Assessing the Viability of Virus Free Potato Seed Small-medium Enterprise

8/14/2019 Assessing the Viability of Virus Free Potato Seed Small-medium Enterprise

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FINAL REPORT

ASSESSING THE VIABILITY OF VIRUS-FREE POTATO

SEED SMALL/MEDIUM ENTERPRISE

Witono AdiyogaRachman Suherman

Irfansyah

BINA DESA SECRETARIAT/InDHRRA

INDONESIAN VEGETABLE RESEARCH INSTITUTE

2003


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CONTENTS

Page

BACKGROUND 1

OBJECTIVES 3

METHODOLOGY 4

RESULTS OF THE STUDY 5

I. Brief Biophysical and Socio-economic Profile 5

1.1. Physical aspects 51.2. Social Aspects 61.3. Economic Aspects 71.4. Institutional Aspects 11

II. Agronomic, Marketing and Economic Characterization 12

2.1. Garut 122.2. Kopeng 152.3. Wonosobo 19

III. Viability Assessment of Virus-Free Potato Seed and Cabbage Seedlings 25

3.1. Rapid multiplication of virus-free potato seeds 253.2. Cabbage seedling production under plastic house 32

CONCLUSIONS AND RECOMMENDATIONS 38

4.1. Conclusions 38

4.2. Recommendations 40

References 41

Appendix


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ASSESSING THE VIABILITY OF VIRUS-FREE POTATO SEEDSMALL/MEDIUM ENTERPRISE

BACKGROUND

Prior to 1997, Indonesia recorded a relatively remarkable decline in poverty level as comparedto achievement in other less-developed countries. The success of poverty alleviation, in term ofmonetary measure of welfare, was consistently coupled with the improvement in non-monetarymeasures of welfare and poverty, such as education and health indices. The improved people'swelfare was subject to almost three decades of sustained economic growth resulting from aseries of developmental strategies, including green revolution since the late 1970s, tradeliberalization in the early 1980s and the establishment of export-oriented growth economystarting in the early 1990s (Irawan, 1999; Sutanto, 1999). However the crisis squeezing theIndonesian economy in the mid 1997, following the long drought during the year, has been

adversely affecting the overall macro-economic condition, and most importantly people'swelfare. The number of people living in poverty is believed to increase drastically. The readilyavailable contemporary data from the result of the 1998 SUSENAS-type suggests a substantialincrease in poverty incidence from the pre-crisis period (1996) to the end of 1999. Themagnitude of poverty as measured by poverty incidence in 1999 is 18.20% (37.5 million). Outof this number, around 12.4 million lived in urban area (15.10%), and 25.10 million (20.20%)lived in rural area. During 1996 - 1998 the number of the poor in rural areas has increased atalmost a similar extent to those in urban areas i.e. by 62.7% (9.60 million) for rural, and 61.1%(4.40 million) for urban. The change in poverty incidence (percentage of the poor to totalpopulation) was larger in rural than in urban areas (7.78% compare to 4.72%).

The reduction of poverty in the rural areas is increasingly linked to the ability of poor ruralpeople especially rural women and unemployed/under-employed youth - to diversify andcomplement their sources of income through on/off-farm micro and small enterprises (MSEs)(processing, trading, manufacturing and services, etc.). Nonetheless, any effort to developsustainable MSEs in rural areas calls for a proactive strategy to reduce constraints on theentrepreneurial poor and provide them with, among other things, suitable business-relatedservices.

Several factors contribute to rural poverty in the developing world deterioration of the agro-ecological environment, isolation of rural communities from the rest of the economy (especiallymarkets) and lack of productive assets (e.g. health, skills, land and capital) all of which have

a serious repercussion on the livelihoods of people in the rural areas. As the majority of poorrural people in developing countries are involved in farming, their income is affected both by thevagaries of the climate and by the volatility of agricultural prices. Therefore, while poor ruralpeople have to look for other ways of complementing or substituting their farm income, theiroptions are limited and usually consist of selling their labor to other, better-off farmers. Withinthis context, the other alternatives of on-farm and off-farm sector may represent a new and/orbetter source of income, especially for the most marginalized and vulnerable strata of the ruralpopulation, e.g. rural women and youth and the landless poor.

The promotion of MSE clusters may also benefit the rural economy by creating new sources ofeconomic growth and helping to improve local living conditions. While economic liberalization inthe rural areas has created new market opportunities, especially in terms of agriculturalprocessing and marketing, and the provision of services to rural households, it has also brought


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out special challenges for women and other disadvantaged groups. Business investmentslinked to processing and marketing activities are crucial for increasing the value of agriculturalproduction.

The current economic setting suggests that if the small and medium enterprise sector does not

perform well during the next couple of decades, overall economic performance will also beunsatisfactory, especially in the areas of employment creation and income distribution. Noother major sector has the potential to generate a large amount of adequate-income jobs.Experience of other countries has proven that this sector can play a central contributing roleunder proper conditions and with adequate support. Various types of evidence from thecountries of the region suggest that considerable potential is present in their SME sectors. Butboth experience elsewhere and economic logic imply that a strong and coherent supportsystem will be necessary if that potential is to be reasonably fully reaped..

Potato is widely grown in Indonesia and considered as one of vegetable crops that increasinglygains its importance. Indonesia is the largest potato producer in Southeast Asia with the

average production growth of approximately 11.3% per year (1969-1995). This productiongrowth is coming from increases in potato planted area (9.7%) and yield (1.6%) (Adiyoga,1999). High contribution of planted area increase to the production growth indicates that arelatively high and stable price of potato in the retail market have made potato productionprofitable and have provided incentives for farmers to increase their planting. The main reasonfor potato production expansion has also been the desire by farmers to satisfy expandingmarkets and changing consumer preferences. Relatively rapid population growth andurbanization have expanded the market for food crops an rising per capita income havestimulated the demand for more exotic foods to diversify diets (Woolife, 1987).

In Indonesia, potato is consumed as vegetable in a large variety of dishes. Only recently hasthere been a significant increase in the consumption of potato in the form of processedproducts such as french fries and potato chips. The average per capita consumption of potatohas increased from 0.5 kg in 1968 to 1.8 kg in 1996 in fresh from, and higher if processedproducts are included. In 1996, per capita consumption of potato in urban areas is 2.6 kg, whilein the rural areas is 1.3 kg (Pusat Promosi dan Informasi Tanaman Pangan dan Hortikultura,1998). Based on the National Socio-Economic Survey (Susenas), per capita consumption ofpotato in 2000 is 2.034 kg/year (Ferrari, 1994). The increase in national consumption isespecially significant in the urban higher and middle-income classes. While potato consumptionin rural areas is growing less rapidly, potato is a high-valued crop contributing significantly tothe household income of small farmers.

The low contribution of yield to production growth is frequently considered as a consequence ofthe poor health conditions of seed potatoes. While it is unlikely that similar yields to thoseachieved in the temperate zones can ever be realized (Horton, 1987), it is acknowledged thatthe main cause of low potato productivity, such as in Indonesia, is the inadequate supply ofreasonably priced, good quality seed tubers of the desired varieties (Rasco and Aromin, 1994).In the mean time, highland farmers in Indonesia mostly cultivate their potatoes on small farms,and therefore have strong incentives to increase their yield on the limited land available. Withinthis context, these commercially small potato producers recognize the value of seed tubers andtend to aggressively seek out good material.

Seed potato system in Indonesia is characterized by a dominant role of informal or farmer-based seed system and Granola as the most preferred variety used by farmers for the last 15


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Preparing a brief biophysical and socio-economic profile (physical, social, economic andinstitutional aspects) of the targeted location.

Characterizing and assessing market options for potato-related products and othervegetables in the targeted region. Collected information necessary for the evaluation is

classified into three broad subject areas:

Agronomic characterization will include: Complete cycle (cropping period from planting to when productivity falls below 30%

of the crops maximum potential),

Pre-production cycle (cropping period from planting to when productivity reaches atleast 30% of the crops maximum potential), and

Technical requirements (indicate whether the crop is tolerant, or requires improvedtechnology, considerable management, and high level of inputs).

Commercial characterization will include: Current commercialization (indicate whether the targeted region already produces

the mentioned products)

Degree of perishability (classify the product according to its shelf life in thestoreroom or on the shelf, under normal environmental conditions).

