A Diagnostic Analysis of Seaweed Value Chains in Madura, Indonesia

A diagnostic analysis of seaweed value
chains in Sumenep Regency, Madura

Indonesia
United Nations
Kabupaten Industrial Development
Sumenep Organization
A diagnostic analysis of seaweed value chains in Sumenep Regency, Madura Indonesia
This document has been prepared by Iain C. Neish in

fulfilment of UNIDO project No. 140140.
The opinions and information contained are the
responsibility of the author and should not necessarily be
considered as reflecting the views or bearing the
endorsement of UNIDO. Although great care has been taken
to maintain the accuracy of information herein, neither
UNIDO nor its Member States assume any responsibility for
consequences that may arise from the use of the material.
This document may be freely quoted or reprinted but
acknowledgement is requested.
Reference:
Neish IC, 2015. A diagnostic analysis of seaweed value
chains in Sumenep Regency, Madura Indonesia. Report
submitted for UNIDO Project no 140140 “preparatory
assistance to develop a seaweed value chain development
project for Madura”.
ii
Executive summary
The present study was conducted during March and April, 2015 as a component of UNIDO
Project no 140140 as preparatory assistance to develop a seaweed value chain development
project for the Regency of Sumenep on the island of Madura. Substantial seaweed biomass
had been produced in Sumenep for more than twenty years. The study was motivated by
goals of the government to generate opportunities for businesses and decent work for
farmers in sustainable seaweed production, processing and marketing.
Sumenep produces about 5 percent of Indonesian seaweed raw material and has the
capacity to produce much more. Sumenep has comparative advantage as a seaweed raw
material source due to a combination of generally favorable weather; fertile sea water;
abundant human resources; and close proximity to the major hub region of Surabaya.
With respect to farm productivity issues it was found that in several Madura main island
areas farmers used small bibit (cuttings) on raft modules in order to create piecework
opportunities that, in turn, led to domestic harmony due to distribution of farm revenues
among village populations. However the piecework system institutionalized a low-
productivity approach to seaweed farming. By contrast, in the Kangean and Sapeken Islands
farmers used larger bibit on longline systems to achieve higher farm productivity. Means
should be sought to increase farm productivity and market competitiveness in ways that still
realize income distribution objectives.
With respect to value adding opportunities it was found that despite prior failures, there
may be modest opportunity to operate alkali-treated chips (ATC) capacity in Sumenep
provided that contractual relationships are formed with anchor buyers. especially Chinese
refined carrageenan producers. A far greater opportunity lies with development of new
products from multi-stream, zero-effluent (MUZE) technology. MUZE requires that value
addition commences with live seaweeds at farm areas. A first step toward MUZE processing
can be production of cottonii/sacol white RDS that is being sought by SRC processors.
Development of new products from MUZE technology will enable proliferation of

agricultural nutrient products and other products from seaweeds that can get the Sumenep
seaweed industry out of the ‘zero-sum carrageenan game’ and into a ‘development for
growth’ game as new, large markets develop both domestically and internationally.
Innovation is the key to future Sumenep seaweed market opportunities.
At the farm level almost all seaweed farmers in main-island Madura areas and some farmers
in the Kangean and Sapeken Islands belonged to more or less formal groups (Kelompok).
Benefits and costs from farmers aggregating into groups lean toward benefits outweighing
costs. Based on experience from one existing co-op in Sumenep it seems that development
of co-ops should be examined as a feasible way for farmers to maximize the benefits of
aggregation.
iii
Glossary
Note: (B) is Bahasa Indonesia
ATC: alkali-treated chips made from Kappaphycus.

Bibit: (B) Cuttings or propagules used to inoculate planting lines on farms.
Cottonii: Kappaphycus spp.
Cultivar: A clone derived from vegetative propagation originating from a single seaplant
thallus.
Eucheuma spp.: A red algal genus that is called “spinosum” of the trade; source of iota
carrageenan.
Gracilaria spp.: A red algal genus also called “gracilaria” in the trade; source of agar.
Kappaphycus spp.: A red algal genus that includes both “cottonii” of the trade and “sacol”
of the trade; sources of kappa carrageenan.
MSME: Micro, small and medium enterprises.
MT: metric ton.
Para-para: (B) drying rack for seaweed
RAGS: Red Algal Galactan Seaweeds including Eucheuma, Gigartina and Kappaphycus.
Sacol: A cultivar of Kappaphycus striatus
Spinosum: Eucheuma spp.
SRC: semi-refined carrageenan (a.k.a. processed eucheuma seaweed, PES or E407a).
USD: United States Dollar.
Value Chain: A mechanism that allows producers, processors, and traders - separated by
time and space – to add value to products and services as they pass from one link in the
chain to the next until reaching the final consumer (after UNIDO, 2011).
VAT: Value-added tax.
iv
Table of contents
ABSTRACT.......................................................................................................................................................iii
GLOSSARY.......................................................................................................................................................iv
TABLE OF CONTENTS.......................................................................................................................................vi
INTRODUCTION ...............................................................................................................................................1
1. GEOGRAPHIC AND DEMOGRAPHIC CONTEXT...............................................................................................2
2. VALUE CHAIN MAPPING...............................................................................................................................7
3. SEAWEED PRODUCTION.............................................................................................................................15
4. CARRAGEENAN PROCESS SYSTEMS ............................................................................................................29
5. MARKETS AND TRADE................................................................................................................................37
6. VALUE CHAIN GOVERNANCE AND COMPETITIVENESS ...............................................................................48
7. VALUE CHAIN FINANCE ..............................................................................................................................52
8. ENVIRONMENTAL ISSUES AND ENERGY USE ..............................................................................................54
9. BUSINESS AND SOCIO-POLITICAL CONTEXTS..............................................................................................56
10. CONCLUSIONS AND RECOMMENDATIONS ...............................................................................................58
11. REFERENCES .............................................................................................................................................60
v
Introduction
The present study was conducted during March and April, 2015 as a component of UNIDO
Project no 140140. The study was a component of UNIDO financed preparatory assistance
to develop a seaweed value chain development project for the Regency of Sumenep on the
island of Madura where substantial seaweed biomass had been produced for more than
twenty years and conditions of seaweed production called for renewed Government
investment. The preparatory assistance was organized in response to a request from the
local Government in Sumenep and was supported by the central planning Ministry.
The study was motivated by goals of the government to generate opportunities for
businesses and decent work for farmers in sustainable seaweed production, processing and
marketing. Drawing from technology that is already in use of under development in
Indonesia and elsewhere and collaborating with private sector entities that have pioneered
the seaweed sector the idea was to bring value addition closer to the poor and help local
seaweed farmers to benefit from the value that is added to seaweed as it gets processed
and marketed.
1
1. Geographic & demographic context

1.1. Location and overview
Sumenep is a Regency (Kabupaten in Bahasa Indonesia) of East Java province, Indonesia. It
has a population estimated at 1,071,591 (2014). Sumenep occupies the eastern end of
Madura Island and also includes 126 scattered islands located between 113 ° 32'54 "-116 °
16'48" East Longitude and 4 ° 55'-7 ° 24 'South latitude. Forty eight of the islands are
inhabited. The islands extend as far as 305 kilometers from Kalianget Port. Sumenep is
bordered to the south by the Strait of Madura and Bali Sea; to the north by the Java Sea; to
the west by Pamekasan Regency (the only land border); and to the east by the Java Sea and
Flores Sea.
The total area of Sumenep Regency is 1,998.5 km². This comprises 179.32 km² of
settlements; 423.96 km² of forest; 14.68 km² of grassy areas or vacant land; 1,130.19 km² of
farms and moors; 59.07 km² of water bodies including aquaculture ponds; and 63.41 km² of
"other" areas. Sumenep has about 50,000 km ² of territorial sea that includes an estimated
area deemed suitable for seaweed farming of almost 250,000 hectares.
Figure 1.1. Locator map for Sumenep Regency. Note that the island groups to the east of
Madura and north of Bali comprise more than half of the shoreline suitable for seaweed
farming. (Screenshot from Google Earth)
Most seaweed grown in Sumenep is trucked across the Suramadu Bridge to Surabaya before
delivery to domestic processors or exporters. Some goes by sea to Bali or East Java prior to
onward shipment to Surabaya.
2
Figure 1.2. Map of Sumenep showing distribution of seaweed farming activity among
municipalities. (Data from BPSKS, 2014).
Mineral Resources in Sumenep include phosphates, limestone, calcite, gypsum, quartz sand,
dolomite, kaolin clay and stone. Some islands of Sumenep show indications of gas and
petroleum. Since 1993 the Kangean islands have been a site of natural gas mining
production which is now operated by PT Energi Mega Persada. The islands are connected to
East Java via a 430 km pipeline, most of which runs underwater.
3
1.2. Population structure, employment and GRDP

Numerous tables and graphs concerning the demographics of Sumenep can be found in
BPSKS (2014). The following narrative and table summarize key data from that source.
As of 2014 the total population of 1,061,211 people comprised 504,712 male and 556,499
female within 322,393 households. About 7,000 households were engaged as owners of
seaweed farms. About 21 percent of people were below the poverty line. The population
was mostly Muslim. Worship facilities comprised 1,592 mosques; 2,358 prayer houses
(musholla); 3 churches and one Buddhist nunnery.
BPSKS data for 2013 (Table 1.1) indicated that agriculture accounted for over 40 percent of
the Gross Regional Domestic Product (GRDP) of Sumenep. Fisheries, including seaweed
farming, accounted for almost three percent of GRDP.
Table 1.1. Gross

Sector M Rp M USD Percent
Regional Domestic Agriculture 7,010,806.83 701.08 41.4
Product (GRDP) of Fisheries 497,230.05 49.72 2.9
Sumenep (2014) at Mining & quarrying 1,523,801.25 152.38 9.0
current market Manufacturing industries 355,086.33 35.51 2.1
prices. FOREX was Electricity, gas & water supply 31,946.46 3.19 0.2
assumed at an Construction 355,528.90 35.55 2.1
Trade, hotel & restaurant 3,676,276.87 367.63 21.7
average of 10,000
Transport & communication 410,568.50 41.06 2.4
IDR/USD.
Finance & business services 758,187.40 75.82 4.5
Services 1,483,298.43 148.33 8.8
TOTAL 16,102,731.02 1,695.02 100.0
1.3. Climate and seasonality
Sumenep is located at coordinates 7°01′S 113°52′E, well within the tenth parallels. This
region is generally between the 21-24 degree Celsius winter isoclines where most
Kappaphycus and Eucheuma biomass occurs (Neish, 2013b in Valderrama et al, 2013).
Sumenep has a tropical marine climate. Seashores are typified by fairly uniform air and sea
temperatures averaging in the range of 25-35 degrees Celsius. There is high humidity and
moderate rainfall that is distinctly seasonal. There are no typhoons but seismic activity in
the region can produce tsunamis and earth tremors. Weather changes are driven by the
West Monsoon (generally from October to March) and the East Monsoon (generally from
April to September).
4
Figure 1.3. A,B. Sumenep monthly rainfall in mm and days (2013) showed a distinct annual
pattern with little rain during the east monsoon (about July-November) and moderate
rainfall during the rest of the year. C. Sumenep monthly air temperature (oC, 2013) indicated
little variation within years or between years. D. Sumenep monthly average wind speed
(2003-2010) was fairly consistent throughout the year. Strongest winds occurred during the
east monsoon. (Data from BPSKS, 2014).
5
Seasonal variations in wind patterns and rainfall are a fact of life that has great impact on
Sumenep seaweed farmers. Most farmers refer to “good” or “bad” farming conditions with
reference to rainfall. In some locations production is best during the “rainy season” and in
others during the “dry season”. Some locations are good for seaweed farming all year
around although there may be seasonal variations in productivity. Many locations can only
support seaweed farming during a limited season of the year.
For the present analysis 2013 data were obtained from BPSKS (Fig.1.3). Data indicated that
Sumenep had a very distinct rainy season when winds were coming predominantly from the
northwest (the west monsoon) and a dry season when winds were coming predominantly
from the southeast (the east monsoon) and some months had no rainfall at all. The west
monsoon occurred from about December until March and the east monsoon from about
May through October. June and December were transition months with inconsistent
weather.
6
2. Value chain mapping

2.1 Value chain contexts and diagnostic dimensions
UNIDO (2011) defines a value chain as “a mechanism that allows producers, processors, and
traders—separated by time and space—to gradually add value to products and services as
they pass from one link in the chain to the next until reaching the final consumer (domestic
or global). Main actors in a value chain are firms from the private sector. The private sector
draws from a range of public services and private technical, business and financial service
providers. They also depend on the national and global legislative context and sociopolitical
environment. In a value chain the various business activities in the different segments
become connected and to some degree coordinated.”
The present study was undertaken within the following seven diagnostic dimensions (after
UNIDO, 2011):
1. Sourcing of Inputs and Supplies: Emphasis was placed on understanding sources of

goods and services that seaweed industry players use in production. Their
relationships with providers of primary materials and inputs were examined.
Sourcing steps were examined from the farm to the offshore processors.
2. Production Capacity and Technology: Here the study examined Sumenep seaweed
industry players’ capabilities to manufacture and transform goods, including the
means of production (machinery), human capital and the knowledge and
technologies used in production. Indicators of technical productivity, cost-efficiency
and profit margins were used in the analysis.
3. End-Markets and Trade: The study examined markets that ultimately absorbed
Sumenep seaweed products and the seaweed quality demands of those markets.
There was emphasis on understand existing capacity of the Sumenep seaweed value
chain to meet demands and access existing and potential markets.
4. Value Chain Governance: Relationships among seaweed farmers and buyers were
examined in light of the complex interdependencies between value chain players.
The focus on value chain governance was on rules and regulations that determine
the functioning of and coordination in Sumenep seaweed value chains, existing
barriers to entry and the dominance of certain value chain players such as
carrageenan processors and exporters.
5. Sustainable Production and Energy Use: The seaweed industry is generally regarded
as a sustainable, environment friendly industry. The study examined how value chain
actors complied with standards of environmentally sustainable production.
6. Finance of Value Chains: The emphasis here was to understand how the various
actors in the value chain finance their operations, the appropriateness and
sufficiency of available finance mechanisms and how delivery can be made more
7
efficient. A distinction was made between credits provided by formal financial

institutions and informal financing through buyer-supplier relationships
7. Business Environment and Socio-Political Context: The aim of the analysis here was
to understand how policies and institutions may have impacted on Sumenep
seaweed value chains and what public institutions can do to support the
development of the value chain. The study also examined the availability of public
and private support services, and the business culture of public and private actors.
2.2. A generalized seaweed value chain structure

