Value chain analysis Indonesia seaweed extracts

This CBI-commissioned value chain analysis (VCA) identifies opportunities and obstacles in the Indonesian seaweed sector, vis-à-vis European markets for raw dried seaweed, especially value-added products such as seaweed extracts and compounds. This analysis identifies characteristics of trends, demand, requirements and options for value addition, describes the actors and relations in the value chain, identifies clear obstacles and opportunities and proposes targeted interventions.

In addition to this VCA report, CBI developed two additional reports: on essential oils and plant extracts.

Chapter 1: The European market

Based on information on trends, demand, requirements and value addition propositions, the study shows good potential for Indonesian seaweed extracts on European food and feed markets, but a low potential for seaweed compounds on these markets.

Although Indonesia has a large raw material production base, the study also shows the country lacks export competitiveness. Indonesian companies do not take advantage of European market trends that could benefit local producers. In addition, the analysis showed a big difference in compliance between SMEs and big players, and a low ability to meet requirements for value-added products such as compounds.

The table below summarises these aspects of the European market trends, demands, requirements and the opportunities and the potential for Indonesian seaweed extracts and compounds.

Chapter 2: Structure and Governance of the Value Chain

The value chain of seaweed in Indonesia is  long and complicated, leading to low levels of traceability and stability in terms of quality and quantity. Coordination among actors in the value chain, and among supporters and influencers is low. Trust, communication on quality and volumes, and transparency in terms of prices is very low. The chain typically involves seaweed farmers, consolidators and traders at different levels (community, district, province), as well as exporters of raw dried seaweed and processors and exporters of seaweed extracts and compounds.

The VCA identified two key associations involved in the sector: ARLI with a sector-wide membership, including farming and trade, and ASTRULI, whose membership consists of processing  companies. As for the government, the Ministry of Marine Affairs and Fisheries (MoMaF) and the Ministry of Industry (MoI) play important roles. Furthermore, the sector is the focus of various international programmes of donors and NGOs, including UNIDO and PRISMA.

Chapter 3: Opportunities and Obstacles in the Value Chain

In terms of obstacles, Chapter 3 identifies the following key issues:

• Lack of supply chain management: Many Indonesian seaweed processors act as traders and do not take responsibility to ensure a sustainable supply chain in terms of volumes, quality and traceability. They face therefore many issues around accessing raw materials at the right quantities, the right times and at the right prices.
• Indonesian SMEs lack knowledge specifically on:
  • European market trends, so they do not develop products which meet market needs, and do not leverage high-growth segments in Europe.
  • European market access requirements and standards, so they do not comply with quality, documentation and certification, or the right route to introduce innovative products to the European market.
• No market access: Indonesian SMEs specifically have little contact with the European market and European buyers so they do not learn about buyers’ requirements and do not communicate with buyers on product development and improvement, which is particularly vital for compound development.
• Perception of European buyers: In terms of quality, European buyers see problems with Indonesian businesses’ food safety management, consistency, documentation and communication with SME suppliers of seaweed extracts.
• In terms of innovation, European buyers do not see Indonesian exporters as prospective suppliers of compounds.
• There is little coordination among players in the seaweed sector, which limits their ability to tackle obstacles beyond the influence of individual companies. There is no common vision on development and local business support organisations (BSOs) do not offer sufficient services to meet the needs of exporting companies.
• Although R&D into seaweed production and extraction exists, the private sector is not well connected with the actors responsible for it. More research in compounds is required.

Chapter 3 identifies the following opportunities:

• Best cases for business where companies can learn from one another;
• Strong government and donor support
• Good R&D support for seaweed extracts.

Chapter 4: Possible Interventions and Support Activities

Based on the low number of companies active in compounds, fewer opportunities in Europe and the higher number of obstacles for seaweed compounds, vis-à-vis seaweed extracts, it was decided to focus the interventions on extracts. This is based on the idea that solving issues up to the level of extracts is also beneficial to compound producers. Chapter 4 proposed the following interventions for seaweed:

• Improve sector coordination
• Set up best practices for supply chain management, sustainability and development of USPs;
• Develop traceability and compliance tools;
• Develop market information tools for the sector;
• Branding;
• Market access;
• BSO service delivery development;
• Improve access to finance.

Conclusions

The conclusions recommends focused market segments, key considerations for interventions to succeed and risks to possible interventions. The research team recommends a market focus on the food sector. In terms of key considerations for interventions in the seaweed sector, we recommend:

• A go or no-go assessment based on the ability of the project to identify suppliers and buyers committed to developing a traceable and sustainable value chain.
• A go or no-go assessment based on the ability to improve cooperation between sector stakeholders, ideally through the development of a joint sector strategy.
• A go or no-go assessment based on the ability to coordinate activities with large donor projects such as UNIDO and PRISMA, and key government institutions, such as MoI and MoMaF.

The research team identified the following key risks for possible CBI interventions:

• Commitment of companies;
• Government interference;
• BSO resources and capacities;
• EU regulatory changes;
• Dissent among sector stakeholders.