Department of Agribusiness Faculty of Agriculture Padjadjaran University, Bandung, Indonesia
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Department of Agro-technology Faculty of Agriculture Padjadjaran University Bandung, Indonesia
Consumers of agricultural products are not only concerned about the quality and availability of the products in the market, but also are actively looking for product related information of the process that occurred in the supply chain. This can be seen as opportunities for producers and other chain related actors to create values by working together with the consumers. This process is known as value co-creation. In developing countries, agricultural supply chain development through value co-creation often faces obstacles mainly related to the limited scale of the producers. One of the solutions to deal with this condition is the interaction between the university as the knowledge centre, government as the regulator, and the private sector as the party who understands customers. The interaction between the university, government, and the private sector (the Triple Helix) is the key to innovation and development in the era of the scientific based economy. The agribusiness cluster is the interrelationship between farmers, local businesses, banks, and local business development services in an area. Analyses and discussion in this article was based on system thinking in the form of a causal loop diagram. The diagram is able to show a comprehensive understanding of innovation theories and the causalities in various interactions within the Triple Helix in the value co-creation processes. The value co-creation process in the vegetable cluster development program was a result of interactions between many complex variables and generated balanced and growing feedback to improve the competitiveness of the farmers’ group.
Nowadays, consumers for agricultural products are not only concerned about the quality and availability of the products in the market, but are actively looking for product related information on the process that occurred in the supply chain (Ahumada and Villalobos, 2009). This is due to increasing consumer awareness of the importance of food safety, to avoid damaged/contaminated (physically, biologically, and/or chemically) agricultural products (Hastuti, 2007). Demands on product quality, availability, and safety are values that have to be provided by the producers and all involved actors in the supply chain. If the required conditions are not met, in the long term, consumers will demand a price cut (discount) or even decide to stop buying the products (Vargo and Lusch, 2004).
Based on those arguments, value creation became a very important aspect of a business. This can be seen as opportunities for producers and other chain related actors to create values by working together with the consumers. This process is known as value co-creation. This condition resonances the Ballantyne and Varey (2006) idea of value co-creation: ‘the value co-creation are dialogical processes of firm and customer that merge into one integrated process of coordinated actions, where both parties are active, learn together from each other, and may directly influence each other’. Thus, the application of value co-creation was aimed to improve the performance of the agricultural supply chain, starting from producers to consumers.
In developing countries such as Indonesia, agricultural supply chain development through value co-creation often faces obstacles mainly related to the limited scale of the producers. Agriculture producers in developing countries are generally restricted in technology, capital, extension services, and market integration (Devaux et al, 2009; Ferroni and Castle, 2011). As the consequences, it is often difficult for small scale producers to follow the ever changing market situation which demands the integrity of quality, quantity, safety and competitive pricing (Perdana and Kusnandar, 2012).
One of the solutions to deal with this condition is the interaction between the university as the knowledge centre, government as the regulator, and the private sector (eg industry) as the party who understands customers. As Etzkowitz (2008) argues that the Interaction between the university, government, and the private sector is the key to innovation and development in the era of the scientific based economy.
The involvement of university, government, and the private sector in the development of the agricultural supply chain was conducted at a network level in the form of an agribusiness cluster. An agribusiness cluster is the interrelationship between farmers, local businesses, banks, and local business development services in an area (Toma, 2009). The cluster can be seen as a geographical concentration of a supply chain network (De Witt, Giunipero and Melton, 2006). In a more general term, Porter (2000) defines a cluster as ‘a geographical concentration that connects business actors, suppliers, services, supporting industries, and related institutions (ie university, market association, etc) in a certain field, which are competing and working together at the same time’. A cluster stresses on competitive advantages at meso and macro level. The determining factors of a successful cluster is the linkage between business associations, government, financial institutions, research and knowledge institutions (Ditter, 2005), community (Reid, Carrol and Smith, 2007), business development agencies (Toma, 2009), and demand as a supporting factor (Perez-Meza and Galdeano Gomez, 2010).
