UN Report: There Is A Potential For Digitalization Of Transactions Worth 700 Million US Dollars In The Indonesian Kakao Sector

Photo: Special

JAKARTA - According to a report released today by Better Than Cash Alliance, Partnership for Indonesia's Sustainable Agriculture (PISAgro), and the Government of Indonesia, more than 1.4 million cocoa farmers in Indonesia make transactions worth 700 million US dollars per year. The report reveals that digitizing these transactions can have a good impact on the Indonesian economy.

Unfortunately, most cocoa farmers in Indonesia still rely on cash when transacting. The use of cash can be a significant limitation and hinder the growth potential of the cocoa sector, which is a major contributor in the field of Indonesian agriculture.

The report reveals that cocoa farmers in Indonesia mostly still rely on cash when transacting. Unfortunately, the use of cash can be a significant limitation and hinder the potential growth of the main sector in the field of Indonesian agriculture.

The cocoa sector in Indonesia is the largest in Asia Pacific and the third largest globally. Domestically, this sector has an important role in the national economy with a contribution of 700 million US dollars to GDP per year. This sector is also a very important livelihood for local people, especially in Sulawesi which accounts for 70 percent of cocoa production nationally. In addition, this report found that almost a third of cocoa farmers are women.

"The Regional Financial Access Acceleration Team (TPAKD) has an important task, namely to carry out 516 financial inclusion projects in 38 provinces. We have succeeded in reducing the financial inclusion index gap significantly, from 15 percent in 2019 to 4 percent in 2022," said Dr. Bayu Bandono as Director of the OJK Institute, Wednesday, May 8.

Dr. Bayu also encourages stakeholders to jointly accept the recommendations presented in this report and focus on implementing innovations that can accelerate the implementation of digital payments that can drive sustainable development and financial inclusion.

Many companies are committed to increasing efficiency, sustainability, and transparency when buying cocoa supplies in Indonesia. Several global companies are also working to get 100 percent of their cocoa supply to have a sustainability certificate by 2025.

Not only large companies, this commitment has also begun to be implemented by cocoa suppliers, and currently 40 percent of cocoa suppliers in Indonesia already have a sustainability certificate. Considering this, the application of digital payments for cocoa suppliers will certainly bring considerable economic potential.

"The application of digital payments and integrating transactions into formal financial systems can expand financial inclusion for cocoa farmers, especially for women, this is done in order to introduce savings, loans, and insurance products. This report invites the Indonesian government, cocoa entrepreneurs, and financial service providers to jointly build a business model that is feasible for the application of digital payments, especially in remote areas," said Isvary Sivalingam, Southeast Asia Lead, UN-Based Better Than Cash Alliance.

Unfortunately, the latest data shows that there has been a considerable decline in cocoa production over the last ten years in Indonesia. Strategic investment needs to be made to revitalize the cocoa sector.

However, small farmers face challenges in managing their expenses and needs due to low income and limited access to financial services. Based on the survey, each hectare of cocoa plantation land costs US$45 per year.

To restore this sector, farmers need at least greater additional loans and a long term of $1,300 for each hectare of plantation land. These funds can be used to help replant and rejuvenate trees and land.

"Cao farmers and other business actors in this sector supply chain face major challenges in accessing capital for plantation needs. Applying digital payments for the sale of crops and collecting data can help financial service providers carry out better credit-scoring processes and reduce risks when providing loans to farmers. In addition, companies that are committed to increasing sustainability in this sector can help expand financial inclusion for farmers by sharing data," said Insan Syafaat, Executive Director, Partnership for Indonesia's Sustainable Agriculture (PISAgro).

To optimize opportunities in digitizing payments, strong commitments and creative partnerships are needed that involve stakeholders, namely farmers, traders, cocoa companies, financial service providers (FSP), and the government.

The recommendations provided include trials of digital payments in agriculture through TPAKD, expansion of low-cost digital payment infrastructure through the Quick Response Code Indonesian Standard (QRIS) to build a digital payment last-mile ecosystem, and digital distribution of funds such as Farmer Card subsidies.

In addition, there is an emphasis on prioritizing the digitization of agricultural purchase payments to traders and farmers in addition to the disbursement of premium payments. It also calls for fighting for the practice of sharing collaborative data with FSP to expand financial services, particularly credit, to farmers.

FSP is encouraged to take advantage of opportunities in the 'certified supply chain' and take advantage of the liquidity needs of traders, thereby increasing transparency of financial flows and encouraging digital payments responsible to farmers.

Some of the recommendations we present are conducting digital payment trials in the agricultural sector through TPAKD, expanding low-cost digital payment infrastructure such as QRIS to strengthen the digital payment ecosystem in Remote areas, and digital distribution of subsidy funds through Farmer Cards. In addition, we also prioritize digitalization of payments for traders and farmers when purchasing their needs.

Our recommendations also include support for collaborative data-sharing together with financial service providers to expand their services, especially business credit for farmers. We also invite financial service providers to take advantage of this opportunity by providing its services for suppliers who are 'certified,' meet traders' liquidity needs, and increase financial flow transparency and encourage the application of digital payments for cocoa farmers.