Basic value chain functions are shown in association with the products they make in Figure
2.1. A detailed value chain map specific to Sumenep is shown in Figure 2.3. The essential
feature of value chain functions is that each step adds value to products as they move
geographically and economically from the original sources of raw materials to end users.
It is an important feature of carrageenan that it is a product with ‘derived demand’. It
is not sold directly to end users; rather, it is a ‘building block’ performance chemical
that is blended with other ingredients as a component of ‘ingredient solutions’ that are
applied in end products such as foods and personal care products. Alkali-treated
‘chips’ (ATC) are not a ‘product’ per se; their production comprises an intermediate
step in carrageenan manufacture
Figure 2.1. Generalized value chain structure for carrageenan made from Kappaphycus
seaweeds.
Support Value chain

functions functions Products Narrative
Live; then semi-dried Farmers may operate independently
seaweed crop or may have equity/membership in
FARM & DRY for further enterprises that perform collection
post-harvest treatment and process functions
COLLECT and/or Dried, cleaned Collection generally performed by

TRADE farmer-owned enterprises or by
seaweed crop other local enterprises. Independent
Prepared for or contractually &/or financially
further processing linked to traders who fund VC.
facilitate
Building blocks are of most value if
value Ingredient they are made using processes and
chain PROCESS building blocks derived from sources with known
links for solution providers provenance
Ingredient solutions Solution providers supply end users

combining blends with formulated ingredient blends
FORMULATE of ingredients with and also with specialized
knowledge of applications knowledge
Goods include human food,

goods animal feeds, personal-care,
APPLY for sale to end users well-being and household
products
n
8
2.3. Value chain actors

2.3.1. Seaweed farmers in Sumenep
Based on interviews with seaweed farmers in Sumenep the predominant model for farm
management was the ‘lead farmer’ model where one person or a small team of people own
the enterprise; are actively involved in day-to-day operations; assume responsibility for
managing the farm enterprise; and undertake marketing and selling of the crops produced.
Much of the farm labor was supplied by piecework laborers who performed tasks including
attaching cuttings to lines and drying the seaweed. It seemed that most such labor was
supplied by members, relatives and friends of farm-owning households.
Less common in Sumenep was the ‘nuclear family’ model where spouses shared work and
shared income between themselves, their children, their parents and/or other first-degree
blood relations.
According to BPSKS estimates (Fig. 1.2) Sumenep was home to over 7,000 farm households
in 2013 and they operated almost 80,000 raft or longline farm modules in 14 municipalities.
About 40 percent of farmers were island-based. Over 80 percent of seaweed farmable area
and about 27 percent of area already planted was in island areas so there was plenty of
scope for expansion around the islands.
2.3.2. Seaweed collectors and intermediate traders in Sumenep

Most seaweed farmers in Sumenep sold directly to collectors that, in turn, sold to
Indonesian domestic traders or processors (Table 2.2). Traders then sold to national or
international carrageenan processors (Table 2.3). During interviews Sumenep collectors
indicated that funds from buyers were commonly used to finance seaweed purchases. It
was reported that two or more collectors generally operated in proximity to all seaweed
farming areas.
2.3.3. Seaweed national traders/exporters in Indonesia

At the time of writing Sumenep collectors sold their seaweeds with little or no processing to
Indonesian national traders or processors. Some national processors were also exporters of
raw seaweeds. Traders sold to national processors or exported to international processors
(Table 2.2). Collectors generally used funds from national traders or processors to finance
seaweed purchases. It is significant to note that traders and exporters/processors were not
just ‘middlemen’ who simply bought and sold seaweed. They had several important value
chain functions, including:
A. Provision of capital to farmers and collectors in the form of cash advances or rapid
payments;
B. Logistic arrangements for transporting seaweeds from sources to processors;
C. Technical and information exchange with farmers and collectors;
9
D. Simple processing needed to make farmer-delivered seaweed meet buyer

specifications including (a) sorting and cleaning; (b) drying to a uniform, low
moisture content (e.g. about 35-38% moisture); and (c) pressing seaweed into
compact, wrapped bales for export shipment.
E. Absorption of foreign exchange risk or rewards and provision of working capital to
cover holding of inventories and work-in-progress.
From this list it can be seen that trader/exporters bore several risks and cost burdens. For
example, exporters normally bought seaweed in Indonesian rupiah and sold in US dollars.
Many buyers withheld as much as 20% of the purchase price pending testing at their
factories. Final payment was adjusted by moisture content on a pro-rata basis to take a
penalty or award a bonus. Payment of the balance often took several months. They were
exposed to foreign exchange risk and they carried the cost of financing seaweed as it moved
from sources to processors (often taking several months). They also absorbed processing
and transportation costs and most significantly of all they absorbed shrinkage losses often in
the range of 15-20% (Table 4.1).
By 2015 there were no direct exporters known to be operating from Sumenep. Exporters
active in Indonesia included those shown in Table 2.1.
Table 2.1. Some major seaweed exporters in Indonesia as of 2015. Many companies get
involved in seaweed exporting for more or less time so the roster is constantly changing.
(Source: PT Jaringan Sumber Daya [Jasuda])
Company Address Email Contact person

The Belezza GP Tower lt 15/8 Jl. Jend Supeno
Berkatu Sinar Makmur (PT) Ign Braminto WA
No 34 , Arteri Permata Hijau, Jakarta
Raya Tanjungsari 44 Kompleks Pergudangan
Bina Makmur Sejahtera dan Industri Permata Tanjungsari Blok B26 [email protected] Dewi Kumala Sari (Ay Lie)
Surabaya - Jawa Timur
[email protected]
Bintang Mandiri Waskito (CV) Jl Tanjung Sari No. 44 B20, Surabaya Willy Sutanto
m
Citra Mandala (PT) Makassar Ali Thalib
Jl. Kombes Pol M. Duryat 14 - 16 (B-19) Go Junaidi (Ahong), Harry
Delapan Sembilan (UD) [email protected]
Surabaya 60262 Sapudi
Head Office:Jalan Bung Tomo 26 Surabaya
Indomarin Niaga (CV) 60245 Indonesia, Warehouse: Komplek Bumi [email protected]
Maspion Blok 6 No. D-3, Romokalisari, Gresik
Jaya Laut Internasional (PT) alvinbhatara @gmail.com Alvin Bhatara
Kali Mas Seaweed Co. (PT) Makassar Lie Tjep Njan
Jl. Margomulyo Permai Blok N/2, Surabaya [email protected];
Lokanindo Pratama (CV) Tan William Sutanto
60188 [email protected]
Jalan Topaz Raya F53, Panakkukang Mas,
Persada Semesta (CV) N/A Sani Azis Husain
Makassar 90231
A.A Gde Ngurah Street Cakranegara - Mataram [email protected] ;
Phoenix Food (CV) Tjahya Setiawan
83234 [email protected]
Jl. G. Agung Gg. Bumi Ayu B No. 7 Denpasar,
Rahmat Bahari (CV) Komang Ribek
Bali
Jl. Teuku Umar X No.46 Makassar PO BOX 1295
Rapid NiagaInternational (PT) Noor Rahma Amier
Sulawesi Selatan
Sentosa (UD) Makassar [email protected] Darwis
Setia Utama (UD) Makassar Haji Sakka
celebesseaweed@celebess
Simpul Agro Globalindo (CV) Jalan Anggrek AA/1, Palopo, Sulawesi Selatan Mursalim
eaweed.com
Jl. Mahawu No.156 A Manado - Sulawesi Utara
[email protected]
Sumber Rejeki (CV) (HO), Jl. Kakatua No.49A Makassar - Sulawesi Marcel Julius Taher
, [email protected]
Selatan
Jl. Ujung Pandang Baru No.17 Makassar -
Sumberguna Makassarnusa (PT) [email protected] Utama Rusli
Sulawesi Selatan
10
2.3.4. Seaweed processors in Indonesia and the rest of the world

In the dynamic seaweed industry companies are frequently opening, closing, merging and
otherwise changing their identities. The list in Table 2.2 was not totally comprehensive but it
included most major processors known to be in business at the time of writing.
Table 2.2. Prominent carrageenan processors in business worldwide (April, 2015). Estimated
production capacities are shown as MT per annum. Process methods indicated are alcohol
precipitation, hybrid alcohol/KCl methods, gel-press, semi-refined food grade and semi-
refined technical grade. (Source: PT Jaringan Sumber Daya [Jasuda])
Country Company Alcohol Hybrid Gel press SRC FG SRC TG Total

Brazil Griffiths 750 750
Chile Dupont 2,000 1,500 3,500
Gelymar 1,000 2,000 1,000 4,000
China Lubao Bio (Greenfresh) 3,000 3,000
Shanghai Brilliant Gum (BLG) 1,000 4,000 8,000 13,000
Sheli Foods 2,000 500 2,500
Other China 2,500 2,500 1,000 6,000
Denmark CP Kelco 4,000 4,000
France Cargill 4,500 4,500
India Aquagri Processing Pvt. Ltd. 600 600 1,200
Indonesia PT Algalindo Perdana 1,000 1,000
PT Amarta Carragenan Indonesia 600 1,200 1,800
PT Bantimurung Indah 600 600 1,200
PT Cahaya Cemerlang 600 1,200 1,800
PT Centram 1,000 1,000
PT Galic Arthabahari 1,000 1,000 2,000
PT Giwang Citra Laut 1,000 1,000
PT Gumindo Perkasa Indistri 500 1,000 1,500
PT Hydrocolloid Indonesia 1,200 1,200
PT Indonusa Algaemas Prima 3,000 3,000
CV. Karaginan Indonesia 1,000 1,000
PT. Sansiwita 500 500
PT Phoenix Mas 180 180
PT Seamatec 1,000 1,000
PT Wahyu Putra Bimasakti 600 600
Japan Mitsubishi 1,250 1,250
Nippon Carrageenan 500 500
Korea MSC Co. Ltd. 1,500 1,500
Malaysia Omnigel 600 600 1,200
Tawau Carrageenan (Takara) 600 600
Philippines CP Kelco 2,000 1,000 3,000
FMC Biopolymer 4,000 4,000
Kerry 2,000 2,000
Marcel 1,500 4,000 5,500
Martsons Food Corpn. 1,200 1,200
MCPI/Datingbayan 600 600 1,200
Philippine Bioindustries 1,800 1,800
Polysaccharide (Shemberg) 2,400 2,400
W Hydrocolloids Co. 500 1,500 2,000
Shemberg Marketing 1,220 5,400 6,620
Shemberg Biotech 1,200 1,200
TBK 1,000 500 1,500
CEAMSA 2,000 2,000
Spain CEAMSA 1,750 1,000 2,750
USA FMC 6,000 6,000
Other Other producers worldwide 2,000 1,000 1,500 4,500
22,200 4,000 22,520 47,830 17,400 113,950
11
It was notable that total plant capacity of almost 114,000 MT/yr. was more than double the
known total carrageenan market of about 50,000 MT/yr. This was an industry that had large
under-utilized processing capacity. The magnitude of over-capacity was inflated even
further by the fact that several ATC and SRC factories were known to be inactive at the time
of writing.
2.3.5. Organizations with impacts on Indonesian seaweed value chains

At least six government ministries impact on seaweed value chains in Indonesia and so do
many other organizations. The list in Table 2.3 included most known at the time of writing.
Table 2.3. Organizations with impacts on Indonesian seaweed value chains. (Source: PT
Jaringan Sumber Daya [Jasuda])
ACRONYM ORGANIZATION URL

ACIAR Australian Centre for International Agricultural Research www.aciar.gov.au
ADB Asian Development Bank www.adb.org
ARLI Asosiasi Rumput Laut Indonesia (Indonesian Seaweed Association) n/a
ASKRINDO P.T. Asuranis Kredit Indonesia askrindo.co.id
Asosiasi Petani dan Pengelola Rumput Laut Indonesia (Association of
ASPERLI aspperli.ning.com
Farmers and )
Badan Perencanaan Pembangunan Daerah (Regional body for planning www.bappedaprovsi.
BAPPEDA
and development) net
Badan Pengkajian Dan Penerapan Teknologi (The Agency For the
BPPT www.bppt.go.id
Assessment and Application Technology)
CIDA Canadian International Development Agency www.acdi-cida.gc.ca
COREMAP Coral Reef Rehabilitation and Management Project www.coremap.or.id/
DFAT Australian Department of Foreigne Affairs and Trade www.dfat.gov.au

ILO International Labour Organization www.ilo.org
ISSA Indonesian Seaweed Society Association c/o www.bppt.go.id
JAMKRINDO Perusahaan Umum Jaminan Kredit Indonesia www.jamkrindo.com
JICA Japan International Cooperation Agency www.jica.go.jp
Kementerian Kelautan dan Perikanan Indonesia (Indonesian Ministry of
kKP (MOMAF) www.dkp.go.id
Marine Affairs and Fisheries)
Kementerian Negara Koperasi dan Usaha Kecil dan Menengah Republik
KUKM Indonesia (National Ministry of Cooperatives and Small to Medium www.depkop.go.id
Enterprises in Indonesia)
Lembaga Ilmu Pengetahuan Indonesia (Indonesian Institute of
LIPI www.lipi.go.id
Sciences)
Marinalg Marinalg International. www.marinalg.org
PKBL Program Kemitraan & Bina Lingkungan pkbl.bumn.go.id
PNM PT Permodalan Nasional Madani is a state-owned investment firm www.pnm.co.id
www.swisscontact.or.
Swiss Contact Entwicklungsorganisation der Schweizer Privatwirtschaft - Indonesia
id/
TNC The Nature Conservancy www.nature.org
UDAYANA Udayana University in Bali www.unud.ac.id
UNHAS Hasanuddin University in Makassar www.unhas.ac.id
UNIDO United Nations Industrial Development Organization www.unido.org
UNPATTI Pattimua University in Ambon www.unpatti.com
UNSRAT Sam Ratulangi University in Manado www.unsrat.ac.id
USAID United States Agency for International Development indonesia.usaid.gov
12
2.3.6. Facility location issues

