MASTER OF BUSINESS ADMINISTRATION

MGT 6798

CASE METHODOLOGY:

FRUIT SEEDLING PLANTATION

An Individual Assignment

Submitted to:
Mr. Ayub bin Hj. Khalid
Submitted by:
Fakhrul Anour bin Abdullah

G1136857

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CONTENTS

1- ABSTRACTS

Page 02

2- INTRODUCTION

Page 03

3- PROBLEM STATEMENT

Page 05

4- SWOT ANALYSIS

Page 06

5- CONCLUSION

Page 07

6- RECOMMENDATION

Page 08

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ABSTRACT

East Java is a province of Indonesia. It is located on the eastern part of the island of Java and
includes the neighboring islands of Madura, and the Kangean, Sapudi, Bawean, and Masalembu
groups. Its capital is Surabaya, the second largest city in Indonesia and a major industrial center
and port. It covers an area of 47,922 km2. It has a land border only with the province of Central
Java to the west, being surrounded by sea on all other sides. Meanwhile, Pasuruan regency is one
of tourism place in East Java, which has potency of nature, culture and tourism attraction that be
able to expose the completely tourism enchantment (The East Java Natural Enchantment). It is
located 60 km south of Surabaya. Beside its tourism object, Pasuruan also has industrial area and
crafting which has its own characteristic, such as; small industry and crafting of embroidery in
Beji, Bangil, gempol, and Keraton. Crafting of wood in Prigen and Karangrejo. Crafting of
accesories in Bangil and Gempol and also crafting of iron in Gempol and Poh Jentrek. But back
in 1977, it had an agricultural effort to pilot a project of Fruit Seedling

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INTRODUCTION

In response to the governments concern over the deficiency in filling nutritional requirements
for vitamins and minerals in the country, a pilot project of Fruit Seedling Plantation began in
1977 at Pasuruan, East Java. The project was the first of what was hope to be a number of such
projects.
9,600 hectares of land at Pasuruan were purchased by the government in
1977, eventually added up to 14,800 in 1979. Then with support from the
head office of Bank Indonesia and its branch in Surabaya, professional
agricultural experts made among its staff were hired to oversee the
project. 5,000 high-yielding varieties were bred in 1978/79 and given
away to small farmers in the area. Only a very small number of
seedlings were sold.
However, Bank Indonesia had a policy of not participating in commercial
farms. Therefore in 1982, the bank turned the management of the project to Pt. Garifa
(subsequently renamed Pt. Senja Makmur in 1986). According to the agreement signed between
Bank Indonesia and Pt. Garifa, the objectives were as follows:
SHORT-RUN

LONG-RUN

To develop horticultural crops and seedlings

Be a center for R&D of horticultural crops

and provide a domestic source of high-yielding

Develop better breeds of traditional crops

fruits

Conserve foreign exchange by limiting fruit

to sell fruit seedlings

imports

Note: A survey by the Ministry of Agriculture in 1977 estimated that while nutritional requirement for fruits was
32.6 kg per capita, consumption was only 15.3 kg per capita. If the short-fall could be met by domestic production, it
would raise the incomes of farmers, as well as conserve foreign exchange. Furthermore the possibilities for fruit
exports seemed high due to the demand from neighboring countries like Brunei, Japan and Singapore.

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For promotion, Pt. Garifa participated in government exhibitions at Surabaya, Malang

and Jakarta. Leaflets and correspondence were also sent to relevant private and government
agencies. The market was largely confined to the region around East Java, particularly at
Pasuruan and Probolinggo. Pt. Garifa also tries to sell the seedlings in Jakarta and outside Java.
Sales outside Java amounted to a maximum of only 1,000 seedlings.

Mango seedlings were the main product of

the plantation, followed by oranges and
other plants.

The first major sale was to Mr. Cia, a local fruit farmer who purchased 3000 mango and
2000 orange seedlings for the family plantation. Orders from Mr. Cia continued from 1984 to
March 1985, after which they stopped abruptly. Investigation subsequently revealed that Mr. Cia
had also begun to breed and sell seedlings of mango, orange and clove trees from his plantation.

Initially, breeding was carried out in the

traditional way, simply growing fruit seeds
bought from other plantations and the market.
Under this system, the survival rate of seedlings
was only 30%. However by developing
occulating, potting and grafting systems, the
plantation was able to raise seedling survival rates
to an average of 70% by the mid-1980s.

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PROBLEM STATEMENT

Sales in Fiscal Year (FY) 1982/83 amounted to only Rp7.6 million. In FY 1983/84 sales rose to
Rp24.1 million. However operating costs amounted to Rp40.2 million, resulting in loss of
Rp16.1 million. A report made at that time attributed the loss to the low level of production, and
recommended that production be raised to at least 50,000 seedlings annually. In 1985 a second
study recommended that the project hire two agricultural experts and 10 daily laborers. Also in
FDY 1985/86 a separate marketing department was created. It was estimated that seedlings
produced at the cost of Rp750 would be sold to the marketing department for Rp1000, and in
turn sold to the public at Rp1500, to Rp1750 for mango seedlings and Rp1100 for orange fruits.
As of early 1986 there were 130,000 seedlings on hand. Efforts had been made to dispose
of them in a sale but selling them was difficult due to the competition from other private
seedling farmers in the area, both small and large (like Mr. Cia). Bank Indonesia then undertook
to dispose of seedlings by giving them away to current and retired employees. Seedlings were
also given away to other ministries which might wish to cultivate fruit trees.
Furthermore by 1986, as a result of the drop in oil prices and subsequent lowering of
government revenues, government plans changed and projects, such as other plantations similar
to the Pasuruan fruit seedling farm, were postponed.
Towards the end of 1986, the staff of Bank Indonesias Small Enterprise Research and
Development Division were considering the financial and management problems of Pt. Senja
Makmur (before named Pt. Garifa), a firm which managed a fruit seedling plantation in Pasuruan,
East Java. Of special concern was the report that losses since the plantation started amounted to
Rp114 million. The firm had asked the Division whether to continue operations or to give the
plantation back to Bank Indonesia.
At the end of of 1986, Bank Indonesia received another letter from Pt. Senja Makmur
asking whether to stop production or to give away the seedlings. It was clear that something had
to be done, but what?

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SWOT ANALYSIS

OPPORTUNITES
1) If the short-fall
could be met by
domestic
production, it
would raise the
incomes of
farmers, as well as
conserve foreign
exchange
2) National support

STRENGTHS
1) The pilot project of fruit
seedlings in East Java
2) Government backed-up
plantation through Bank
Indonesia, the central
banking institution in the
Republic of Indonesia
3) High profit margin, there
was 217% sales increase
from FY82/83 to
FY83/84

WEAKNESSES
1) High cost margin, whereby
with higher profit the
operating cost rocketed
much higher
2) Easy entry market with low
cost of imitation
3) Bad pricing model
4) Limited varieties of
seedlings offered
5) Negative break-even

THREATS
1) High competition in
an easy entrance
business with low
cost of imitation that
through
investigation found
out that one of the
client (Mr. Cia) had
copied the breed and
sell seedlings from
his plantation

S-O

S-T

Under the support of

Indonesia governments on
seedling project, especially
with investment from Bank
Indonesia, Pt. Senja
Makmur had all the
chances to expand its
business through the
national networks. Supply
and demand can be
managed through the
information provided.

This project was totally

created to fulfill the
governments concern by
piloting the fruit seedlings
business. But there was no
patented order or licensing
issued to the business, as
there was no need to push
any legal action upon
competitors. Even
commercialization is not a
part of Bank Indonesia.

W-O

W-T

Any financial disability of

the company though may
have back-up support by
the government; still the
product performance must
met consistency with the
business expectation of
profit against loss.

There was a possible of

losing pace when the
company though made
profit but increasing at cost.
It is likely that the project
was not well protected and
the supervision activities
were not in good
management.
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CONCLUSION

Over 1986, the fruit seedling project was the subject of a number of discussions at the bank.
Several options were considered:
1) Pt. Senja Makmur to continue operations until it could eventually sell seedlings
nationally or even internationally. It could even diversify into fruit production for the
domestic and international markets.

2) Bank Indonesia could take over the

plantation

and

inject

more

financial

resources. The bank also had its own

agricultural experts who could run the project.

3) The project could be turned over to

other government institutions which
were deemed qualified to handle the
project professionally and efficiently. At
the minimum, a government institution
could be asked to immediately repay the
liabilities of the plantation to third
parties.

4) The plantation could be sold to a private

company. Under this option, bank staffers felt that the
buying firm should immediately payback the projects
liabilities. The firms assets and losses would be
aggregated into a single selling price to be offered to
interested private companies.

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RECOMMENDATION

Pt. Senja Makmur was not handling the project with proper managament system. With losses
mounted until Rp114 million, the factor was caused by the high cost in its operating expenses. It
has rapid increased cost in employment, especially. While other cost like fertilizers and
pasticides didnt drastically changed, same goes to electricity and water, but the cost of
employees could be seen took a hike that rose extremely throughout the years; from 1977 until
1988. The suspected figure of losses could be about the organization practice to hire experts in
agricultural depsite of its affordability.
By looking at its financial performance, and easy entrance market, it was noted that
production costs were high and that moreover there appeared to have been a shift in production
from food crops to horticultural crops. Lastly, if the project succeeded it would pose even more
of a competition to the small farmers, something which was against government policy.
Although there were many government institutions interested in the
project; but some on the Bank Indonesia staff were of the opinion
that other government institutions would receive the project
only as a give away from the bank.
But when suggesting on the matter of selling the
company as private owned company, a disadvantage was
that the 57 persons currently employed by Pt. Senja
Makmur could lose their jobs. Also, it could be difficult to
find an interested private company willing to pay high
cost of the project.
Therefore the best way to
deal with this business project is to
give it an end of operation if there is
no good offer for a buyout.

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