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Added value development of seaweed (Eucheuma cottonii) as a potential commodity
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hinder the added value gained by seaweed farmers. Seaweed culture is highly opportunistic to develop for sustainable fisheries production in order to increase the added value (Giyatmi et al., 2003). The development of the added value from seaweeds occurs in each chain of flows from the producer to the consumer (Purwaningsih and Widjaja, 2014). The added value of each chain is different depending on the input and the treatment (Van Staden CJ, 2000). Therefore, in line with aquaculture fisheries development policy or sustainable industry, an agroindustry-based management strategy is needed to be created. To overcome these problems, an assessment study was done on the added value gained in seaweed culture business up to the seaweed industry such as in Alkali Treated Cottonii (ATC). This study is expected to be able to help the policy makers (central and regional governments), investors, merchants, farmers, exporters, and other stakeholders involved in the seaweed industry development to yield the added value of seaweed commodity for the benefit of all stakeholders.
Materials and Method
This study was carried out from July to September 2015 in East Sumba regency with focus on red seaweed Eucheuma cottonii. The study employed survey method, observation, and interviews. The data were obtained through respondents from related government institutions, seaweed farmers, traders, retailers, and entrepreneurs.
Data Analysis
This study applied qualitative and quantitative descriptive analysis. The former describes the condition of the production center and the present market, and the latter is used to measure the business at each level of seaweed production chain from farmers to buyers. Through this analysis, the extent of seaweed business revenue and marketing will appear using the following formula:
П = TR - TC where:
П= income TR = total revenue
TC = fixed cost + variable costor total cos
Break Even Point (BEP): Fixed Price: (Price–Variable Cost) Payback Period (PP) = Initial investment: cash inflow per period
Benefit Cost Ratio = PV of Net Positive Cash Flow/PV of Net Negative Cash Flow if B/C >1: the project/business is feasible to do
B/C < 1 : the project/business is not feasible to do
Mathematically, the function of the added value, according to Hayami, et al. (1987) could be formulated as follows:
NT = f (K, B, T, H, U,h, L) where,
K : production capacity
B : number of raw material used (kg)
T : number of labors needed (person) H : output price (IDR/kg) U : wage (IDR)
h : raw material price (IDR/ kg) L : other input value (IDR/kg)
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Results and Discussion Major Executor in seaweed production
Seaweed farmer in East Sumba regency
Based on 2014-2016 survey conducted by Provincial Agency of Industry and Trade in ENT, almost all of human resources of the seaweed farmers in East Sumba did not finish secondary school education. The farmers were 39.35 years old with about 9.35 years of experience in seaweed production.
They used their own capital as initial investment, and the farming started from fishermen’s coll ecti on . This finding supports the study by Parenrengi et al. (2006) that the seaweed business is highly promising due to its easy practice, short harvest in only 45 days, and easily available family labors (males or females). The technology used was relatively easy and inexpensive that applying long line method. The seaweed seedlings were obtained from the harvest.
In the marketing system of seaweed, the buyers directly visited the culture sites or farmer financial institution or Koperasi to buy the seaweed products. In average, each farmer own about 4,920 m2 seaweed farm, with annual dried seaweed production in r a n ge of 1 . 3 – 12.8 tons and average selling price of IDR. 6,000 – 11,000/kg. The seaweed was sold to the collector, middlemen or Koperasi. The domestic markets covered Bali, Makassar, and Surabaya. According to Ngamel (2012), usual problem faced by farmers was low bargaining power against the processing industry as major seaweed buyer. This industry has made a previous agreement with the seaweed farmers that resulted in fixed selling price for the farmers.
The seaweed culture business analyses results in East Sumba regency were as follows: average a n n u a l cost was IDR 1.266.955, average annual dried seaweed product was 4.330 kg, with an average annual investment of IDR 13.669.455, per-cultivation cycle. Income per cultivation cycle was IDR 7.345.000 with annual income was IDR 29.135.000 s o that the total annual profit was IDR 15.465.545.
According to Irmayani et al. (2014), profit was a net income gained by the farmer and was the difference between production value and total expenditure. The Pay Back Period was 0.72 per year, similar to that obtained by Hidayat et al. (2012), who found that seaweed cultivation business was capable of returning the investment in 0.72 year or 8-9 months. Ngamel (2012) stated that payback indicated the length of time an investment could be returned. Seaweed farmers in East Sumba was able to return their investment less than a year because they allocated no labor cost and all production activities were run by the family members so that the high production costs could be cut off as suggested by Irmayani, et al. (2014). The production breakeven point (BEP) was achieved at 2,007.50 kg, whereas the price of BEP was reached at about IDR. 3, 435.77. Under these values, the seaweed culture business does not have any loss of profit.