Hence, the key factor of an agribusiness cluster development is the involvement of multi-stakeholders in the process of reaching common goals, to improve productivity and competitiveness. Multi -stakeholders’ involvement can be conducted in formal forms such as an alliance, partnerships, ‘platforms’ and initiative; and in informal forms such as networks and interactions (Russo and Tencati, 2009). Moreover, the involvement of multi-stakeholders in an agribusiness cluster development is inclusive (Dentoni, Hospes and Ross, 2012).
This article discusses a Triple Helix case in value co-creation processes in vegetables cluster development in Indonesia. In this case, university is involved as a centre and a hub for innovation and knowledge, which has a role in mediating ‘tacit and explicit knowledge’ between the academicians and business actors and the funding community (Youtie and Saphira, 2008). As a result, various innovations that helped the improvement of small scale farmers’ competitiveness were produced. The case of the vegetable cluster in Pangalengan, Bandung Regency, illustrates the processes of value co-creation conducted by Padjadjaran University collaborating with modern retail (PT. Hero Supermarket Group) and Kelompok Tani Katata (farmer’s group) which was supported by government, the Bank of Indonesia and other stakeholders (eg agricultural inputs services). The processes of value co-creation in this vegetable cluster are discussed holistically to gain a complete understanding regarding the complexity and causality the occurred within the interactions between multi-stakeholders.
This research is a case study at network level in a supply chain (Harland, 1996; Wolf, 2008). The analyses and discussion were based on system thinking theory in the form of a causal loop diagram. The diagram is able to show a comprehensive understanding of innovation theories, and the causalities in various interactions within the Triple Helix in value co-creation processes; and is able to predict the dynamics of behaviour (Galanakis, 2006; Maani and Cavana, 2007). Aside of that, the diagram also acts as a qualitative model and a part of critical thinking skills in system thinking (Richmond, 1993).
Figure 1: Vegetables cluster development action research
VALUE CO-CREATION IN VEGETABLES CLUSTER DEVELOPMENT
Cluster development in Pangalengan, Bandung Regency, is part of the action research conducted by Padjadjaran University. The research was piloted from 2010. and entails three levels: 1) supply chain level; 2) logistic level; and 3) cluster level (Figure 1).
The supply chain level research aimed to create an inclusive supply chain management design, which involves small scale farmers to fulfil structured market demands (Perdana et al, 2011; Perdana and Kusnandar, 2012). In the process of dealing with logistics and post- harvest handling related problems in the agricultural supply chain, a logistic level research was conducted. The logistic level research aimed to generate an agricultural logistic business services model in the rural areas (Perdana, 2012). In order to deal with the complexity of the problems that occur in agricultural supply chain and logistics development, the attention and involvement of multi- stakeholders are necessary. In order to reach this goal, a cluster level study is needed. The cluster level study aimed to produce a cluster development model, which is able to improve the farmers’ competitiveness (Perdana et al, 2014).
All three strands of studies synthesises a system dynamics model with the participatory action of the researchers and other involved stakeholders. Consequently, it constantly generated interactive learning processes occurring within the virtual world where the system dynamics model was generated, and in the real world where participatory action (as application of the model in the field) was applied (Sterman, 2000). The feedback from the virtual world to the real world and vice versa, became the key factor in the development of the vegetables cluster in this case.
Figure 2 shows the processes of value co-creation in the case of the Pangalengan vegetables cluster. The stakeholders involved in this activity are Padjadjaran University, Katata Farmer’s Group, Hero Supermarket Group, Government, Bank of Indonesia, and other supporting institutions such as Rijkwann (agricultural input services), and Vegetables Research Centre (Balitsa) Lembang.
Value co-creation process in Pangalengan vegetables cluster
Padjadjaran University is a state university which has many research centres based in this field of study. One of the research centres is Agrilogics (Centre for Agricultural Logistics and Supply Chain Studies). Agrilogics focuses on conducting action research on agricultural logistics and supply chain development. Much action research at various supply chain levels has been done by Agrilogics. In doing so, Agrilogics synthesised system modelling with participatory action that involved many stakeholders. The results of the research are: models, appropriate technology, plant varieties, and business spin off. The knowledge generated as a result of the research was disseminated to the Katata Farmer’s Group through intensive field guidance processes.