Functions relevant to the Sumenep value chain are listed on the left side of Fig. 2.3. These
include not only value chain steps undertaken in Sumenep but also steps that pass through
processing of seaweed into carrageenan; sale of carrageenan blends; and manufacture,
marketing or sale of consumer products from the blends. In future all value adding steps
may occur in Sumenep as the seaweed industry develops. Locations of facilities for
undertaking value chain functions can have a profound impact on the costs of adding value
(Figure 2.2). In the last analysis value chains that prevail tend to be those that deliver best
value to customers. In the case of performance ingredients such as carrageenan services
and blends provided by formulators and solution providers are crucial links in the value
chains that are best performed by facilities in close proximity to facilities where carrageenan
in blends is applied to the manufacture of consumer goods such as food products, personal
care products and other applications where carrageenan adds functionality and value.
Most carrageenan processors are also blenders and solution providers so historically
process plants have tended to locate near to end users unless cost considerations were
over-riding. During the past three decades cost considerations have caused some process
capacity to migrate toward transportation and logistics hubs that are close to seaweed
production areas. For example major European plant capacity has closed down and moved
to Asian hubs including Surabaya, Makassar, Jakarta, Cebu City and Manila. On the other
hand China is an example where cost factors (including ready access to process chemicals)
have enabled process plants to remain near major markets rather than shifting toward
seaweed sources. The recent announcement of a large Chinese-owned SRC factory in South
Sulawesi may be a move away from that tendency (see Section 5.6.4).
Figure 2.2. A Value chain Value chain

summary of primary functions sub -functions Facility location issues
Best done in ‘Goldilocks zones’ where ecological
facility location Grow seaweed biomass & social factors best support crop productivity
issues for value FARM & PHT* PHT* for RDS or MUZE
Must be done as close as possible to farms while
crop biomass is alive
chain functions Collect PHT products Must be done as close as possible to farms while
COLLECT and/or PHT products are fresh
involving TRADE Consolidate, upgrade, pack Must be done at shipping hub (or processor
carrageenan & ship PHT products premises if they are near shipping hub)
made from RDS process can be done near seaweed source;

near shipping hub; or near formulators and end
Kappaphycus Make SRC or RC building users depending on business considerations
PROCESS Blocks; deliver to formulators MUZE process must begin near seaweed source;
seaweeds. can finish elsewhere .
NOTE: Most processors are also formulators and solution providers
Formulate blends Best done near manufacturers of consumer

FORMULATE goods that us e formulations.
Must be done near manufacturers of consumer
Deliver ingredient solutions
goods that apply ingredient solutions.
APPLY Apply ingredient solutions Must be done near established distribution

To make consumer goods channels to consumers
* PHT = post-harvest treatment
13
2.3.7. Map Value chain map for Kappaphycus farmed in Sumenep

Figure 2.3. Map Value chain map for Kappaphycus farmed in Sumenep. Yellow highlights
refer to VC functions in Figure 2.1. (Format from UNIDO, 2011 and Neish & Msuya, 2013).
FUNCTIONS ACTORS SERVICE PROVIDERS

Farmers in groups Some traders, exporters & Input providers
FARM live seaweed (N> 7,000 households) processors supply training, planting Extension services
biomass produced about materials and equipment to (Exporters, Academia,
10,000 tons of raw, contracted farmers GO, NGO)
DRY seaweeds dried Kappaphycus
per year Farmers are generally paid Seaweed farmer groups
immediately in cash for dry seaweed
Transport to
(generally 40 ± 5% moisture) at
collectors
collection points. Farm gate prices
COLLECT & TRADE Collectors typically 0.85 ± 0.25 USD/kg in recent Local transporters
seaweeds & traders years.
Hundreds Domestic Banks
Re-dry, clean & pack based near Exporters Exporters generally sell dry, baled Utilities
seaweeds seaweed & SRC/RC seaweed on FOB basis according to
makers specifications on buyers’ purchase Materials providers
Domestic transport farms
More than orders. Prices typically 1,200 ± 200
Stuff & handle 18 major USD/t in recent years.
containers exporters Transport agents
& 14+ Shipping companies
Deliver to domestic
international Globally 40+ processors
processors K mt of who may Most major SRC and RC
kappa SRC + also export makers are also
PROCESS seaweeds RC made per seaweeds International solution providers
to make SRC and RC year SRC & RC
makers
34+ MARINALG producer
companies in organization
Kappa carrageenan
Asia. Europe www.marinalg.org
FORMULATE, blend price about 9 USD/kg Solution Consumer
for SRC and 12-15 and the
& market of providers products
USD/kg for RC Americas Few domestic
ingredient solutions (100+) makers,
marketers processors but several
About 4-5 tons of & sellers international
APPLY blends to seaweed make one ton processors belong to
Some large consumer (thousands
make & market of carrageenan. MARINALG
products makers do globally)
consumer products
solution provision in-house
Market is both domestic and international
A small range of actors is involved in Sumenep seaweed value chains. Overlay notes on the
VC map indicate how some actors can cover more than one function. For example
processors/exporters are commonly involved in functions extending all the way from picking
up seaweed at farms to stuffing and handling export containers and many carrageenan
makers are also solution providers. Arrows in the map represent the flow of products from
one actor to the next. Overlay notes include information on types of contractual
arrangements. Arrows indicate market channels, with end-markets at the end of the map.
Generic categories of support services are indicated on the right side of the map including
extension services, financial services, transport, materials, etc. Data overlays indicate
information that is available, relevant and helpful for the chain analysis and they make
reference to specific content in the report.
14
3. Seaweed production
3.1. Seaweed production volume
From 2009 until 2013 BPSKS estimates showed production of live seaweeds rising from
328,101 to 565,651 wet tons (Table 3.1). During that time BPSKS estimates showed the
number of farm rafts + longline systems rising from 52,346 to 78,342 units and the number
of farmers rose from 6415 to 7,029 households.
Table 3.1. Estimated seaweed

production figures for the regency
(kabupaten) of Sumenep, Madura,
Indonesia as of 2013 (from Dinas
Kelautan dan Perikanan,
Kabupaten Sumenep).
Production estimates of dry seaweed production based on interviews with farmers were
extrapolated as shown in Table 3.2. These were based on wet-to-dry ratios consistent with
those shown in Figure 3.9. Dry yields were calculated in terms of a 6:1 wet-to-dry ratio
(‘local quality’ moisture content about 42% and above) and an 8.5:1 wet-to-dry ratio
(‘export quality’ moisture content at 35 percent).
Table 3.2. Estimated seaweed 2013 DKP estimate 7,029 farmers

production figures for the 2013 DKP estimate 78,342 planting units
regency (kabupaten) of Tons Kg/cycle
Sumenep, Madura, Indonesia Scenario Tons /unit/yr per unit
as of 2013 comparing estimates DKP estimate live weight 569,651 7.27 909
DKP RDS W:D 6:1 94,942 1.21 151
from Dinas Kelautan dan
DKP RDS W:D 8.5:1 67,018 0.86 107
Perikanan, Kabupaten Sumenep Farmer estimates live weight 78,342 1.00 125
with estimates based on farmer Farmer est. RDS W:D 6:1 13,057 0.17 21
interviews. Farmer est. RDS W:D 8.5:1 9,217 0.12 15
Production estimates based on farmer interviews (Table 3.2) assumed that 78,342 units
were being operated by 7,029 farmer households and that farm yields were consistent with
the scenario presented in Figure 3.3. The RDS production levels calculated from farmer
15
interviews were consistent with numbers obtained during interviews with collectors, traders
and exporters. They claimed that their data indicated Sumenep production on the order of
7,000-10,000 tons RDS per year.
During the present study raw seaweed production data were not available either from
private or from public sources so it was not possible to reconcile the spread in estimated
production figures based on different sources. Information from interviewed value chain
actors indicated that live seaweed weights were generally not recorded at the point of
harvest because the crop is immediately placed on drying devices. The first weighing point
was reported to be for ‘locally dry’ RDS at the point where collectors or traders purchased
seaweeds from farmers. Those numbers were proprietary and in most cases moisture
content was estimated; not measured at the point of sale. Further weighing was done as
seaweeds were delivered to exporters or domestic processors but weights and shrinkage-
loss data were proprietary. In exporter and processor facilities RDS from Sumenep is mixed
with seaweeds from other sources so it was not feasible to track Sumenep seaweeds using
trade data. Theoretically it should be possible to get accurate production data from
Sumenep because most RDS production is shipped by truck across the Suramadu bridge
through Surabaya to buyers or is shipped to Bali and East Java ports through a few ports in
the Kangean and Sapeken Islands region.
3.2 Farm tenure

Entry to seaweed farming is essentially unrestricted. Any inhabitant from a coastal village
can establish a farming location wherever space is available. As long as this person
continues to farm its selected space, the area will belong to that person. Protection of
property is based primarily on ‘rural modesty’ whereby farmers protect each other’s
farming areas against external intruders. People usually farm near to areas where they live
and a villager can grant a farming space to a fellow villager from the same village/area. For
villagers from other areas, entry is achieved by requesting space from local farmers.
Respondents during the present study asserted that no licenses or purchase of property
were involved in seaweed farming in Sumenep. Furthermore it was reported that farm sites
varied during the year as farm modules are moved among locations seasonally.
3.3. Farm enterprise structures

Seaweed farming in Sumenep tended to follow either of two models:
A. A ‘nuclear family’ model where spouses shared work and shared income between
themselves, their children, their parents and/or other first-degree blood relations.
An example is shown in Figure 3.1.
B. A ‘lead farmer’ model where one person or a small team of people such as a
household owned the enterprise; were actively involved in day-to-day operations;
assumed responsibility for managing the farm enterprise; and undertook marketing
and selling of the crops produced. An example is shown in Figure 3.2.
16
Figure 3.1. The ‘nuclear family’ farm of Pak Ahmad and Ibu Nurhasana on the large reef area
near Desa Saseel, Sapeken Islands, Sumenep. A. Their 14 x 2 meter diesel powered boat
served as a platform for planting and harvesting. B. There was space to accommodate extra
hands paid to assist with farm chores when extra labor is needed. C. Pak Ahmad re-plants a
line while Ibu Nurhasana attaches cuttings to lines. Most farm work and revenue is shared
by husband and wife.
In Sumenep the ‘lead-farmer’ model predominated especially on the main island of Madura.
In island regions farmers appeared to operate more independently and nuclear farms were
encountered.
3.4. Farm enterprise real property ownership

Real property ownership in Indonesia generally conforms to one of four models as follows:
A. A ‘proprietary’ model where the farm enterprise directly owns physical farm assets
and holds the rights to farm in the locations where it operates.
17
B. A ‘tenant’ model where the farm enterprise pays some cash rent for the right to use
physical farm assets and/or to farm in the locations where it operates.
C. A ‘share-cropper” model where the farm enterprise pays rent as a percentage of
crop yields for the right to use physical farm assets and/or to farm in the locations
where it operates.
D. An ‘estate-farm’ model where the farm is managed and operated by people on
salary.
In Sumenep during the present survey only the ‘proprietary’ model was encountered
although large ‘lead-farmer’ operations approached an ‘estate-farm’ structure.
Figure 3.2. Images of ‘lead-farmer’ operations for bamboo raft systems of Kelompok Maju
in Saronggi municipality, Sumenep, Madura (ICN photos). A. Kappaphycus seaweeds drying
in the foreground and growing on rafts in the background. Rafts are moved further offshore
during the East Monsoon. B. Harvesting seaweeds from rafts brought close to shore. C.
Several tons of harvested seaweed being dried prior to sacking and selling. D. Iain Neish
interviewing Pak. Jumani, the head of Kelompok Maju and Pak Masruri, head of Koperasi
Anika Usaha; a cooperative to which this farmer group belongs.
18
3.5. Agronomy systems

Two types of agronomy systems predominated in Sumenep as follows:
A. Bamboo rafts (‘raket bambu’ in Indonesian) were the predominant agronomy

system reported and observed at Sumenep farm areas on the main island of Madura.
Overall, estimates from BPSKS indicate that almost 90 percent of Sumenep seaweeds
were produced using rafts. Figure 3.3 shows features of a typical raft system. Images
from the site of a large farmer group are shown in Figure 3.2. Seaweed rafts are
large enough to be seen on Google earth as shown in figures 3.5 and 3.6.
B. Longline agronomy systems were more commonly used than raft systems in island
areas of Sumenep. The main reasons given were (a) that longline systems were less
prone to breakage during heavy wave action; and (b) they are more easily tended
line-by-line at sites distant from the home village (e.g. Fig. 3.1). Logline systems are
shown in Figures 3.4 and 3.5.
3.6. Crop species, nursery systems and replanting

Bibit (a.k.a. ‘cuttings’, ‘propagules or ‘seed’) were typically vegetative clones developed as
cultivars. Bibit biomass was sourced from exporters, from other farmers or from buyers.
Section 3.8 explains impacts of seasonality on biomass sourcing and emphasizes the
importance of seasonal ‘nursery’ areas.
The predominant species of seaweed observed on farms on Madura main island areas of
Sumenep appeared to be Kappaphycus striatus of the ‘sacol’ cultivar. The prominent species
seen on farms in the Kangean and Sapeken Islands was cottonii seaweed (Kappaphycus
alvarezii) and the cultivar appeared to be of the ‘tambalang’ type. Both cultivars were
originally of Philippines origin and were introduced to Indonesia in the mid-1980s by
development teams of major carrageenan processors (pers. obs.) Definitive identity of
cultivars must be by methods of molecular biology but outward appearances and industry
interviews indicated these provisional identifications.
During farmer interviews (e.g. members of Koperasi Anika Usaha) it was revealed that sacol
cultivar was introduced to Sumenep from Bali during the early 2000s with participation by
traders and processors. The introduction was prompted by frequent diebacks of K. alvarezii
cultivars that were associated with seasonal ‘ice-ice’ malady. It was reported that these
introductions were facilitated at least in part by Mr. Made Simbik and that was confirmed
during interviews with him.
During most of the year farmers accomplished replanting by immediately using biomass
from the previous harvest. However, several farmers interviewed during the present study
all stated that seasonal die-backs in their farm areas required that they purchase bibit from
other areas that served as nursery sites. Most farmers interviewed belonged to member
groups of Koperasi Anika Usaha, a cooperative that coordinated trades in the trade of
cuttings for replanting. Cuttings were sold at a reported price of about 2,000 - 3,000 IDR/kg.
19
Figure 3.3 Configuration and operating parameters for a bamboo raft system in Bluto
municipality, Sumenep, Madura (from farmer interviews).
A variety of planting and harvesting strategies were observed for both raft and longline
systems in Sumenep. The examples of Figures 3.3 and 3.4 were from two of the larger
and more successful farm operations.
20
Figure 3.4. Longline systems uses to grow Kappaphycus alvarezii (cottonii) at Desa Sadulang,
Sapeken, Sumenep Regency (lead farmer: Pak Anas). A. Lines 40-50 meters long with
Styrofoam floats. B. Lines clustered on bamboo spreaders and moored to stakes driven into
the sea floor. C. A line planted for about 15 days.
21
Figure 3.5. Seaweed rafts next to a shore station in Saronggi in this Google Earth imagery
from August 18, 2013. At the shore station recently harvested rafts can be seen and
seaweed was drying (inside oval). B. Longline raft systems in Bluto municipality can be seen
inside the oval. (Google Earth imagery Oct. 2013). Closer views are seen in photos from
March, 2015 (ICN photos inside squares).
22
Figure 3.6. A. Seaweed rafts are clearly visible in this Google Earth imagery dated August 18,
2013. This stretch of coastline was near to Tanjung village in Saronggi municipality,
Sumenep. About 1,100 rafts were counted per kilometer of shoreline in this vicinity. When
interpreting satellite imagery one must be careful to differentiate fish traps B. from
seaweed rafts C. because they are of similar size and have similar appearances when viewed
from above.
23
Figure 3.7. A. Large cuttings (bibit) about 80-100 grams being attached to lines by
workers paid 2,500 IDR per line. B. Biomass brought to shore, split and replanted for
farm expansion. C. Members of farmers, families attaching cuttings to lines on a
piecework basis. D. Lines ready for immediate replanting on rafts.
Farm productivity can be ten times greater where the larger bibit are planted. It takes
the same amount of labor and the same size of ocean systems to handle 20 gram bibit as
it does to handle 200 gram bibit but in good seasons when fivefold growth is common
during six week growing cycles a 20 gram bibit grows to become 100 grams and a 200
gram bibit grows to become 1,000 grams.
Figure 3.8. A. In Bluto, Saronggi and Talango very small

