World Development 110 (2018) 26–37

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World Development
journal homepage: www.elsevier.com/locate/worlddev

Upgrading for whom? Relationship coffee, value chain interventions and

rural development in Indonesia
Mark Vicol a,⇑, Jeffrey Neilson a, Diany Faila Sophia Hartatri b, Peter Cooper c
a
School of Geosciences, University of Sydney, NSW 2006, Australia
b
Indonesian Coffee and Cocoa Research Institute, Jember, Indonesia
c
Institute of Environmental Science and Technology (ICTA), Barcelona, Spain

a r t i c l e i n f o a b s t r a c t

Article history: Value chain upgrading interventions have emerged in recent years as a dominant approach to rural devel-
Accepted 12 May 2018 opment. In coffee value chains, upgrading opportunities are presented by the growth in consumption of
Available online 19 May 2018 specialty coffees, which are associated with direct engagement with producer communities by roasting
firms, along with an apparent increased commitment to social responsibility. Known in the industry as
Keywords: ‘‘relationship coffee”, such interventions align with a value chain approach to development and are pro-
Global value chains moted as offering upgrading opportunities for otherwise marginalized rural communities. In this article,
Upgrading
we critique the dominant development discourse of relationship coffee in Indonesia via three case studies
Relationship coffee
Elite capture
of livelihoods and local agrarian dynamics across three coffee-growing communities on the islands of
Asia Sulawesi, Bali and Java. We find that the relationship coffee model does present opportunities for pro-
Indonesia ducer upgrading. However, these benefits have been subsequently captured by key individuals within
the producer community who are able to accumulate wealth and consolidate their social position. As
it is currently implemented in Indonesia, the relationship coffee model has reproduced local patterns
of inequality rather than contributing to poverty alleviation efforts. These insights suggest the urgent
need to develop a critical political economy of upgrading in the global value chain and rural development
literature.
Ó 2018 Elsevier Ltd. All rights reserved.

1. Introduction tion. However, we also contend that a reinvigorated and re-

This paper assesses the impact of an emerging value chain
structure in the specialty coffee sector, known as ‘‘relationship cof-
fee”, on livelihoods and local agrarian dynamics across three
coffee-growing communities on the Indonesian islands of Sula-
wesi, Bali and Java. We trace the discursive construction and
implementation of relationship coffee as a development interven-
tion in coffee producing regions, and its differential impact on local
actors. In doing so, we challenge the overly de-politicized upgrad-
ing narrative that is frequently employed in relation to value chain
interventions in the global south. Instead, we ask the question ‘up-
grading for whom’? Through posing this question, we point to
some critical weaknesses in how the global value chain (GVC) con-
cept has been applied to development practice, particularly its
apparent disregard of local politics and social relations of produc-
⇑ Corresponding author.
E-mail addresses: mark.vicol@sydney.edu.au (M. Vicol), jeffrey.neilson@sydney.
edu.au (J. Neilson), faila_hartatri@iccri.net (D.F.S. Hartatri), peter.cooper@e-campus.
uab.cat (P. Cooper).
politicized GVC framework has much to offer development studies
for understanding the politics of value distribution in value chain-
focused development interventions.
The emergence of voluntary private regulation and standards as
a mode of value chain governance in agri-food chains over the last
two decades has been well-documented (Daviron & Ponte, 2005;
Giovannucci & Ponte, 2005; Neilson, 2008; Raynolds, 2009). Private
regulation in coffee, including sustainability codes and formal cer-
tification schemes, has emerged primarily in response to consumer
and NGO-driven concern about the social and environmental ethics
and sustainability of production (Neilson, 2008). This includes Fair-
trade, which began as an attempt to de-commodify the coffee trade
but is now increasingly driven by large coffee brands as another
market-capture tool via a process of ‘re-commoditization’
(Daviron & Vagneron, 2011; Raynolds, 2009). A large body of liter-
ature has analyzed the impacts of Fairtrade and other certification
schemes on coffee producers, often employing a GVC analytical
framework, with mixed results (Bacon, 2005; Bray & Neilson,
2017; Méndez et al., 2010; Ruben & Fort, 2012; Utting-Chamorro,
2005; Utting, 2009; Valkila & Nygren, 2010). At the same time,

