Addressing the Aggregation and Coordination Problems in Smallholder-based Value Chains

Smallholder production predominates in many areas of primary food production in Indonesia. Yet, outside of oil palm and poultry, contract farming is rare as are other forms of collective action or vertical coordination. Fragmented production and market interfaces give rise to high transaction costs and problems in matching supply with downstream or consumer requirements. Yet, there is a growing body of international experience promoting multiple models to help realize some economies of scale within smallholder-based production systems and effectively addressing the aggregation and market-matching problems. These include different forms of joint farming operations, shared services, farmer organizations, contracting arrangements or partnerships with agro-enterprises, and other models. Their suitability and need for public enabling support varies depending upon the underlying circumstances. This note synthesizes experiences, lessons learned, and success factors with potential relevance for Indonesian staple food crop and horticultural production