‘bibit’ of about 20-40 grams are planted. B. These bibit
near Zamboanga, Philippines are about 200 grams each;
bigger than the size of many harvested plants in
Sumenep. Bibit seen in Sapeken were intermediate in
size (Fig. 3.7). C. Sacol bibit on an outgrower system
initially planted in a tubenet at one kilogram per meter
of net.
24
3.7. Harvesting post-harvest handling and transport

Sumenep seaweed was generally harvested about 4-6 weeks after planting according to
interviewees. In the case of rafts, individual units were towed close to beachside work areas
where they were stripped and replanted. In the case of longline systems harvesting
commonly involved untying lines from raft units, then transporting lines to shore by boat for
harvesting and replanting. Lines were then transported back to longline units and re-
attached. An alternative method was for harvesting and replanting to be done on purpose-
built boats (Fig. 3.1).
Farmers generally delivered their dried crop to exporters’ collection stations that are
located near to drying areas or collectors may pick up seaweeds from farmers. Collected
seaweeds are transported to exporters’ warehouses for sorting, re-drying, cleaning and
packing as needed to meet specifications in buyers’ purchase orders. Typically seaweeds in
Sumenep were dried under the sun on tarpaulins or bamboo platforms (known as para-
para) as shown in Figure 3.10. Crops took from two to three days to dry in sunny weather,
but could take up to seven days during rainy months. Upon drying, seaweed was sorted and
shaken to remove dirt and sand; then stored at home or sold directly depending on the
harvest volume. Before sale to collectors or traders RDS was stuffed into woven plastic sacks
(Figures 3.10 and 3.11).
Both species of Kappaphycus are notable for having high water content on the order of 88
percent (Fig. 3.1). During sun drying to ‘local quality’ levels near to farms the wet-to-dry
ratio may be as low as 6:1 but by the time the RDS is dried to the export-quality level of 35
percent moisture the wet-to-dry ratio is about 8.5:1. Numbers may vary between cultivars,
farm locations and season. Moisture content is a matter of ongoing negotiation between
buyers and sellers and it is the single largest contributor to ‘shrinkage’ absorbed by
collectors, traders and exporters (Table 4.1). Kappaphycus naturally concentrates potassium
chloride (KCl) salt so its presence is accepted by buyers. ‘Salting’ of Kappaphycus by soaking
it in sodium chloride (NaCl) or broadcasting salt over drying seaweed are controversial post-
harvest treatments (PHT) practiced by some famers in Madura (Fig. 3.8). Some processors
and exporters stated that they avoid buying Madura seaweeds because salted seaweed is
not acceptable for processing. However, those practicing salting stated that it accelerates
drying and is requested by some buyers.
Figure 3.8. A. Effluent

from soaking Kappaphycus
in NaCl prior to discharge
into the sea. B. Salted
seaweed tends to have
dark pigmentation after
sun-drying. (ICN photos).
25
Figure 3.9. Drying curve and % of live weight
comparison of wet and dry 100
compositions of typical Kappaphycus 80
60
spp. Seaweed. These proportions vary
Wet:dry ratio ~ 8.5:1
40
somewhat between cultivars, farm
20
locations and seasons. (Source: PT
0
Jaringan Sumber Daya [Jasuda]). 0 3 6 9 12 15 18
Hours of drying under full sunlight
% of % of export
live quality dry
weight weight
35% water
88% sand & salt
29%
4%
6% weed solids
36%
Figure 3.10. A. Freshly harvested seaweed thought to be sacol cultivar of Kappaphycus

striatus. B. Harvested seaweeds drying on a platform (para-para at Bluto). Light color of
seaweed in the foreground is typical of seaweed that has been rained on while drying C. Iain
Neish interviewing Pak. Rialdi, the head of Kelompok Karang Baru (left) and Pak Mohd.
Ratam a group member as they provide information shown in Figure 3. D. Dried sacol
seaweed in a sack ready for sale.
26
Figure 3.11. A & C. A 70 ton vessel loads raw, dried cottonii (locally called agar kotoni) at
Desa Saseel. B. This lot was very well dried. Such vessels carry dried seaweeds to ports in
Sumenep, Bali and the Surabaya area.
3.8. Seasonality
No seasonality survey was possible during the present brief study but available weather
data (Fig. 1.3) revealed strong seasonality during 2013 and all interviewed farmers stated
that their seaweed production had a strong seasonal pattern with best-season harvests
being as much as four times greater than worst season harvests. In some cases, such as at
Talango Island, farmers reported total crop failure by January, 2015 and total re-planting
was being undertaken during March. As in Bluto, the worst season was deemed to be from
about December-January until August-September. On the other hand in Saronggi farmers
that February until August was the best season. The situation in Sumenep was apparently
similar to the situation in Maluku Tenggara where farmer surveys indicated seasonality
patterns as shown in Figure 3.4. Both in Maluku Tenggara and at Sumenep farmers reported
27
that seasonality varied between sites such that at least a few areas had good or acceptable
growing conditions at most times of the year and these can serve as nursery areas.
Figure 3.4. No seasonality survey was possible during the present brief study but this matrix
shows an example of farmer evaluations of seasonal crop production for seven prominent
seaweed farm locations in Maluku Tenggara. Green = best growth. Yellow = sub-optimal
growth. Red = poor growth and/or presence of ice-ice. (From Neish, 2012a).
Cottonii seasonal growth patterns for seven villages in MalRa

Village Exposure
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Dullah Laut N ↓ ↓ ↓ ↑ ↑ ↑ ↑ ↑ ↑ ↑ → ↓
Ohoidertawan NW ↓ ↓ ↓ → ↑ ↑ ↑ ↑ ↑ ↑ → ↓
Ohoililir NW → → → ↑ ↑ ↑ ↑ ↑ ↓ ↓ ↓ ↓
Debut W ↑ ↑ ↑ ↑ → ↓ ↓ ↓ ↓ ↓ → ↑
Evu W → ↑ ↑ ↑ ↑ ↑ ↑ → → ↓ ↓ ↓
Sathean E ↓ → → ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↓ ↓
Revav E ↓ → ↑ ↑ ↑ ↑ ↑ → ↓ ↓ ↓ ↓
GROWTH: BEST ↑ MIXED → WORST ↓
Seasonal reductions in crop growth are commonly associated with loss of plant color and
high incidence of ‘ice-ice’ malady (Fig. 3.5). Both phenomena are probably related to plant
malnutrition (especially low nitrogen levels) and high metabolic rates associated with still,
warm seawater but there is a dearth of scientific evidence that tests seasonality hypotheses.
Figure 3.5. A. Seasonality is commonly

related to: A & B. loss of color by crops
and C. ice-ice malady.
28
4. Carrageenan process systems

4.1 Seaweed and carrageenan product characteristics
4.1.1 Raw seaweeds
At the time of writing Sumenep seaweed production from the main island of Madura
appeared to be mainly as dried Kappaphycus striatus (sacol of the trade; often identified as
cottonii) while Kappaphycus alvarezii (cottonii of the trade) predominated in the Kangean
and Sapeken Islands. There was no observed production of Eucheuma denticulatum
(spinosum seaweed of the trade) but some farmers stated an interest in planting it in the
future. Most, if not all Sumenep seaweeds were sold as raw, dried seaweed (RDS) that was
used as raw material for the manufacture of either semi-refined or refined carrageenan. A
minor proportion was made into alkali-treated cottonii chips (ATC). National Indonesian
Product Standards for RDS exist but in the trade standards are set by specifications in
purchase orders between buyer and seller (section 5.2).
4.1.2 Differences between kappa and iota carrageenan

Although Kappaphycus and Eucheuma have a similar appearance they contain different
types of carrageenan. Eucheuma contains iota carrageenan and Kappaphycus contains
kappa carrageenan. Differences in the kappa carrageenan from K. alvarezii and K. striatus
can be detected in infrared spectrographs. They are generally considered to be functionally
equivalent in the carrageenan trade but some processors prefer one over the other for
particular products.
Kappa and iota carrageenan are performance chemicals that are utilized in food, personal
care and industrial applications. They behave in radically different ways due to sulfation
patterns of the carrageenan molecules (Fig. 4.1). They can have complementary uses but
they cannot replace each other.
Figure 4.1. Structures of kappa and iota carrageenan. The ester sulfate at the 6 position of
the 3,6 anhydrogalactose unit causes iota carrageenan to perform in a radically different
way than kappa carrageenan in food, personal care and industrial applications.
Iota carrageenan forms soft, elastic gels in the presence of calcium salts. Refined iota
carrageenan forms clear gels with no bleeding of liquid (no syneresis). Gels are freeze/thaw
stable and can form in the presence of high salt concentrations. Major applications include
dentifrice gels (toothpaste), capsules, industrial slurries and food texturization.
29
Kappa carrageenan forms strong, rigid gels in the presence of potassium salts and brittle
gels with calcium salts. The slightly opaque gels become clear with sugar addition. There is
some syneresis. Major applications include stabilization of dairy products, gelled pet foods,
meat processing and water gels such as jelly desserts and candies. Kappa carrageenan is
generally applied with other vegetable gums such as galactomannans and glucomannans.
4.1.3. Differences between semi-refined carrageenan (SRC) and refined carrageenan (RC)
The global standard for carrageenan is set forth under the FAO/WHO Codex Alimentarius
which was updated at the 37th Session of the Codex Alimentarius Commission (2014). The
definitions were prepared at the 68th JECFA (2007) and published in FAO JECFA
Monographs 4 (2007) where refined carrageenan was identified as ‘carrageenan INS
No.407’ and semi-refined carrageenan was defined as ‘processed eucheuma seaweed PES
with INS No. 407a. The definition is lengthy and can be downloaded from the Internet
www.codexalimentarius. The key paragraph in the definition is that SRC (PES) is “a
substance with hydrocolloid properties obtained from either Eucheuma cottonii or E.
spinosum (from the Rhodophyceae class of red seaweeds). In addition to carrageenan
polysaccharides, processed Eucheuma seaweed may contain up to 15% of insoluble algal
cellulose and minor amounts of other insoluble matter. Articles of commerce may include
sugars for standardization purposes or salts to obtain specific gelling or thickening
characteristics. It is distinguished from carrageenan (INS No. 407) by its higher content of
cellulosic matter and by the fact that it is not solubilized and precipitated during
processing.” [emphasis added]
Note that this definition identifies Eucheuma cottonii and Eucheuma spinosum as sources
of INS No. 407 and 407a although such identifications are incorrect from a taxonomic
perspective. On food labels RC is typically referred to as E407 and SRC as E407a. In terms
of chemical composition the key difference is that RC contains less than two percent by
weight of cellulosic matter and SRC contains more than two percent.
4.1.4 Differences between food grade and technical grade ATC/SRC

During processing (Figs. 4.2 and 4.4) ATC is a precursor to SRC. The only difference between
ATC and SRC is the particle size. SRC is ATC that has been ground finely enough to be
considered as a powder for commercial purposes. The defining difference between
technical grade (also referred to as petfood grade) ATC/SRC and food grade ATC/SRC is the
cleanliness of the product. Microbial criteria that must be met in order to qualify as food
grade (FAO JECFA Monographs 4 [2007]) are:
“Initially prepare a 10-1 dilution by adding a 50 g sample to 450 ml of Butterfield's

phosphate-buffered dilution water and homogenizing the mixture in a high speed blender.
Total (aerobic) plate count: Not more than 5000 cfu/g. Salmonella spp.: Negative per test E.
coli: Negative in 1 g.” Buyers of carrageenan building blocks often require that more
stringent standards be met and they generally specify a low mold and yeast content.
30
4.3 Conventional process technology

Present Sumenep seaweed value chains are simple in form (Fig. 4.2) Farmers grow seaweed
that gets dried, then is exported to international processors that use the seaweed as raw
material for manufacture of carrageenan. Although some ATC has been made in at least
three facilities in Sumenep there is no record of substantial market volumes being achieved.
One example of a Sumenep ATC factory is shown in Plate 4.1. That factory never achieved
commercial production. Another ATC factory owned by Haji Khalis Esbe is about to
commence production in Sumenep, however (Khalis, pers. comm).
Figure 4.2. Kappaphycus seaweed process flow characteristic of current Sumenep seaweed
markets. Only the first three steps (A, B & C) commonly take place in Sumenep although
some ATC has been made there.
LIVE INTERMEDIATE SEMI-REFINED REFINED

SEAWEED PRODUCTS FEED-STOCK PRODUCTS PRODUCTS PRODUCTS
Present Sumenep systems
A
A B
B CC D
D EE FF
# SYSTEMS ACTIONS PRODUCTS

