The Tough Challenges Faced by Papuan Nutmeg Farmers

Nutmeg trade has existed since the 15th century since the colonialism era in Indonesia. Though Banda Island was known for the center of nutmeg trade, in actuality, Fakfak, West Papua was the center of long nutmeg production.

However, the nutmeg farmers in West Papua seemingly cannot rely on nutmeg to make their living; these farmers live under the poverty line. And, due to this condition, it is not rare that nutmeg farmers harvest wooden trees from their land for quick cash. Such practice can cause environmental problems if done at a larger scale. The strategic behavior of a finite number of local traders may have something to do with it. Surprisingly, the finite number of local trades has been stable for years or might even decades. This condition would entice a noncompetitive market, disadvantaging farmer’s ability to survive in the nutmeg market.

Figure 1 The Market Structure in Fakfak’s Nutmeg Supply Chain

Figure 1 shows the condition of the nutmeg market in Fakfak. There are three types of agents in the local nutmeg supply chain which are (1) the nutmeg farmers, (2) the local traders, and (3) the regional traders. The nutmeg farmer produces, harvests, and processes nutmegs traditionally. All nuclear family members or even extended family are necessary for harvesting and processing nutmegs. Labor hours are compensated with nutmeg fruits. Yet, it is not clear how the compensation is calculated. Nutmeg farmers have three options when it comes to selling their products:

  1. Nutmeg farmers can sell nutmeg fruits (unprocessed) to local traders at the village level (green colored number 1 in Figure 1). The number of local traders is quite large, but there are fewer local traders than there are nutmeg farmers. Most of the time, the main reason a farmer sells their nutmeg fruits (unprocessed) to local traders is to pay debts, or it is because they can sell the fruits in a small amount of quantity. The local traders usually are convenient store owners selling basic daily needs where the stores close to farmer’s house or are located within the kampung or village. Even though the local government sets the price floor of nutmeg fruit, many times, the nutmeg farmers willingly sell their nutmeg fruits below the price floor due to liquidity reasons or oversupply, especially during the harvest season.
  2. Nutmeg farmers can also sell the nutmeg fruits (unprocessed) directly to regional traders (green colored number 4 in Figure 1). The number of regional traders is far less than local traders. The regional traders are usually the ones who have a permit to bring the nutmeg outside West Papua. Nutmeg farmers generally sell the fruits directly to the regional traders with a large amount to cover the transportation cost as the regional traders are outside the village. Often, the regional traders offer a higher price to farmers than local traders. Thus, it becomes the incentive for a farmer who can sell nutmeg fruits in large amounts and cash on hand to pay transportation costs in advance.
  3. Nutmeg farmers can sell the processed nutmeg (dried) directly to regional traders (green colored number 3 in Figure 1). Farmers can sell dried nutmegs with different qualities and can sell mace to regional traders. Since the regional traders form an oligopoly, the price is set by these traders’ competitive behavior.

As mentioned earlier, the number of local traders is less than the nutmeg farmers but is more than the regional traders. The local traders participate in the nutmeg supply chain as the middle-man between the farmers and the regional traders. Local traders buy the nutmeg fruits from nutmeg farmers. Local traders dry and process the fruits and sell them to regional traders. The local traders get margin from the value-added of processed nutmegs and mace. Based on our observation for the past two years, the margin that the local traders get from selling the processed nutmegs and mace is not much since the regional traders act as the buyers for local traders and buyers for nutmeg farmers in the nutmeg market.

Last, but not the least, the agent in the nutmeg supply chain that we’ll discuss is the regional traders. The regional traders seem the biggest winner in the nutmeg supply chain. The number of regional traders is small, most likely not more than ten. These traders have the financial capacity and hold a permit to bring the nutmeg outside Fakfak and ship the nutmegs to important ports in Indonesia, such as Tanjung Perak in Surabaya. The regional traders form an oligopoly competition. The winner amongst these traders is the one who engages in vertical integration strategy, managing directly from nutmeg production, processing, and distribution to outside Fakfak. This trader achieves efficiency and, most likely, market power.

The non-competitive condition of nutmeg markets in the nutmeg supply chain seemingly has been persistent. Looking at the situation, the nutmeg farmers seem to bear the brunt of the non-competitive market in the whole nutmeg supply chain. It is proven that farmers cannot solely rely on nutmeg production for their livelihood. Policy-driven interventions, such as nutmeg price floor, may not be enough help for traditional nutmeg farmers who are mostly indigenous people.

Farmers can level the playing field in the nutmeg supply chain by forming a nutmeg farmer association. This strategy has been done in many industries, such as coffee, cacao, and of course, oil palm. Central and local governments can help farmers by subsidizing nutmeg processing technology and funding research in nutmeg derivative products to gain value-added from selling processed products.