Type of client (specify the type of client forming part of the distribution chain of thementioned products)

Services to the client (indicate whether the client offers some type of service to therural producer to promote production)

Type of market (indicate whether the market is local, regional or national) Growth of demand (classify growth according to an estimate of the annual growth

rate of sales or of demand for the targeted product, for example, growth is high ifrate is above 6%, intermediate if it is between 4% and 6%, and low if it is between1% and 3%)

Quality requirement (rank quality according to the degree of client requirements,for example, if the products is for fresh consumption, then a higher quality isusually required than if the product is for processing)

Commercial relationships (indicate the type of formal or informal relationship thatthe client is willing to establish with rural producers, for example, an informalagreement, a partnership or a contract)

Economic characterization will include: Level of technology (classify the alternative product according to the technological

complexity needed to develop it)

Price stability (according to its price stability index, which is equal to the standarddeviation of a deflated series of at least 18 monthly prices)

Pre-production investment (estimate the amount of money needed for the cropsfirst harvest, or for its introduction into the market)

NPV (obtain the net present value for the market option, a parameter of profitabilitythat is calculated by the financial model)


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B/C ratio (obtain the internal rate of return for the market option, another parameterof profitability that is calculated by the financial model)

IRR (obtain the internal rate of return for the market option, another parameter ofprofitability that is calculated by the financial model)

Assessing the viability of virus-free potato seed producing and cabbage nurserysmall/medium enterprise by synthesizing and evaluating data collected from the marketappraisal and market option characterization.

RESULTS OF THESTUDY

I. Brief Biophysical and Socio-economic Profile

1.5. Physical aspectsPhysical conditions in the three targeted locations are quite similar. Those locations could beclassified as highland agro-ecosystem that is suitable for growing highland crops, such aspotato, tomato, cabbage, cauliflower, tobacco etc. Data show that

No Physical Aspects Garut Kopeng Wonosobo

1. Geographical locationVillage

Sub-districtDistrict

Province

Altitude

SarimuktiPasir WangiGarutWest Java

1 200 1 500 m

CuntelKopeng SemarangCentral Java1 200 1 700 m

Maron,Garung WonosoboCentral Java900-1 500 m

2. ClimateTemperatures

RainfallDroughts

18-310C125-154 mm/mo.July-September

19-320C136-165 mm/mo.July-August

20-300C241-329 mm/mo.July-September

3. Soil and water resourcesSoil types

Levels of soil fertilityAvailability of water

Irrigation for highland crops

Andosol (84%)Medium to HighModerateNone

Andosol (92%)Medium to HighModerateNone

Andosol (94%)Medium to HighGoodNone

Wonosobo has the highest rainfall among those locations. Levels of soil fertility in all locationsare classified as medium to high, since most crops grown still provide reasonable yields.However, there still no irrigation facilities available to support vegetable or other highland cropsfarming.

1.6. Social AspectsThe number of male population in Garut and Wonosobo, is slightly higher than that of femalepopulation. Meanwhile, the rate of population growth is considered moderate-ly low as


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compared to the national average, which is about 2 %. There is no record of changing ethnicgroups in the history of inhabitants of those three locations. Conflicts recorded in Garut andWonosobo are mainly caused by land tenure disputes. Basically, some farmers claim for theirrights to the state or company for letting them to cultivate a particular disputed land. Meanwhile,the number of population migrates for the last five years is quite insignificant.

The average of land-holding is less than 0.2 ha, while the average of land-owned is evensmaller. The data also show that farmer population in those three locations is mostly landless.Furthermore, the educational background of the population is mostly not finishing and finishingelementary school. These conditions may justify the observation that even though the degreeof market orientation is considered semi commercial, the level of well-being is still classified aspoor to moderate.

No Social Aspects Garut Kopeng Wonosobo

1. Population Total population (2002)No. of male population (2002)

No. of female population (2002)Pop. growth (2001-2002)

4 6742 4152 2592.05 %

6 2973 1223 1751.96 %

3 898197219261.40 %

2. History of inhabitantsChanging ethnic groups

ConflictsMigration

NoneMinor (land tenure)Not significant

NoneNoneNot significant

NoneMinor (land tenure)Not significant

3. Characterization of current

inhabitants EthnicityLand tenure

Level of well-beingEducational level

Degree of market orientation

SundaneseMostly landlessPoor to moderateMostly not finish-ingand finishingelementary schoolSemi commercial

JavaneseMostly landlessPoor to moderateMostly not finish-ingand finishingelementary schoolSemi commercial

JavaneseMostly landlessPoor to moderateMostly not finish-ingand finishingelementary schoolSemi commercial

4. Description of government syst.Village

Sub-districtDistrict

Province

SarimuktiPasir WangiGarut

West Java

CuntelKopengSemarang

Central Java

Maron,GarungWonosobo

Central Java

1.7. Economic AspectsIn those three targeted locations (villages), the major economic activity engaged by mostpopulation is agriculture. However, there is no specific information available regarding thecontribution of agricultural sector to the village gross domestic product. The data on grossdomestic product shown in the following table are district-based data that vary in accordance toeach districts resources and capacity. The contribution of agricultural sector to PDB is 49%,

46% and 57%, respectively for Garut, Semarang (Kopeng) and Wonosobo. There is noeconomic activity categorized as agro-industry in the targeted location. The available land


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price fluctuation, small landholding has restrained farmers to maximize their profits. Farmersare not able to achieve economies of scale for their farms because of limited land size.

The use of inputs may be categorized as relatively intensive, since most farmers have usedsynthetic fertilizers and pesticides in growing their crops. Even though, the quantity of input

used varies among farmers, the use of chemical fertilizers and pesticides is a common practice.Farmers perceive that the use of chemical inputs is a dominant factor in increasing crop yields.

The flow of vegetables from producers to consumers is facilitated by the process carried out bymarketing channels. A variety of well-established although informal marketing channels for thedistribution and sale of vegetables exist in the three locations. Those channels are relativelysimple and short due primarily to the fact that marketing services required are not much. Thefollowing types of middlemen and their principal functions are identified from the existingmarketing channels.

1. Field petty assembly traders

These small-scale, itinerant traders are village-trotting daily to visit the field and make a bid.They buy and assemble relatively small volume vegetables directly from farmers and sell themto rural assembly traders. They may finance their operation by themselves or occasionally actas commission agents. As commission agents, they actually do not buy vegetables, butassemble and ship them to the rural assembly traders for a commission or fee.

2. Contract traders

These traders buy vegetables from farmers on a contract basis that involves negotiations forsale even before vegetables (e.g. cabbage, chinese cabbage, cauliflower) in the field reachtheir optimum age to be harvested. The contract traders estimate the total value of the crop bymultiplying the estimated quantity to be harvested by the expected price at harvest time. Oncethe trader and farmer have agreed on the price, the contract trader takes over the care of thisparticular crop in the field. In other words, all expenses in preparing the produce for market areborne by the buyer. The buyer also assumes any pre-harvest and post-harvest risks. Contractbuyers may either finance operations on their own, or be financed by a financier-rural assemblytrader or financier-wholesaler.

3. Rural assembly traders

The major marketing functions of this type of trader are to assemble a relatively large-volume ofvegetables and ship them to distant consumption centers. They may either reside at or travel tofarms to purchase, transfer, and later sell vegetables to another locale. Their activities mayinvolve the purchase of truckloads of vegetables from one or more growers and/or encompassthe purchase of small lots of vegetables from several growers at the same time. Besidesassembling and shipping vegetables, this type of trader may also provide a cash advance orguarantee before harvest, recruit and pay qualified workers for sortation and grading, supplynecessary marketing materials, and arrange vegetable transportation from the field. Some bigassembly traders also involve in vegetable production. They may either fully finance theirvegetable production by themselves or run the production activity on a sharing basis (forexample PT. Sinar Pusaka in Garut). The sharing scheme is based on the contribution of each

party to the vegetable production expenses.


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Farmers in the three locations agree that the most important constraint is price fluctuation oruncertainty. Excessive supply, especially for some crops that are also suitably grown in otherareas or in low and medium altitudes (e.g. tomato, hot pepper), often causes a drastic drop inprices. As consequence of individual negotiation, farmers also feel that the price offered bybuyers/traders is frequently too low. Meanwhile, even though it may shorten the marketing

chain, selling the produce directly to the market is considered high cost (handling andtransportation costs) and unfeasible, especially due to a relatively small amount of sellingvolume.

A relatively big agro-enterprise that plays important role in financing the production, assemblingand marketing the vegetable produce has been operating for the last 20 years in Garut. Thisenterprise, called PT Sinar Pusaka, serves more than 300 farmers in 6 villages (Talaga,Barusari, Mekar Jaya, Padaawas, Sari Mukti and Karya Mekar). Farmers may borrowmaterial/physical inputs, such as seed, fertilizers, manure and pesticides or working capitalrequired for growing vegetables, especially potato, hot pepper, cabbage and tomato. Thisenterprise also finances the purchase of light agricultural machinery, such as water pump for

irrigating the field and motorized sprayer for controlling pest and disease. The scheme requiresfarmers to sell all of the harvest to the enterprise. After harvesting and selling the produce tothe enterprise, farmers have to return the borrowings with their interest. Daily supply ofvegetables assembled by this enterprise to big cities in West Java (such as, Tanggerang,Jakarta, Bogor and Bandung): potato 15-24 t; carrot 2-4 t; cabbage 7-10 t; tomato 2-4 t; andbunching onion 2-3 t.

