Overview of the Cocoa Commodity Sector

Recent Developments in Global Cocoa Commodity

The modern pleasures offered by chocolates and other related products would not be possible without the humble cocoa beans. Based on flavor and other quality factors, there are two main varieties of cocoa beans: the “bulk” beans generally originating from Forastero trees and the “flavor” beans coming from the Criollo or Trinitario trees (ICCO, n.d.a; ICCO, n.d.b).

In 2018/2019, the world produced and ground 4.7 million tonnes of cocoa beans, with around 1.7 million tonnes in stock (ICCO, 2021). These beans are processed into cocoa liquor, butter, cakes, and powders to be used by other sectors. The confectionery industry is the largest consumer, consuming 43% of the world’s cocoa consumption in 2017 (Eghbal, 2018); other notable consumers are food and beverages, cosmetics, and the pharmaceutical industries (Kumar and Sable, 2019). In 2012, overall, the cocoa sector provided revenue for 40 to 50 million people, mostly in developing countries, and generated jobs in cocoa importing countries (Voora, Bermudez and Larrea, 2019).

The cocoa market is expected to grow by 7.3% annually from 2019 to 2025, reaching $16.32 billion. However, it pales to the size of its downstream industries; in 2017, the retail market value of the chocolate industry was $106.2 billion and is expected to grow to $189.89 billion by 2026 (Voora, Bermudez and Larrea, 2019). This disparity is partly due to the industrial structure of the cocoa supply chain. Cocoa trees require a hot and humid climate and plentiful rainfall found in tropical regions to thrive. Most of the world’s supply now comes from West Africa (particularly Côte d’Ivoire and Ghana), with Indonesia being sixth (Figure 1). Around 5-6 million households on small-scale farms in these equatorial countries grow 90% of the world’s cocoa through a labor-intensive process (Voora, Bermudez and Larrea, 2019). To illustrate, the average farm size in West Africa is around 2-4 hectares, with each hectare producing around 300 – 400 kilograms of cocoa beans (Fairtrade, 2016). Productivity is also an issue; cacao farmers generally only produce 10% of the potential yield under best conditions and practices, while corn farmers can reach 60% of this theoretical yield (Mars, n.d.).

Overview of Palm Oil Commodities and Sustainability Relevance

Indonesia is the largest palm oil country producer with a significant development where there has been an increase in international reserves in the last 10 years.

Based on Directorate General Plantation, Indonesia is able to produce up to 48 million tons of crude palm oil (CPO) in 2018 and it is predicted to reach 50 million tons of CPO in 2021 (see Figure 1). In other words, Indonesia has great potential to develop palm-based biofuel products. The potential of CPO can not only benefit Indonesia economically but also contribute to energy security, emission reduction, and health.

In terms of economy, the palm oil inadustry has significant positive impacts. Based on Coordinating Ministry for Economic Affairs speech on Indonesian National Press Day, the palm oil industry has significantly supported the Indonesian economy during the COVID-19 pandemic through the absorption of 16 million labor and contribution of 3.5% to economic growth (BPDP-KS, 2021)1. Not to mention, the palm oil industry also has a significant contribution to Indonesia’s export. Based on Figure 1, more than 50% of CPO production in Indonesia is exported to other countries for at least the last 12 years with a value of more than US$ 35 million in 20212. The majority of the export of CPO comes from HS Code 15131100 which stands for crude oil of coconut (copra) with a total contribution of 36.87% of total CPO Export (Ministry of Agriculture, 2021).

Moving Towards Green Economy in the Advancement of SDGs

Following the awareness in multiple aspects to support the future of development, new concepts have been established. The Rio+20, which was held in 2012 by the United Nations and attended by global leaderships, have birthed the sustainable development concept, recognizing the issues within the environment and the development in the last few decades that go hand in hand, and therefore can no longer be viewed separately (Lavrinenko et al., 2019)1 . With preserving finance, social responsibility, and environment in mind, the sustainable development concept focuses on “people, prosperity, peace, partnership, and planet”. In 2015, the United Nations classified the concept into seventeen “Sustainable Development Goals” blueprint, grouping the global goals for each specified area.

In the context of economy to support sustainable development, the United Nations Environment Programme (UNEP) led the implementation of “green economy” which focuses on economic growth stemming from investments into activities that allow carbon emission and pollution reduction, social inclusivity, prevention of ecological losses, as well as efficiency of energy and resources. Other than environmental and energy improvement, the green economy also focuses on improving well-being and eradicating poverty. A country’s transition to a green economy could very well be complicated in practice due to the complexity of the existing “traditional” economy which has provided livelihoods to its population—however, looking at the number of environmental and social issues as the implication of the economy, the move forward is now more urgent than ever.

In Indonesia, the national and sub-national government has been highly encouraging the advancement of SDGs and transitioning towards a more holistic approach in addressing the ongoing economic, social, and environmental problems—including but not limited to climate change, loss of freshwater and food resources, social inequality, land conversion, and more.

Indonesian cocoa sustainability in terms of increased productivity, improved farmer livelihoods, secure supply chains, and environmental preservation is an ongoing struggle.
The social, economic, and environmental implications cannot be separated one from another.