https://doi.org/10.1016/j.worlddev.2018.05.020
0305-750X/Ó 2018 Elsevier Ltd. All rights reserved.
 M. Vicol et al. / World Development 110 (2018) 26–37
however, a parallel trend in the global specialty coffee sector over
the past decade has been the growing uncertified upstream
engagement of small and medium-sized coffee roasting firms with
farming communities in coffee producing areas. One such model is
known in the industry as ‘‘relationship coffee”, which is part of the
‘‘third-wave” artisanal coffee movement (Manzo, 2010).1 In gen-
eral, this approach has received much less attention in the literature,
although Holland, Kjeldsen & Kerndrup (2016) examine how roasters
engaging in direct trading relationships with origins coordinate
exporters in the value chain by mobilizing certain quality tropes,
and Hernandez-Aguilera et al. (2018) recently assessed the environ-
mental, socio-economic and technological outcomes for smallhold-
ers engaged in a relationship coffee model in Colombia. The
relationship coffee model fundamentally differs from Fairtrade and
other certification schemes in its informality. In this article, we
understand ‘‘relationship coffee” to be coffee marketed to consumers
as being procured through a direct relationship between roaster and
producer typically involving personal interaction, mutual trust, price
transparency, a commitment to quality improvement and (impor-
tantly) a stated intention to improve the lives of coffee farmers
and their communities. As emphasised by Holland et al (2016), how-
ever, a direct ‘‘relationship” does not necessarily mean the exclusion
of intermediate actors, such as specialist trading firms. It is increas-
ingly both a discursive practice and business model among specialty
roasters serving high-value end markets and is often framed by
roasters as a response to what are perceived as cumbersome and
impersonal formal codes and standards, such as Fairtrade. The rela-
tionship coffee model is promoted by roasters as offering opportuni-
ties for often-marginalized producer communities to establish new
and prosperous livelihood trajectories. Unlike Fairtrade, there is gen-
erally no third-party auditing involved in relationship coffee.
Instead, the claims of roasters are verified through online marketing,
including stories and photos of farmer interaction, and rely on rela-
tionships of trust with consumers.
In Indonesia, the relationship coffee model has been embraced
by governments and NGOs as a potential rural development strat-
egy to improve outcomes for coffee producing communities. In a
number of production sites across Indonesia, the emergence of
the relationship coffee model has been facilitated through value
chain interventions funded by the Indonesian state and donor
agencies. These interventions are designed to upgrade the capabil-
ities of coffee farmers and connect them with specialty buyers,
enabling their participation in relationship coffee value chains
and theoretically leading to increased value capture compared to
traditional marketing chains. However, the claims made by roast-
ers on their websites remain largely unverifiable. These claims rest
on two key assumptions grounded in the narrative of upgrading:
first, that relationship coffee interventions result in product
upgrading and facilitate enhanced value capture; and secondly,
that these benefits are distributed in such a way that leads to
broad-based rural development outcomes (see Selwyn, 2013).
While a number of studies have assessed the social and economic
outcomes for farmers involved with the Fairtrade model (Jaffee,
2007; Méndez et al., 2010; Ruben & Fort, 2012), to date, there have
been few studies assessing the outcomes of the relationship coffee
model for rural households and communities. The study by
Hernandez-Aguilera et al (2018) of a relationship coffee value
chain in Colombia, however, identified improved sustainability
1
First wave coffee refers to the era of coffee consumption in Anglo-Saxon countries
where coffee was largely sold as a bulk, largely undifferentiated commodity, while
second wave coffee refers to the period from the 1990s onwards where coffee was
increasingly consumed as espresso drinks in coffeehouse chains, typified by the
emergence of Starbucks. The third wave of coffee connoisseurship, then, involves far
greater specificity of origin (sometimes individual farms) and a desire to highlight
their characteristic taste profiles through tailored roasting techniques (Manzo, 2010).
27
outcomes, but no improvement in the farm-gate price received by
farmers. To address this gap, in this paper we interrogate the
broader claims made about buyer-driven development interven-
tions on poverty reduction through case studies of three relation-
ship coffee interventions in Indonesia. In doing so, we develop an
argument based on four main tenets. First, the relationship coffee
model does present upgrading opportunities, facilitating the trans-
fer of ideas, knowledge and capital to individuals in producer com-
munities. Second, however, because of the way that these
interventions ‘couple’ with prevailing institutions and local
social/political relations in rural Indonesia, upgrading has primar-
ily manifested as rent-seeking for local elites. Third, the lack of
attention paid by roasters and development actors to local institu-
tional and livelihood contexts frequently leads to the breakdown of
the relationship. Fourth, these insights suggest critical weaknesses
in the upgrading narrative as applied to development interventions
in (at least some) rural communities. The lack of attention paid to
social and political relations at various scales in upgrading inter-
ventions means that such interventions inevitably reproduce pre-
existing patterns of inequality. We argue that this is the result of
a weak conceptualization of politics in prevailing development
applications of GVC theory.
The paper is structured as follows. We first review the concept
of upgrading within GVC theory and its application to development
interventions in agricultural value chains. Next, we trace the emer-
gence and rationale of relationship coffees in Indonesia via a dis-
course analysis of Australian-based roasters. We then present the
results of case studies of three relationship coffee development
interventions in Bali, West Java and South Sulawesi, focusing on
the outcomes for producer households. The final section of the
paper draws together the key insights from the case studies.
2. Upgrading and value chain interventions in agricultural value
chains
Upgrading small farmers through value chain interventions is
part of a broader agenda in international development practice