Even though formal financial system, such as Bank Rakyat Indonesia, offers credit schemes tosupport economic activities, farmers (smallholders) rarely use this facility for financing theirfarms. They prefer to get credit from other farmers, farmer group or big farmers since theaccess and required procedures are much easier and simpler.Transportation and communication facilities are available until the village centers, thus there isno constraint to make on-time product delivery to the markets. However, farm roads facilitiesare still limited, so that transporting inputs and harvests to/from the farm are mostly conductedby human labors.

Buyers or sellers will likely make more rational decisions if they have useful and timelyinformation at their disposal. In West Java and Central Java, daily wholesale price informationfor vegetables is regularly announced through radio and disseminated through informationboards, especially at the assemble markets in production centers. However, farmers mostlycomplain that this information does not provide much help in strengthening their bargaining

power. But market knowledge extends beyond information concerning prices and technicalproduct quality. It also includes knowledge of the actions that competitors and traders or firmstake, as well as reasonably informed judgments about future market conditions. Within thecontext of vegetable marketing in the three-targeted locations, at some points, the existingmarket knowledge held by market participants (buyers and sellers) has permitted them to makeinformed decisions in the market environment in which they operate.

1.8. Institutional AspectsIn Garut, Desa Sarimukti farmer group expands its activities by initiating a potato seed

production unit. The initiative comes out from participatory need assessment conducted by thegroup with the assistance of Bina Desa. Technical/non-technical trainings and a screen house


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has been facilitated and provided by Bina Desa to the farmer group to carry out a group activityspecializing on virus-free potato seed production. The main objective of this activity is to satisfythe need of local farmers for high quality potato seed. Currently, there are 15 farmers workingtogether as pioneer team to carry out the operationalization in this seed production unit. Thisfarmer group has a close coordination with Paguyuban Petani Pasundan, a farmer organization

at regional level that is very active in agrarian reform.

In Kopeng, Setyo Manunggal farmer group was newly established in 2002. Fifty six farmers areregistered as member of this group. Group meeting is regularly held once a month to reviewprogram and update information on agricultural practices. Bina Desa has facilitated this groupwith a screen house and series of technical trainings to enable the group in producing virus freepotato seed. The initial objective of this project is to produce high quality and affordable seedfor local needs. Setyo Manunggal farmer group has a close coordination with Serikat PetaniMerbabu, a farmer organization at regional level.

In Wonosobo, Mekar Abadi farmer group was established in July 2000. Currently, this group

has 22 male and 24 female active members. Regular meeting is held once every 35 daysmainly to discuss the progress of group activities and share agricultural knowledge/experience.The group actively sends its representatives to attend trainings or invites speakers to conductin-group trainings on variety topics, included specific topics in agriculture and/or general topicsin capacity building. This group also runs a cooperative that offers installments for householdwares, agro-inputs and credits. Recently, with the assistance from Bina Desa, the groupexpands its activities by building a screen/plastic house to operate a cabbage seedlingproduction unit. The unit has started to sell the seedlings to local farmers and farmers fromother villages. Responding to increasing seedling demand, the group plans to build anotherscreen/ plastic house.

II. Agronomic, Marketing and Economic Characterization

2.1. Garut

Producing potato seed has been selected by the farmer group as the most preferred option. Interms of the biophysical or agronomic properties, Garut is technically quite suitable for potatoseed production. In other words, the existing biophysical environment, at some degrees,relatively fit the agronomic requirements for this option. Cropping period from planting to whenproductivity falls below 30% of the crops maximum potential varies depending on the seed

generation that would be produced. Meanwhile, 50 days after planting, it is estimated that theproductivity of the crop reaches at least 30% of the crops maximum yield. Potato seed

Agronomic Characterization Matrix

Complete Cycle Pre-productionCycle

TechnicalRequirements

WaterRequirementsProduction

Alternative (months) (days) (low, average orhigh)

SoilRequirements

PH

(mm/year)

Potato seed

Screen G0 = 8G1 = 6

G0 = 50G1 = 50

High andosol andregosol

5.0 6.0 2 000 3 000

Field G2 = 6G3 = 6

G4 = 6

G2 = 50G3 = 50

G4 = 50


5.0 6.0 2 400 3 600


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production requires considerable management and relatively high level of inputs. Potatoes(seed, mini tuber or cuttings) are grown in the highlands between 800 and 1 800 masl. In a fewareas, they are produced at elevations around 2000 masl if deep volcanic soils are available.

Need for irrigation Altituderequirements

Planting density YieldProduction

Alternative (yes or no) (m.a.s.l.)

Major pests and diseases

(kg./ha)

Potato seed

Screen No 1 200 2 000 G0 = 643G1 = 3 200G2 = 2 400G3 = 2 000G4 = 1 715

13 000 minitubers/60 m2screen130 kg/60 m2screen

Field No 800 1 800

Thrips (Thrips spp) Aphid (Myzus persicae, Aphis

spp)

Phthorimaea operculella Leaf miner fly( Liriomyza

huidobrensis)

Late blight (Phytophthorainfestans)

Bacterial wilt (Ralstoniasolanacearum)

Fusarium dry rot and wilt(Fusarium spp.)

15.9 - 18.3 t/ha

Normally the crop is produced in andosol and regosol soils with an pH of 5.0 to 6.0. Averagedaily temperature ranges from 15C to 22C. and night temperatures fluctuate between 11Cto 17C. Rainfall is between 200-300 mm per month with relative humidity of 80-95%. Anumber of potato pests and diseases are commonly found in the area. If the attack occurs, leafminer fly is the number one pest. Late blight (Phytophthora infestans) is the most importantdisease, followed by bacterial wilt (Ralstonia solanacearum). Fusarium dry rot and wilt(Fusarium spp.) is considered to be the next in importance.

The majority of seed used in the targeted region is sought from the informal seed system. The

informal seed system consists of all farmer-based activities concerning seed production,distribution and utilization. In an informal system, the farmer either produces his own seed orgets it from other farmers. Thus, the targeted region has actually produced some of the potatoseed needed, at least through conventional method. However, it should also be noted that inCisurupan (about 20 km from the targeted location) there is a farmer group (Sumber Rejeki)that has produced clean potato seed under plastic house. The seed grower just recentlyoperates (2002), but it has directly sold the G0 to nearby farmers.

Marketing Characterization Matrix

Currentcommercialization

Degree ofperishability

Type of client Services to theclient

Type of market

Productionalternative (yes or no) (high, intermediate

or low)TA=technicalassistanceCr=credit

L=localR=regionalN=nationalExp=export

Potato seed yes low to intermediate Potato growerPotato seed grower

Cr L and R

Growth of demand Qualityrequirements

Packagingrequirements

Deliveryrequirements

Commercialrelationship

Productionalternative

(high, intermediateor low)


PA=delivered atzonePW=delivered atwarehouse

AG=agreementPA=partnershipCO=contract

Potato seed intermediate high Wooden box PA AG


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The perishability of potato seed could be categorized as low to intermediate, since it could bestored for 3-4 months (dormancy) before planting. During storage, sortation is conductedseveral times especially to get rid off some tubers due to spoilage. The weight loss duringstorage is approximately 20%. The type of client is basically farmers who grow potatoes eitherfor table consumption (ware/fresh potatoes) and seeds. Farmers usually purchase seeds and

pay them in cash. Nonetheless, there are also some seed growers or seed merchants whoprovide credits for farmers by letting them to pay for the purchased seeds after harvest. Themarketing outlet for potato seed is mostly local and regional, for example, Sumber Rejekifarmer group has even sold the seeds to Padang, West Sumatra.

No data are available regarding potato seed demand. Thus, the annual growth rate of demandfor potato seed is estimated by using the data on potato harvested area in Garut during theperiod of 1998-2002. Statistical analysis shows that potato seed has experienced the pattern ofconstant growth rate over the period of 1998-2002, and the average growth rate over therelevant period is equal to 4.54% (intermediate).

Shortage of good quality seed has been recognized as the single most important factorinhibiting potato production. It is generally agreed that the low yields being achieved are thedirect result of poor quality seed. In consequence, the degree of client requirements for potatoseed is categorized as high. Farmers are very aware that clean, healthy and early generation ofseed may guarantee a successful farming. They usually purchase the seed directly from seedgrower or seed merchant and ask the seller to deliver the product to his or her house inwooden boxes. The common relationship between farmer and seed grower/merchant is aninformal agreement, whereby satisfactory product quality, price and volume affect thenegotiation.

Potato degeneration caused by virus disease results in a serious loss of the yield. Use of virus-free seed tubers is a successful way to control the disease. Potato micro-tubers, produced invitro from virus-free plantlets of meristem culture, have advantage of no limitation of productionseason and are easy to storage and handling. Since producing clean and healthy potato seedusing this technique requires strong control, the level of technology is categorized as high.