Related to the utilisation of the action research results, Padjadjaran University was collaborating with Hero Supermarket Group. This collaboration included giving extension services to Katata Farmer’s Group so that it could maintain its consistency in supplying standardized vegetable products with co-branding to Hero Supermarket (Figure 3). The co-branding was to give value to consumers in the form of quality and food safety reassurance.
Figure 3: Co-branding Katata-Hero-Padjadjaran University (Unpad)
The Hero Supermarket Group is a modern retail network which has 250 shops in Indonesia including Hero Supermarket, Giant Extra, and Giant Express. The business is owned by two multinational companies: Jardines and Dairy Farm. In its collaboration with Padjadjaran University, Hero Supermarket Group created values together with Katata Farmer’s Group in a form of commercialization (marketing) of the products of Katata. The Hero Supermarket Group buy Katata’s products based on the agreed contract.
Katata Farmer’s Group founded in 2009 was designed to build a collective production system of farmers in the Pangalengan District of Bandung Regency. At that time, Katata only had twelve members. After several years, along with the process of vegetables cluster development, the members rose to 120 farmers. This was possible due to value co-creation processes which involved innovation learning. In this context, innovation learning is seen as an informal learning process, where social networks hold an important role (Nieuwenhuis, 2002). The members of the farmer’s group gained knowledge through sharing in the teamwork process of stakeholders. Katata constantly supplies twelve types of vegetables to Hero Supermarket Group in Jakarta and Bandung. These commodities are: baby and regular carrots, mini and regular potatos, beef tomatoes, local tomatoes, white radishs, paprika (capsicum), red chillis, Kenya beans, broccoli, and chayote. Aside of that, Katata develops a participatory seed breeding system for carrots, Kenya beans, and potatoes.
This cluster development was also supported by the Bank of Indonesia, local government (regional and provincial), and agricultural input agencies. The Bank of Indonesia provides access to finance services to involve supply chain actors, especially farmers. In addition, the Bank of Indonesia built a demonstration plot for potato seed development, provides rain shelters for tomato growing, and is replicating this program in other areas. Provincial and regional government support, through cluster development policies, and provide production facilities such as a hand tractor and a packing house. Agricultural input suppliers and the vegetable seed research institute contributed by providing the seeds required by the farmers, based on market demands.
Overall, the process of value co-creation in the vegetables cluster development program aims to improve the farmers’ competitiveness. By doing so, farmers are constantly able to fulfil market demand, in terms of quantity, quality, and food safety with a competitive price. The distribution of roles and resources among the stakeholders is the key factor in improving the cluster development program’s effectiveness and efficiency.
THE TRIPLE HELIX MODEL IN THE VALUE CO- CREATION PROCESS IN CLUSTER DEVELOPMENT BASED ON SYSTEM THINKING
This section discusses the role of the Triple Helix model in the value co-creation process in the vegetable cluster development program in Pangalengan, Bandung Regency, Indonesia. In order to grasp the complexity of the value co-creation process, which involves various stakeholders who have their own agendas, a causal loop diagram was used (Figure 4).
In this study, the value co-creation process has generated feedback among the variables. This section describes three balancing loops and three reinforcing loops, which were the base of the value co- creation process. Figure 5 shows a causal loop diagram (CLD) of a negative feedback (B1). The competition in vegetable agri-business has reduced the market share of Katata Farmers Group. This is indicated by the decreasing demand from the market to the group. On the other hand, if the market demand would have risen, then the need to improve the production base would have risen too. In the end, the need of production base improvement will improve the production base development being conducted by the farmer’s group, which will then lead to the geographical concentration of production bases. Started from one village in Pangalengan, currently Katata’s bases of production are spread in eight villages covering more than fifty hectares of land.