known as ‘value chain development’ (VCD), which (often uncriti-
cally) borrows its conceptual apparatus from GVC theory
(Humphrey & Navas-Aleman, 2010; UNIDO, 2011; Webber &
Labaste, 2010). The emergence and evolution of GVC theory has
been discussed extensively in the literature (see the edited volume
by Bair, 2009, also Bair, 2005; Neilson, 2014). We do not reproduce
that discussion here, but rather focus on the concept of upgrading,
particularly its recent operationalization in development interven-
tions within agricultural value chains. There has been a rapid
uptake of value chain thinking within development agencies over
the last decade, and the concept of upgrading has been the princi-
ple vehicle through which the GVC framework has been adopted as
an action framework (Bernstein & Campling, 2006; Neilson, 2014).
Gereffi (1999, p. 51-2) originally described ‘industrial upgrading’ as
the ‘‘process of improving the ability of a firm or an economy to
move to more profitable and/or technologically sophisticated
capital- and skill-intensive economic niches.” Gereffi (ibid: 39)
argued that upgrading possibilities are driven by lead firms and
their organizational capabilities in global value chains, and there-
fore that ‘‘participation in global [value] chains is a necessary step
for industrial upgrading because it puts firms and economies on
potentially dynamic learning curves.” This argument was based
primarily on analysis of East Asian industrialization and the
upgrading trajectories of local technology and auto firms from sim-
ple assembly to original equipment manufacturers (OEM), to glob-
ally dominant original brand manufacturers (OBM), made possible
through linkages to US and European lead firms (Gereffi,
Humphrey & Sturgeon, 2005; Humphrey & Schmitz, 2002). It is this
28 M. Vicol et al. / World Development 110 (2018) 26–37
causal relationship between firm-level upgrading and the support-
ive role of overseas buyers willing to facilitate and encourage the
upstream transfer of skills and knowledge that has since made
the upgrading concept attractive to development practitioners
(Neilson, 2014). A conceptual model for value chain interventions
has emerged that revolves around the initial integration of local
firms within global value chains, combined with institutional sup-
port (from government, NGOs or development agencies) to assist
firms in acquiring the new competencies required for upgrading.
The higher rents generated by a firm’s new location within the
chain may result in higher incomes and, it is widely assumed,
broader development benefits (Neilson, 2014).
Earlier critical studies of upgrading in agricultural value chains,
however, applied GVC analysis to understand the complex implica-
tions of changing governance structures for small producers, pro-
viding a largely cautionary tale of the failure of industrial
upgrading to benefit smallholders. Gibbon (2001: 345) argues that
the integration of small farmers into value chains ‘‘may permit or
even directly inspire upgrading by low-income country producers,”
but that there is often a trade-off between upgrading and exclusion
in the creation and capture of value as rents. Likewise, Daviron &
Gibbon (2002) argue that the emergence of ‘buyer-driven’ (e.g.,
supermarkets) agricultural value chains has influenced a symbiotic
movement towards product differentiation and new definitions of
quality. However, these authors argue that these new forms of ver-
tical coordination in export-oriented coffee value chains, for exam-
ple, have led to increasing specialization, but also differentiation
and marginalization amongst smaller producers in low-income
countries. Similarly, Dolan and Humphrey (2000) had earlier
demonstrated how the increasing dominance of supermarkets in
the fresh vegetable value chain into the UK pushed out smallholder
producers in Kenya and Zimbabwe in favour of larger exporters
who are able to upgrade to meet the quality demands of these lead
firms. Other studies by McCarthy, Gillespie, & Zen (2012),
Rammohan & Sundaresan (2003) & Larsen (2016) provide further
critical assessment of the upgrading concept in agricultural value
chains, reporting concerns for how broader macro power and insti-
tutional structures create perverse upgrading outcomes for
smallholders.
In addition to these critical appraisals in the scholarly literature,
recent applications of the upgrading concept within international
development institutions have shifted from critical analysis to pro-
grammatic applications of ‘how to do’ upgrading as part of the
emergence of a VCD agenda (Neilson, 2014; Stoian, Donovan,
Fisk, & Muldoon, 2016). The VCD model has been enthusiastically
embraced as a ‘pro-poor’ rural development strategy by a wide
range of rural development actors in the past decade (Stoian
et al., 2016). A market-based value chain approach to rural devel-
opment was a key pillar of the World Bank’s influential 2008 World
Development Report (World Bank, 2007). Through this opera-
tionalization, the application of GVC theory has metamorphosed
into a rather apolitical micro-level action framework for firm
upgrading, promoting ‘win-win’ relationships between farmers
and agribusiness firms (Mitchell, Coles, & Keane, 2009; UNIDO,
2011; Webber & Labaste, 2010). The ‘industrial’ adjective of
upgrading has been replaced with a firm-centric focus on four dif-
ferent types of upgrading open to farmers: process (where chain
actors adopt processes that transform inputs into outputs more
efficiently); product (where chain actors move into more sophisti-
cated product lines); functional (where chain actors take on new
functions); and inter-chain (where chain actors use competencies
acquired in one chain to move into a different sector) (Humphrey
& Schmitz, 2002; Ponte & Ewert, 2009; Ponte et al., 2014).
As Bair (2005) argues, however, the narrow focus on eco-
nomic upgrading as an issue of firm-level competitiveness fre-
quently ignores issues of inclusion and exclusion, as well as
broader structural questions of how inequality is produced and
reproduced in the global economy. As more critical work has
argued, this reflects the masking of unequal power relations
and political interests in the ‘win-win’ scenarios promoted by
the VCD approach (Akram-Lodhi, 2009; Li, 2009; Oya, 2009).
One promising response to the increasingly narrow focus on
the economic upgrading of firms within value chains in develop-
ment interventions is the concept of ‘social upgrading’, defined
as ‘‘the process of improvement in the rights and entitlements
of workers as social actors, which enhances the quality of their
employment” (Barrientos et al., 2011, p. 324). There is growing