A major pressing need is for availability of quality planting material for farmers in order to increase productivity and optimize land use. Seed gardens are important to feed quality certified rootstock into cocoa nurseries for distribution of seedlings for replanting. Sulawesi, the largest cocoa-producing area of Indonesia, currently contains no certified cocoa seed gardens, creating a barrier to increased productivity for aging cocoa farms.

There are clear overlapping interests between cocoa stakeholders and non-profit stakeholders, particularly those concerned with deforestation. Cocoa is a shade crop and lends well to agroforestry models. The optimization of land use through replanting presents one of the greatest opportunities to disincentivize deforestation in smallholder farming communities. An analysis of the situation reveals the benefits of local seed garden establishment to a variety of stakeholder– government, private sector, non-profit sector, and smallholder farmers. The seed garden business case for farmers is profitable with minimum risk. The seed garden business case for the private sector is contingent upon calculation of indirect profitability related to supply chain improvement. Local seed garden establishment contributed to government and non-profit objectives.

A multi-stakeholder approach to localized seed garden establishment is preferrable, with each party weighing respective investment and return from both monetary and non-monetary perspectives. This document outlines the broad justification for such a collaboration to be initiated, driven by Cocoa Sustainability Partnership (CSP) and one or more of its private sector members located in Sulawesi, bolstered by support from central and regional Indonesian government departments and the non-profit sector.

Elephant is a kind of herbivore that throughout history has become one of the large terrestrial mammals. The species spread from Africa to India and Southeast Asia. In many locations, especially in India and Thailand, elephant is used for heavy works that needed huge quantity of strength. Building roads, bridges and other infrastructures often uses the services and power of elephants. Furthermore, many of these elephants are also used for fun and entertainment, like circus and show.

In the wild, elephant lives in groups and usually lead by a dominant female, known as an alpha. Usually, baby elephant, called calf, is raised by its own group. Meanwhile dominant male that lost the competition usually step aside and wander alone, or join with new group that wants to take them.

A number of studies have indicated Indonesia’s success in substantially lowering its rate of deforestation. According to Government of Indonesia data, the annual rate of deforestation in Indonesia decreased from its highest level of 3.5 million hectares a year during 1996-2000 to slightly more than one million hectares a year from 2000 to 2006, with further decreases of 650,000 hectares of land in 2015-16 and 480,000 hectares in 2016-17.

Tightened government regulations including a permanent moratorium on forest clearing for plantations and logging, forest management reform, and prosecution of companies illegally clearing forests have been the main drivers of the decline. Other factors include increased transparency, partly with the help of real-time deforestation monitoring, and collaborative programs involving government, private sector, and community, such as fire-free village programs and jurisdiction-wide sustainability programs. Recognizing the continuing need for further deforestation reduction efforts, the significant decline thus far has allowed the strengthening of focus toward sustainable palm oil management.

One area of government focus is in the rejuvenation or replanting of smallholder palm farms that are expected to reduce the need for new agricultural land. Studies show deforestation from large-scale plantations in Indonesia is declining, but that deforestation outside of concession areas is still ongoing, albeit in limited area, driven mostly by smallholder farmers. The primary reason fueling the increase is the smallholders’ need to make ends meet by finding more land to plant additional crops, given their lack of knowledge on how to maximize the efficiency of their existing land.

The Smallholder Palm Oil Rejuvenation Program or Peremajaan Sawit Rakyat (PSR) was established to assist smallholder farmers to transition to increasing productivity through replanting on existing land rather than by expansion. Launched by Indonesian President Joko Widodo in 2017, the government program works in collaboration with palm oil-based companies in Indonesia to increase the productivity of independent smallholder plantations whilst continuing to reducing deforestation.

Moving Towards Green Economy in the Advancement of SDGs

ollowing the awareness in multiple aspects to support the future of development, new concepts have been established. The Rio+20, which was held in 2012 by the United Nations and attended by global leaderships, have birthed the sustainable development concept, recognizing the issues within the environment and the development in the last few decades that go hand in hand, and therefore can no longer be viewed separately (Lavrinenko et al., 2019)1 . With preserving finance, social responsibility, and environment in mind, the sustainable development concept focuses on “people, prosperity, peace, partnership, and planet”. In 2015, the United Nations classified the concept into seventeen “Sustainable Development Goals” blueprint, grouping the global goals for each specified area.

In the context of economy to support sustainable development, the United Nations Environment Programme (UNEP) led the implementation of “green economy” which focuses on economic growth stemming from investments into activities that allow carbon emission and pollution reduction, social inclusivity, prevention of ecological losses, as well as efficiency of energy and resources. Other than environmental and energy improvement, the green economy also focuses on improving well-being and eradicating poverty. A country’s transition to a green economy could very well be complicated in practice due to the complexity of the existing “traditional” economy which has provided livelihoods to its population—however, looking at the number of environmental and social issues as the implication of the economy, the move forward is now more urgent than ever.

