VALUE CHAIN GOVERNANCE IN INDONESIAN NET CAGE AQUACULTURE SECTOR: THE CASES OF LAKE TOBA AND JATLHUR RESERVOIR

Lake Toba and Jatiluhur Reservoir are important suppliers of freshwater fish to Indonesian markets, where aquaculture gained popularity as a successful livelihood strategy amongst riparian communities. The study presents a comparative analysis of governing patterns in net cage value chains of Nile Tilapia (Oreochromis niloticus) and Common Carp (Cyprinus carpio) farmed in both locations. It attempts to explore and address some of the implications of existing value chain arrangements and informal governance structures on local socio-economic contexts.

During initial research phases, qualitative key informant interviews were conducted with cage operators, input suppliers, fish buyers and local government agencies, where secondary quantitative data was also obtained. This was followed by questionnaires of 112 and 70 cage operators on Jatiluhur and Lake Toba respectively. Data was collected on production methods, input supply, marketing strategies and profitability of fish farming.

Aquaculture value chains on Lake Toba and Jatiluhur Reservoir were characterised by captive networks, where a few lead fish producers played central role across the value chain nodes by providing input supply and marketing channels to local farmers. Lead producers supplied feed and/or seed to selected fish farmers under informal loan agreements and often reserved the right to purchase their final produce as the way of debt repayment. The study found that a significant proportion of the fish farmers surveyed (65% on Jatiluhur and 63% on Lake Toba) relied on the credit systems to supply feed, accounting for over 70% of total production costs. In turn, 60% of Jatiluhur and 47% of Toba producers marketed fish via their feed suppliers. Fingerlings production in West Java mirrored this captive value chain model, with lead seed producers providing inputs and marketing services to local hatchery operators. Findings also indicated that lead farmers themselves were bound to feed companies to market their products by similar credit systems they imposed on fish farmers.

Captive fish value chain networks on Lake Toba and Jatiluhur reservoir benefited fish producers by providing a high degree of coordination between the complex activities involved in fish production and marketing. Credit systems reduced barriers for local communities to participate in aquaculture value chains, which required constant high capital investment. It also presented financial risks to lead farmers, who, in absence of formal contractual relationships, had to rely on trust and fear of social sanctions by cage operators to produce enough harvest on time to pay off their debts to feed manufacturers. These risks were exacerbated by natural disasters and fish disease epidemics not uncommon in both regions, often leading to large production losses and bankruptcy of fish farmers. Possibilities of value chain upgrading and risk mitigation strategies are discussed in view of these results.