Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
Household-Based Food Industry as a Means for Poverty
Alleviation in East Sumba Regency
Ratih Dyah Kusumastuti, Viverita and Riani Rachmawati
Indonesia is considered as a country with significant economic growth. The gross domestic
product grew at the rate of 5.8% in the year 0f 2013. However, it is still facing problem to eradicate
poverty in some of the provinces, especially those in the eastern part of the country. The East
Nusa Tenggara (NTT) province is one of the provinces with high number of residents living below
the poverty line. In contrast, the province is also considered to be the national food corridor due to
high production rate of food commodity. This condition could serve as an opportunity for the
province to enhance its economic condition if a proper development strategy is implemented. The
regency of East Sumba, in particular, has more than thirty percent of residents living below the
poverty line. Similar with most of other regencies in NTT, it is a producer of food commodities and
horticulture such as maize, fresh roots, seaweed, and bananas. Currently, there are several food
processing businesses in East Sumba, which are run individually or by groups of residents, whose
products are mostly food snacks, such as seaweeds crackers, corn chips, fried peanuts, banana
chips, and Manggulu (local sweet made of banana and peanuts). However, the industry has not
been able to develop optimally due to constraints and limitations faced by the business players.
Hence, this research aims to explore and analyze the existing condition, challenges, and
opportunities faced by household-based food industry in East Sumba. A qualitative methods is
applied to enable exploration, by conducting in-depth interviews (IDIs) with thirteen representatives
from the government, community leaders, and residents who are engaged in the household-based
food industry, in May-June 2014. The initial results indicate that the main conditions and
challenges faced by the industry are mainly human resources capacity in East Sumba particularly
in terms of skills; limited market access due to packaging, logistics, certifications and network
issues; limited production technology which mainly is done manually; and sporadic and
unsustainable government supports due to the lack of coordination among local government
institutions with similar responsibility of regional economic development. Furthermore, this
research also found that the opportunity to enhance household-based food processing for poverty
alleviation is still widely opened where systematic intervention is very much needed.
Keywords: poverty alleviation, household-based industry, food industry, East Sumba,
Indonesia
Field of Research: Management
1. Introduction
The Indonesian economy has grown significantly in the recent years. According to data from the
Indonesian Statistics Body (BPS), the country’s growth rate of gross domestic product (without
oil and gas) is in the range of five to seven percent from the first quarter of 2011 to second
quarter of 2014 (BPS, 2014a). The Asian Development Bank has predicted that the GDP will
still grow at the rate of 5.7 percent and 6 percent in 2014 and 2015 respectively (ADB, 2014).
Even though the economy outlook is looking good, the country is still facing problem in
eradicating poverty. In the month of March 2014, the number of poor people living in the country
________________________________________________________________________
Ratih Dyah Kusumastuti, Viverita and Riani Rachmawati, Department of Management, Faculty of Economics and
Business, Universitas Indonesia, Kampus UI, Depok 16424, Indonesia, Phone: +62-21-7272425, 7272646 Fax:
+62-21-7270024, Email address: ratih.dyah@ui.ac.id; viverita.d@ui.ac.id, riani.rachmawati@ui.acid,
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
is around 28.2 million or 11.25 percent of the total residents (BPS, 2014b). The percentage of
poor people is significantly higher in the eastern provinces of Indonesia, such as in East Nusa
Tenggara (20.24%), Maluku (19.27%), Papua (31.53%), and West Papua (27.14%) (BPS,
2014b). The gap between the rich and poor has grown as indicated by the growing trend of Gini
ratio (see Figure 1).
Gini Ratio
0.500
0.400
0.300
0.200
0.100
0.000
1996 1999 2002 2005 2007 2008 2009 2010 2011 2012 2013
Figure 1: Gini ratio 1996-2013 (BPS, 2014c)
In the province of East Nusa Tenggara (NTT), in particular, the percentage of poor people is
relevantly high. Most of the regencies/districts have more than 20 percent of the residents living
in poverty (BPS, 2012). For instance the percentage of poor people In the East Sumba regency
in 2012 is 30.35% (BPS NTT, 2012).
According to the Masterplan for Acceleration and Expansion of Indonesia's Economic
Development (MP3EI), NTT province is considered as the national food support corridor since
the province is one of the regions with high production rate of food commodity, such as maize,
bananas, and fresh roots (see Table 1). The food sector is one of the sectors that significantly
affect the poverty line. The contribution of food commodities to the poverty line is relatively
higher compared to non-food commodities (apparel, housing, education, and health sectors),
which is at 73.43% in September 2013 (BPS, 2014d). It means that the food sector should be
given the highest priority, so that the country can be self-sufficient in terms of food and
accelerate the economic growth.
Concerning the NTT province, since the food sector contributes the most to the poverty line,
and the production rate of food commodities is high in the province, there lies an opportunity to
increase the local residents’ level of income by engaging them in household-based food
industry as community-based entrepreneurship is an alternative way to develop the
impoverished community (Paredo and Chrisman, 2006).
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
Table 1: Production of food commodity in NTT province (Tons)
Year/Commodity
Maize
Casava
Sweet
Potato
Peanut
Soybean
Paddy
2010
653,620
1,032,538
121,284
20,069
1,780
555,493
2011
524,638
962,128
129,728
23,685
1,378
591,371
2012
629,386
892,145
151,864
21,563
2,781
698,566
2013
707,642
811,166
78,944
16,056
1,675
729,666
2014
641,797
780,008
95,248
14,998
2,358
795,665
Source: BPS (2014e)
In the East Sumba regency, in particular, currently there are several household-based food
processing businesses run either individually or by a group of residents. However, they have
not been able to develop optimally so that they have not improved the local economy
significantly. The objective of the paper is to gain insights on the existing conditions, challenges
and opportunities faced by household-based food processing businesses as a means for
poverty alleviation in East Sumba regency. These insights are important for both the local
government and the community so that they can work together hand in hand to lower the
poverty level of the regency.
The remaining of paper is organized as follows. Relevant literature pertaining to householdbased businesses is presented in Section 2, followed by research methodology in Section 3,
analysis of initial findings in Section 4, and conclusion and future study in Section 5.
2. Relevant literature
The concept of competitive advantage of a nation was proposed by Porter (1990), via Porter’s
diamond model, which explains why a certain country is more competitive, compared to other
country. In the model, Porter identified four main pillars that affected a nation’s competitive
advantage, namely factor conditions, demand conditions, related and supporting industries, and
firm strategy, structure and rivalry. Porter also identified two external factors, namely
government and chances that supported and complemented a nation’s competitive system but
did not create a sustainable competitive advantage.
In terms of regional development, the creation of the region’s core competence is essential to
the development of its competitiveness (Huseini, 2009). Region’s core competence is defined
as the region’s unique advantages which include aspects such as people skills, natural
resources, environment, culture, market potential for both primary and processed products
(Kurniyati, 2010). Region’s core competence should have potential access to markets, have the
ability to create real contribution to gain benefit from the final product, and possess unique
characteristics that cannot be easily imitated by others (Mulyadi, 2010).
A way that can be explored to develop region’s core competence is by developing local
entrepreneurs (Korsching and Allen, 2004). Community-based entrepreneurship (CBE), in
particular, is an alternative model that is potential for the development of the impoverished
community (Paredo and Chrisman, 2006). CBE is based on the understanding that collective
and individual interests are fundamentally complementary, and by regarding communal values
and the notion of the common good as important elements in venture creation.
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
In order to create a conducive environment for CBE, there should be a good working
relationship between local government and entrepreneurs, the region image should be created
by intensively communicating the region’s characteristics and advantages, and region’s
products should possess high quality and the region’s identity (Fink et al., 2013).
In the Asian region, the concept of one village one product (OVOP) or one town one product
(OTOP) that was firstly developed in Oita region in Japan, is a popular concept related to
community development and local industry promotion, and has been implemented in several
Asian countries beside Japan, such as Thailand, Malaysia, Philippines, People’s Republic of
China (PRC), and Indonesia (Igusa, 2006). The main principles of OVOP is that each
community should create at least one product that is marketable, which bears the community’s
identity and uses local resources, polish the product, perform value added activity, create own
brand, market the product globally (Igusa, 2006). The three fundamental principles of OVOP
can be seen in Figure 2.
Local yet Global
Human Resources
Development
Self-Reliance and Creativity
Figure 2. Fundamental principles of OVOP
Source: http://www.ovop.jp/en/ison_p/
According to Igusa (2006), success implementation of OVOP can be achieved if there is a clear
guidance from the local government through knowledge dissemination, such as marketing
strategy, innovative thinking, and the education of community leaders. Stenning and Koichi
(2008) also explains the important role of knowledge and networking in community capacity
development in the success of the OVOP movement in Oita.
3. Research methodology
As previously mentioned, this research aims at gaining insights of the existing conditions of
household-based food processing businesses in East Sumba regency along with the
challenges and opportunities that the businesses face. In order to better understand the
phenomena, we use the qualitative methods to obtain the primary data. As literature suggest
that the success of CBE or OVOP requires a clear policy from the local government, and also
good working relationship between them and the community, we conduct in-depth interviews
(IDIs) with thirteen representatives from the central government, local government (NTT
province and East Sumba regency), community leader, and household-based business
community in May and June 2014 to obtain information regarding government’s policy towards
developing household-based food industries and the current condition of the existing
businesses (see Table 2 for the information concerning the informants’ institutions).
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
Table 2: The informants’ institutions
No.
Institution
1.
2.
3.
4.
5.
6.
The NTT Liaison Office in Jakarta
Ministry of Cooperative and SME
Division of Cooperative and SME NTT province
Division of Industry and Trade NTT province
NTT Food Agency
Division of Cooperative and SME East Sumba
regency
Division of Industry and Trade East Sumba
regency
Division of Agriculture East Sumba regency
East Sumba Food Agency
The government East Sumba regency
Community leader (church priest)
Household-based business group members
7.
8.
9.
10.
11.
12.
Number of
Informants
1
1
1
1
1
1
City
Jakarta
Jakarta
Kupang
Kupang
Kupang
Waingapu
1
Waingapu
1
1
1
1
2
Waingapu
Waingapu
Waingapu
Waingapu
Waingapu
In particular, we conduct interview with the representatives from the government to obtain
information concerning the policy guidelines for the development of household-based industries
in the regency, the support and help provided for them, and opportunities and challenges that
are currently faced in developing the industries.
We also conduct IDIs with two representatives from household-based business group members
to gain information regarding their food processing businesses, the support and help that they
have received from the government, the kind of support that they need to expand the
businesses, and challenges that they face in running their businesses.
IDI with a representative from the community leaders is conducted to obtain information
concerning characteristics of the East Sumba people, the role of the community leader in the
development of household-based food industries in East Sumba, and the informant’s
perspective of the government’s policy on the issue and challenges that are faced by the
industries.
4. Initial findings
4.1. Description East Sumba regency,
The regency of East Sumba of the NTT province is located at the eastern part of the island of
Sumba and its capital is Waingapu. It has a population of 240,190 people in 2013 and an area
of 7,000.5 square kilometers comprises 22 sub-districts (BPS NTT, 2014). The majority of the
labor force (62.19%) earn their living in the primary sectors, namely farming, plantation,
forestry, hunting and fishing (BPS NTT, 2014). The GRDP of East Sumba in 2013 was around
USD 70 million, with the growth rate of 5.56% and agriculture sector as the highest contributor
(BPS NTT, 2014).
About 40% area of East Sumba is steep hilly, especially in the southern part, where the hillsides
are fertile land, while the northern regions form a rocky plateau and less fertile. East Sumba has
two seasons, dry and rainy seasons (BPS Sumba Timur, 2014). In general, the rainy season is
in the months of January to April, while the other eight months are dry, and therefore East
Sumba is a relatively dry region (BPS Sumba Timur, 2014).
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
The regency produces crops and fruits, such as rice, maize, fresh roots, peanut and banana
(see Table 3). There exist several household-based food industry in East Sumba, such as cornbased, banana-based, peanut-based and seaweed-based food industries.
Table 3. Production of food crops in East Sumba regency in 2013
Commodity
Production (Tons)
Rice
38,540
Maize
38,446
Cassava
26,210
Sweet Potato
4,071
Peanut
1,629
Banana
2,167
Source: BPS NTT (2014)
4.2. Initial analysis of IDIs results
Opportunity to develop household-based food processing industry
Most informants said that due to the higher production of food crops and fruit in East Sumba,
the regency has a potential to develop household-based food industry to improve the local
economy, such as producing food and snacks from maize, cassava, sweet potato, peanut, and
banana. As the regency has a long coastline, coconut, fish and seaweed based food industries
are also potential to be developed in the area. Furthermore, savannah also exists in the
regency, which is a perfect environment for cattle, and thus it is also potential to produce meatbased food industry.
Household-based economy development through household-based business group
The informants from the government stated that the kind of supports that they have provided to
develop household-based economy (for poverty alleviation) are in the forms of education and
training (such for production techniques and product packaging), access to market via
exhibition, and grants for production equipment given through the household-based business
groups. The majority of the group members are housewives, some informants said that this is
because housewives have more time to be engaged in the business groups, while others said
that this is due to the culture in East Sumba that encourage woman to be the breadwinner of
the family. Unfortunately, only a few groups that are currently still active in business and thus
the activity has not improved the local household’s income significantly. According to the data
from the Division of Agriculture of East Sumba regency, the division has provided supports in
the form of training and grants of production equipment to household-based food processing
business groups. In 2013 the program has reached 440 groups in 22 sub-districts, however
only 18 business groups that are currently active due to limited skill of the group members,
limited access to market products, and limited working capital.
Government policy
Our informants from the government institutions said that the ministry/division in agriculture,
cooperatives and SME, and industry and trade are usually involved in developing the
household-based food industries. Each institution has their own reasons and objectives. The
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
Division of Agriculture is involved in order to reduce the dependency on rice, while the Division
of Industry and Trade’s reason is to improve the local economy, and the Division of
Cooperatives and SME’s reason is to increase the household income through cooperatives.
These different objectives have caused limited coordination between government institutions.
For instance, if a group has received support from one institution, this group will not be
approached by other government institution, even though these institutions offer different kinds
of supports that may be needed by the group. Another informant also said that limited budget
and frequent employee rotations in the government institutions caused the support to be
sporadic and unsustainable. For example, mentoring the household-based business groups
cannot be conducted optimally due to the employee rotations in the institutions. As the groups
require continue supports and guidance, this condition causes the inability to develop optimally.
Challenges faced by the household-business groups
The IDIs results with the informants indicate that, there challenges that must be faced by the
household-based food processing industries in order to develop, namely:
1. Limited skill and low motivation of the residents of East Sumba. Several informants said
that the residents are not motivated to increase their household income as they only live
for today (as long as they can eat today, they are happy with it), and therefore they tend
to sell the raw materials directly to the traditional market without any added value. Some
residents that are motivated to be engaged in the industry unfortunately have limited
skill.
2. Sporadic and unsustainable support from the local government. Even though the local
government has provided support and help to the business groups, the informants feel
that it is still minimal due to limited or no coordination between institutions.
3. Limited access to market. Usually the groups only market their products in East Sumba
or Kupang (the capital city of NTT province). They cannot market their product
nationwide because they have not had the certifications (such as PIRT: certification for
household food industry, and halal certification), the packaging is too simple and
unattractive, and high logistics costs.
4. Limited working capital. Currently the groups have limited access to working capital,
either from the government grants, loans from the cooperatives or private sources. This
condition makes it difficult for them to expand the business and increase the production
capacity.
5. Simple production technology. The groups are still using manual production technology
that causes limited production capacity and unstandardized final products. Therefore,
even though they have better access to the market, the limited production capacity may
not be sufficient to satisfy the customer demand.
5. Conclusions and future study
Community-based enterprise, such as one village one product movement is a promising
alternative to improve the local economy to eradicate poverty. However, the success
implementation of the concept requires capacity building of the residents through knowledge
dissemination and networking, and also good working relationship between the government and
the residents.
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Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
The paper presents initial findings regarding current conditions, challenges and opportunities
faced by the household-based food processing business groups in East Sumba regency to
alleviate poverty in the region. The initial analysis of the interviews results with thirteen
representatives from the government, community leader, and household-based business group
members indicate that East Sumba is potential for the development of the household-based
food processing industries due to high production food crops and fruits in the regency.
Different government institutions already have programs to develop household-based food
processing industries in East Sumba, however limited coordination among the institutions
causing sporadic and unsustainable supports to the business groups that makes it difficult for
them to grow optimally.
Several challenges that are faced by business groups to expand their businesses are namely
limited skill and low motivation of the residents, limited coordination among government
institutions, limited access to market and working capital, and simple production technology.
In the near future, analysis of the interviews results will be done further, and a benchmarking
analysis to another region that has successfully developed the household-based food
processing industry will be conducted to develop recommendation regarding the suitable
government policy for the developing of the household-based food processing industry in East
Sumba regency.
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