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Malaysia and Indonesia

Cocoa Production in Malaysia and Indonesia

by Joachim Milz

Malaysia was on the way to joining the group of the five biggest cocoa producing countries, with a spectacular increase of planted areas from 4,000 ha in 1970 up to 297,600 ha in 1990, followed by a sharp decrease to 30,800 ha in 2007. There is no other country with such dynamics in the cocoa plantation area.

Indonesia is one of the biggest cocoa producers in the world with cocoa seed production reaching 849,875 tons per year in 2009, even if it has not yet been widely recognized. The growth of Indonesia’s cocoa production over the past three decades has been remarkable, rising from just 4,000 tons in 1975/76 to around 800,000 tons in 2009/10 - an annual average increase of over 20%- and is currently the second largest cocoa producer. The majority of this increase came from smallholders producing at very low costs. Smallholders accounted for approximately 82% of production in the year 2000, compared to just 10% in 1980. In addition, the country’s infrastructure, combined with minimal government intervention, has created a highly efficient marketing system that results in growers receiving more than 75% of the export price (LMC International: The World Cocoa Market Outlook, May 2000).

CurrentlyIndonesia has the lowest production costs of the world’s major producers. Indonesian smallholder yields are considerably higher than their West African counterparts, reaching levels as high as 2,000 kg per hectare for a few years in areas with a low incidence of pests and diseases. A major factor is the age of the tree stock, with as much as half under ten years old, thus providing sufficient potential for the further expansion of production. On average, however, yields are much lower, at 1,000 kg per hectare. There are substantial areas of suitable land still available for new planting, together with a plentiful supply of labor (LMC International: The World Cocoa Market Outlook, May 2000).

The devaluation of the rupiah in mid-1997 provided a massive boost to local producer prices, providing further impetus to the expansion of output. Producer prices in local currency terms rose from an average of less than 2,500 Rp/kg in 1996/97 to more than 9,000 Rp/kg in 1997/98 and even reached 19,000 Rp/kg in June 1998, coinciding with the peak harvesting period. Indonesian beans are of relatively poor quality and sell at a discount on the world market. As a result, grower’s share of the ICCO price is relatively low despite receiving a high share of the f.o.b. price (LMC International: The World Cocoa Market Outlook, May 2000).

Cocoa in Indonesia is grown with high input of mineral fertilizer and pesticides, using similar technologies as in Malaysia during the 1980s. There is a high risk that similar problems as happened in Malaysia may occur in the near future. Therefore it is useful to have a look at what had happened in Malaysia with regards to the collapse of cocoa production in the 1990s.

In Malaysia the large cocoa plantations were mostly owned by corporations, some with state participation. In the 1980s they mainly cultivated rubber trees (Hevea brasiliensis) and oil palms (Elaeis guineensis), while the cocoa‐growing area of these societies was rarely more than 10% of the total production area. The production structure with the direct involvement of the state implied that significant investments in research and infrastructure were supplied, and public as well as private funds were invested in profitable agriculture branches (inter alia 17/82 in the form of cheap loans). Immigrants from Indonesia and the Philippines mainly covered all labor requirements (CIRAD, 1990).

During the 1980s the cocoa cultivation without shadowing was strongly reinforced, as well as the intensive use of chemical fertilizers and pesticides, in order to further increase yields. Plant health problems such as VSD (Vascular Streak Dieback) caused by the pathogen Oncobacilium theobromae or cocoa pod borer (Conopomorpha crammerella)/ CPB, were indeed existing latently but were not a serious threat (CIRAD, 1990; Chok, 1998). At that time, with intensive cultivation methods, crop yields of two tons dry beans/ha were normal. Furthermore, the still continuing high world market prices during the 1980s led the cultivation of cocoa to extend into marginal locations like in the case of the Bahia region of Brazil. The high cocoa prices stimulated further cocoa cultivation, which induced a sharp harvest increase.

Already in the early 1970s the first tolerant clones towards VSD, the PBC 123 and PBC 149 were selected. When the cocoa disease became a serious threat, the hazard could still be challenged at the beginning by a renewal of plantations and side‐grafting with the tolerant clones. However the connected risk was the low genetic variability of the cocoa plantations associated with increased risk to diseases and pests (Chock, 1998). In fact during an extreme dryness in the 1980s the cocoa pod borer (Conopomorpha crammerella) that damaged massively young pods, appeared endemically. At that time cocoa was already the third most important export product of Malaysia. A concerted action between the cocoa industry and the government tried, under inclusion of a big international cocoa expert team, to develop countering strategies. Different combat forms were tested. After an unsuccessful attempt to handle the problem through biological pest control, the so- called “sleeving“ was propagated, in which all achievable cocoa fruits were wrapped in a thin plastic bag, in order to protect them from pests. During a 5 year period, this labor-intensive method of control was practiced. The use of so‐called “environmental friendly” insecticides in the form of synthetic pyrethroids eventually replaced this method. The spraying was carried out in 14-day intervals. An annual rate of 4 l insecticide per ha was applied, which represented around 22 per cent of the total production cost. The full sun cultivation also required a high level of fertilizers. The still stable and low world cocoa price in the 1990s coupled with the high production costs and increasing problems with pests and diseases led to the end of the “industrial” production of cocoa in Malaysia. The now unprofitable cocoa cultivation could be substituted, with measures of assistance by the state, with the fast expansion of the oil palm and rubber cultivation (Chok, 1998). Interestingly, Malaysia has well established cocoa processing capacities, from which the Asian market is supplied. To do so nowadays, Malaysia needs to import the raw materials, the dry beans, from all over the world.

The examples of Bahia/Brazil and Malaysia illustrate, how, in spite of varying production conditions and different locations, a production system can collapse within a few years. In both cases, the increasing production cost due to massive plant health problems related to low world market prices, led to a crisis of cocoa production in these countries. Neither in Brazil nor in Malaysia was the production system recognized as a problem and thus questioned. Rather more, searching for new technologies to solve the phytosanitarian problems (so far without much success) as well as searching in the meantime for other economically sustainable alternatives to cocoa cultivation were carried out.

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