evidence that economic upgrading of firms does not automati-
cally lead to improvements for labor, and in fact firm upgrading
can be associated with social ‘downgrading’ (e.g. increasing casu-
alization or deteriorating work conditions) (Barrientos et al.,
2011; Gereffi & Lee, 2016; Pegler, 2015). While the concept of
social upgrading has brought much-needed attention to the
plight of labor within industrial and manufacturing value chains,
it is less clear how the concept might apply to smallholder-based
agricultural value chains, where smallholder households cannot
be neatly conceptualized as firms (capital) or labor, but rather
occupy a social and economic identity as both capital and labor
(Bernstein, 2010).
The complex set of social and political relations that small-
holder households are enmeshed in, and the multiple social and
economic identities that rural households occupy, make the ‘win-
win’ claims of the VCD approach to upgrading appear simplistic
and apolitical. As Pegler (2015) argues, smallholder households
are not firms, and the logic of their livelihood decision-making
may be at odds with the economic logic of upgrading. Importantly,
upgrading interventions will be impacted by the social and politi-
cal dynamics of smallholder spaces, and may lead to exclusionary
outcomes that simply reproduce inequality (Larsen, 2016). Paying
attention to institutions, including the horizontal dimensions of
poverty, politics and livelihoods, is therefore critical for under-
standing processes of inclusion and exclusion in upgrading inter-
ventions (Bolwig et al., 2010; Neilson & Pritchard, 2009). While it
was recognized by early proponents that value chains ‘‘do not exist
in a vacuum” (Sturgeon, 2001, p. 11), the institutional dimension
has been applied simplistically as something GVCs were framed
within, rather than existing at their very core (Neilson &
Pritchard, 2009). Neilson and Pritchard (ibid: 228) call for a more
dialectical approach that puts institutions front and centre in value
chain analysis, arguing that there is a ‘‘complex interactivity
between multi-scalar institutional settings and the life chances of
[value chain] participants” and that ‘‘these settings are constantly
being altered through a series of place-based struggles.” While this
work demonstrates that the GVC framework is a powerful heuristic
tool when institutions are taken seriously, more work is required
to bring local politics back in to the concept of upgrading in agri-
cultural value chains. We now turn to this task through a case
study of three relationship coffee upgrading interventions in
Indonesia.
3. The emergence of relationship coffees
Australia has a dynamic and progressive specialty coffee sector,
and Australian-based small and medium-sized specialty roasters
have been at the vanguard of the relationship coffee model, espe-
cially in Indonesia. The ‘‘third wave” specialty coffee sector is
highly fragmented, characterized by numerous small and
medium-sized roasters rather than multinational firms. These
roasters set the conditions of the value chain and coordinate its
governance, specifically through their demands on quality. There-
fore, although numerous, and often with specific geographic influ-
 M. Vicol et al. / World Development 110 (2018) 26–37
ence, roasters may be considered the lead firms in relationship cof-
fee value chains. As part of this study, we undertook content anal-
ysis of the websites of 100 self-identified ‘‘specialty roasters”
operating on the Australian east coast to ascertain publicly-
stated attitudes towards origin engagement. We then conducted
semi-structured interviews with 20 Australian-based roasters
and 7 traders, including two roasters involved in the Indonesian
relationship coffee interventions examined in this article. The
claims made by these two roasters about their specific relationship
coffee interventions are discussed in more detail in next section,
however they are typical of the claims of the larger group analysed
here. Table 1 suggests the high level of engagement with producer
origins amongst this particular set of specialty roasters, including
claims that their engagement results in improved livelihood out-
comes at origin, although this is achieved through various modes
of engagement, most often involving trading firms.
Relationship coffee involves a shift away from spot markets,
where firms and farmers are only linked by way of arms-length
and one-off transactional relationships, towards the development
of closer relationships based around more than just price establish-
ment. This reflects a more general trend documented in the gover-
nance of the global food system over the past two decades towards
increasing vertical coordination by lead firms in global value
chains (FAO, 2017; Gereffi et al., 2005; Swinnen & Maertens,
2007). Developing closer relationships with producers enables
firms to establish traceability, improve stability and reliability of
supply, reduce or transfer risk, influence coffee production prac-
tices (and therefore quality), and achieve reputational and market-
ing goals (Daviron & Ponte, 2005; Holland et al., 2016). Direct
relationships with producers may also reduce the transaction costs
faced by roasting firms in procuring quality coffee, particularly in
the context of the opaque and complex supply chains that charac-
terize the traditional coffee sector in producing countries like
Indonesia (Neilson, 2008). Interviews with Australian roasters
and traders, however, revealed widespread recognition of the
importance of supply intermediaries in relation to efficiency, logis-
tics, financing, and communications.
Relationship coffee contracts are typically negotiated somewhat
independently from the world coffee futures benchmark (the New
York ‘C’ price). While this can theoretically lead to prices that bet-
ter reflect the cost of production and living for farmers, direct rela-
tionships also enable roasters to reproduce and control quality and
other symbolic attributes associated with coffee. These sites of
value creation are central to the accumulation strategies of roast-
ing firms and allow roasters to capture the majority of value gen-
erated along the coffee value chain (Daviron & Ponte, 2005). In
contrast to the commodity market, specialty coffee roasters often
compete through product differentiation focused on quality, taste
and non-material ethical claims. Specialty roasters increasingly
promote their close relationships with coffee farmers as a point
of difference to consumers. ‘Origin stories’ of a roaster’s journey
to far-flung production sites are now ubiquitous on company web-
