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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 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:
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.