This study, “Collaborative Actions at Landscape Scale, The Case of Wehea – Kelay Forum in East Kalimantan, Indonesia,” was developed for the Jurisdictional Action Network with generous support from Cargill and the outcome of a genuinely collaborative effort conducted by IPMI Case Center, commissioned by Tropical Forest Alliance – World Economic Forum.

We want to express our gratitude to the Wehea-Kelay Essential Ecosystem Area Forum. The forum was established by the Governor of East Kalimantan, to be managed jointly with the Ministry of Environment and Forestry, East Kutai District Government, Berau District Government, Wehea Customary Institutions, the contribution from private sectors, and the Yayasan Konservasi Alam Nusantara.

We greatly appreciate the cooperation and offer our heartiest thanks to all parties involved who actively participated in the study and provided valuable inputs through interviews, online surveys, virtual convening, and ad hoc discussions to support the study’s preparation. Also, special thanks to the respected partners of the Wehea-Kelay forum, who have been tremendously helpful in providing feedback and continuously involved towards the end of the study, for which we may not be able to name each person or institution.

We hope that the collaborative management of the Wehea – Kelay Essential Area can be a model for saving ecosystems in general and protecting orangutan habitats in particular. This truly magnificent effort can become a good lesson and be replicated in other places, especially in areas with essential ecosystems and surrounding communities.

KUBU RAYA INVESTMENT OUTLOOK OBJECTIVES

Investment Outlook Kubu Raya Regency is a tool to promote, inform, and attract domestic and foreign investors to invest in Kubu Raya Regency. This outlook is also to support green growth, strengthen the achievement of Sustainable Development Goals (SDGs) targets, and improve efforts to mitigate and adapt to climate change within the jurisdiction of Kubu Raya Regency, West Kalimantan Province.

HOW TO USE THIS INVESTMENT OUTLOOK?

This Investment Outlook is a public document. Therefore, all parties can access the paper, especially investors interested in developing sustainable investments in the Kubu Raya Regency jurisdiction. This document mainly contains investment opportunities for various vital commodities. In addition, this paper also has information on geographical, demographic, and socio-economic conditions, infrastructure support, and Kubu Raya Regency government policies to support the sustainable investment with a jurisdictional approach.

This Outlook is a living document. Therefore, the Kubu Raya Regency government will periodically update the data and information in this Outlook related to the investment opportunities of essential commodities in this region.

This document is also a guide for investors and parties interested in developing sustainable investments with a jurisdictional approach. Investors and parties should read this document to understand all enabling conditions and opportunities of strategic commodities in this area.

Sustainable Jurisdiction Progress in 2022 and Opportunities For 2023

Executive Summary

Indonesia has recorded progress in deforestation reductions and forest fires, with particular success in commodities production, such as palm oil and pulp and paper. Shifting practices at the jurisdictional fronts have contributed to the Government commitments at both national and subnational levels encompassing the enactment of moratorium policies, green growth vision at the subnational level, fiscal policies incentives, and the development of financing agencies.

The emergence of the Jurisdictional Approach, taking the subnational leadership at the core to reconcile both social and economic issues in an integrated way to include multi sectors and stakeholders to ensure transitioning towards deforestation, low carbon development, and inclusive communities are achieved within the subnational coverage to contribute to nation’s target of climate agenda and SDGs within the administrative boundary. Amongst many progressive Jurisdictions, Siak, Kubu Raya, and Sigi are districts that have committed to tackling climate change issues through subnational policies and commitment through the establishment of:

• Multi-stakeholders governance
• Roadmap integration and implementations
• Monitoring and evaluation systems

All through mobilizing investment and financing to-wards committed jurisdictions. The establishment of Sustainable Jurisdictions Indicators initiated by Na-tional Development Planning facilitates stakeholder’s interest in accessing complete information commit-ments and performances of commodity-producing re-gions that are sustainable and inclusive that align with international commitments (SDGs) and existing certi-fication schemes (ISPO and RSPO), which translated into pillars of:

• Environmental
• Social
• Economic
• Governance

The SJI has accommodated 7 Districts in Indonesia to pioneer within the Sustainable Jurisdictions Indicators. Two of them, Siak and Sigi Districts, will share their progress in the #16 JCAF dialogue.

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The Jurisdictional Collective Action Forum (JCAF) is a convening platform for sharing best practices where the 16th dialogue will present three leading Jurisdictions (Districts) in their pursuit of Green Growth and their potential opportunities for stakeholders to collaborate.

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Kubu Raya, Siak, and Sigi Districts demonstrated progress in advancing their green growth target through policy enactment and implemented actions throughout 2022. Kepong Bakol Strategy highlights inclusion with multi-stakeholders collaborations, including private and forestry sectors, to ensure low-carbon development target attainment. Amongst many, the Kubu Raya District government has developed a Geoportal platform to feature sustainable investment opportunities, developing the Strategy to accelerate Green Growth Implementation, issuing the regional decree on the Kubu Raya sustainable investment and mobilizing the fiscal incentives based on the green investment in the village level. Siak District, on the other hand, established the Green Siak Coordination Team in 2022, accompanying the issuance of Bupati’s decree on Green Siak in February 2022 that regulates District transformation from a bottom-up approach.