PRESENT SUMENEP SYSTEMS
A Seaweed Plant and grow seaweeds in agronomy systems that Fresh seaweed (FS)
agronomy include nursery, grow-out and logistics sub-systems
B Whole seaweed Live seaweed sun dried on appropriate surfaces and Raw-dried seaweed (RDS)
drying bagged for sale – farm gate
C Logistics & baling Sacked seaweeds picked up from farmers, moved to Raw-dried seaweed (RDS)
warehouse, cleaned, re-dried, baled and shipped – export grade
OLD CARRAGEENAN TECHNOLOGY OF CURRENT PROCESSORS
D ATC plant Seaweed is treated with alkali to stabilize & modify Alkali-treated chips – (ATC)
the carrageenan then is dried & packed for sale
E SRC plant ATC or ATP is sanitized, treated, further-dried, milled, Semi-refined carrageenan –
blended to specifications & packed for sale (SRC)
F RC plant Acid insoluble matter (AIM) removed from ATC/ATP; Refined carrageenan (RC)
dried, milled, blended & packed to specifications
The conventional process for making kappa SRC using Kappaphycus RDS as raw material is
shown in Figure 4.3. Variable production costs typical of this process are shown in Table 4.1.
That example assumed RDS consumption of four tons per ton of food grade SRC produced.
RDS price CNF factory gate was assumed to be 15,000 IDR/ton and the FOREX rate was
assumed to be 13,000 IDR per USD. As of April, 2015 the price of food grade SRC was
generally in the range of 8.00 ± 0.5 USD so the gross margin of a kappa carrageenan building
block maker would have been about one to two USD/kg or about 13-24 percent. This level
of gross margin was barely able to cover fixed costs for most processors.
31
Table 4.1. Example Component USD/Ton of SRC %

summary of major variable RAW, DRIED COTTONII 4,600 71.4
OTHER MATERIALS 700 10.9
production costs for food 540 8.4
FUEL CONSUMPTION
grade SRC in USD per ton. ELECTRICITY CONSUMPTION 350 5.4
(Source: Neish pers. Comm.) VARIABLE LABOR 160 2.5
WASTE DISPOSAL 90 1.4
Total USD 6,440 100.0
Figure 4.3. Example schematic diagram of a conventional process for making semi-refined
carrageenan (SRC).
IS
H
A B C D E F G IM
R Q P O N M L K J
S
STEP EQUIPMENT/ACTION
A Forklift: moves RDS to pre-washer
B Pre-wash conveyor: RDS washed & conveyed to baskets (uses waste wash water)
C Forklift: move baskets to hoist
D Cooker: hoist places baskets in cooker and alkaline modification takes place
E, F Wash 1: hoist moves basket to wash 1 (uses wash 2 water from previous batch); Wash 2:
(uses clean fresh water)
G Unloading hopper: baskets unloaded into hopper, gets sorted & dewatered;
H Conveyor 1: cottonii is conveyed to dryer
I IS sun dryer for technical grade; IM mechanical dryer for food grade
J Conveyor 2: lifts dried cott to cutting mill
K Cutting mill: chops dried cottonii to ATC size;
L Conveyor 3: moves ATC to mill feed hopper
M Mill feed hopper: meters ATC into attrition mill
N Attrition mill: reduces ATC to SRC with desired mesh size
O Bag-house/dust collector: prevents loss of dust during milling
P Blender: mixes powder produced from mill
Q Forklift: moves SRC from milling system to storage areas, blender & packing
R Blender: makes pre-blends and final blends
S Packing system: packs SRC in bags for shipment
32
Plate 4.1. A factory built for manufacturing alkali-treated chips (ATC) from Kappaphycus
seaweed in Sumenep in 2008. A. The processing building. B. Wastewater treatment system.
C. The cooking system. D. Racks (para para) for drying ATC chips. E. The chipping mill. F.
Storage shed and office building. There apparently was no laboratory. This factory never
produced ATC at commercial scale but there is another Sumenep factory commencing ATC
production near Desa Lobuk (Haji Khalis Esbe, pers. comm).
33
4.4 Advanced processing options for future development

Present Sumenep seaweed value chains are placed in the context of future value chain
development options in Figure 4.4. There are two distinctly different paths to take, namely:
1. Utilize conventional (old) technology to make semi-refined carrageenan (SRC) or

refined carrageenan (RC) from raw, dried seaweed (RDS) in Sumenep-based
production facilities;
2. Employ newly developing multi-stream, zero-effluent (MUZE) technology that
commences processing using live, fresh seaweed (FS) to produce not only SRC and
RC but also agricultural nutrient products and various other products that are
becoming possible from developing bio-technology.
Predominant current carrageenan processes (Figs. 4.2 and 4.3) employ decades-old
single-stream technology that yields a narrow product range and wastes much, if not
most of biomass value. Such processes require large amount of fresh water and can
generate high-chloride effluents in amounts of tens of cubic meters per ton of
carrageenan produced. Such technology serves global markets worth about seven
hundred million USD/yr.
Emerging multi-stream, zero-effluent biotechnologies produce not only carrageenan but

also a wide range of products beyond hydrocolloids. It can serve global markets worth
multi-billion USD/yr. Fresh seaweed biomass is fully utilized and fresh water is
recovered so there is little or no waste. (Fig. 4.4)
Figure 4.4. A comparison of product profiles and waste generated by conventional single-
stream and developing MUZE process systems.
34
Figure 4.5. Seaweed process flow options for Sumenep.
LIVE INTERMEDIATE SEMI-REFINED REFINED

SEAWEED PRODUCTS FEED-STOCK PRODUCTS PRODUCTS PRODUCTS
Present Sumenep systems Old carrageenan technology
A
A B
B CC D
D
EE FF
Pulp
G
G H
H II
Multi-stream, zero-effluent (MUZE) technology
Juice
JJ K
K LL

PRESENT SUMENEP SYSTEMS
A Seaweed Plant and grow seaweeds in agronomy systems that Fresh seaweed (FS)
agronomy include nursery, grow-out and logistics sub-systems
B Whole seaweed Live spinosum sun dried on appropriate surfaces and Raw-dried seaweed (RDS)
drying bagged for sale – farm gate
C Logistics & baling Sacked seaweeds picked up from farmers, moved to Raw-dried seaweed (RDS)
warehouse, cleaned, re-dried, baled, moved to port – export grade
and shipped
OLD CARRAGEENAN TECHNOLOGY
D ATC plant Seaweed is treated with alkali to stabilize & modify Alkali-treated chips – (ATC)
the carrageenan then is dried & packed for sale
OLD AND/OR MUZE CARRAGEENAN TECHNOLOGY
E SRC plant ATC or ATP is sanitized, treated, further-dried, milled, Semi-refined carrageenan –
blended to specifications & packed for sale (SRC)
F RC plant Acid insoluble matter (AIM) removed from ATC/ATP; Refined carrageenan (RC)
dried, milled, blended & packed to specifications
NEW MULTI-STREAM, ZERO-EFFLUENT (MUZE) TECHNOLOGY
G Juicing units Juicing systems mill live seaweed near farm sites Seaweed juice & pulp
then separate juice from pulp
H Wet pulp Wet pulp in vessels transported to process plant Wet seaweed pulp (WSP)
I ATP plant Wet pulp is treated with alkali to stabilize & modify the Dry or semi-dry alkali
carrageenan then pulp is semi-dried or dried stabilized pulp (ASP)
J Raw juice Raw juice in vessels transported to process plant Raw seaweed juice (RSJ)
K Juice concentrate Juice is concentrated, preserved, blended & packed Seaweed juice concentrate
(SJC)
L Juice powder Concentrated seaweed juice (CSJ) is dried to Powdered seaweed juice
powder, blended & packed for sale (PSJ)
35
Figure 4.6. Schematic view of

materials and values
partitioning for cottonii
comparing a conventional
approach to a MUZE approach.
CG = carrageenan granules; MC
= moisture content; RDS = raw,
dried cottonii seaweed; SRC =
semi-refined carrageenan.
(Source; Sea6 Energy).
Pertinent features of MUZE technology include:
1. MUZE processing produces several value-added products and zero-waste.

2. Pulp from MUZE processing can be used to make SRC or can be used to produce
agricultural nutrient products or chemical feedstock.
3. Juice from MUZE processing can be used as a basis for several agricultural nutrient
products than can benefit both plants and animals.
4. Agricultural nutrient products have large local and regional markets in Asia.
5. According to the comparison shown in Figure 4.6 total product value derived from
1 000 kg of live cottonii would be on the order of 180 USD from a conventional
system and 640 USD from MUZE system. These numbers are estimates but the
principle holds true; more value streams and zero waste lead to more added value.
6. MUZE processing lends itself to adaptation to new process technology being
developed by the biotechnology industry.
4.5. Opportunities for future development in Sumenep

Both public and private sector stakeholders in Sumenep have stated clear intent to see
value added to farmed seaweeds within the Regency rather than having Sumenep remain
only as a provider of raw seaweeds. The plus side of MUZE processing from that standpoint
is that it commences with live seaweeds as raw material; therefore value addition is
compelled to take place near to farm areas.
The negative side to MUZE development is that as of 2015 it was still in the research and
development phase by innovative private sector companies so it was not yet ready for
implementation in Sumenep. If Sumenep stakeholders engage in the process of innovation,
however, they can benefits as early adopters of MUZE technology.
36
5. Markets and trade

5.1. Seaweed farm gate price patterns
Figure 5.1 shows Indonesian price movements for farm gate prices of raw, dried ‘local
quality’ Kappaphycus seaweeds from 2005 until early 2015. Typically ‘local quality’ meant a
moisture-content of about 42 ± 4 percent. Prices tended to be lowest at farm areas far from
the hub port of Surabaya. Sumenep benefited by its close proximity to that port.
Figure 5.1. Maximum, minimum and average farm gate prices in IDR/kg for local quality
Kappaphycus spp. in Indonesia from June, 2005 until March, 2015. (Data from Jasuda).
25,000
Indonesian farm gate prices; June 2005 - March, 2015
Local quality Kappaphycus spp. in IDR/ton
20,000
high prices make kappa
carrageenan less competitive with
15,000 other hydrocolloids
10,000
5,000
-
Jul 07
Mar 08
Jul 08
Mar 09
Jul 09
Mar-10
Jul-10
Mar-11
Jul-11
Mar-12
Jul-12
Mar-13
Jul-13
Mar-14
Jul-14
Mar-15
Jun 05
Okt 05
Jun 06
Nop 06
Mar 07
Feb 06
Nov 07
Nov 08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
The price swings shown in Figure 5.1 were a constant source of concern for stakeholders at
all value chain levels. Accurate real-time data pertaining to seaweed crop production were
not available so factors impacting production were opaque. Processors executed inventory
strategies and farmers executed planting strategies without clear market signals so value
chain disconnects were frequent. The first major disconnect was during the ‘cottonii crisis of
2008’ when prices that had been stable at about 4-5,000 IDR/kg for more than a decade
suddenly increased almost four-fold within five months. Reasons for the crisis were never
made clear but panic buying by China processors in the face of false perceptions of crop
failures appeared to be a major factor.
Until 2008 carrageenan prices had been stable for most of the history of the industry.
Contracts from users of carrageenan blends tended to be annual in duration. The 2008 price
spike shocked the industry and led to force majeure disruptions to many contracts. The
market image of kappa carrageenan price stability was shattered and farm gate prices never
fell to pre-crisis levels. This situation has arguably inhibited growth of carrageenan markets
especially as RDS costs have driven kappa carrageenan prices to levels that are high relative
to prices for competing hydrocolloids. Despite inhibited market growth Kappaphycus
supplies tended to be tight relative to demand so RDS prices remained on the high side.
37
5.2. Collection and trading operations

Section 2.3.3 listed several risks and burdens borne by traders/exporters as RDS passes
through value chain functions. For traders shrinkage control (mainly from moisture removed
to achieve buyers’ specifications) is a crucial requirement for preventing financial losses.
Shrinkage losses are commonly in the range of 15-20%. Exporters also bear foreign
exchange risk; carry costs of financing seaweed as it moves from sources to processors; bear
the risk of uncertain payment balances from quality control holdbacks; and absorb
processing and transportation costs. Table 5.1 shows an example of actions that would have
been undertaken and costs/revenues that could have been generated by an integrated
Sumenep seaweed exporter using values typical of 2014.
Table 5.1. An example of costs SHRINKAGE ASSUMPTIONS

and income for raw, dried Transport shrinkage % 2
Process shrinkage % to 35% MC 15
seaweed (RDS) purchased by a CALCULATIONS
IDR
trader in Sumenep and IDR PER KG RDS M IDR
INTERNAL EXTERNAL TOTAL PER
transported to Surabaya for sale ITEM COSTS COSTS PER KG TEN FCL*
Cost of RDS at point of origin 10,000
at an exporter’s warehouse.
2,000.0
Procurement tolling cost 300 60.0
Internal costs are from traders’ Land freight to warehouse 300 60.0
Transport shrinkage 212 42.4
in-house operations. External Cost of process shrinkage 1,622 324.4
costs are disbursements by Process tolling costs

Process tolling fees
300
1,066
60.0
213.2
traders to third parties such as Land freight to SUB 100 20.0
Funding fee (cost of finance) 100 20.0
suppliers and tolling providers INTERNAL COST TOTAL 1,666 333.2
(e.g. transport costs). FCL means EXTERNAL COST TOTAL 12,334 2,466.8
Cost as shipped 10,600 2,120.0
a ‘Full Container Load’ Cost landed at warehouse 10,812 2,162.4
comprising 20 tons of baled RDS All-in cost at SUB

Sale price
12,934 2,586.8
14,000 2,800.0
in a 20-foot shipping container. Gross profit margin (IDR) 1,066
Gross profit margin % 7.6
(Note: Yellow boxes are filled in parameters; other fields are calculated)
* FCL = Full Container Load = 20 tons of baled seaweed in a twenty-foot container
5.3. Product and trade regulations

As seaweeds and carrageenan enter international trade compliance with several guidelines
and regulations may be advisable or required. The quality infrastructure for carrageenan
seaweed value chains involves two categories of regulations and standards. They pertain to
aquaculture and to carrageenan, respectively. What follows is an adaptation of material in
Neish, 2013a to the Sumenep context.
5.3.1. Aquaculture standards applied to seaweeds

Carrageenan is a segment of the food ingredient business but the cultivation of seaweeds is
part of the aquaculture business. Although standard aquaculture protocols are at their
formative stages throughout most of the world, there are already some initiatives for
carrageenan value chain stakeholders, which include the following:
38
A. EUREPGAP - Euro Retailer Produce Working Group (EUREP) on standards and

procedures for the development of Good Aquaculture Practices (GAP) in
conventional agriculture (general regulations for integrated aquaculture assurance;
control points and compliance criteria for integrated aquaculture assurance).
B. FAO Guidelines for Aquaculture Certification (under development).
C. Quarantine protocols for tropical seaweeds such as those proposed by Sulu et al.
(2004).
5.3.2. Regulations and guidelines for carrageenan products

Legally defined product standards set boundaries for carrageenan products that must be
met. Failure to comply means that products cannot be sold to customers or jurisdictions
where the standards apply. Important regulatory documents include:
A. EU: European Union standards for E407a (Processed Eucheuma Seaweed) and E407
(Carrageenan).
B. JECFA - FAO/WHO: standards for Processed Eucheuma Seaweed and Carrageenan.
C. Codex FAO.
D. USFDA (United States Food and Drug Administration).
E. HACCP (Hazard Analytical Control Points) requirements.
F. ISO 9001: 2000, Quality Management System.
G. ISO 14001: 2004, Environmental Management System.
H. ISO 22000: 2005, Food Safety Management.
I. OHSAS 18001.
It must be noted that many carrageenan standards are ‘commercial standards’ that are
defined between buyers and sellers. In such cases standards could not be imposed but
guidelines are of use. Examples include:
A. Philippine and Indonesian National Carrageenan Standards (under development).