sites, accompanied by photos and anecdotes about the relation-
ships formed with individual farmers. In contrast to their support
for direct engagement, roasters commonly expressed discontent-
ment towards Fairtrade certification, which was believed to be
impersonal, rigid and bureaucratic, and with floor prices too low
to be relevant in the higher-priced specialty sector. Claims of
developmental benefits of producer engagement are common,
mostly related to livelihood and incomes, environment and quality.
For example, one NSW-based roaster described the benefits of rela-
tionship coffee:
‘‘our farms don’t suffer from [poverty]. The farmer makes
money, he lives a rather wealthy life...we pay the market price,
and we pay a premium on top of that.”
29
Table 1
Australian Roaster attitudes towards coffee producer engagement (source: Authors’
content analysis of websites).
Summary statistics % of
Roasters
Identify a general ‘‘social mission” on their website 66%
‘‘Engage” with origins (mobilize detailed information about 72%
specific origins/producing communities within their product
descriptions)
Make claims of sourcing via ‘‘direct trade” 18%
Make claims regarding beneficial impacts (of their products or 55%
sourcing practices) on producer income and/or livelihoods
Modes of Engagement
Via traders, passive: Engage with origin by providing detailed 52%
information about the producer or producer region, without
describing purchasing practices, development projects, or
specific claims
38%
Via traders, active: Describe specific development or quality-
related projects at origin, or purchasing agreements
(including ‘‘relationship coffee or ‘‘direct trade”), and/or
allude to specific benefits of (third-party) certification(s)
attributed to their products
Independent: Involved in origin visits or directly in development 10%
or quality-related projects at origin, direct relationship with
producers, or direct ownership of mills or farms (all without
the involvement of intermediaries)
A Melbourne-based roaster described her company’s principles in
helping farmers:
‘‘we try to understand what [the farmers’] challenges are year to
year and the situation they’re in. Whether it’s labour challenges,
financial challenges, ecological challenges, climate change is a
big one and starting to cost people more and more”.
While many of the roasters we interviewed have a genuine personal
commitment to addressing the social and ethical issues embedded
in their product, their engagement with the relationship coffee
model is also driven by other factors related to market competitive-
ness, value capture in downstream nodes of the value chain and the
need to generate competitive profits. The most frequently men-
tioned factor among these is transparency, used to connect con-
sumers with the coffee origin as well as demonstrate a
commitment to farmers. For example, one Queensland-based
roaster framed this explicitly in terms of consumer demand, stating
that:
‘‘High consumer awareness pressures baristas and roasters into
transparency. Those who can show transparency in sourcing
sustainable coffee will come out on top.”
Claims to transparency through the relationship coffee model pro-
vide an avenue to capture profits from ethically-conscious con-
sumers, as expressed by a Melbourne-based roaster:
‘‘I think that’s one of our biggest strengths, differentiating us
from others out there. We have full transparency on 100% of
our coffees.”
Other driving factors behind the relationship coffee model include
de-commodifying coffee, where roasters can differentiate their pro-
duct and generate rents through the symbolic value of the direct
links to producers, as the same Melbourne-based roaster stated:
‘‘I guess the overall motivation is to provide a context for the
coffee, ensure people that coffee is more than just a commodity
beverage or something that’s the same everywhere.”
Speciality roasters are generally pursuing these goals outside of the
Fairtrade system. The roasters interviewed for this study commonly
viewed Fairtrade as cumbersome, inefficient and costly, with one
30 M. Vicol et al. / World Development 110 (2018) 26–37
respondent commenting that they would ‘‘rather know the pre-
mium goes to pickers than certifiers.”
In summary, specialty roasters are driven to engage more
directly with producers by competitive market pressures to both
differentiate their products and secure their wider firm reputation.
For the most part, this is achieved through increased transparency
through existing supply chains, but in a few instances, it has led to
direct activities in producer communities. Roasters also appear
motivated by a genuine desire to improve social and environmen-
tal conditions at origin, and roaster claims about the development
benefits of relationship coffee for farmers are common.
The Indonesian state has also supported lead firm engagement
with coffee farmers, using the language of partnerships (kemitraan)
in coffee producing areas. As part of this effort, government agen-
cies at various levels (often in collaboration with the Indonesian
Coffee and Cocoa Research Institute (ICCRI2)), have supported ini-
tiatives to upgrade the production and processing capacities of Ara-
bica coffee farmers. These often involve the establishment of Unit
Pengolahan Hasil (UPHs, or farmer-managed coffee processing units),
typically through an existing Kelompok Tani (KT, farmer group/col-
lective3) or village cooperative, where existing KT leaders function
as managers. UPHs are then supplied with coffee processing machin-
ery including pulpers, washers, drying racks, hullers and sometimes
roasting machines and grinders. Training is provided with the idea
that the UPHs will purchase red cherries from member farmers,
and process the coffee, therefore retaining more value at the collec-
tive producer level. As part of such interventions, specialty roasting
or buying firms are enlisted as private sector partners. In other cases,
this relationship coffee model has been set up through NGO-
supported interventions typically linking a roasting firm with a
newly formed UPH or cooperative, or through the direct intervention
of roasting firms without external support, but who often benefit
from prior farmer support programs.
4. Relationship coffees and upgrading in three Indonesian case
studies
Given the proliferation of development claims around relation-
ship coffee, and strong interest from both governments and NGOs,
there is surprisingly little evidence of the actual on-ground impacts
of this model for producers (Hernandez-Aguilera et al., 2018 being
a recent exception). Unlike Fairtrade, third-party audits are not a