Price functions as a director of the potato or vegetable economic activity, serves as a rationingmechanism for product produced during one period of the year, and becomes a barometer andmeasure of the behavioral dimensions at work in the market of potatoes or vegetables.Because the factors influencing demand and supply are continuously changing, it may beexpected that the time path of potato or vegetable prices will show variations. Under

competitive conditions, fluctuations in prices may be caused by the shifts in vegetable supplyand demand. Comparing the variability of prices can be indicative of the locus of priceinstability. Weekly farm gate prices from January to June 2003 are used to compare the pricevariability of potato, cabbage, tomato and hot pepper. The results show that the magnitude ofvariation in producer or farm-gate prices for potato is considerably lower than that of three othercrops. This may imply that the price of potato is much more stable than the price of hot pepper,cabbage and tomato. No time-series secondary data are available for the price of potato seed.However, field observation indicates that the price of potato seed is usually even more stablethan the price of ware or fresh potato. During the discussion/interview, farmers opinions alsosupport this observation that the price of potato seed fluctuates less than the price of table-consumption potato.


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Economic Characterization Matrix

Production alternativeLevel of technology

(high, intermediate or low)

Price stability

(coefficient of variation)

Pre-production investment

(Rp./ 60 m2 screen or Rp./ha)

Potato seed

Screen High 5 000 000

Field High 20 000 000

Potato High 19. 54 20 000 000 30 000 000

Cabbage Intermediate to high 69.04 15 000 000 25 000 000

Tomato Intermediate to high 95.20 15 000 000 25 000 000

Hot pepper High 48.55 20 000 000 30 000 000

There is a wide variation in the productivity and efficiency of farms, thus making an "average"

farm or an "average" cost of production is difficult or impossible to determine. Likewise,"average" productivity and costs of production are not meaningful since new farm units andmanagement systems may achieve significantly higher levels of production. Wide variation incost of production reflects the variation of input use intensity at the farmers level. Potato andpotato seed are included in crops that have high range of production cost.

2.2. Kopeng

Prior to the survey, farmer group in Kopeng has selected potato seed production as businessoption that is most probably to pursue. The group selects this option based on the longexperience of its members in growing potatoes and dealing with the most important constraintin increasing production (that is the availability of high quality and affordable potato seed).There are two general production seasons applied in this location: (1) wet season crop fromSeptember until December and (2) dry season crop from April until July. However, due to thetropical climate, continuous production is possible throughout the year. In Kopeng, potatoes arepart of the vegetable complex located in the higher elevations above 800 - 1800 meters. Theyare mostly produced by small farmers, especially for commercial purposes (sold to thetraders/markets). Potatoes are mainly grown on highland, non-irrigated fields and plantedprimarily as a mono-crop. Judging from its continuing increase in harvested area andreasonable yield, potatoes seem to be very well adapted to the existing biophysical

environment. In other words, the existing biophysical environment, at some degrees, relativelyfit the agronomic requirements for this option. The generation of produced seed would




WaterRequirementsProduction

Alternative (months) (days) (low, average orhigh)

SoilRequirements

PH

(mm/year)

Potato seed

Screen G0 = 8G1 = 6

G0 = 50G1 = 50


5.0 6.0 2 000 3 000

Field G2 = 6G3 = 6

G4 = 6

G2 = 50G3 = 50

G4 = 50


5.0 6.0 2 400 3 600


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determine cropping period from planting to when productivity falls below 30% of the cropsmaximum potential. It is estimated that the productivity of the crop reaches at least 30% of thecrops maximum yield at 50 days after planting. The technical requirements of potato seedproduction are quite high, since it requires considerable management and relatively high levelof inputs.

Need for irrigation Altituderequirements

Planting density YieldProductionAlternative (yes or no) (m.a.s.l.)


(kg./ha)

Potato seed

Screen No 1 200 2 000 G0 = 643G1 = 3 200G2 = 2 400G3 = 2 000G4 = 1 715

13 000 minitubers/60 m2screen130 kg/60 m2screen

Field No 1 000 1 800

Thrips (Thrips spp) Aphid (Myzus persicae, Aphis

spp)

Phthorimaea operculella Leaf miner fly( Liriomyza

huidobrensis)

Late blight (Phytophthorainfestans)

Bacterial wilt (Ralstoniasolanacearum)

Fusarium dry rot and wilt(Fusarium spp.)

15.9 - 18.3 t/ha

Potato crop or potato seed is produced in andosol and regosol soils with pH of 5.0 to 6.0. Average daily temperature ranges from 15C to 22C. and night temperatures fluctuatebetween 11C to 17C. Rainfall is between 200-300 mm per month with relative humidity of 80-95%. The potato is prone to more than one hundred diseases caused either by bacteria, fungi,viruses or micro-plasmas. Since potatoes are usually grown from tubers rather than botanicalseed, the seed tuber often provides the major source of disease infection. Therefore, the

disease status of a crop often reflects the spectrum of diseases carried by the seed tubers toproduce it. Potato diseases and pests observed in the field are the following: (a) fungal lateblight, early blight, pink rot, fusarium dry rot and wilt, stem canker and black scurf; (b) bacterial

bacterial wilt; (c) virus PVY, mosaics symptoms; and (d) pests potato tuber moth, aphids,mites. Farmers indicate that if the attack occurs, leaf miner fly is the number one pest. Lateblight (Phytophthora infestans) is the most important disease, followed by bacterial wilt(Ralstonia solanacearum). Fusarium dry rot and wilt (Fusarium spp.) is considered to be thenext in importance.

Seed is one of the basic inputs of any crop production process. In traditional peasantagriculture, farmers do not necessarily have specific fields for production of future seedotherwise planting material is saved from the ware crop. The commonest practice amongpotato farmers in Kopeng as a way of saving future seed is to sell the big tuber, consume thenext grade that would not be sold as ware potato, and save the smallest tubers as futureplanting material. There is no factor more important in potato production than a steady supplyof quality seed. In the absence of a formal seed potato production system, peasant farmersthus tend to recycle future planting materials from any type of potato crop irrespective of thehealth status. The result of this may be the accumulation and dissemination of potato diseasesleading to consequential decline in yield. Thus, the targeted region has actually produced someof the potato seed needed, at least through conventional method.

Potatoes are a semi-perishable crop. Unlike cereal grains, potatoes cannot be stored from onecrop year to the next due to physiological deterioration. But unlike many vegetables and fruits,


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potatoes can be stored for several months without serious loss of quality. This characteristic ofthe potato has enabled it to become available in markets year-round even in areas whereclimate conditions limit production to a few months of the year. This also allows some farmersto equalize temporary imbalances between





Type of market




Potato seed yes low to intermediate Potato growerPotato seed grower

Cr L and R










Potato seed high high Wooden box PA AG

demand and supply of fresh potatoes. Farmers storing potatoes for ware report average lossesof 5-10%, while those storing for seed report losses 15-25%. However, some farmers also

indicate that there is relatively little storage of ware potatoes destined for the market. Most ofthe losses reported is due to weight loss, with the remaining due to rottage. As seed, potatocould be stored for 3-4 months (dormancy) before planting. Every farmer storing seed potatoselects the tubers for final storage. Unhealthy tubers, cut tubers, tuber having spots, and largetubers are sorted out. Sorting is carried out several times during storage, especially to get ridoff some tubers due to spoilage.

There are two types of client for potato seed. Those are farmers who grow potatoes mainly fortable consumption and save some of the harvest for next planting seeds and those whocultivate mainly for producing potato seeds. Seed renovation occurs when farmers do not haveenough of their own seed or when their crops become so badly diseased that yields are

seriously affected. In these cases, farmers usually purchase new seed from seed growers orseed merchants. Farmers usually purchase seeds and pay them in cash. Nonetheless, thereare also some seed growers or seed merchants who provide credits for farmers by letting themto pay for the purchased seeds after harvest. The marketing outlet for potato seed is mostlylocal and regional.

No secondary data are available regarding potato seed demand in the targeted area. Thus, theannual growth rate of demand for potato seed is estimated by using the data on potatoharvested area (Getasan sub-district) during the period of 1998-2002. Statistical analysisshows that the average of growth rate in harvested area is equal to 7.31% with a constantpattern. This may also reflect the demand for potato seed that has experienced the pattern of

constant growth rate over the period of 1998-2002, and the average growth rate over therelevant period is equal to 7.31% (high).


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Principal production constraints include diseases (especially late blight and bacterial wilt),shortage of good quality seed and soil fertility that tends to decline as reflected by higher andhigher use of external chemical fertilizers. Seed is perceived by farmers as a basic input inpotato production, since crop productivity is directly related to the genetic potential of the seedplanted, in addition to effective use of other recommended inputs and appropriate crop

management practices. It is generally agreed that the low yields being achieved are the directresult of poor quality seed. In other words, potato crop performance is directly related to seedtuber performance. Good quality seed tubers must be able to produce healthy, vigorous plantsthat produce a high yield of good quality within the time limits set by the growing season inwhich the seed is going to be used and given the socio-economic and agronomic environmentin which the seed will be planted. Farmers are very aware that clean, healthy and earlygeneration of seed may guarantee a successful farming. This implies that the degree of clientrequirements for potato seed is categorized as very high.

