Designing Supply Chain Platforms for Smallholders in Indonesia

Designing Supply Chain Platforms for Smallholders in Indonesia
Joann de Zegher, Maurice F. Strong Career Development Professor, Sloan School of Management

Period of performance: 

September 2019 to August 2021
palm oil, supply chain, mobile, cell phone, technology, efficiency, smallholder farmer, Indonesia, sustainability, traceability, business, operations management, food

Abstract: 

More than 50% of food calories consumed globally – and 70% of food calories consumed in developing countries – are supplied by approximately 475 million smallholder households in developing and emerging economies.  These smallholder supply chains typically operate through informal contracts and processes, which can lead to large economic inefficiencies and lack of traceability.  This project will focus on addressing these supply chain challenges, specifically in the palm oil industry in Indonesia.  Rapid demand growth in this industry has led to high environmental costs, and pressure from consumers and NGOs are motivating producers to employ more sustainable practices.  However, these pressures deepen market access challenges for smallholder palm oil farmers that are not traceable. 

The project seeks to address two problems in smallholder palm oil supply chains. The first is how to support smallholder farmers to enable their palm oil products to be traced so that consumers’ needs for environmental accountability can be met.  Traceability is challenging because the supply chain from smallholder farms to palm oil mills typically relies on a complex and dynamic informal network of middlemen.  The lack of traceability carries significant economic, social, and environmental risks and limits the ability of any particular mill or buyer to provide incentives for environmental responsibility or product quality. The second challenge is the lack of efficiency of the supply chain due to inefficient transportation, incomplete information, and undocumented transactions.  These problems reduce the welfare of smallholder farmers and middlemen, and limit access to formal credit.  Because these two challenges are interrelated, this research team is working on a solution that will address both together: a mobile-based trading platform that can link smallholders, middlemen, and mills to radically improve the efficiency and effectiveness of the current supply chain, and create transparency as a by-product.