Seaweed merchants
The traders involved in the seaweed marketing were collectors in the village, retailers at the regency level, and large traders at provincial or regional levels. In East Sumba, the trader’s age were in average about 43.46 years old with mean experience in seaweed business of 3 years. The business could b e either individual or i n form of koperasi. The seaweed traders purchased the seaweed product from the farmers in form of dried seaweed with 35-38% water content. Approximately 90% of the traders bought the seaweed directly from the production sites w h e r e a s the rest 10% of the collecting merchants sold the dried seaweed to the big merchants. We found in the present study that only 1-2 local traders, one district-level traders and one large merchant involved in the seaweed marketing in the research location.
The big merchant’s access to the seaweed investment and marketing was sufficient, in contrast with the traders that had only a limited access to the market. Hence, the traders just sold the seaweed to certain big merchants. The seaweed price at the farm gate was lower at about IDR.6, 825/kg, compared with the price at national level that had mean selling price at IDR.8, 300/kg. These prices was in line with the statement of the Provincial Agency of Industry and Trade Services of East Nusa Tenggara (2016) who found that the price of dried seaweed at the farmer level ranged from IDR. 6,000 to IDR. 8,000/kg and the selling price from the local trader to the big trader ranged from IDR. 7,000 to IDR. 9,000/kg. The differencee between the seaweed price at the farm gate and that at the big trader level was IDR.1, 500 on average.
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Total monthly cost for the merchant was IDR.126,300,000.- with the average monthly profit was IDR.130,900,000. Thus, merchant’s monthly profit was about IDR.4, 600,000, equals to an annual profit of IDR 55,200,000. Our study results revealed that the B/C ratio value of the seaweed business was 1.09 meaning that parties involved in seaweed business obtained the revenue as much as 1.09 times the spent capital, and therefore, the business is feasible to do. This finding is in agreement with Soekartawi (1993) who stated that in agriculture business, the executor will always think of how to allocate the input efficiently to obtain a maximum production.
Seaweed Industry
Agroindustry has a comparative superiority since its development is more directed to the utilization of local raw material sources. Agroindustry is also capable of sustaining in critical condition so that the industry should become a priority to be developed (the Ministry of Industry and Trade, 2015).
It is an economic activity that processes the agricultural materials and other natural resources to yield higher value products. According to the Provincial Agency Industry and Trade Department of ENT (2015), the agroindustry in ENT province focused on seaweed and located in East Sumba and Sabu Raijua regencies (established in May 2016). Seaweed as a superior commodity (the core competence of the regional industry) in East Sumba regency was established under a Memorandum of Understanding between the government of East Sumba regency and the Ministry of Industry and Trade numbered 139.A/PERINDAG.530/800.A/XII/2006.975.A/59-IND/12/2006 concerning Regional Core Competence- based industrial development of 2010 and Ministry of Fisheries and Marine Science decree No.
32/MEN/2010 about Establishment of Minapolitan Area. East Sumba regency is established as one of the sample regencies of seaweed culture-based minapolitan among 24 regencies/municipalities in 2010.
The seaweed industry in East Sumba belongs to the government of East Sumba (Badan Usaha Milik Daerah or BUMD) by the name of PT Alga East Sumba Lestari (Astil). This company has been operated since 2010. PT Astil bought dried seaweeds from the collector or koperasi at the price of IDR.6,000-8,000/kg. They bought around 250,000 kg of seaweed/month or total monthly purchase cost of dried seaweed was IDR. 2,000,000,000. The monthly dried seaweed used to produce intermediate material known as alkali treated cottonii (ATC) was 249,999 kg yielding around 83.333 kg with a selling price of IDR. 49,000/kg. Monthly operational cost was IDR. 12,000/kg of ATC and total monthly operational cost was IDR. 999,996,000, so that total monthly operational cost was entirely IDR 2.999.996.000. Monthly profit was IDR.1, 083,321,000 or IDR. 12,999,825,000/yr.