Farmers obtain their seeds mostly through the informal sector, which includes farm-saved seedand various other local mechanisms such as exchange, barter, and local markets. Seed

obtained from these informal channels does not usually come from planned seed productionand usually represents a part of the potato crop. Meanwhile, healthy, viable seed of thepreferred variety needs to be available at the right time, under reasonable conditions, so thatfarmers can use their land and labor resources with the best yield expectations. The wrongvariety, sown at the wrong time with infected seed of poor germination potential, will seriouslylimit a farmers expectation of production and productivity. They usually purchase the seeddirectly from seed grower or seed merchant and ask the seller to deliver the product or bringthe seed by themselves to their house in wooden boxes. The common relationship betweenfarmer and seed grower/merchant is an informal agreement, whereby satisfactory productquality, price and volume affect the negotiation.

Even under the most favorable seed production conditions, four to five field multiplicationscauses the progressive deterioration of seed through an accumulation of viruses and varioussoil and tuber borne pathogens. Potato degeneration caused by these diseases results in aserious loss of the yield. Under these conditions, there is obviously tremendous commercialpotential for adoption of processes, which will allow for production of affordable seed potatoesfrom significantly reduced field multiplications. Potato micro-tubers, produced in vitro from virus-free plantlets of meristem culture, have advantage of no limitation of production season and areeasy to storage and handling. Since producing clean and healthy potato seed using thistechnique requires strong quality control, the level of technology is categorized as high.

Potatoes are basically grown in many agroecological niches at different times of year, thusprices tend to be unstable and their movements tend to be unpredictable. Most potato growerssell most of their harvest. For them, potato marketing may be more critical than productionbecause a sharp drop in price could cancel out all the potential benefits of a bumper crop. Atharvest time, if all potatoes in the region are offered for sale, the market supply mounts abruptlyand the price plummets. After the harvest, the market supply of potatoes contracts and theprice rises again. The economic implications of price instability are quite different from those ofthe regular price cycles. Where producers, market agents and consumers could not reliablypredict the production and price cycles, they may be confronted by difficulties to adjust theireconomic activities to protect them or take advantage of, these cycles. Price fluctuation alsocommonly occurs in potatoes, but it is not as sharp as that in other vegetable crops. Comparing

the variability of prices can be indicative of the locus of price instability. Daily prices in Getasanassembly market from March 24 to April 26, 2003 are used to compare the price variability of


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Economic Characterization Matrix

Production alternativeLevel of technology

(high, intermediate or low)

Price stability

(coefficient of variation)

Pre-production investment

(Rp./ 60 m2 screen or Rp./ha)

Potato seed

Screen High 5 000 000

Field High 20 000 000

Potato (ware) High 4. 21 20 000 000 30 000 000

Cabbage Intermediate to high 10.69 15 000 000 25 000 000

Chinese cabbage Intermediate to high 14.99 15 000 000 25 000 000

Kidney bean Intermediate to high 7.58 15 000 000 20 000 000

potato, cabbage, chinese cabbage and kidney bean. The results show that the magnitude of

variation in daily prices for potato is much lower than that of three other crops. This may implythat the price of potato is much more stable than the price of cabbage, Chinese cabbage andkidney bean. Unfortunately, no time-series secondary data are available for the price of potatoseed. Depending on its generation, the price of potato seed may be 3-4 times higher than theprice of ware potatoes. However, field observation indicates that the price of potato seed isusually more stable than the price of ware or fresh potato. During the discussion/interview,farmers opinions also support this observation that the price of potato seed fluctuates less thanthe price of table-consumption potato.

Potatoes are a reliable crop. They can produce a high volume of tubers per area, can tolerate a

wide range in environmental conditions, and are adaptive to various production methods.Potatoes are tasty, nutritious, and can be stored for a long time. For these reasons, they arenow one of the most important vegetable crops grown in Kopeng, in terms of acreage grown,yield and value of crop. Meanwhile, seed potato production is an intensive type of productioncharacterized by high input costs and management requirements per unit area. It is alsocharacterized by high returns per unit area. Therefore, in terms of the amount of money neededfor the crops first harvest, or for its introduction into the market, potato and potato seedproduction are considered as activities that require high pre-production investment.

2.3. Wonosobo

Since the plantlets provided are not survived, farmer group in Wonosobo has decided to usethe plastic house for producing cabbage seedlings as a business option to pursue. The groupselects this option since cabbage is one of important vegetable crops grown in the area.Therefore, the cabbage seedlings are expected to be demanded all year round. The group alsofeels that raising cabbage seedlings in plastic house may increase the bargaining power inseedling market, since the produced seedlings are supposed to be cleaner and healthier. Theidea is brought about by the need to protect crops against the unfavorable environmentalconditions. Plant growth is limited in certain climatic conditions either all through out the year orduring part of the year because of adverse climatic conditions. Plastic house is a simple form ofgreenhouse, which are generally smaller in size but are best suitable for raising seedlings andcultivating crops throughout the year. It is a simple structure constructed with locally availablematerials such as bamboo. The UV stabilized film is used as cladding material. Unlike


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conventional greenhouse, no specific control devices are provided for regulating environmentalfactors inside the plastic house. However, simple techniques can be adopted for increasing ordecreasing the temperature and humidity. Use of shading cloths and shading nets can reducelight intensity. The temperature can be reduced during warm season by opening all side-walls.Such structure is also known as rain-shelter. Healthy and early availability of seedlings are as

important as any other engineering, agronomic or water management practices. Earlyseedlings ensure uniform crop growth and high yield by increasing tolerance of the plantsagainst the diseases and adverse environmental conditions.

Cabbage is an important crop in highland area that generally requiring 60 to 100 days fromsowing to reach market maturity, depending on the variety. As long as water minimumrequirement could be satisfied, cabbage could be grown all year round. Although it can bedirect-seeded, most cabbage production relies on the use of transplants/seedlings. Idealmonthly temperatures for optimal growth and development ranges from 15C to 20C.Wonosobos climate provides a relatively long growing season for producing cabbage.

Although this crop grows best in light, fertile, well-drained soils, when production is properly

managed, it can be grown successfully in a wide range of soil types throughout Wonosobo.

Plants depend on the soil for physical support, nutrients and water. The degree to which thesoil adequately provides these factors depends upon topography, soil type, soil structure andsoil fertility. Under cultivated conditions, soil and fertilizer management are two key factorsinfluencing plant growth and yield. Tillage is a general term for any operation that disruptsand/or moves the soil, typically within 25 to 30 cm of the soil surface. Land preparation involvesone or more tillage operations that loosens, pulverizes, smoothens or firms the soil and makesit more conducive to plant establishment and root growth. Growth of cabbage roots isinfluenced (and in many cases is limited) by the soil profile. Hard pans, clay pans and generallycompacted soil restrict root growth. This, in turn, reduces nutrient and water uptake, limits plantgrowth and reduces yields. Although cabbage is shallow rooted, under favorable conditions andin properly prepared soil, roots will grow to a depth of 45 to 60 cm.

In Wonosobo, cabbages are part of the vegetable complex located in the higher elevationsabove 800 - 2 000 meters. Farmers grow cabbage for commercial purposes since all harvest issold to the markets. Cabbages seem to be very well adapted to the existing biophysicalenvironment as reflected by continuing increase in harvested area with reasonable yield. Inother words, the existing biophysical environment, at some degrees, relatively fit the agronomic




WaterRequirementsProduction Alternative

(low, averageor high)

SoilRequirements

pH

(mm/year)

Cabbage seedlings 20 days 7 days Average to high sub-soil +manure(sterilized)

6.0 6.5 2 000 3 000

Cabbage 50 days 30 days Average to high well-drained,loam soils richin organicmatter

6.0 6.5 2 000 3 000

Chayote 12 months 4 months Low to average deep soil withplenty of

organic matter

5.0 6.0 1 500 2 000


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requirements for this crop. The cropping period from planting to when productivity falls below30% of the crops maximum potential is estimated to occur at 50 days after planting. It isestimated that the productivity of the crop reaches at least 30% of the crops maximum yield at30 days after planting. The technical requirements of cabbage seedlings and cabbageproduction are quite high, since it requires considerable management and relatively high level

of inputs.

Need forirrigation

Altituderequirements

Planting density YieldProduction Alternative

(yes or no) (m.a.s.l.)


