buyers here means the people who bought shallots from farmers or farmer groups. They then marketed them to the central markets of Kramat Jati, Cibitung, Jaga Satru, Caringin, Losari, Pasar Baru Kuningan, and others.

Among them, there were also those who acted as pre-harvest buyers (penebas), or the people who bought shallots before harvest. They would buy shallots from the farmers even before the onion plants were pulled out from the soil. Therefore, the pre-harvest buyers really needed to calculate the number of onions that they would get, so that they would not suffer financial loss. Thus, this pre-harvest trading risks a lot. Then, after there had been a deal between the farmers and the pre-harvest buyers, the next phase was preparing cash money and looking for employees to pull out the shallot plants and transport them to the road by carrying them on their shoulders or using motorcycle.

1. Marketers

The target of raw shallots was divided into 2: traditional market and export market. For export market, it is estimated 30% with the quality grade 1 or super, and the 70% others for traditional market with mixed quality. Many exporters had their domicile in Brebes and Cirebon, but there were no farmers/farmer groups and shallot vendors in Kuningan who had directly relationship with the exporters.

Shallot Supply Chain in Kuningan

The flow of shallot supply chain in Kuningan Regency was divided into 3 (three) parts: the flow of goods/materials in the form of shallot marketing, the flow of information received by each agent, and the flow of money.