Above: Participants of the Global Young Leaders Programme (YLP) engage in a group discussion. Photo: Yuxin Hou

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1 Global Young Leaders Programme Cocoa in Aceh: Providing a New Model of Development and Recovery after the Tsunami 1 On December 26, 2004 a devastating tsunami struck the province of Aceh on the northern tip of Sumatra in Indonesia. Life for the Acehnese population was forever altered on that fateful day as when the waters receded, the total cost of human lives stood at almost 230,000 and an additional 500,000 people were left homeless as houses, businesses and infrastructure were swept away to sea. The economic costs were estimated at US$4.5 billion or 97% of Aceh s GDP. The road to recovery has been a slow and challenging one. Although the end of a 30 year civil conflict in Aceh in 2005 provided the province with much needed stability, the lack of entrepreneurship and private sector development has created dependency on government and foreign aid. Above: Participants of the Global Young Leaders Programme (YLP) engage in a group discussion. Photo: Yuxin Hou

2 In December 2009, five years on from the disaster, participants on GIFT s Global Young Leaders Programme (YLP) traveled to Aceh with the aim of learning about the realities on the ground of the recovery and economic development efforts, and to give something back. This is the story of how participants on the YLP in partnership with the United Nations Development Programme (UNDP) Indonesia and its local partner, the Aceh Partnership for Economic Development (APED), worked to examine how improving the supply chain for cocoa, a growing high-demand global commodity, can bring about positive changes in economic development and improve the lives of thousands of low-income farmers in the region. The 2004 tsunami swept away houses and infrastructure causing US$4.5 billion in damages. Photo: IOC/USESCO Post-tsunami Recovery - A Long and Winding Road Aceh, five years after the tsunami. Photo: Yuxin Hou Today visitors to Aceh can see dramatic signs of economic recovery with new housing and infrastructure lining different parts of t h e p ro v i n c e i n c l u d i n g n e w hospitals, ports and roads. Much of the reconstruction efforts are a result of foreign aid, a total of US$6 billion since 2004, which has created a plethora of international NGOs and development agencies that have been responsible for rebuilding hospitals and schools, and strengthening the capacity of the government. Yet, foreign aid has also created dependency which has been a factor in the stunted development of the private sector in Aceh. Only in the last few years have businesses as well as labor trickled back into the province. Thus, poverty continues to be a key challenge with the majority of households still reliant on subsistence farming for their livelihoods. However, with aid money running out, an increasing priority for the government has been to promote the growth of the private sector, particularly in agriculture, which is critical to sustainable economic development.

3 The Cocoa Sector: Beans Means Business Indonesia has long been recognized as one of the world s largest raw cocoa bean producers. Although well behind the largest producing provide of Sulawesi, Aceh s tradition of growing cocoa is due to its ideal climate and environment and the bond that generations of farming households have to their land. D e s p i t e t h e t s u n a m i s devastation to the cocoa sector in Aceh, there is hope of recovery. Farmers who had fled the province in search of jobs after the disaster are now returning, keen to use their labor and capital in rebuilding Aceh. The lure of producing cocoa is high as the commodity has become increasingly prized in the global markets with demand far outstripping supply. It is with this in mind that the Aceh government is looking at ways to involve the private sector in enabling low-income farmers to access domestic and international markets. A local cocoa farmer puts out beans for drying on a cocoa farm in Pidie (left). Containers of dried cocoa beans (right). Photo: Yuxin Hou The additional challenge for the government now is to increase the production of high quality cocoa which would enable farmers to gain better incomes from buyers. Lack of knowledge and capital amongst farmers, weak infrastructure and supply chains as well as underinvestment in the sector would have to be overcome before Aceh can fully capitalize on opportunities in the cocoa sector. UNDP and APED Strengthening Agricultural Sectors to Promote Development APED Project Manager M. Madya Akbar (right standing) talks at local cocoa forum initiated by APED. Photo: APED In the aftermath of the tsunami, the UNDP, a leading global development agency, has channeled more than US$200 million into devastated areas in Aceh for reconstruction. With a long history in Aceh and Indonesia, the UNDP recognizes that innovative efforts beyond aid are needed in order to promote sustainable long-term economic development in the region. Thus, in partnership with the local government, the UNDP is supporting a local initiative, the