This geographical concentration has supported the improvement of the networks in this cluster. This is due to the expansion of the production base, which increased the need for various accesses, which include: access to market, access to agricultural inputs, access to technology, access to finance, and logistic services. Consequently, it increased the number of involved stakeholders. This also applies to increasing innovation funding as the result of improved networks.
The innovation funding was sourced from the Ministry of Research, Technology and Higher Education, in the form of a national strategic research grant. Additionally, the funding was sourced from the Bank of Indonesia, the CSR of the Hero Supermarket Group, and the government (regional and provincial).
Figure 4: Triple Helix model in the value co-creation process in cluster development program based on system thinking
Figure 5: CLD process in value co-creation process to improve the market share of vegetables
The increase in innovation funding has boosted research and development activities in the agribusiness cluster development program. Research and development includes knowledge and technology engineering in producing new varieties and production technology for vegetable commodities which are based on market demand, and social engineering to improve the collective production system and logistic services. Increasing research and development activities have improved the value co-creation process to generate innovations. The main foundation of the value co-creation process consists of dialog, transparency, access, and risk-benefit analysis (Prahalad and Ramaswamy, 2004).
As the value co-creation process improved, the success rate of innovation development was also improved. This can be proved by the increasing production technology for vegetables which are being practiced by farmers allowing them to increase their productivity and efficiency. A proper example would be the development of the ‘rain shelter’ and ‘grafting’ technology for the beef tomato, the ‘mini hydra’ sprinkle irrigation system for the dry season, the standardized operation procedure, good agricultural practice and seed breeding methods for carrots and Kenya beans.
In the end, along with the increasing productivity and efficiency of farming, the production costs were able to be pressed, and thus, farmers’ profit were boosted. In addition, the charm of agri- business for vegetable commodities will also improve, which in the end, will attract more competitive farmers. The interaction between various variables created a negative feedback (B1). This means that the value co-creation process will bring balance by improving the market share of the farmer’s group.
Figure 6: CLD process in value co-creation of logistics service improvement
Figure 6 shows that the increase in market demand to the farmer’s group has caused an increased communication between the farmer’s group with the market actors. This communication was being done to assure that the farmer’s group had met the product specifications as requested by the market. This communication also increased the interaction between the farmers and the other stakeholders. The interactions occurred in the form of a ‘focus group discussion’ to generate solutions in dealing with current problems. Thus, the value co-creation process related to the success of innovations will be increased. Specifically, the innovations improved agricultural logistics services. This logistics innovation is manifested in the improvement of packing house management, including the logistics infrastructures. The value co- creation process in logistic services is able to improve the competitiveness of producers and increase consumers’ satisfaction (Yazdanparast, Manuj and Swartz, 2010).
The improvement in logistic services will increase the vegetable supply to the market, and will increase farmers’ income. In the end, the increased income will attract others to the vegetable agri- business. The interaction between the variables caused a negative feedback (B2), which means that the value co-creation process in logistic service improvements will reach the balance point to increase the farmer’s group market share.
Figure 7: CLD process in value co-creation process increases market’s trust
Figure 7 shows that the value co-creation process was able to improve the trust of the market in the farmer’s group. This was possible due to knowledge sharing which led to the success of innovation development, which contributed to the increasing vegetable supply to the market. Therefore, the market’s perspective towards the farmer’s group was increased. The result of the increased farmer’s group capability to fulfil market demands was increased trust, which was manifested by improved orders. The interaction between variables generated a balanced behaviour (B3), which means that the value co-creation process will reach a balance point to reduce the pressure to the improvement of competitiveness.
Figure 8: The role of university in value co-creation process
Figure 8 shows that the value co-creation process which emerged as a result of the farmer’s inability to deal with the pressures from both inside and outside the country, in the vegetable agri-business. These pressures require farmers to improve their competitiveness so that they will be able to fulfil the ever changing market demands. The need for improvement has led to the need for innovation in technology and social aspects. This need for innovation motivated the farmers to communicate with the university’s researchers. Along with that, the government requires the university to contribute to this matter. This condition has created the base of collaboration between the farmer’s group and the university in order to improve the farmers’ competitiveness. The collaboration between the Katata Farmer’s Group and Padjadjaran University became the foundation of the vegetable cluster development program in 2014. The interaction between variables generated a growth behaviour (R1), which means that the involvement of the university will improve the value co-creation process.