(plants/ha)

Cabbage seedlings No 800 2 000

Cabbage No 800 2 000 Cabbageworm (Plutellaxylostella)

Crocidolomia binotalis Agrotis ipsilon Spodoptera exigua Spodoptera litura Myzus persicae Helicoverpa armigera Black rot (Xanthomonas

campestris)

Erwinia carotovora Plasmodiophora brassicae Alternaria leafspot (Altenaria

spp)

Downy mildew (Peronosporaparasitica)

Wirestem, bottom rot and headrot

(Rhizoctonia solani)

25 000 33 000 20 40 t/ha

Chayote No 300 1 800 Ascochyta phaseolorum Mycovellosiella cucurbiticola

Fusarium oxysporum Complexes of these and otherspecies)

1 000 1 500 15-22 t/ha

Cabbage can be grown on a wide range of soil types. A well-drained sandy loam soil with goodorganic content is preferred. Farmers have to avoid soils that tend to dry quickly. They have toadjust soil pH to between 6.0 and 6.5. Cabbage are susceptible to a number of diseases thatmay seriously injure or even destroy the crop. Some diseases may cause only minor spotting,but because the leaves are consumed, the quality may be reduced below market standards.Some general problems which might be encountered are: the cabbage-worm complex(cabbage looper, diamond-backed moth, and cabbage-worm); and aphids. Nematodes,

particularly the root knot nematode, can cause problems on the crop. Diseases which may beencountered are: downy mildew, Alternaria leaf spot, Cercospora leaf spot, black rot, bacterialsoft rot, and turnip mosaic virus. Downy mildew is primarily an early season problem. Black rotcan be managed best by using disease-free transplants, heat-treating seeds, and implementinga strict 3- to 4-year non-crucifer rotation. Bacterial soft rot is more severe on crops which havebeen fertilized too heavily with nitrogen, had late nitrogen applications, or are allowed tobecome over-mature before harvesting.

Since 1999/2000, chayote has been widely grown by farmers more intensively in Wonosobo.The most common and efficient way of propagating chayote is to use the fruits and the mostcommon way of planting consists of planting one or more complete fruits once the seedling has

sprouted. In areas where chayote is traditionally produced, the planting site is prepared inadvance. A sufficiently large hole (usually filled with organic manure) is dug to enable the roots


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to grow to their full extent without damage. A frame of bamboos is often made nearby so thatthe plant has somewhere to climb. During the first weeks of plant development, care isrelatively intense (watering, fertilizing, etc.) although attention to the root (protecting it fromphysical damage and adding fertilizer) is considered to be of great importance through-out thelife cycle of the plant. The number of plants which can be cultivated in a traditional garden

varies considerably. Much will depend on the size of the site and seed availability. The distancebetween each planting point varies from 6 to10 m.

Planting of chayote can take place at any time during the year, although it is often done at thebeginning of the rainy season or even during the months of highest precipitation. This fact isimportant, mainly because during the first stages of its growth, the plant develops a very densefoliage which causes a vast loss of water by means of evapo-transpiration. The duration of theproductive cycle of the plant varies considerably for phenotypes produced in traditionalagriculture areas. From commercial perspectives, however, the life cycle of the plants is from 1to 3 years. The plants are then removed and replaced to help prevent the spread of disease.Moreover, it has been observed that after the first year of production, the plants begin to lose

their strength and productivity is reduced.

One plant can produce even more than 300 fruits per year. It is estimated that the yields mayreach 15-22 t/ha. Chayote fruits are harvested manually as often as required depending,obviously, on the productivity of the plant. Once the fruits have been collected and selected,they are put in sacks and sent to the packers or assembly traders. A wide range of pests anddiseases attacks chayote. Most of these are caused by fungi although some are caused bynematodes and insects. These diseases are of great importance since they can attack one ormore parts of the plant at any time during its development.

In growing cabbage, some farmers opt to produce their own transplants in field beds whereseed is scattered over a prepared area and then transplants are dug 3 to 4 weeks later. Oneounce of cabbage seed will produce about 5,000 transplants. Few farmers not only produceseedlings for their farms, but also sell them to other farmers. Thus, the targeted region hasactually produced the cabbage seedlings needed.

Cabbage and chayote are categorized as intermediate to high perishable crops. Type of clientfor cabbage seedlings is cabbage growers or farmers, while the type of client for cabbage andchayote is vegetable traders or vegetable consumers. Cabbage seedlings are purchased andused by local farmers or local cabbage growers. In the mean time, cabbage and chayote havebeen marketed locally and inter-regionally.





Type of market




Cabbage seedlings Yes high cabbage grower L

Cabbage Yes Intermediate to high Trader andconsumer

L and R

Chayote Yes Intermediate to high Trader andconsumer

L and R


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Cabbage seedlings intermediate high Wooden box PA AG

Cabbage intermediate intermediate sacks PA AG

Chayote intermediate sacks PA AG

Little information (no secondary data) is available regarding cabbage seedling demand in thetargeted area. Thus, the annual growth rate of demand for cabbage seedlings is estimated byusing the data on cabbage harvested area (Garung sub-district) during the period of 1998-2002. Statistical analysis shows that the average of growth rate in harvested area is equal to4.81% with a constant pattern. This may also reflect the demand for cabbage seedlings seedthat has experienced the pattern of constant growth rate over the period of 1998-2002, and the

average growth rate over the relevant period is equal to 4.81% (intermediate). Meanwhile, thegrowth rate for chayote could not be estimated, since the area or production data are notavailable.

Typically, three to four-week old seedlings are transplanted into the field. Cabbage transplants,should be hardened off before they are transplanted in the field. Hardening off is a techniqueused to slow plant growth prior to field setting so the plant can more successfully withstandunfavorable conditions in the field. Cabbage transplants are sensitive to environmentalconditions. An ideal transplant is young (10-12 cm tall with a stem approximately 25-40 mm indiameter), exhibits rapid vegetative growth, and is slightly hardened at transplanting time. Goodgrowth following transplanting helps assure a well-established plant. Transplants should be set

out as soon as possible after they are removed from their containers or pulled. When settingout plants, the transplant should be planted deeply enough to completely cover the rootball(slightly deeper than they were grown). At transplanting, an appropriate fertilizer starter solutionshould be applied. After transplanting (especially within the first two weeks), it is very importantthat soil moisture be maintained so that plant roots can become well established. This impliesthat the degree of client requirements for cabbage seedlings is categorized as high. Meanwhile,market observation indicates that the common relationship between producers or sellers andbuyers of cabbage seedlings, cabbage and chayote is an informal agreement, wherebysatisfactory product quality, price and volume affect the negotiation.

Producing firm, clean and healthy cabbage seedlings under plastic house requires good qualitycontrol, the level of technology is categorized as intermediate to high. Supply and demanddetermine the general price level. The competing states production determines the supply.Consumers willingness to buy different quantities at different prices determines the demand.Vegetable prices vary greatly within a season and between years. Weather effects onproduction cause most of the price variation within season. Changes in acreage and weathercause price variations among years. Demand changes are slight from year-to-year and causevery little of the price variation. Price fluctuation also commonly occurs in cabbages andbecause of its high perishability, the fluctuation is usually sharper than in other vegetable crops.Comparing the variability of prices can be indicative of the locus of price instability. Weeklyprices in Binangun, Wonosobo assembly market from January to April 2003 are used to

compare the price variability of cabbage, chinese cabbage, chayote and potato. The resultsshow that the magnitude of variation in weekly prices for cabbage is much higher than that of


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The schedule for planting and harvesting is as follows:

Seed Screen or open field Planting Harvesting Seed ready to besold or planted

Plantlet Screen Oct 2003 Jan 2004 Apr 2004

Planting G0 Screen Apr 2004 Aug 2004 Nov 2004

Planting G1 0.28 ha Nov 2004 Feb 2005 Jun 2005

Planting G2 0.56 ha Jun 2005 Sep 2005 Jan 2006

Planting G3 0.93 ha Jan 2006 Apr 2006 Aug 2006

Targeted production and its composition in tuberlets and kg:

SeedGeneration Totalproduction Loss Rotten WarepotatoesReplanted Sold

G0 13 000 tblts - 650 tblts - 7 410 tblts 4 940 tblts

G1 1 650 148 45 165 904 388

G2 4 520 384 115 678 1 337 2 006

G3 8 910 713 214 1 782 1 860 4 341

G4 12 610 1 115 335 3 720 - 7 440

Some following tables are derived sequentially to show the steps in calculating Benefit Cost

Ratio, Net Present Value and Internal Rate of Return of the option selected by farmer group.

A. Investment and Working Capital1 Investment

Screen/plastic house (120 m2) Equipments (sprayer, hoe, etc.)