Seaweed Added Value as an Intermediate Material (ATC)
All seaweed products from ENT Province were in forms of raw materials with a relatively low added value. The added value obtained from the processing activity, according to the Ministry of Marine Affair and Fisheries (2012), was about 6 to 14.6 times higher than that of unprocessed ones. Added value is a value increment of a commodity due to cultivation, processing, storage, and transportation in a production chain (Hayami et al., 1987). Seaweed cultivation development should also be followed by processing industry develop ment (Ya’la, 2008). According to Provincial Agency of Industry and Trade (2016), the added value obtained by farmers because of seaweed processing to intermediate material (ATC) was IDR 2.958 – IDR 50.000 per kg. PT Astil in East Sumba produced 83,333 kg of intermediate seaweed material per month from 250,000 kg of dried seaweeds or each 1,000 kg of dried seaweed could yield 300 kg of intermediate seaweed product and had an added value of IDR. 30.000,- /kg of intermediate product.
Compared to seaweed raw material price range that was in range of IDR.3,000 to 8,000/kg, the ATC price was higher that ranged from IDR. 49,000 to 50,000 per kg. This high added value provided a good profit to the seaweed industries. However, the continuity of this industry certainly depends upon the seaweed farmer’s cultivation activities resulting in more added value for the farmer as well. The benefit/profit ratio of seaweed cultivation is det ermined by the amount of revenue minus the operational cost and investment. In the marketing transaction of the seaweed products from farmer to collector, the farmer often had weak bargaining position so that the seaweed could be sold at low price. In this situation, there will be much higher benefit gained by the seaweed industry producing ATC than that gained by the farmer. The interaction intensity among business executors in a supply chain will be highly affected by four factors (Xu and Beamon, 2006), i.e. resource sharing structure, decision making pattern, control measurement, and risk/reward sharing. The investor’s interest to run
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any business, including agro industrial business, is the presence of balance regulation between risks and rewards (Preckel et al., 2004). Van Staden (2000) defined the added value as a value generated from the activities of a company and its labors calculated by reducing the sales gain with the costs of material purchase and services.
In East Sumba, added value gained by the seaweed farmer as the impact of seaweed processing plant was IDR.3,575, whereas it was about IDR.2,175 at the collecter and IDR.41,000 at the seaweed industry level (Table 1). This showed that the highest added value was gained by the seaweed industry and unfortunately the profit and added value gained by the seaweed farmer were still relatively low.
Table 1. Mean added value of each seaweed supply chain in East Sumba in 2017. Unit is in IDR/kg.
No Buying price Total cost Selling price Added value 1 Seaweed farmer
3,250 13,669,455 6,825 3,75
2 Merchant
6,825 126,300,000 9,000 2,175
3 Seaweed agro-industry
9,000 2,000,000,000 50,000 41,000
Since the seaweed famers did not do the marketing and sold all their available products to the collector, the role of collector was important in seaweed product marketing. Also, price completion affects the income gain of the seaweed farmers. From this model, it is apparent that the industrial group gets the highest benefit from the product value development process. High added value obtained by the agro industrial executors resulted in increasing competition to collect raw materials or to sell the processed products (Zulkarnain, et al. 2013). Therefore, it is reasonable that the seaweed processing industries are competing to get the local fresh seaweed than the importer one, even though this competition could not increase the seaweed price at the farm gate level due to the patron-client system. Susilowati (2013) stated that traditional management model has not been successful in managing the resources, whereas the ecosystem-based fisheries resources management has provided a prospective indication. Hence, several countries are developing the implementation framework of the Ecosystem- Based Fisheries Management (EBFM). Study on the added value of processed fisheries product will inspire people to deeply assess the market and marketing aspects, such as consumer’s appetite and product price (Nurhayati, 2004).
Conclusion
BEP per unit of seaweed culture farm was IDR. 3,435.77 and production BEP was 2,007.50 kg.
The seaweed marketing was done in 3 pathways, from producer to buyer to merchant, factory to consumer, or producer to consumer, and producer to collector, large buyer to consumer. The added value was IDR.3.575 per kg for seaweed farmer, IDR.2.175 per kg for merchant, and IDR. 41,000 per kg for seaweed industry. Thus, the industrial group got the highest profit from the product value development process.
This information is expected to contribute to the fisheries policy makers in issuing regulations in relation to prosperity development efforts of the seaweed farmers and industrial labors. Collaboration among government, private sector, NGO, universities, and local communities is needed to improve the rural economy through income development. In addition, it is necessary to have training on seaweed cultivation, hygienic post-harvest handling, and market standard requirement fulfilment.
Acknowledgement
This study was conducted under financial support of the Directorate General for Research and Development, Ministry of Research, Technology and Higher Education on Strategic Research Scheme of Strategic National T.A 2017. The authors also thank to Ir. Felix Rebhung, M.Agr, Ph.D and Dr. Ir Sunadji, MP for their contribution to all these study activities.
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