A System for Driving Innovation Enhanced Business Models in the Indonesian Smallholder Cattle Value Chain

Abstract

<p>Increasing demand for beef in Indonesia (Deblitz, Kristedi, Hadi, Triastono, & Puspadi, 2011) is reflected in heightened policy emphasis on domestic production. Local cow and calf production is being supported by a number of government programs. The great majority of Indonesian beef production, and cows and calves in particular, is in the hands of smallholder producers (Ilham, Saptana, Purwoto, Supriyatna, & Nurasa, 2015). A variety of constraints, however, limit the extent to which smallholders are accessing and using improved management and marketing approaches (Waldron, Mayberry, Marthen, Quigley, & Poppi, 2013). Smallholder producers are a diverse group, thus advancing their participation in the value chain is likely to require a variety of approaches. The current study discusses these constraints and proposes changes that will accelerate the future uptake of new management approaches and technology. This study therefore aims to produce a positive impact on the livelihoods of smallholder beef farmers through innovation interventions that help overcome constraints to economic progress. It identifies distinguishing features of smallholder producers by characterising these features in terms of business models — a process of identifying and actioning change to improve profitability for smallholder beef producers — and presents the identified business models as innovation-based mechanisms for engaging beef smallholders to improve their operational efficiency. This allows for effective targeting of innovation interventions according to needs and aspirations, rather than taking a broad-brush approach. Theories of business models are synthesised to provide an empirical classification method, identifying value proposition, value architecture and financing mechanism. Therefore, the innovation project describes a system for driving innovation enhanced business models in the Indonesian smallholder cattle value chain.</p> <p>A survey of smallholder beef producers was conducted in two districts of the Indonesian island of Sumbawa in Nusa Tenggara Barat Province. Data collected included: households' production and marketing systems and performance" indicators of innovations" and intentions about implementing innovations. The innovations are then used to cluster smallholder producers. Alignment between observed innovation behaviour and the essential elements of business models allows identification of three distinct business models currently being applied by the smallholders. Those business models offer different entry points for extension services, and for technology adoption to address business model-specific constraints. The innovation is designed to serve smallholder farmers and is facilitated by policy and assistance from the Government of Indonesia, extension and government agencies, and buyers of cattle to facilitate farmers' practice change. An <i>ex-ante</i> simulation model is used to project gains in smallholder production and profits, associated with management and marketing change appropriate to the separate models. This is an alternative mechanism to the feedback mechanism from smallholder farmers, which could not be implemented due to mobility restrictions during the COVID-19 pandemic. The <i>ex-ante</i> simulation model is employed to project benefits from adoption scenarios for targeted business models, avoiding expensive and inefficient more generalized extension solutions. The <i>ex-ante</i> has provided evidence regarding each business model: one business model does not include sales of animals, and this might be avoided by buyers and by extension agencies trying to commercialise smallholders. The ex-ante simulation, therefore, can also offer some insight to the interests of those users — extension and government agencies, and buyers of cattle, and the results have been discussed with representative of advisory services and government agency. Those users should be able to use the study's results about the innovation project and around interventions that lead to improvements in productivity — these actors could scale up interventions and generate further impacts.</p> <p>The context-based research presented in this study and its findings make important and original contributions to knowledge of business organisation theory, in four key ways. First, we observed innovation via a survey of small farmers. Second, we used these innovations identify business models. Third, we demonstrate how business models can be used to make considerable progress towards achieve the objectives of national policy, including the promotion of market-oriented farming, the promotion of innovation and the improvement of the organization and livestock integration. Fourth, understanding the behaviour of interested parties when promoting innovation will (a) helps establish the business models by overcoming constraints, and (b) make the business models more productive by boosting adoption.</p>