Posted: 27 Feb. 2019 15 min. read

Collaboration for economic development

Project Snapshot: How Deloitte and Oxfam are helping thousands of farmers in South Sulawesi, Indonesia.

In July 2017, Deloitte and Oxfam worked together to help empower the impoverished South Sulawesi community by investigating opportunities available in the lucrative seaweed industry.

The global primary seaweed industry is worth approximately c. $5 billion USD.

Seaweed has a surprising variety of uses – from being directly consumed as food, to being processed into compounds for use in food and beverage, cosmetics and even biochemical industries, with more and more applications being discovered daily.

Typical Seaweed Value Chain

Figure 1: Typical Seaweed Value Chain

The vast majority of industry value is captured through processing, formulation and then manufacturing of products using seaweed. Once processed, the price per kilogram can increase by up to three times the price of harvested seaweed.

Indonesia is the largest producer of red seaweed at 62% of global red seaweed production in 2015.

South Sulawesi plays a large role in this production and alone contributes c. 18% of global red seaweed production, with seaweed farming the major livelihood for 40,000 households in South Sulawesi.

These seaweed production activities contribute 4,500 billion IDR (c. $340m USD) to South Sulawesi’s GDP – this is largely where South Sulawesi’s role in the seaweed value chain ends.

The vast majority of red seaweed is not processed or refined in South Sulawesi and is instead exported from Indonesia to be processed internationally. As a result, economically valuable stages of the supply chain – processing, formulating and manufacturing – remain largely uncaptured in South Sulawesi, with the farmers remaining impoverished. Deloitte’s goal was to help South Sulawesi identify opportunities and strategies to capture more of the global value.

Operating in cross-border, developing countries to support economic development poses a variety of challenges.

Part of Deloitte’s involvement was to identify opportunities and challenges, and address them with feasible, practical implementation plans. These included challenges such as:

  • Tradition & Culture: The challenges posed by tradition and culture continue to be some of the most difficult, with farmers preferring not to deviate unless initiatives deliver real and immediate benefits
  • Education & Skills: The level of education is low in South Sulawesi, which makes it difficult to obtain the necessary intellectual capital to move up the value chain
  • Data Quality: Data quality and transparency is often poor in developing countries and niche markets which makes well informed, data driven decision making more difficult
  • Political Landscape: Indonesia has a complex political landscape given its geographic spread, population, influence of religion and rapid economic growth
  • Financial Capital Requirements: The economics of a developing country mean that it is hard to attract investment due to uncertainty for both investor and for the borrower
  • Global Competition: Moving up the value chain or capturing more value requires competing with global players that are more sophisticated and experienced in those areas
  • Infrastructure: Infrastructure is a major challenge in terms of both physical and digital infrastructures with Indonesia’s population being spread across many individual islands and with the digital challenges of a developing country.

However, overcoming these challenges can present significant rewards to both the local economy and partnering organisations.

Developing countries often exhibit higher growth rates than developed economies and are relatively untapped by comparison due to such structural challenges. Indonesia had a GDP of $165bn at the turn of the century which grew to $932bn by 2016[1] – a growth rate of 465% or 12.2% per year on average. While growth has slowed or even stagnated in recent years, the growth potential in developing countries is often staggering. As such, developing countries offer significant potential if organisations can ‘work out’ how to effectively serve their respective markets.

Many Indonesian consumers are ‘Indonesia Loyal’ – 79% of customers in Jakarta and 87% of customers do not prefer foreign brands.[2]

As a result, multinationals should look to help develop Indonesian partners and work closely with them – empowering, rather than replacing them, is likely to be more effective.

Local knowledge is key, with Deloitte Australia and Deloitte South East Asia (inc. Indonesia) partnering with Oxfam Australia and Oxfam Indonesia as well as local contractors to make an impact that matters.

The work could only be conducted by bringing a mix of local knowledge and global perspectives. The combined team looked to understand past attempts to uplift the industry and consolidated knowledge from local processors and non-government organisations but also brought global perspectives and understanding of retail markets.

So what next?

The outcome of the project was a balanced set of initiatives – focussed on relieving structural barriers such as education, creating win-wins for local processors and farmers, creating business cases to de-risk investment, significant global challenges such as greenhouse gas emissions, and inefficient taxation practices.

inefficient taxation practices
  • Connecting Farmers is an initiative aimed at shortening the value chain and increasing farmer income through encouraging farmers to cooperate, increasing bargaining power and enabling greater collaboration
  • Farmer-made Items initiative aims to improve the income-generating activities and technical expertise of farmer groups by supporting them to create their own food and other goods directly from seaweed, enabling them to differentiate themselves, as well as sell a higher value product
  • Effective Cultivation initiative is focused on enhancing income-earning potential of farmers by incentivising private enterprises to train farmers on effective seaweed cultivation to improve crop yields and quality
  • Regional Refining initiative aims to encourage businesses who refine and blend seaweed additives to shift processing to South Sulawesi, increasing the value captured by the region
  • Efficient Taxation is an initiative focused on improving the competitiveness of domestic trade, and therefore improving Indonesian processor and manufacturing competitiveness
  • Seaweed Feed initiative involves further investigating potential applications of red seaweed beyond traditional food additives, including adding seaweed to cattle feed, and other applications such as bioplastics. This would expand the market for seaweed and improve farming sustainability worldwide.

[1]The World Bank
[1]Deloitte Consumer Insights – Capturing Indonesia’s Latent Markets (2015)

More about the authors

Stephanie Field

Stephanie Field

Manager, Consulting

Stephanie is a Manager within the Consulting Strategy & Operations team. She holds a Bachelor of Commerce, majoring in Economics and Finance, and a Masters of Engineering (Chemical, with distinction). Since joining Deloitte, Stephanie has been involved in a number of engagements, including commercial due diligence, organisational redesign, business model transformation, market entry strategy, growth strategy, and project and program management in an M&A context.

Jacky Yau

Jacky Yau

Consultant, Consulting

Jacky is a consultant in Monitor Deloitte with a focus on M&A and Market Entry Strategy. He was worked across a range of industry sectors, and particularly enjoys focussing on the key drivers of consumer behaviour and how that interacts with commercial realities. In particular, Jacky believes that improved technology transfer across organisations – be they academic organisations, private sector businesses or not-for-profits, can help Australia create powerful business and economic combinations that bring unique value propositions to consumers all across the globe.