3 000 000

500 000

Sub total 3 500 000

2 Working Capital

Land rent

Utilities for screen house and field activities Supervisor

3 x 0.012 x 2 500 000

0.10 x 2 500 000

0.28 x 2 500 000

0.56 x 2 500 000

0.93 x 2 500 000

3 x 750 000

3 x 12 x 300 000

90 000

250 000

700 000

1 400 000

2 325 000

2 250 000

10 800 000

Sub total 17 815 000

Total 21 215 000


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B. Source of Funding1 Credit or loan from the Bank with a 10% interest 9 000 000

2 Funding raised by the group 12 215 000

Total 21 215 000

C. Production Plan

Year 1 Year 2 Year 3

Seed (G0) (tuberlets) 4 940

Selling price (Rp./tuber) 1 000

Value (Rp.) 4 940 000

Seed (G1) (kg) 388

Selling price (Rp./kg) 13 500

Value (Rp.) 5 238 000

Ware potatoes (kg) 165


Value (Rp.) 330 000

Seed (G2) (kg) 2 006


Value (Rp.) 22 066 000

Ware potatoes (kg) 678


Value (Rp.) 1 356 000

Seed (G3) (kg) 4 341


Value (Rp.) 34 728 000

Ware potatoes (kg) 1 782


Value (Rp.) 3 564 000

Seed (G4) (kg) 9 709


Value (Rp.) 48 545000

Ware potatoes (kg) 3 720


Value (Rp.) 7 440 000


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Profit/Loss Performance

YearNo

1 2 3

A Revenue

Seed (G0) 4 940 000

Seed (G1) 5 238 000

Ware potatoes 330 000

Seed (G2) 22 066 000

Ware potatoes 1 356 000

Seed (G3) 34 728 000


Seed (G4) 48 545000


Total revenue 10 508 000 61 714 000 55 985 000

B Operational Costs

Fixed costs

Supervisor Land rent Utilities Maintenance Miscellaneous

3 600 000340 000750 000600 000200 000

3 600 0002 100 000

750 000600 000200 000

3 600 0002 325 000

750 000600 000200 000

Variable costs

Seed Other inputs Labor Miscellaneous Interest (10%)

7 710 0001 775 0002 130 000

400 000900 000

26 911 0006 720 0003 360 000

840 000600 000

14 880 0007 440 0003 720 000

930 000300 000

Total operational cost 18 405 000 45 681 000 34 745 000

C Benefit - 7 897 000 16 033 000 21 240 000

D Tax (20%) 0 3 206 600 4 248 000

E Net Benefit - 7 897 000 12 826 400 16 992 000


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Benefit/Cost Analysis

YearNo

1 2 3

A Revenue

Seed (G0) 4 940 000

Seed (G1) 5 238 000

Ware potatoes 330 000

Seed (G2) 22 066 000


Seed (G3) 34 728 000


Seed (G4) 48 545000


Total revenue 10 508 000 61 714 000 55 985 000

B Costs

Investment 3 500 000

Fixed costs

Supervisor Land rent Utilities Maintenance Miscellaneous

3 600 000340 000750 000600 000200 000

3 600 0002 100 000

750 000600 000200 000

3 600 0002 325 000

750 000600 000200 000

Variable costs

Seed Other inputs Labor Miscellaneous Interest (10%)

7 710 0001 775 0002 130 000

400 000

900 000

26 911 0006 720 0003 360 000

840 000

600 000

14 880 0007 440 0003 720 000

930 000

300 000

Principal Installment 3 000 000 3 000 000 3 000 000

Total costs 24 905 000 48 681 000 37 745 000

C Benefit - 14 397 000 13 033 000 21 240 000

D Tax (20%) 0 2 606 600 4 248 000

E Net Benefit - 14 397 000 10 426 400 16 992 000


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F. NPV at DF (10%), (40%) and (55%)

Year Revenue Cost Tax Net Benefit DF=10% NPV atDF=10%

Disc.Benefit

Disc. Cost

(1) (2) (3) (4) =(1)-(2)-(3)

(5) (6) =(4) x (5)

(7) =(1) x (5)

(8) =(2+3)x(5)

1 10 508 000 24 905 000 0 - 14 397 000 0.909 - 13 086 873 9 551 772 18 170 910

2 61 714 000 46 681 000 2 606 600 10 426 400 0.826 8 612 206 50 975 764 28 462 969

3 55 985 000 37 745 000 4 248 000 16 992 000 0.751 12 760 992 42 044 735 35 669 947

8 286 325 102 572 271 82 303 826

Year DF=40% NPV atDF=40%

DF=55% NPV atDF=55%

(9) (10) =(4) x (9)

(11) (12) =(4) x (11)

1 0.714 - 10 279 458 0.645 - 9 286 065

2 0.510 5 317 464 0.416 4 337 382

3 0.364 6 185 088 0.268 4 553 856

1 223 094 - 394 827

Some findings from the analysis are:

The NPV method uses the opportunity cost of capital as the discount rate. It is thereforeassumed that operating cash flows are reinvested at a rate equal to pre-specified cost ofcapital. It is usual to use NPV to assess enterprises by accepting all enterprises with NPVequal to or greater than zero, but this must be discounted at a satisfactory estimate of theopportunity cost of capital. In the case of potato seed enterprise, the NPV at DF(10%) isequal to 8 286 325 (positive). This implies that the net benefit received in the next threeyears (Rp. 13 021 400) will worth Rp. 8 286 325 at present, with the interest rate of 10%per year. Since the NPV is greater than zero, the option of producing virus-free potato seedcould be financially accepted.

A seed enterprise is guided by normal commercial criteria (i.e., financial incentive or profitmotive) that require revenues to exceed costs. The B/C ratio is a ratio of all the discounted(yearly) incremental benefits and costs of an option (project). It expresses the benefitgenerated by the project per unit of cost of the project expressed in present values. Anenterprise will not be able to afford paying a rate of interest, which drives the benefit-costratio to less than one, since the returns generated will not be able to cover the initial cost

because the present value of costs will exceed the present value of benefits. The analysisindicates that the benefit-cost ratio of the potato seed enterprise, B/C = 102 572 271/82


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303 826 = 1.25 > 1. This implies that the option could be categorized as feasible andrecommended as a go project.

The internal rate of return (IRR) is the maximum borrowing rate or the maximum interestthat an enterprise could pay to cover all investment and operating costs. It is therefore the

break-even rate of return or rate of discount, which makes the present value of the revenueor benefit stream exactly equal to the present value of the cost stream (capital outlay). Inother words, the internal rate of return is the rate, which makes the present value of theentire stream of benefits and costs exactly equal to zero (i.e., NPV=0). The analysis showsthat the internal rate of return for the potato seed enterprise is:

IRR = 40% + [(1 223 094)/{(1 223 094) (-394 827)}] [55% - 40%]= 40% + [(1 223 094/1 617 921)] [15%]= 40% + 11.34%= 51.34%

This means that if the capital costs of the seed enterprise were financed by borrowing atmore than 50% rate of interest (the actual rate of interest is assumed at 10% per year),

then the enterprise would still earn sufficient income to repay the loan and interest charges.Thus, the financial evaluation suggests that the seed enterprise could be categorized asfeasible or go project investment.

Cabbage seedling production under plastic house

Data used in the financial analysis of cabbage seedling production are mostly obtained duringthe survey. When necessary, some reasonable assumptions are also made to complete theanalysis. Some tables are derived sequentially to show the steps in calculating Benefit CostRatio, Net Present Value and Internal Rate of Return of the option selected by farmer group.

A. Investment and Working Capital

1 Investment

Screen/plastic house Metal frame UV plastic Net 1 and net 2 (paranet) Labor Miscellaneous

1 200 000360 000830 000100 000279 600

Sub total 2 769 600

2 Working Capital

Land rent Seedling container/box Bamboo racks Supervisor/Worker

5 x 36 0005 x 150 0002 x 120 0005 x 12 x 50 000

180 000750 000240 000

3 000 000

Sub total 4 170 000

Total 6 939 600


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B. Source of Funding

1 Credit or loan from the Bank with a 10% interest 2 000 000

2 Farmer group (fund raised from the member ofthe farmer group)

4 939 600

Total 6 939 600

C. Production Plan

Year 1 Year 2 Year 3 Year 4 Year 5

Seedling (transplant) 140 000

Selling price (Rp.) 25

Value (Rp.) 3 500 000

Seedling (transplant) 150 000Selling price (Rp.) 30

Value (Rp.) 4 500 000



Value (Rp.) 5 600 000



Value (Rp.) 6 800 000



Value (Rp.) 8 100 000

D. Production Costs

Variable costs

Year Seed

(Rp.)

Other inputs

(Rp.)

Labor

(Rp.)

Sub total

(Rp.)

1 1 600 000 130 000 500 000 2 230 000

2 1 714 286 150 000 550 000 2 414 286

3 1 828 571 170 000 600 000 2 598 571

4 1 942 857 190 000 650 000 2 782 857

5 2 057 143 210 000 700 000 2 967 143

Total 12 992 857


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Fixed costs

Year Maintenance(facilities and equipment)

(Rp.)

Miscellaneous

(Rp.)

Total

(Rp.)