part of the relationship coffee model, making it difficult for con-
sumers and researchers to verify the development claims made
by roasters and governments. To address this gap, we present
empirical insights taken from a multi-year, multi-site study into
the sustainability and development impacts of different coffee
value chain interventions in Indonesia.
Historically, Indonesian smallholders in each of our case study
sites have marketed their coffee through traditional trade net-
works that generally involve maintaining relationships with
village-level collectors. Indonesian Arabica smallholders tradition-
ally use an on-farm ‘semi-dry’ processing method to pulp, ferment,
wash and partially dry in parchment form at the household level
before selling.4 Collectors either purchase this parchment coffee at
the farm-gate or through village markets. The parchment is then
on-sold downstream, commonly passing through further aggrega-
2
One of the authors is a researcher based at ICCRI who has been involved in such
interventions.
3
Known in Bali as a Subak Abian, which is a traditional dryland farmers group
particular to the Balinese.
4
A coffee bean is encapsulated within a fruit and is protected by three primary
layers: (i) a red outer skin removed by ‘‘pulping”; (ii) a sugary mucilage, or mesocarp,
removed by fermentation and washing; and (iii) a white parchment, or hull, or
endocarp, removed by ‘‘hulling”.
tors before reaching centralised processing mills and exporters
(although domestic specialty roasters are an increasingly important
alternative market). First-stage collectors have traditionally per-
formed important social and economic functions including offering
credit to farmers, product marketing and even merchandising of
necessities such as rice and sugar (Neilson, 2008). In the absence
of these interlinked markets provided by collectors, most Indonesian
smallholders would find it difficult to access any form of credit.
However, the relationship between farmers and collectors has also
been criticised for leading to depressed farm-gate prices and profi-
teering by collectors, while providing little access to improved tech-
nologies or effective extension services (Neilson, 2008). As an
alternative to traditional marketing chains, we identify five potential
impact pathways for farmers enrolled in relationship coffee inter-
ventions: (1) dividend payments based on membership of a prof-
itable trading cooperative; (2) increased income due to elevated
farm-gate prices for specialty-grade coffee; (3) farm-level labor-
savings by selling red cherries rather than parchment coffee; (4)
improved access to skills, knowledge, technical supports and
finance; and (5) employment opportunities through local off-farm
value-adding activities at the UPHs. The aim of this section is to crit-
ically examine the development claims of roasters against these pos-
sible benefit pathways in each field site and ask whether relationship
coffee interventions are promoting upgrading trajectories that bene-
fit rural livelihoods.
Field data was collected from village-based studies in three
sites: Enrekang regency (South Sulawesi); Bangli regency (Kinta-
mani, Bali); and Sumedang regency (West Java), where interven-
tions involving Australian-based roasters (Enrekang and
Kintamani) and a domestic roaster (Sumedang) to establish a rela-
tionship coffee model have been implemented. In each case, these
buyers established relationships with production units that had
received previous upgrading support from development agents
(notably the government). Coffee production systems vary enor-
mously across Indonesia and each case study represents a typical
coffee production landscape for that specific region, rather than
for Indonesia as a whole. The case study sites were selected purpo-
sively based on advice from Indonesian research partners as to
where roasters and the Indonesian government were undertaking
value chain interventions. For two of these case studies (Sulawesi
and Bali), two of the authors were (separately) involved in action
research activities to assist producer organizations to establish
and maintain relationships with downstream buyers, and to docu-
ment the impacts of the relationship. As such, we engaged with the
interventions with an intention to facilitate meaningful rural
development outcomes, and our findings represent a reflective
response to this process. In each study site, annual (or more fre-
quent) field visits were undertaken from 2008 until 2016 to docu-
ment activities and developments through an in-depth
ethnographic approach involving qualitative interviews with pro-
ducers, cooperative leaders, government representatives and buy-
ers. The extended nature of this research project has enabled a
longitudinal assessment of the establishment (and frequent break-
down) of relationships that would otherwise be difficult to capture
using a single cross-sectional study.
We also draw upon household surveys of both participant and
non-participant farmers undertaken in each location to understand
the characteristics of targeted households as well as attitudes
towards the interventions. Village names and personal identifiers
have been omitted to ensure anonymity.
4.1. The role of cooperative leadership in South Sulawesi
Enrekang District in South Sulawesi produces approximately
1500 tonnes of smallholder-grown Arabica coffee annually. The
case-study village is located at an altitude of 1400–1500 m above
 M. Vicol et al. / World Development 110 (2018) 26–37
sea level, approximately seven hours drive from the container port
of Ujung Pandang (Makassar). Table 2 presents some summary
statistics from a survey of a randomly selected sample of 98 of
the 184 farmers listed as members of KTs involved in the interven-
tion during 2014. Importantly, it shows that off-farm income (for
those that can access it) is far more lucrative than farm-based
income, suggestive of a key aspect of local poverty alleviation
pathways.
The intervention to establish a relationship coffee value chain in
the Enrekang village was a joint effort between the village cooper-
ative head (who we will call ‘Arrung’, and who at the time was also
the administrative village head), an Australian-based specialty
roaster, and an Australian research and development organisation
(RDO), ACIAR5. The roaster involved is a significant player in the
Australian specialty coffee sector, with a national presence including
through a number of own-branded cafes. The company promotes a
strong commitment to social and ethical responsibility, devoting a
large section of its website to describing its social impacts at produc-
tion sites around the world. Enrekang was the first ‘origin trip’ the
company undertook, in 2009, where the company founder met
Arrung. According to an interview with roaster management:
‘‘working together with producers like [Arrung] is just so bene-
ficial in many ways, primarily it is the transparency from both
sides... we can see where our money is going. We can come in
here every year and we can see how they’ve used their premium
prices to make their coffee better, and also to make their life-
style better, their surroundings better, their roads better, and
improve things. It is nice to come to [the village] after we
haven’t been here for a few years and it was clear that they
had been doing well.”
The causal link between the relationship and broad-based develop-
ment (including infrastructure) in the village is explicit here. A vil-
lage cooperative was formed in 2003 by Arrung (who has a tertiary
qualification in agriculture) to find markets and negotiate better
coffee prices with traders. There were originally 12 KT’s (around
300 farmers) who fell under the broad umbrella of the cooperative,
although actual membership of the cooperative was more limited
(37 individuals in 2016). Members were directly recruited and lim-
ited by Arrung to allow greater control over management decisions.
In 2009, Arrung was introduced by the RDO to the Australian
roaster, who agreed to establish a relationship and encourage
upgrading into premium-end coffee, or kopi spesial. The interven-
tion involved technical assistance for establishing a wet-
processing station and supplying a pulper, drying racks and wash-
ing tanks, all partly funded by the roaster. These facilities were
installed at Arrung’s house. Following a visit to the village by the
company director in 2012, the roaster agreed to buy kopi spesial
from the cooperative and market it under the village name. With
support from the RDO, Arrung worked with a select number of
KTs to encourage picking only ripe cherries, which were then sold
to the cooperative for processing. This represented a change in the
production process for farmers, who were previously somewhat
less selective and who would process the coffee to parchment
stage themselves to then sell to traditional village traders. The idea
was that farmers would save labor time by allowing the coopera-
tive to process red cherries, and the cooperative would sell the pro-
cessed coffee at higher prices, which they would pass on to
individual farmers at the buying station. Value would therefore
be captured in the village for a higher-quality product.
The relationship worked well for a couple of seasons; the qual-
ity of coffee improved, the roaster created market awareness for
5
Two of the authors to this paper were involved with this organization and the
intervention described here was designed as an ‘action-research’ intervention.
31
Table 2
Description of farmers in Enrekang case-study.
Indicator Value
Average farm size (coffee and other crops combined) 1.1 ha
Average coffee income (2013, gross) US$590
Average non-coffee agricultural income (2013, gross) US$710
Coffee farmers with some off-farm income 17%
Average off-farm income from those with off-farm US$1600
income (2013, gross)
Local farm labor costs (8-hour day with meals) US$5/day
Average age of farmer 44
the coffee and purchased 5 tonnes in 2012 and 10 tonnes in 2013.
The cooperative received substantial price premiums for these
sales, receiving 6.3 USD/kg for processed coffee in 2013 when the
ICO ‘‘Other Milds,” a market indicator price for Arabica coffee,
was around 3 USD/kg. In a livelihood survey conducted in 2014,
82% of farmer respondents confirmed that the price the coopera-
tive was paying for cherries was about 20% higher than the local
equivalent parchment (semi-processed) coffee price. The coffee
was featured as the roaster’s ‘coffee of the month’, and Arrung
was profiled in a glossy book about roasters and relationship cof-
fee. However, in 2014, the roaster, despite its broader claims of
investing in relationships, pulled out of buying from the coopera-
tive, citing inconsistent quality and logistical bottlenecks. The
cooperative had increased its processing volume beyond the capac-
ities of their facility, and in the heavy rains that season much of the
coffee spoiled. The roaster has not returned since. The specialty-
grade coffee production of the cooperative has since declined and
it can no longer buy the same volumes of cherry from farmers.
However, through the relationship, it did develop place-based
brand recognition and quality control skills that it applies to smal-
ler batches now sold to small cafes and roasters within Indonesia,
while also processing standard quality coffee (buying parchment
coffee) for sale to exporters.
Our 2014 survey (prior to the main harvest) found that specific
knowledge about the roaster relationship was limited amongst the
broader producer community, although farmers were generally
aware that the cooperative was buying and processing high quality
cherries. Table 3 presents farmer attitudes towards the cooperative
at this stage of the relationship coffee intervention. While farmers
generally acknowledged the possibility of higher prices, most (74%)
also stated their intention not to sell to the cooperative in the fol-
lowing harvest. The most common reason (given by 37% of respon-
dents) was that quality demands were too onerous, which is a
reminder that quality does not always equate to improved liveli-
hoods for these farmers (as is sometimes assumed by many spe-
cialty coffee buyers). The average price paid by the cooperative
to farmers for cherries was equivalent to 3.8 USD/kg (recalling that
the cooperative was able to sell green beans for 6.3 USD/kg after
investing in processing costs), and no farmers reported receiving
a profit share from the cooperative. This farm-gate price was mar-
ginally higher than prevailing market prices in Sulawesi and it was
126% of the prevailing ICO ‘Other Milds’ indicator, making it the
most highly valued of the three origins examined here. Yet, it is
also clear that much of the value-added was being absorbed by
the cooperative (but was not necessarily captured as profit due
to inefficiently high operating costs), and farmers did not perceive
this small premium as life-changing. Table 3 strongly suggests that
the intervention was not overly appealing to the majority of
farmers.
Arrung (no longer in the dual capacity of village head) has, more
recently, attracted further development funds for the cooperative
from an international NGO. With these funds, Arrung has set up
a goat raising program for cooperative members, built a drying
32 M. Vicol et al. / World Development 110 (2018) 26–37

