Scaling Responsible Digital Payments in the Indonesian Cocoa Sector

The cocoa sector faces challenges such as declining yields due to ageing trees and climate impacts. Due to a significant credit gap, smallholder farmers – most of whom are underbanked – are currently caught in a negative feedback loop of reduced income and falling profits.

© Better Than Cash Alliance

The Government of Indonesia, with the Indonesian cocoa sector and the Better Than Cash Alliance has conducted a first-of-its-kind sizing exercise to assess opportunities for digital financial inclusion for smallholder cocoa farmers.

Today, Indonesian cocoa farmers are paid almost exclusively in cash. Cocoa-buying companies have committed to increase efficiency, sustainability, and transparency in their sourcing, and major global players (such as– Mars, Modelez and Cargill have public targets for up to 100 percent of their supply to be certified sustainable by 2025. Digitizing payments offers end-to-end financial transparency by helping global cocoa processors to verify where their product is sourced.This study reveals that certified supply chains, which account for 40 percent of all production in Indonesia today, emerge as a potent tool in digitization efforts.

Key findings highlight that certified supply chains, responsible for 40 percent of Indonesia’s cocoa production, offer significant opportunities for digital payment systems, which in turn can improve financial transparency and efficiency. The potential for digital tools extends to crafting tailored financial products, particularly for women who are pivotal in both farming and household financial decisions. The full report details specific strategies and recommendations essential for realizing these goals.

© Better Than Cash Alliance

Sulawesi, Indonesia is the heart of the nation’s cocoa production, accounting for 70% of its output and sustained by over 470,000 farmers. Through this audio series, we endeavor to understand the realities of needs and aspirations of Indonesia’s cocoa farmers, focusing on their interaction with digital technology and formal financial services, and the unique financial demands within the cocoa value chain. Through focused group discussions across Sulawesi’s farming communities as part of the research behind “Scaling Responsible Digital Payments in the Indonesian Cocoa Sector,” we’ve captured a wealth of insights, which this series brings to life.

Each episode narrates the real stories and perspectives of those at the heart of cocoa farming, intertwining the threads of agriculture, technology, financial services, and the imperative for bespoke product solutions. Join us in exploring these compelling narratives and uncover the profound impact of cocoa on the lives and economy of Sulawesi.

Disclaimer: Each episode of “Farmers’ Voices: Digitizing Cocoa’s Future in Indonesia” is derived from focused group discussions with selected farmers in Sulawesi, Indonesia. For confidentiality, the names of interviewees have been altered. These recordings represent a fraction of the comprehensive insights gathered during our sessions.

Episode 1 - Challenges cocoa smallholders face in selling their produce

Our study found that in the conventional supply chain, farmers are less organized and often sell to different traders depending on the price they receive. Farmer groups exists but play less of a role in coordinating trade. Cocoa companies buy cocoa beans from those with whom they have a built a solid, loyal relationship. Certified beans are purchased systematically, providing a guarantee of income to certified farmers. They are also purchased at a higher price than non-certified beans.

Episode 2 - Government’s role in supporting the cocoa farmers

According to the Ministry of Agriculture, almost 1.3 million farmers took Kredit Usaya Rakyat loans in 2019. Financial Service Providers require collateral that many farmers do not have and are hesitant about lending to a sector that they perceive as high risk. We recommend that governments digitally distribute support funding to introduce digital payments to farmers.

Episode 3 - Typical farmers’ earnings in the cocoa sector

Cocoa farmers aim to make sufficient profits to pay for inputs and improve yields, but the irregular income stream from cocoa makes this difficult. Therefore, only 20 percent of farmers’ income is used for agricultural expenses.

Episode 4 - Obtaining sustainability certification in the cocoa farming sector

Certified supply chains account for roughly 40 percent of all production in Indonesia, while in South and Central Sulawesi 30 percent is certified. We believe that certified value chains have the potential to digitize regular payments. Digitizing premium payments will significantly accelerate adoption by farmers.

Episode 5 - Farmers’ comfort with using the banking system

According to our study, many farmers make irregular transactions to prevent their bank accounts from being closed, assuming that they might need them in the future. Farmers see account ownership as something for extraordinary transactions.