Also proposed as bases for a BIMP-EAGA harmonized standard.
B. CAC/GL 60-2006: Codex Alimentarius Principle for Traceability/ Product Tracing as a
Tool within a Food Inspection and Certification System.
C. CAC/GL 38-2001 Rev.1-2005: Codex Alimentarius Guidelines for Generic Official
Certificates Formats and the Production and Issuance of Certificates.
5.4. Commercial arrangements

In the past letters of credit were the common form of commercial arrangement for seaweed
purchases but current practice is generally for a buyer to issue purchases orders for a given
number of container loads. Purchase orders typically specify the following:
1. Product defined as dried seaweed with genus, and sometimes species defined (e.g.
Kappaphycus alvarezii [cottonii]; Kappaphycus striatus [sacol]; Eucheuma [spinosum]
seaweed of the trade);
39
2. Price per ton denominated in United States dollars;

3. Price based on 35 percent average moisture content (MC) and maximum two
percent contaminants;
4. Excess or low MC offset by negotiated adjustment of future volume shipped (usually
“free” tonnage shipped to offset excess MC in previous shipments);
5. Seaweed packed in wrapped bales of 100 kg weight (20 tons per 20 foot container);
6. Payment on FOB basis within about two seeks from presentation of shipping
documents.
5.5. Global seaweed and carrageenan markets

5.5.1. Markets for cultivated tropical seaweeds
Essentially all Sumenep seaweed production is raw, dried Kappaphycus used as raw material
for the carrageenan market. Indonesia is the world’s major source of carrageenan seaweeds
and Sumenep is a major source within the country. Indonesia and the Philippines produced
over 80% of cottonii and spinosum. (Figs. 5.2 & 5.3)
Figure 5.2. Cultivated

1999 2009 2019?
tropical seaweeds are 202 000 tons RDS 250 000 tons RDS?
the dominant 168 000 tons RDS 200,000 tons Kappaphycus ?
carrageenan raw 7%
8% Cottonii
material. Cottonii 11%
12%
(including sacol) Spinosum
comprised about 80 Gigartina
percent of the total.
78% 80% Chondrus
(after Bixler & Porse,
2010)
Figure 5.3. Indonesia is

the world’s major source
of carrageenan
Percent
Indonesia 48
seaweeds. Indonesia
and the Philippines Philippines 35
produced over 80% of Other 8
cottonii and spinosum.
48% Tanzania 6
Tanzania was the third 35% Vietnam 2
largest producer but
Malaysia 1
produced mostly
spinosum with little
cottonii. (after FAO, 2012).
40
5.5.2. Markets for carrageenan

Based on the latest available data, from 2010, Bixler and Porse reported global production
of carrageenan was on the order of 50,000 metric tons and markets were partitioned
approximately as shown in Figure 5.4. The same carrageenan applications have dominated
markets for more than three decades, although proportions have shifted with petfood
declining and meat applications increasing. The proliferation of process plants has been
driven by ‘copycat’ technology – not by innovative technology. Markets were moving
toward the most cost-effective products, especially toward SRC (Fig. 5.5).
Figure 5.4. Estimated partitioning of carrageenan markets (after Bixler and Porse, 2010).
Figure 5.5. Markets were

moving toward the most
cost-effective products.
Essentially all Sumenep
seaweed production was
raw, dried Kappaphycus
used as raw material for
the carrageenan market.
(Source: Bixler & Porse,
2010).
41
Figure 5.6. Robust revenue

1999 645 B USD 2009 1,018 B USD
growth due to price increases Alginates Alginates
but weak profit growth 1999 to 225 B USD 318 B USD
20% 17%
2009. (Bixler & Porse, 2010). Agar
Agar
35% 31% 173 B USD

Amounts are shown as billions 129 B US
of USD.
45% 52%
Carrageenan
Carrageenan 527 B USD
291 B USD
Figure 5.7. Market volume

1999 74,500 MT 2009 86,100 MT
growth in hydrocolloid markets Alginates Alginates
from 1999-2009. Market growth 25,000 MT
10% Agar 26,500 MT 11% Agar
7,500 MT
was sluggish and no new major 9,600 MT
31%
carrageenan applications were 34% agar
carrageenan
developed. (Bixler & Porse, alginates
2010). 56% 58%

Carrageenan Carrageenan
42,000 MT 50,000 MT
5.6. Market challenges

5.6.1. Marketing of ATC
Alkali-treated cottonii chips (ATC) is an intermediate process stage during the manufacture
of SRC (Figs. 4.2-4.4). ATC can also be used for manufacture of refined carrageenan. Figure
5.8 shows process paths followed by technical grade and food grade ATC leading to SRC and
RC production. Features of these paths that impact on marketability of ATC are:
1. Most ATC factories utilize sun-drying of ‘chips’ and are not capable of making food
grade ATC.
2. The major market for technical grade SRC made from ATC was historically the
petfood stabilizer market. That is a shrinking ’sunset market’ because gelled
petfoods are being displaced by dry formulations that do not use carrageenan.
3. In order to make food grade SRC from technical grade ATC it is necessary to
undertake expensive sanitization and re-drying operations.
4. In order for ATC to be of value to further-processors it must be made to strict
specifications that are specific to individual buyers.
5. Most processors have experimented with buying ATC and found that it was more
economical for them to make their ATC from RDS using their own process lines.
6. Sanitization is not necessarily an issue for RC makers using ATC as raw material so
there could be a market selling to them so long as carrageenan modification is done
to specification. If tariff barriers are not an issue China could be a market for
technical grade ATC.
42
Caveat: Before building an ATC factory it is wise to form contractual relationships with
anchor buyers. ATC is best sold as a ‘bespoke’ product that becomes a performance
chemical. There is little or no market for ‘commodity’ ATC.
Figure 5.8.
ATC ATC ATC SRC SRC
Schematic TECH FOOD SANITI- TECH FOOD
REFINED
CARRAGEENAN
depiction of GRADE GRADE ZATION GRADE GRADE
process
paths
D
followed by
A C
technical
grade and B E F
food grade
ATC leading
to SRC and
RC
A Tech ATC ATC made using drying systems such as Technical (petfood) grade
production. open concrete slabs that are not sanitary SRC
B Food grade ATC made using drying systems such as Food grade ATC
SRC mechanical dryers that are sanitary
C Sanitization & Tech ATC sanitized by washing in Food grade ATC
re-drying facility antimicrobial solutions, then re-dried in
mechanical dryers
D Technical grade Technical grade ATC is milled and blended Technical (petfood) grade
SRC factory semi-refined carrageenan
(SRC)
E Food grade Food grade ATC is milled and blended Food grade semi-refined
SRC factory carrageenan SRC
F RC factory ATC is pasted, then runs through RC Refined carrageenan (RC)
process. Sanitization occurs during
process.
5.6.2. Four realities of carrageenan seaweed, SRC and RC markets.

Hurdles for entry of Sumenep-based enterprises into value-adding activities find their roots
in the four carrageenan market realities indicated in Figure 5.9.
Figure 5.9. Four realities of

carrageenan markets that
impact on all value chain
levels.
43
5.6.3. Global competition in carrageenan markets

Carrageenan processing plants come and go and merge and split and combine processes for
various products so it is difficult to keep an up-to-date database of processors. Table 2.2
listed the major producers known as of 2015 and it was evident that plant capacity was at
least double the size of carrageenan markets (Fig. 5.10). Interviews and experience gained
working with Indonesian processors provided ample indication that it is extremely difficult
for new entrants to gain market share in carrageenan markets.
Figure 5.10. This schematic pie chart

shows region; number of carrageenan
factories; and tons annual capacity for
carrageenan as of 2014. More than 47
factories with over 114 000 tons of
capacity were chasing about 50 000 tons
of market. See Table 2.2 for more
details.
The fact of global overcapacity in carrageenan production does not necessarily

comprise a barrier to installation of additional capacity under conditions where
substantial competitive advantage can be achieved. For example, process capacity close
to exceptionally cost effective seaweed sources based on Sumenep comparative
advantage could lead to competitive advantage especially if live seaweed was feeding
into MUZE processes where the carrageenan component is ‘subsidized’ by sale of non-
carrageenan components.
5.6.4. Impediments to trade

Sumenep is a supplier of raw, dried seaweed (RDS); it is not a supplier of value-added
seaweed products. Trade constraints of carrageenan markets are a root cause of that
situation. Although Indonesian RDS and carrageenan are sold to global markets, the
Philippines and China have by far the most impact (Fig. 5.10). China is the biggest customer
for Indonesian raw, dried seaweed (RDS) but low prices charged by Chinese manufacturers
and high Chinese value-added tax (VAT) on the order of 17 percent inhibit (but do not
prevent) entry of foreign carrageenan and agar into China. Meanwhile cheap Chinese RC in
international markets inhibits RC production elsewhere, including from Indonesia.
PT Algalindo Perdana is an example of an Indonesian processor that has become a
successful ingredient solutions provider within China. They export carrageenan in
blends to China and find that even after paying VAT there is room for profit if effective
marketing and sales strategies are applied.
44
The major carrageenan producer in the world as of 2015 was Shanghai Brilliant Gum Co. Ltd.
(BLG) with Chinese factories in Shanghai and Zhejiang. On their website index page BLG has
identified themselves as the world’s biggest carrageenan manufacturer with global market
share of nearly 30 percent. BLG claimed consumption of ‘Eucheuma Seaweed’ volume equal
more than 40 percent of Indonesian production. (http://www.sh-blg.com/en/ [5 April,
2015]).
Interviewed Indonesian exporters estimated that as many as 4,000 tons of cottonii RDS per
month were being exported from Indonesia to BLG as of 2015. BLG has penetrated world
markets with RC at prices that competing processors (e.g. from the Philippines) claim are at
or below their production cost. FMC Biopolymer closed its European kappa carrageenan
factories (previously the largest in the world) by 2004 and commenced buying their kappa
RC building blocks from BLG, among others.
An interesting factor of the China trade is that, after seaweed and fresh water, the main
chemical used in producing ATC/SRC is potassium hydroxide (KOH) and Indonesia imports
most KOH from China. About ten percent of variable production cost is from KOH purchases
(Table 4.2).
The status of ATC entering China is a grey area that is worth examining and there are
industry rumors that some processors are considering this option. Chinese producers of
refined carrageenan can use technical-grade ATC because it is sanitized during the RC
process. If it makes sense to make ATC in Indonesia using Chinese KOH; if buyers’ quality
standards can be met; and if ATC is treated as seaweed rather than as carrageenan under
tariff regulations; then using ATC as feedstock could be a cost-effective proposition.
As of early 2015 it was announced that BLG will build a major ATC/SRC process plant in
South Sulawesi on a twenty hectare site north of Pare-Pare. That factory is apparently
aimed at non-Chinese SRC markets but it could also supply large quantities of ATC and
SRC as raw material feed-stocks to BLG factories in China.
After China, the Republic of Philippines (RP) is the major market for Indonesian RDS. The
Philippines is a major RDS producer but production has declined in recent years. Several
large carrageenan manufacturers have based process plants there starting in1979 when
FMC built the first SRC factory there (the author was project manager). By 2006 RP had
become a net importer of cottonii RDS and now imports about 50,000 tons per annum
according to letters sent to Asosiasi Rumput Laut Indonesia (ARLI) by the Seaweed Industry
Association of the Philippines (SIAP) (Azis; pers. Comm.). RP and RI processors are rivals for
buyer trust and market share. For buyers switching hydrocolloid suppliers is risky, expensive
and time consuming. Major buyers are generally happy with their long-term, trusted
Philippines carrageenan suppliers (Bixler; pers. comm.). They have been reluctant to develop
supply relationships with later-coming Indonesian manufacturers. However this situation
may be changing because with primacy in seaweed Indonesia is looking better and better as
45
a carrageenan and agar source. Declining RP seaweed production related to typhoons and
terror incidents was causing buyers to look for positions in Indonesia by 2015.
5.6.4. A zero-sum game

A 'zero-sum game' is a situation in which one person’s gain is equivalent to another’s loss, so
the net change in wealth or benefit is zero. Present markets for Sumenep RDS are almost
entirely as raw material for making kappa carrageenan. This market is mature and slow
growing. The current RDS market is like a zero-sum game. For Sumenep to gain market
share the Philippines and other Indonesian seaweed production areas must lose market
share and they are sure to defend their positions.
5.6.5. Supply and Demand

The 'law of supply and demand' defines the effect that the availability of a particular
product and the demand for that product has on price. Generally, if there is a low supply
and a high demand, the price will be high. In contrast, the greater the supply and the lower
the demand, the lower the price will be. The impact of supply-and-demand dynamics is
amply illustrated in historical farm-gate prices for Kappaphycus RDS (Fig. 5.1).
Figure 5.11. Estimated

proportions for RDS sales to
major markets. (Source: Neish
estimates based on trade
data analysis). The current
carrageenan and seaweed
markets are like a zero-sum
game. For Sumenep to gain
market share others must
lose market share.
Modest growth has been the rule in carrageenan markets during recent decades (Fig. 5.12)
and seaweed production capacity is greater than demand from such markets can absorb.
Seaweed farmers long ago learned that falling prices mean an excess of supply over demand
so they have tended to adjust planting levels to anticipate market movements. In the
opaque seaweed value chains of recent decades market signals have been poor for both
buyers and sellers so despite the relative stability of kappa carrageenan prices the farm-gate
price of Indonesian Kappaphycus has shown a pattern of significant market swings (Fig. 5.1).
46
Figure 5.12. There has been weak

carrageenan and agar demand
growth for decades. Extrapolated
figures assume continued growth
at the 1000-2009 rate.(After Bixler
& Porse, 2010)
5.6. Market opportunities

If carrageenan processors remain as the only buyers of Sumenep RDS and if the well-being
of farmers is the goal of Sumenep industry stakeholders, then there is merit to focusing on
building market share as an RDS producer rather than being concerned with adding to
excess industry plant capacity by building carrageenan process facilities in Sumenep.
Shifting around the geographical locations of process capacity does not necessarily improve
the market for RDS from farmers. In fact there are concerns that farmers will lose free
market access to best-price markets if local processors must be supplied preferentially or if
seaweed levies and other financial measures are introduced to favor seaweed processors
with particular geographic locations.
The development of new products from MUZE technology requires that processing should
commence with live seaweeds so value addition will necessarily commence at farm areas.
Furthermore, a proliferation of agricultural nutrient products and other products from
seaweeds will get the Sumenep seaweed industry out of the ‘zero-sum carrageenan game’
and into a ‘development-for-growth’ game as new, large markets develop both domestically
and internationally. Innovation is the key to future Sumenep seaweed market opportunities.
5.7. Ultimate limits to market growth