4 Aceh Partnership for Economic Development (APED), to create forums which serve as a platform for private sector involvement in Aceh. They began work in coffee in 2007 and then moved into cocoa shortly before the YLP kicked off in Throughout the process there was a clear need to bring in business expertise and knowledge in order to address critical issues such as supply chain management and marketing to strengthen Aceh s current cocoa sector. As a result, UNDP and APED invited participants from GIFT s YLP to examine the core challenges facing the sector and make recommendations on how the various market players could effectively be engaged in addressing these issues. The elected chairman of the Pidie farmers co-op speaks about key elements in the cocoa supply chain at local collection center. Photo: Yuxin Hou Young Leaders Apply International Skills to the Business of Cocoa YLP participants, Becky Yang (left) and Xiaojuan Wang (far right), interview a cocoa farmer in Pidie. Photo: Yuxin Hou Currently in Aceh, cocoa farmers and collectors have very limited access to outside markets. As a consequence the prices paid to them for their product do not reflect true market demand and their production methods are not driven by real incentives from the global market. One of the main challenges facing the participants on the programme therefore was in building a business plan that would link local farmers directly to international cocoa markets and in so doing, promote harvesting and processing methods which result in higher quality and consistency in yield. To collect direct and up to date data to support the business plan, YLP participants traveled for hours through rain, heat and humidity into local cocoa farms, farmers cooperatives and cocoa collection centers. They researched the situation by interviewing local farmers, cooperative members and collectors and learned about processing procedures directly from cocoa experts. The young leaders also actively engaged government officials, local traders and international buyers in order to better understand their roles and interests. These meetings not only provided a new visibility for the business plan development, they also bridged gaps between farmers and the local government and other parties. Young leaders learn about cocoa production procedures from local exports. Photo: Yuxin Hou

5 After long days in the field and once back in the meeting room, YLP participants were pushed during the evening sessions to challenge their existing assumptions about business in Indonesia while grappling with practical industry issues. They engaged in intensive discussions and debates and were forced to move out of their comfort zones to develop a plan that would be attractive to investors but also practical on the ground. Eventually through intensive questioning sessions, the huge amount of information they gathered was transformed YLP participants gather first-hand information about the cocoa industry from local experts. Photo: Saiful Bahri Engaging cocoa exports from Aceh Partnership for Economic Development (APED), International buyers and local traders, young leaders meticulously polish the business plan. Photo: Yuxin Hou into well-structured business ideas and a final proposal. The team was about to witness the birth of a brand new business model. Alami Kado - Gift from Aceh After almost a week of hard work, participants created a comprehensive business plan. Translated as Gift from Nature, the new company, named Alami Kado, was a gift to the Aceh cocoa community as well as a gift from Aceh to the global cocoa market. The ownership structure of the new trading company engages multiple stakeholders such as cocoa farmers, local collectors, traders, international buyers, a farmers cooperative and local government. It unifies the interests of diverse parties in order to achieve consistent high quality cocoa production and provide increased returns to farmers.

6 Taking the Gift from Aceh another step forward, young leaders presented their plan at an investor conference in the city of Medan, the commodities trading center of North Sumatra. More than one hundred attendees came to the conference from the government, NGO and private sectors, from Indonesia and abroad. The plan for Alami Kado received a warm welcome and generated discussion that exceeded all expectations. Key aspects of the plan which caught the attention of attendees were the multi-stakeholder structure and the strong projected financial returns given the international market demand. A plan for a New Way Forward for Aceh and Elsewhere Through hard work, unconventional thinking and a very creative process, the YLP participants developed an innovative business model that promises to boost the local cocoa industry and improve farmers lives. Many of the key stakeholders involved are keen to take the plan forward. At the conclusion of the programme the sentiment was that although the tsunami destroyed much of what the people had, it cannot destroy their spirit. The future is bright for the people of Aceh and they are not alone in the efforts to rebuild their land and their economy. The approach embedded in the plan for Alami Kado can be an inspiration not only for the people of Aceh, but also for those engaged in economic development in other areas of the world. If you are interested in the business plan and the opportunity to invest in this unique project, please contact GIFT on enquiry@global-inst.com. For further information, please visit our website at: Global Institute For Tomorrow Suite 2505, Two Pacific Place 88 Queensway, Admiralty, Hong Kong Tel: Fax: