Payment digitisation to unlock over US$700 million for Indonesian cocoa farmers - UN report

By Sol Gonzalez

Digitising payments to Sulawesi cocoa farmers will enhance their financial inclusion and increase transparency for cocoa companies, says UN report.

Notable participants in the report launch event. From left to right: Fay Fay Choo (Asia Cocoa Director, Mars), Prerna Saxena (Head, Asia Pacific, UN-based Better Than Cash Alliance), Gita Sabharwal (UN Resident Coordinator in Indonesia), His Excellency Olivier Zehnder, (Swiss Ambassador to Indonesia, Timor-Leste and ASEAN), Dr. Bayu Bandowo (Director, Otoritas Jasa Keuangan Institute), Insan Syafaat (Executive Director of PISAgro), Isvary Sivalingam (Southeast Asia Lead, for the UN-based Better Than Cash Alliance). Image: Better Than Cash Alliance

A recent UN study has found that digitising payments for 1.4 million cocoa farmers in Sulawesi, Indonesia, can add US$711.4 million to the country’s economy.

The report, titled Scaling Responsible Digital Payments in the Indonesian Cocoa Sector, has been prepared by the United Nations-based Better Than Cash Alliance in partnership with Indonesia’s Sustainable Agriculture (PISAgro) and the Government of Indonesia. It was published on Better Than Cash Alliance’s website.

The report calls for shared responsibility and actions by the Indonesian Government, the cocoa sector, and financial service providers (FSPs) to build viable last mile business models for digital payments.

Indonesia’s cocoa sector is the third largest in the world and annually contributes over US$700 million to the Indonesian economy. The current cash-based payment system hinders development of the sector due to FSPs’ perceived risk of lending to farmers. This limits the farmers’ ability to access funds for their needs, the report notes.

Since cash payments are the existing norm, the adoption of a digital payment system by the farmers will depend on the incentives that digitisation can offer to them, the report says.

Collaborative efforts between cocoa companies, FSPs, and the government are essential to seamlessly digitalise the payments system in the cocoa sector.

Providing access to other digital products

Given the size of Indonesia’s cocoa sector, digitising payments can help farmers earn more money and produce more.

According to the report, this could help farmers access other digital financial services, like savings and insurance, and help them boost productivity to meet growing demand.

The farmers’ annual expenditure for farm inputs (seeds, fertilisers, and others) is approximately US$258 million—US$ 709.8 per farmer.

The report says farmers face a credit gap that limits their ability to buy resources to manage crops. When production falls, farmers then struggle to pay for their expenses.

It recommends leveraging existing digital payment infrastructure to expand reach to rural areas and providing government funding and subsidies digitally to encourage the use of digital payments in the agricultural sector.

The 1.4 million farmers in Sulawesi, who depend on cocoa farming for their livelihood, contributed 70 per cent of Indonesia’s cocoa production in 2022 but 100 per cent of income from their agricultural production was received in cash.

Digital payments as the way forward

The report found that digital payments lower the cost of finance and allows banks to better assess farmers’ credit history. This can solve the credit gap that affects farmers and encourage investment in digital infrastructures in rural areas.

Digitising loans for farmers in Kenya improved transparency and efficiency, driving economic opportunities and financial inclusion for farmers and their families, reported Better Than Cash Alliance previously.

The findings showed an 85 per cent decrease of payment fraud and 46 per cent of operational time reduced compared to cash-based loans. The benefits of digitisation inspired Kenyan farmers to unanimously prefer digital payments. A responsible digital payment system boosts financial inclusion, reduces operational costs, and increases transparency. A digital payment system is responsible when it involves all stakeholders, from FSPs to regulators, to ensure client protection and accessibility to digital payments.

Cocoa buying companies that have committed to source from sustainable supply chains can also benefit from digital payments, as it can help ensure transparency.  For this reason, certified supply chains, which account for 40 percent of all production in Indonesia today, are critical for successful digitisation efforts.

Cocoa companies drive digitisation of payments at scale, the report noted. Additionally, cocoa companies can promote data-sharing with FSPs to extend transparent and traceable credits to farmers.