In the near-term Sumenep seaweed farm development is limited by a lack of accessible
markets. This will change as innovation leads to a proliferation of marketable products that
can be made from seaweeds. In the long-term Sumenep seaweed farm development will be
limited by the space available along multi-use coastal zones. As of 2015 Sumenep had large
under-utilized areas where seaweeds could be planted with only about 400 hectares of
planted area in almost 250,000 hectares of territorial seas.
47
6. VC governance and competitiveness

6.1 Market structure and governance
The history of Sumenep market structure and governance in Sumenep falls into two
development periods. (Fig. 6.1).
Figure 6.1. Market structure and governance in Sumenep fitted into two development
periods. (adapted after Gereffi et al 2005, Panlibuton et al 2007 and Neish, 2008a).
48
6.2 Strategic alliances, trust and commitment

During early days of seaweed farm development in Sumenep a strategic alliance was formed
between major carrageenan processing companies such as FMC Biopolymer and aspiring
seaweed exporters such as PT Sumba Subur who utilized the talents of BDS provider CV
Duta Teknik (now CV Multiagar Kembang). This alliance undertook initial farm development
around Gili Genteng and Bluto. The first commercial shipments started in the early 1990s
and similar efforts were funded by other carrageenan processors. Until the mid-1990s,
companies that developed specific areas retained substantial monopsonies that enabled
them to recoup development investments. With the proliferation of ASEAN-based
processing plants of speculating seaweed traders from nearby Surabaya processing and
exporting companies had difficulty protecting farm development investments. Development
of new farm areas diminished and alliance relationships weakened as processors ‘played the
field’ by buying from two or more competing exporters. As of 2015 there were no known
strong strategic alliances of processors with farmer groups in Sumenep and ‘market
governance’ tended to predominate (Fig. 6.1).
At the farm level almost all seaweed farmers belong to more or less formal groups
(Kelompok). This is the norm for many economic activities in Indonesia, with most farmers
and fishermen belonging to kelompok. Benefits and costs from farmers aggregating into
groups are summarized in Table 6.1.
Table 6.1. Some benefits and costs of aggregating farmer enterprises
BENEFITS COSTS
Size confers bargaining power Strong, effective management is essential
Safety in numbers … shared risks Individual farmers lose some of their independence
Financial strength enhanced Needs effective financial management
Pooled resources for R&D Must find support for R&D
Economies of scale Substantial capital needs
Enhanced access to market system support Discipline & commitment required from owners
In Sumenep kelompok were aggregated at a higher level by a larger ‘cooperative of

kelompok’ known as Koperasi Anika Usaha (KAU). KAU included about 25 kelompok
distributed throughout five municipalities in Sumenep and included more than 1,000 farm
households (about fifteen percent of the Sumenep total). KAU was reported to be the only
formal cooperative in Sumenep and as of early 2014 only about 240 tons of RDS was
marketed through it (Masruri pers. comm.) but the co-op was active in brokering sales of
live biomass for replanting among member kelompok. KAU was planning to develop brand
identity and get into producing premium quality RDS as an avenue to encouraging member
kelompok to market more of their production through the co-op.
49
6.3 Seaweed market power and distribution of value addition

As of 2015 Sumenep RDS entered a totally free market that was not dominated by any value
chain actor at any level. The law of supply and demand reigned supreme. Prices are fairly
transparent as they can easily be discovered with a few calls or text messages from a mobile
phone and price trend can be seen at the website www.Jasuda.net.
Buyers seek bargaining leverage by sourcing from two or more exporters within Indonesia.
Long-term letters of credit between processors and exporters were the rule until about the
mid-1990s but most purchases since then have used short-term purchase orders as the
medium of transaction (Section 5.4).
Opaque value chains and poorly understood price swings were experienced by all value
chain actors (Fig. 5.1). Table 5.1 provides an example showing the partitioning of costs as
RDS moves from farm to export venue. Typically about 70 ± 5 percent of the export price
goes to farmers and exporter gross profits are about 10 ± 5 percent.
6.5 Value chain competitiveness (5 triggers SWOT analysis)

Value chain development comprises an improvement of cooperation between stakeholders
of a particular sector and the coordination of their activities along different levels of a value
chain with regard to the ‘five triggers’ shown in Fig. 6.2 and with regard to strengths,
weaknesses, opportunities and threats (SWOT).
Figure 6.2. Five triggers for

value chain development. The
ultimate goal is to increase the
competitiveness of a sector in
the international market.
To reach consumers seaweed enterprises must go through other market system

stakeholders. Using the five triggers as a framework helps to identify opportunities and
constraints to making the local target sector more competitive and integrate it more
effectively into value chains and markets. A five triggers analysis is combined with a SWOT
analysis for the Sumenep situation in Table 6.3.
50
Table 6.3. Preliminary 5-triggers/SWOT analysis of the Sumenep seaweed value chain
situation based on findings of the present study and previous studies by Neish.
1. SWOT Analysis 2. Value Chain Triggers
1.1 Strengths 1.2 Weaknesses 2.1 System:

• Seaweed grows well • Kappaphycus cultivars Indonesia has robust developing systems for
during most seasons in seasonal in most regions; producing and processing seaweed. Major players
Figure
many 6.3. A preliminary 5-triggers/SWOT
areas analysis ofare
cottonii supply cannot thefinancially
Sumenep seaweed
strong value
and eager chain value
to expand
situation
• Stable based on findings of
and favorable thedemand
meet present study and previous studies byisMsuya.
addition. Government More
supportive and has
“peace and order” • Agronomy systems and seaweed as a high priority..
comprehensive analyses should
situation
be based on interviews and focus group findings.
value chains have low
• Large human resources productivity
base • Piecework mode of 2.2 Product quality/specification:
• Proximity to Surabaya operation encourages Indonesia produces good SRC but has trouble
hub port low productivity breaking into markets already dominated by
• Seaweed industry has • High waste because all established processors from other countries,
high priority with biomass components are especially RP. There is under-capacity for RC and
government not made into products little or no capacity for nutrient products.
1.3 Opportunities 1.4 Threats 2.3 Product differentiation (competition):

• Large areas available for • Possible weather-related Current production is not differentiated from
farm expansion crop failures competitors in RP, China and elsewhere. For
• Close to potential • Natural disasters (e.g. differentiation to occur there must be innovative
agricultural nutrient tsunamis) value addition that aims new products at new
markets • Displacement of seaweed markets.
• Political and business farming and competition
environment favorable for human resources by
for joint venture other industries 2.4 Social and environmental standards:
development with global • Failure to develop new Seaweed farming has developed as an important
technology and market products and markets source of cash for people living in poverty –
players especially for women. Environmentally, seaweed
farming is sustainable.
3. Market requirements. 2.5 Business environment:

Indonesian seaweed meets market requirements for quality but Farmers still lack organization that enables farmer
sometimes falls short of market demand for volume. Still groups to operate as enterprise units. Overall,
supplies mostly undifferentiated RDS; not premium quality RDS though, there is an excellent business environment
or finished product. Value chain development requires for development of value adding capacity.
innovative value addition that aims new products at new
markets.
4. Other observations (e.g. surprises) – or main findings:
The Indonesian seaweed industry is well established but is still mainly a provider of raw material; not finished product.
Private and public elements necessary for the development of value adding facilities are in place. People at the highest
levels of business and government are accessible and appear to be willing to work together and also to work with
farmers. The key need for development is to innovate rather than copying old-school technology.
51
7. Value chain finance
7.1 Financial needs for production, trading and processing

Most funding for seaweed farm development in Sumenep was originally provided by
exporting companies; in some cases with support through strategic alliances with major
processors. The strongest exporters appear to be well funded with their own capital and
they also appear to have strong relationships with banks. It is lack of technology and new
products to market - not lack of finance - that seems to be limiting development at upper
levels of the value chain.
7.2 Sources of funding for farmers

Aside from some cash advances by traders, collectors and exporters seaweed farmers get
support from Government sources; sometimes with support by development organizations.
The norm for seaweed farm financing in Sumenep was clear. All farmers utilized self-
financing. Some borrowed funds, biomass or assets from relatives or fellow kelompok
members or received supplementary financing from their credit union.
Government subsidized bank financing is also available under the National Credit Program
(Kredit Usaha Rakyat or KUR). This program is limited to Rp 20,000,000.00 (twenty million
rupiah) per person / organization / group / cooperative. The interest rate at the time of
writing was 22% per annum.
In order to encourage national banks to increase lending to low-income groups such as

farmers and fishermen, the Government has given incentives in the form of:
o Micro-KUR (Peoples Business Credit) style loan guarantees, with at least 70% -90%
subsidy.
o Food and Energy Resilience Loans (KKPE) interest subsidized, around 8%-12% per
annum depending on the commodity.
o Funds to conduct capacity building for the farmer & fishermen.
The credit model for seaweed farmers in Indonesia is illustrated in Fig. 9.1. and the Micro-
credit scheme for farmers and fishermen (MCFF) is outlined in Fig. 7.1.
52
Figure 7.1. A. Credit Model for Farmers & Fisherman. B. MCFF : Micro-credit scheme for
farmers and fishermen. (after Kusmuljono, 2012)
A. Credit
Guarantee credit guarantee
from government
interest MCFF MCFF strengthens

subsidized by Farmer
Interest Empower- farmers’ access to
government
Subsidized ment fair finance
B.
(MCFF) BANK INDONESIA
ASKRINDO
JAMKRINDO
Regional Credit
Coordinating Guarantee Agencies
SELECTED
Economic
BANKS
Ministry
Ministry of
co-ops & SME
Finance
Ministry MFI
MFM Capital strengthening
PKBL
interest
subsidized
MCFF
empowering Seaweed Seaweed

FUNDS farmer farmer co-
groups ops & SME
BDS technical
providers assistance
MCFF : Micro-credit scheme for farmers and fishermen

MFM : Ministry of Fisheries and Maritime Affairs
MFI : Microfinance Institution
PKBL : Program Kemitraan & Bina Lingkungan (State-Owned Enterprise Assistance Program)
53
8. Environmental issues & energy use

8.1.1. Environmental issues
Five categories of environmental impact relevant to cottonii and spinosum plantations are:
1. Primary impacts caused by effects of seaplant metabolism and demography;

2. Secondary impacts caused by wastes or other impacts from post-harvest treatment
and handling of crops;
3. Collateral impacts caused by activities that are directly related to plantation
operation including installation of habitat systems; trampling the sea floor; damage
caused by the use of boats and vehicles; processing activities; and effluents;
4. Indirect impacts caused by domiciles, work places and process facilities placed near
plantations;
5. Direct processing impacts caused by effluents, solid wastes and other aspects of
processing activities.
Negative plantation impacts are most strongly associated with crop production on or very
near the sea floor, namely:
1. Disruption of benthic community structure by removal of organisms and cutting of

sea grasses.
2. Substrate abrasion and disruption caused by crops coming into contact with the sea
floor.
3. Skewing of species composition caused by the introduction of new sets of ecological
niches due to the physical presence of seaplants and plantation habitats.
Positive impacts include increases in fish numbers; replacement of destructive activities by

farming; and farmers gaining a sense of “stewardship” over coastal areas.
Impacts with either positive or negative effects include changes in primary production; and
farms changing the nitrogen regime of the reef community.
At the time of writing seaweed farming in Sumenep was mostly done using floating systems
of types that predominate in Southeast Asian seaweed farming. Four ways of minimizing
cottonii and spinosum plantation impacts by using floating systems include:
1. New habitat is created rather than existing benthic habitat being interfered with.
2. Substrate is placed into the water column where nutrients are most available.
3. Benthic communities are left intact. Planting seaweeds on or near the sea floor
disrupts natural benthic communities and effects species diversity.
4. Crops can be tended using minimally destructive methods. The use of vessels, rafts
and dive gear minimizes trampling of benthic habitats and organisms.
54
8.1.2. Energy and water use

The energy sector in Sumenep consists of unreliable electric power, petroleum and
petroleum products; it is also supplemented by firewood and its related products. Energy
consumption by the present Sumenep seaweed industry is minimal. Seaweeds are sun dried
and many water craft are propelled by wind, poles or paddles. Boats with petrol or diesel
engines are also used.
The major energy use is for road and sea transport. If processing plants are built in Sumenep
they will require three phase power on the order of 300-500 KVA each in order to operate
cookers, dryers and mills. This is available as demonstrated by the ATC factory shown in
Plate 4.1.
The present Sumenep seaweed industry does not use fresh water except for human
consumption. If processing plants are built in Sumenep they will require fresh water on the
order of thirty cubic meters per factory per day (assuming production of 100 tons of SRC per
factory per month). This water requirement would be greatly reduced if MUZE technology is
used and water is recycled using waste water evaporation systems. Such systems could be
solar assisted to minimize electricity consumption.
8.1.3. Processing impacts minimized by MUZE processing

As explained in Section 4.3 and 4.4 predominant current carrageenan process technology
wastes much, if not most of biomass value. Such processes require large amount of fresh
water and can generate high-chloride effluents in amounts of tens of cubic meters per ton
of carrageenan produced.
On the other hand, if emerging multi-stream, zero-effluent biotechnologies are employed

fresh seaweed biomass is fully utilized and fresh water is recovered so there is little or no
waste. (See Fig. 4.4).
55
9. Business and socio-political contexts

9.1 Product and trade regulations
Seaweed as a product undergoes stages of quality control before it can be exported.
Farmers need to dry the seaweed to the required moisture content for local quality
(generally about 42 ± 5percent) and make sure that the seaweed is clean. Exporters do re-
checking to make sure that the quality is reached before exporting and they absorb any
shrinkage due to cleaning or further-drying of seaweed (Table 5.1). To market/export
seaweed or seaweed products one has to get approvals and export permits/licenses from
the port of export. This function is normally performed by shipping agents.
9.2 Governance and support from government and academia

Indonesian Government agencies exert legal governance over value chain functions and also
provide support to the industry in terms of information, knowledge, training and trade
facilitation. Some academic institutions, NGO and development organizations also provide
extension support. Examples are show in Table 2.3. The Government of is a link between
farmers and exporters. It plays roles such as looking for markets, negotiating prices, settling
issues related to taxes or revenue, and importation of seaweed strains for cultivation.
Sometimes Government organizations such as KKP or DKP also provide farming materials to
farmers. The Government encourages farmers to form groups and associations and also
start small credit systems such as cooperatives and credit unions.
9.3. Public service provision