Figure 9: Vegetable cluster development initiative in farmers’ access to market facilitation
igure 9 shows that the collaboration between the university and the farmers group which supported the initiative in the vegetable cluster development has been able to improve the farmer’s access to market facilitation, especially to the Hero Supermarket Group. This condition was followed by increased communication between the farmers group and market actors which then led to increased farmer’s income. This will attract more actors to be involved in the vegetables agri-business, which means that there will be more competitors in the future. The interaction between the variables generated a positive feedback (R2), which means that access to market facilitation will increase the number of farmers and will bring newcomers as competitors to the vegetable agri-business.
Figure 10: Competition in vegetable agribusiness supported the initiation of cluster’s development
Figure 10 shows how the increase of competition in the vegetable agri-business will increase the need for improved competitiveness. Therefore, it will generate the need for innovation, which means more farmers will feel the need to communicate with the universities. The increasing communication between farmers and researchers generates the vegetable cluster development program. In November 2014, the formal agreement between Padjadjaran University with Katata Farmer’s Group, Bank of Indonesia, and the regional government of Bandung Regency was signed.
One of many forms of facilitation in this cluster development was related to access to market. Padjadjaran University arranged a formal agreement with the Hero Supermarket Group to give extension services to the farmers, so that they would be able to meet the required product specifications. In the end, the program was a success. It improved the capabilities of farmers in fulfilling structured market demands and created an integrated collaboration through the co-branding system between the Katata Farmer’s Group with Hero Supermarket Group and Padjadjaran University.
The value co-creation process involving various stakeholders in the vegetable cluster development consists of: 1) action research being conducted by researchers from Padjadjaran University by applying system modelling and the active participation of stakeholders, generated knowledge were disseminated to the farmer’s group; 2) market development conducted by the collaboration between the farmer’s group, market, and university was manifested in co- branding system; 3) innovation learning of the farmer’s group resulted in the emergence of various innovations in technology and social, which led to the increased capacity of the farmer’s group in fulfilling market demands; 4) Financial institutions contributed by providing access to finance to all involved actors in the vegetable supply chain, and also replicating the program to other areas; 5) government formulated policies which supported the development of the vegetable cluster, and provided production facilities and infrastructures; and 6) agricultural input agencies and the seed research centre gave their contributions in a form of seeds.
The value co-creation process in the vegetable cluster development program was a result of interactions between many complex variables and generated balanced and growing feedback to improve the competitiveness of the farmers’ group.
IMPLICATIONS OF POLICIES
It is possible for the government to replicate this model of the value co-creation process to other areas, based on local characteristics of the area where the model will be applied. Therefore, it will improve the effectiveness and efficiency of agricultural development in rural areas.
A financial institution can replicate the model of the value creation process in an integrated effort in order to improve the market share of agricultural financing. This will improve the perception of financial institutions towards the agricultural world, which is generally negative due to its high risk characteristics.
To expand the research to multi-case studies by the application of various methods in order to increase the success rate of the future model replications.
We would like to thank the Ministry of Research, Technology and Higher Education, and Padjadjaran University for funding this study through the PUSNAS (National Strategic Priority Research) program: ‘The Development of High Value Vegetables Agribusiness Cluster in Improving Competitiveness and Farmers Income through Market Based Science, Technology and Social Engineering’.
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EDDY RENALDI is a lecturer in the Agribusiness Study Program and researcher at Center for Agricultural Supply Chain and Logistics System Studies (AGRILOGICS), Faculty of Agriculture, Padjadjaran University, Indonesia. He obtained his master degree in Applied Economics at Padjadjaran University. His research interests include agricultural trade, food safety and international agri supply chain development.