1 5 732 500 500 000 1 232 500

E. Financial Analysis

Implementation budget

Source of Funding Utilization

3. Credit Rp. 2 000 000

4. Group Rp. 4 939 600

Screen/plastic house Rp. 2 769 600o Metal frameo UV plastico Net 1o Net 2o Laboro Miscellaneous

Working capital Rp. 4 170 000 Land rent Seedling container/box Bamboo racks Supervisor/Worker

Total Rp. 6 939 600 Total Rp. 6 939 600

Repayment of loans and interest

Year Principal YearlyInstallment

Interest(10% per year)

1 2 000 000 400 000 200 000

2 1 600 000 400 000 160 000

3 1 200 000 400 000 120 000

4 800 000 400 000 80 000

5 400 000 400 000 40 000


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Profit/Loss Performance

YearNo

1 2 3 4 5

A Revenue

Seedling (transplant) 140 000 150 000 160 000 170 000 180 000

Selling price (Rp.) 25 30 35 40 45

Sales value (Rp.) 3 500 000 4 500 000 5 600 000 6 800 000 8 100 000

Total revenue 3 500 000 4 500 000 5 600 000 6 800 000 8 100 000

B Operational Costs

Fixed costs

Worker Land rent Seedling boxes Bamboo racks Maintenance Miscellaneous

600 00036 000

150 000120 000146 500100 000

600 00036 000

150 000

146 500100 000

600 00036 000

150 000

146 500100 000

600 00036 000

150 000120 000146 500100 000

600 00036 000

150 000

146 500100 000

Variable costs

Seed Other inputs Labor Interest (10%)

1 600 000130 000500 000200 000

1 714 286150 000550 000160 000

1 828 571170 000600 000120 000

1 942 857190 000650 00080 000

2 057 143210 000700 00040 000

Total operational cost 3 582 500 3 606 786 3 751 071 4 015 357 4 039 643

C Benefit - 82 500 893 214 1 848 929 2 784 643 4 060 357

D Tax (20%) 0 178 643 369 786 556 929 812 071

E Net Benefit - 82 500 714 571 1 479 143 2 227 714 3 248 286


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F. NPV at DF (10%), (15%), (20%) and (30%)

Year Revenue Cost Tax Net Benefit DF=10% NPV atDF=10%

Disc.Benefit

Disc. Cost

(1) (2) (3) (4) =(1)-(2)-(3)

(5) (6) =(4) x (5)

(7) =(1) x (5)

(8) =(2+3)x(5)

1 3 500 000 6 752 100 0 - 3 252 100 0.909 - 2 956 159 3 181 500 6 137 659

2 4 500 000 4 006 786 98 643 394 571 0.826 325 916 3 717 000 3 391 084

3 5 600 000 4 151 071 289 786 1 159 143 0.751 870 516 4 205 600 3 335 084

4 6 800 000 4 415 357 476 929 1 907 714 0.683 1 302 969 4 644 400 3 341 431

5 8 100 000 4 439 643 732 071 2 928 286 0.621 1 818 466 5 030 100 3 211 634

1 361 708 20 778 600 19 416 892

Year DF=15% NPV atDF=15%

DF=20% NPV atDF=20%

DF=30% NPV atDF=30%

(9) (10) =(4) x (10)

(11) (12) =(4) x (11)

(13) (14) =(4) x (13)

1 0.870 - 2 829 327 0.833 - 2 708 999 0.769 - 2 500 865

2 0.756 298 296 0.694 273 832 0.592 233 586

3 0.658 762 716 0.579 671 144 0.455 527 410

4 0.572 1 091 212 0.482 919 518 0.350 667 700

5 0.497 1 455 358 0.402 1 177 171 0.269 787 709

778 255 332 666 - 284 460

Some findings from the analysis are:

The NPV is the present worth of the net income stream generated by an investment. It iscalculated by discounting the difference of the incremental benefits and costs of a projectfor all periods. The NPV is a absolute, not a relative measure, therefore, no ranking ofacceptable, alternative projects possible (e.g. a small, but highly rentable project may havea smaller net present value than a large, only marginally acceptable project). In the case ofcabbage seedling enterprise, the NPV at DF(10%) = 1 361 708 (positive). This implies thatthe net benefit received in the next five years (Rp. 3 137 614) will worth Rp. 1 361 708 atpresent, with the interest rate of 10% per year. Since the NPV is greater than zero, theoption of producing cabbage seedlings could be financially accepted.

Carrying out a benefit-cost analysis is another way of evaluating and deciding whether toundertake a proposed investment. A formal application of benefit cost analysis involves


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estimating the stream of costs, set against a stream of future net benefits, which are spreadover a number of years and discounting these at a realistic rate of interest. The value of thebenefit cost ratio depends on the discount rate. The higher the discount rate, the lower thebenefit-cost ratio, since the value of the cost stream increases relatively to the benefitstream. By discounting the costs and benefit streams at 10% rate of interest, the analysis

indicates that the benefit-cost ratio of the cabbage seedling enterprise, B/C is equal to 20778 600 divided by 19 416 892 = 1.07 > 1. This implies that the option could becategorized as financially acceptable and recommended as a go project.

The internal rate of return (IRR) is the return to the capital invested or allocated forinvestment in the project. This is the discount rate that makes the net present value of theincremental net benefit stream equal zero. The IRR is therefore the maximum interest thatan enterprise could pay for the resources used if the enterprise is to recover its investmentand operating costs and still break even. The analysis shows that the internal rate of returnfor the cabbage seedlings enterprise is:

IRR = 20% + [(332 666)/{(332 666) (-284 460)}] [30% - 20%]

= 20% + [(332 666/617 126)] [10%]= 20% + 5.59%= 25.59%

This means that if the capital costs of the cabbage seedling enterprise were financed byborrowing at more than 25% rate of interest (the actual rate of interest is assumed at 10%per year), then the enterprise would still earn sufficient income to repay the loan andinterest charges. Thus, the financial evaluation suggests that the seed enterprise could becategorized as feasible or go project investment.

CONCLUSIONS AND RECOMMENDATIONS

4.1. Conclusions

The biophysical and socio-economic profiles basically provide portraits of typical highlandrural areas that have been known as vegetable production centers in West Java andCentral Java. Climate and soil characteristics in those three locations are quite similar andsuitable for growing some major vegetables, such as potato, cabbage and other leafyvegetables. Installed production capacities are mostly related to agricultural activities. The

average land holding is relatively small (less than 0.2 ha) and is perceived as the mainhindrance for farmers to achieve economies of scale. Marketing system for agriculturalproducts is still classified as traditional, with minimum marketing facilities available andrelatively wide fluctuation of output prices. Institutional setting, particularly in terms of theexistence of farmer groups, is still in the initial stage. In this phase, group capacity buildingis a must, not only for providing groups empowerment, but also for sustaining theexistence of the group.

In Garut and Kopeng, farmers have selected potato seed production (free virus, rapidmultiplication method) as the most preferred business option for their groups.Characterization indicates that the existing biophysical environment in each location

relatively fits the agronomic requirements of this option. At present, potato growers obtaintheir seeds mostly through the informal sector, which includes farm-saved seed and


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various other local mechanisms such as exchange, barter, and local markets. Seedobtained from these informal channels does not usually come from planned seedproduction and usually represents a part of the potato crop. Consequently, relativelyexpensive and uncertain quality seeds often confront farmers. The growth of demand forpotato seed, as represented by the growth of potato harvested area during the period of

1998-2002, is categorized as intermediate (4.54%) for Garut and high (7.31%) for Kopeng.Prices of potato seed and ware potato in the two locations are much more stable ascompared to those of other vegetables.

Meanwhile, farmer group in Wonosobo decides to produce cabbage seedlings underplastic house as its business option. The group feels that producing cabbage seedlings inplastic house may increase the bargaining power in seedling market, since the producedseedlings are supposed to be cleaner and healthier. The average of growth rate of seedlingdemand as predicted by the growth rate in cabbage harvested area is equal to 4.81% witha constant pattern. This may also reflect the demand for cabbage seedlings seed that hasexperienced the pattern of constant growth rate over the period of 1998-2002, and the

average growth rate over the relevant period is equal to 4.81% (intermediate). Qualitativeinformation gathered during the survey indicates that the price of cabbage seedlings isquite stable (no quantitative data available on seedling prices, thus its price stability couldnot be assessed quantitatively). However, it should be noted that the price of cabbage ismuch less stable as compared to the price of other vegetables.

Three indicators are used to assess the viability of potato seed production (apply for bothGarut and Kopeng):

o The NPV at DF(10%) is equal to 8 286 325 (positive). This implies that the netbenefit received in the next three years (Rp. 13 021 400) will worth Rp. 8 286325 at present, with the interest rate of 10% per year. Since the NPV is greaterthan zero, the option of producing virus-free potato seed could be financiallyaccepted.

o The benefit-cost ratio of the potato seed enterprise, B/C is equal to 1.25 > 1.This enterprise will be able to afford paying a rate of interest, since the returnsgenerated will be able to cover the initial cost because the present value ofcosts will not exceed the present value of benefits. This implies that the optioncould be categorized as feasible and recommended as a go project.

o The internal rate

Documents

Assessing the Viability of Virus Free Potato Seed Small-medium Enterprise