Some seaweed-related businesses in Sumenep provide for a percentage of profit to enhance
community development or support community activities including constructing mosques or
musholla. However, some of these provisions may stop when the business is bad. There is a
corporate social responsibility (CSR) component to seaweed industry development that
should play an increasing role as innovations such as MUZE process technology become
commercial realities.
9.4. Tradeoff between high productivity and high labor

Piecework systems are effective at distributing farm revenues through the community
but this can come at great cost in productivity if use of small ‘bibit’ is encouraged. Farm
productivity is ten times greater where the larger bibit are planted (see Section 3.6).
At Sumenep farm areas on the main island of Madura a ‘lead-farmer’ farm model
predominated. Module owners/farmers contracted people to attach cuttings (bibit) to lines
(ris) on a piecework basis. Rates related during farmer interviews varied from as low as 250
IDR/line to as much as 1,500-2,000 IDR/line. It was observed that very small bibit of about
20-40 grams were being planted. Contracted laborers tended to be organized in groups and
56
were mostly female family members or neighbors of farmer households. Several of the
ladies interviewed while attaching bibit to lines stated that their family owned raft modules.
By contrast, in nuclear family farms or outgrower systems there is a tendency to conserve

labor and boost productivity by planting large bibit of about 100-200 grams (Fig. 3.6). Thus
the plants being harvested on lead farmer systems may be smaller than the size of bibit
typically planted in nuclear family or outgrower systems.
The lead-farmer approach of piecework bibit attachment systems in Madura is similar to

systems common in South Sulawesi. During the IFC-PENSA program of 2004-2008 the ‘big
bibit’ system was introduced to South Sulawesi from East Flores using farmer-trainers.
SulSel farmers readily acknowledged productivity increases but after several months ‘small
bibit’ practices returned. The reason given was that using small bibit led to more piecework
and that, in turn, led to more domestic harmony due to distribution of farm revenues. In
effect the piecework system was institutionalizing a low productivity approach to seaweed
farming. By contrast farm productivity in the Kangean and Sapeken Islands appeared to be
much higher than in visited main island areas. This was associated with the use of larger
bibit on longline systems operated more using nuclear family systems or on lead farmer
systems of independent family units not associated with kelompok.
9.5. Social and cultural context

Since 1990 seaweed farming has been generally expanding in Sumenep. The most diligent
farmers were able to make earnings well above the poverty level. Interviewed farmers
generally asserted that seaweed farming was their most lucrative economic activity.
Seaweed farming was also complementary and compatible with other village economic
activities such as fishing and farming land crops. Ready cash from seaweed farming had a
noticeable multiplier effect. Shops, support services for seaweed farming and village
infrastructure all benefited visibly from seaweed cash flowing through local village
economies.
Links between the supply and the demand ends of seaweed-to-hydrocolloid value chains are
being developed to build competitive advantage from Sumenep comparative advantage.
The present UNIDO study is an example.
Sumenep has considerable potential for expansion of seaweed farming and processing and
substantial additional potential exists for broadening the scope of such activities. Seaweeds
can be developed for nutrient applications, including a key role as the basis for integrated
aquaculture using the ecosystem approach to aquaculture (EAA) of FAO. According to FAO,
animal aquaculture is projected to rise from about 50 to 83 million metric tons per annum
by 2030. This increment would be worth at least USD 46 billion. With almost 250,000
hectares of farmable inshore waters Sumenep should get a share of this opportunity.
57
10. Conclusions and recommendations
1. Farm production opportunities:

a. Sumenep produces about 5 percent of Indonesian seaweed raw material and
has the capacity to produce much more.
b. Sumenep has comparative advantage as a seaweed raw material source due
to a combination of generally favorable weather; fertile sea water; abundant
human resources; and close proximity to the major hub region of Surabaya.
2. Farm productivity issues:
a. The lead-farmer approach of piecework bibit attachment on raft systems
used in much of Sumenep encourages use small bibit (cuttings) in order to
create piecework opportunities that, in turn, lead to domestic harmony due
to distribution of farm revenues among village populations. In effect the
piecework system institutionalizes a low productivity approach to seaweed
farming.
b. By contrast, in the nuclear family farms or larger lead-farmer longline
systems used in the Kangean and Sapeken Islands there is a tendency to
conserve labor and boost productivity by planting large bibit of about 80-100
grams.
c. It takes the same amount of labor and the same size of ocean systems to
handle 20 gram bibit as it does to handle 200 gram bibit but in good seasons
when fivefold growth is common during six week growing cycles a 20 gram
bibit grows to become 100 grams and a 200 gram bibit grows to become
1,000 grams. Farm productivity is ten times greater where the larger bibit are
planted.
d. Means should be sought to increase farm productivity and market
competitiveness in ways that still realize income distribution objectives.
3. Value adding opportunities
a. Despite prior failures, there may be an opportunity to operate ATC capacity
in Sumenep provided that contractual relationships are formed with anchor
buyers. ATC is best sold as a ‘bespoke’ product that becomes a performance
chemical. There is little or no market for ‘commodity’ ATC.
b. The status of ATC entering China is a grey area that is worth examining and
there are industry rumors that some processors are considering this option.
Chinese producers of refined carrageenan can use technical-grade ATC
because it is sanitized during the RC process. If it makes sense to make ATC in
Indonesia using Chinese KOH; if buyers’ quality standards can be met; and if
ATC is treated as seaweed rather than as carrageenan under tariff
58
regulations; then using ATC as feedstock could be a cost-effective

proposition.
c. The development of new products from MUZE technology requires that
processing should commence with live seaweeds so value addition will
necessarily commence at farm areas. This is an attractive long-term
opportunity for Sumenep.
d. A first step toward MUZE processing can be production of cottonii/sacol
white RDS that is being sought by SRC processors. This can be done using
simple solar technologies near to farm locations.
4. Market opportunities:
a. If carrageenan processors remain as the only buyers of Sumenep RDS and if
the well-being of farmers is the goal of Sumenep industry stakeholders, then
there is merit to focusing on building market share as an RDS producer rather
than being concerned with adding to excess industry plant capacity by
building carrageenan process facilities in Sumenep.
b. The development of new products from MUZE technology will enable
proliferation of agricultural nutrient products and other products from
seaweeds that can get the Sumenep seaweed industry out of the ‘zero-sum
carrageenan game’ and into a ‘development for growth’ game as new, large
markets develop both domestically and internationally.
c. Innovation is the key to development of future Sumenep seaweed market
opportunities. The Sumenep seaweed industry occurs within a compact
geographical area where there is adequate transport, logistics and
communication and developing infrastructure.
5. Farmer aggregation issues:
a. At the farm level almost all seaweed farmers belong to more or less formal
groups (Kelompok). Benefits and costs from farmers aggregating into groups
lean toward benefits outweighing costs.
b. In Sumenep kelompok were aggregated at a higher level by a larger
‘cooperative of kelompok’ known as Koperasi Anika Usaha (KAU). About 15
percent of Sumenep farmers were associated with KAU, which marketed RDS
for member kelompok and was active in brokering sales of live biomass for
replanting among member kelompok.
c. KAU was planning to develop brand identity and get into producing premium
quality RDS as an avenue to encouraging member kelompok to market more
of their production through the co-op.
d. The KAU model seemed to be an attractive approach to aggregating farmers
in a beneficial way. Development of KAU and additional similar co-ops should
be examined as a feasible way for farmers to maximize the benefits of
aggregation.
59
11. References
Bixler HJ & Porse H, 2010. A Decade of Change in the Seaweed Hydrocolloids Industry.
Plenary paper presented at the XX International Seaweed Symposium, Ensenada Mexico,
February, 2010.
BPSKS, 2014. Sumenep dalam angka; Sumenep in numbers. Publication of Badan Pusat
Statistik Kabupaten Sumenep (BPS-Statistics of Sumenep Regency)
FAO, 2012. The State of World Fisheries and Aquaculture 2012. ISSN 1020-5489. Publishing
Policy and Support Branch Office of Knowledge Exchange, Research and Extension FAO.
Gan KT, 2003. Strategic alliances in the tropical Asian seaweed industry: implications for
development in Asia. Adelaide, University of South Australia. 89 pp.
Gereffi G, Humphrey J &Sturgeon T, 2005. The governance of global value chains. Review
of International Political Economy 12:1 February 2005: 78–104
Herr M & Muzira T, 2009. Value Chain Development for Decent Work: A guide for private
sector initiatives, governments and development organizations. ISBN 978-92-2-122488-4.
International Labour Office, Geneva.
Kusmuljono BS, 2012. Financing model for sustainable seaweed farmers and industry. BNI
Center for Policy Reform Change with Solution for Better Tomorrow. Seaweed International
Business Forum and Exhibition (SEABFEX) 4, Mataram, October 23, 2012
Lustre AO & Bixler HJ, 2006. Quality Assurance of Carrageenan for the World Market.
Paper given at the 6th Asia-Pacific Conference on Algal Biotechnology held from October
12-15, 2006 at the Dusit Hotel Nikko in Makati City, the Philippines.
Neish IC, 2012a. Value Chain Assessment of Maluku Tenggara for the ILO-UNIDO Seaweed
Project. Report submitted with Project code M27008326030
Neish IC, 2012b. Satoumi Seascapes as a path forward for seaweed farming and
processing in Indonesia. Presented at the 5TH Algae World Asia, 07-09 Nov, 2012 –
Singapore, Novotel Clarke Quay.
Neish IC, 2012c. Summary Business Plan for UNIDO/ILO supported seaweed processing
facilities in the Indonesian provinces of Maluku and Nusa Tenggara Timur (NTT).
Submitted to UNIDO, 17 July, 2012.
Neish IC, 2013a. Feasibility Assessment for a Sumenep MUZE Seaweed Processing Facility
(ZanMUZE). Report submitted for UNIDO Project no 13083“Building Seaweed Processing
Capacities in Sumenep and Pemba: Creating value for the poor”.
60
Neish IC, 2013b. Some Social and Economic Dimensions of Seaweed Aquaculture in
Indonesia. In Valderrama, D., Cai, J., Hishamunda, N. & Ridler, N., eds. 2013. Social and
economic dimensions of carrageenan seaweed farming. Fisheries and Aquaculture Technical
Paper No. 580. Rome, FAO.
Neish IC, 2015. Global Seaweed market opportunities … an Indonesian perspective.

Presentation at ARLI national planning conference Clarion Hotel, Makassar, 18 March, 2015.
Neish, IC & Msuya, FE 2013. Seaweed Value Chain Assessment of Sumenep. Report
submitted for UNIDO Project no 13083“Building Seaweed Processing Capacities in Sumenep
and Pemba: Creating value for the poor”.
Panlibuton H, Porse H & Nadela E, 2007. Seaweed/Carrageenan Value Chain Assessment:

Final Report. Study conducted for Seaplant.net initiative of IFC Advisory Services and for
GTZ Philippines. 47 pp.
UNIDO (2011). Industrial Value Chain Diagnostics: An Integrated Tool. United Nations
Industrial Development Organization (UNIDO). [IVC_Diagnostic_Tool]
Valderrama, D, Cai, J., Hishamunda, N & Ridler, N, eds. 2013. Social and economic
dimensions of carrageenan seaweed farming. Fisheries and Aquaculture Technical Paper
No. 580. Rome, FAO.
Zemke-White WL, 2002. Assessment of the current knowledge on the environmental

impacts of seaweed farming in the tropics. Proceedings of the Asia-Pacific Conference on
Marine Science and Technology, 12-16 May 2002, Kuala Lumpor, Malaysia.
61

A Diagnostic Analysis of Seaweed Value Chains in Madura, Indonesia

Uploaded by

Copyright:

Available Formats

A Diagnostic Analysis of Seaweed Value Chains in Madura, Indonesia

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

A Diagnostic Analysis of Seaweed Value Chains in Madura, Indonesia

Uploaded by

Copyright:

Available Formats

A diagnostic analysis of seaweed value

chains in Sumenep Regency, Madura

This document has been prepared by Iain C. Neish in

Development of new products from MUZE technology will enable proliferation of

Note: (B) is Bahasa Indonesia

ATC: alkali-treated chips made from Kappaphycus.

1. Geographic & demographic context

1.2. Population structure, employment and GRDP

Table 1.1. Gross

1.3. Climate and seasonality

2. Value chain mapping

1. Sourcing of Inputs and Supplies: Emphasis was placed on understanding sources of

efficient. A distinction was made between credits provided by formal financial

2.2. A generalized seaweed value chain structure

Support Value chain

COLLECT and/or Dried, cleaned Collection generally performed by

Ingredient solutions Solution providers supply end users

Goods include human food,

2.3. Value chain actors

2.3.2. Seaweed collectors and intermediate traders in Sumenep

2.3.3. Seaweed national traders/exporters in Indonesia

D. Simple processing needed to make farmer-delivered seaweed meet buyer

Company Address Email Contact person

2.3.4. Seaweed processors in Indonesia and the rest of the world

Country Company Alcohol Hybrid Gel press SRC FG SRC TG Total

2.3.5. Organizations with impacts on Indonesian seaweed value chains

ACRONYM ORGANIZATION URL

DFAT Australian Department of Foreigne Affairs and Trade www.dfat.gov.au

2.3.6. Facility location issues

Figure 2.2. A Value chain Value chain

made from RDS process can be done near seaweed source;

Formulate blends Best done near manufacturers of consumer

APPLY Apply ingredient solutions Must be done near established distribution

2.3.7. Map Value chain map for Kappaphycus farmed in Sumenep

FUNCTIONS ACTORS SERVICE PROVIDERS

Market is both domestic and international

Table 3.1. Estimated seaweed

Table 3.2. Estimated seaweed 2013 DKP estimate 7,029 farmers

3.2 Farm tenure

3.3. Farm enterprise structures

3.4. Farm enterprise real property ownership

3.5. Agronomy systems

A. Bamboo rafts (‘raket bambu’ in Indonesian) were the predominant agronomy

3.6. Crop species, nursery systems and replanting

Figure 3.8. A. In Bluto, Saronggi and Talango very small

3.7. Harvesting post-harvest handling and transport

Figure 3.8. A. Effluent

Figure 3.9. Drying curve and % of live weight

comparison of wet and dry 100

compositions of typical Kappaphycus 80

Figure 3.10. A. Freshly harvested seaweed thought to be sacol cultivar of Kappaphycus

Cottonii seasonal growth patterns for seven villages in MalRa

GROWTH: BEST ↑ MIXED → WORST ↓

Figure 3.5. A. Seasonality is commonly

4. Carrageenan process systems

4.1.2 Differences between kappa and iota carrageenan

4.1.4 Differences between food grade and technical grade ATC/SRC

“Initially prepare a 10-1 dilution by adding a 50 g sample to 450 ml of Butterfield's

4.3 Conventional process technology