Table 3 Table 4
Farmer attitudes towards the specialty coffee intervention in Sulawesi. Description of farmers in the Bali case-study.

Actions during the 2013 Harvest % of Respondents Non-participants Participants

Parchment coffee sold to local collectors 53%
Average farming experience 17 years 22 years
Parchment coffee sold to cooperative 4%
Average age of coffee trees 8.26 years 12.26 years
Fresh cherries sold to cooperative 30%
Average coffee plantings (ha) 0.75 1.04
Some parchment sold to collectors and some 13%
Income from farming:
cherries sold to cooperative - Coffee 46% 46%
Reasons for selling to cooperative - Citrus 35% 37%
- Less effort related to processing (labor savings) 86% - Livestock 7% 7%
- Better price 10%
- Other reason 4%
2014 Harvest intentions
Intend to sell to cooperative 26% story” to consumers, which ‘‘is worth more than the cup quality
Not intending to sell to cooperative 74% [of the coffee] itself.” While the individuals in the company have
Reasons for not selling cherries to cooperative: good intentions in engaging in these relationships, they also
- Payments are frequent delayed 27%
acknowledge that they were initially excessively optimistic regard-
- Quality demands are too onerous 37%
- Prefer the services offered by collectors 26% ing their early expectations from the engagements. In Kintamani,
- The cooperative buying station is too far 7% the roaster provided quality-oriented training to farmers and
away 3% invested in some minor processing infrastructure. Most impor-
- Other reasons tantly, they also provided operating capital for Wayan (on behalf
of the Subak Abian) to purchase cherry from member farmers,
and then purchased two containers of green beans (around 36
shed, and is able to participate in coffee exhibitions and training MT) in 2010. A rudimentary comparison (i.e., not adjusting for
programs in other parts of Indonesia. There is no formal profit potential selection bias) suggests that that the intervention
sharing with KTs or farmers beyond the purchase of cherries, and resulted in higher prices at the farm-level (Table 5). Note that
membership of the cooperative remains tightly controlled by the ICO Indicator prices for ‘Other Milds’ was around 4.5 USD/kg
Arrung and the committee. The cooperative does provide casual at the time of the survey.
off-farm employment in processing activities within the village, However, in 2011, the roaster retreated from this specific rela-
although this also strengthens Arrung’s social capital as employees tionship due to perceived misappropriation of pre-harvest finance
are often his relatives. by Wayan and declining coffee quality relative to price. By the
2016 harvest, less than 10 of the original 62 UPHs were still pro-
cessing coffee in Kintamani, and much of the processing equip-
4.2. Government support for village-level industrialization in Bali ment supplied by the government lies idle. Once the roaster
withdrew, most UPHs could not compete with private traders in
In 2001, ICCRI and the local government implemented a value the area and were unable to source adequate operating capital.
chain intervention in the Kintamani area of Bali based on the con- Again, any benefits farmers were receiving from the interven-
cept of ‘‘village-level industrialization”. The intervention involved tion were not perceived as life-changing and could not be sus-
setting up UPHs through existing Subak Abian in coffee growing tained. Under half of participating farmers said their main reason
areas and supplying these with processing equipment (pulpers, to sell to Wayan was because the price was better, with the rest
washing stations and hullers) and training in quality improvement. mostly stating it was simply easier to sell cherries. Both partici-
By 2016, one government representative involved in the program pants and non-participants expressed disappointment with the
estimated that 62 such UPHs had been established in the Kinta- ineffectiveness of the UPH management, and the seemingly fickle
mani area over the last 15 years – a substantial public investment. commitment of roasters (buyers), with one farmer noting that
The UPHs were labor-intensive (each employing up to 20 village ‘‘too many UPHs have shut down because the buyers leave and
workers during the peak harvest), an aspect celebrated by govern- are not committed.” Another key theme emerging from field inter-
ment proponents due to its ability to ‘‘create jobs.” Through the ini- views was that, as one farmer put it, ‘‘the UPH is only concerned
tial ICCRI intervention, quality improved significantly and the with the interests of some farmers” and that ‘‘the capital in the
Kintamani name became associated with high quality coffee, UPH is only used for private [purposes] so small farmers don’t
attracting interest from both foreign and domestic roasters (unlike get anything.”
Sulawesi, Kintamani was not really a recognized specialty origin While in operation, the UPHs operated as essentially private
prior to the intervention). businesses, with prominent village elites able to capture benefits
Subsequently, an Australian specialty roaster developed a rela- from the intervention as UPH leaders, but (again) with no profit
tionship with two of the Balinese UPHs in 2009, one of which was sharing to the broader Subak Abian membership base. The ability
led by a charismatic local leader (‘Wayan’). Coffee-growing house- of local elites such as Wayan to distribute benefits, including both
holds in Kintamani generally pursue mixed livelihood strategies,
and Table 4 presents descriptive statistics from a survey of a ran-
domly selected sample of 100 households participating in the
Table 5
UPH intervention and 100 non-participants conducted in 2011,
Prices received by participant and non-participant farmers in Kintamani during 2010
which seemed to target more experienced farmers with larger (prices in USD/green bean equivalent).
holdings.
Indicators Non-participant Participant
The Australian roaster promotes a commitment to social and
farmers farmers
ethical goals and dedicates a large section of its website towards
detailing their direct engagement and relationships with small Lowest price received 1.9 2.4
Highest price received 5.2 5.9
farmers in Indonesia and other countries, with an explicitly stated Median price received 3.5 3.6
purpose to improve the lives of the coffee farmers they buy from. Mean price received 3.4 3.9
In a series of interviews with one of the company managers, the Mean Farm-gate price relative to ICO 76% 86%
company emphasized the value in being able to present ‘‘a great ‘Other Milds’
 M. Vicol et al. / World Development 110 (2018) 26–37 33

jobs and higher prices, to the community also reinforced systems Table 6
of patronage for a period. In 2016, the coffee landscape in Kinta- Description of farmers in West Java case-study.

mani was dominated by several private collectors operating in Non- Participants

each Subak Abian, selling green beans to a number of different participants
roasters (international and domestic). Many of these collectors Average coffee farming experience 7.8 7.8
were involved with the leadership of the former UPHs, where they Average age of coffee trees 7.25 7.64
developed skills from the buyer interventions and gained access to Average farm size (ha) 0.62 1.82
Perception of contribution of coffee to
physical infrastructure, but subsequently have applied these bene- household income (%)
fits to ‘upgrading’ as individual entrepreneurs. 75–100 7% 6%
50–75 15% 17%
4.3. Coffee and forestry partnerships in West Java 25–50 17% 23%
0–25 59% 54%

Sumedang regency is located in West Java, and the relationship

here presents a contrast to the first two, in that the roaster is a
domestic firm based in the city of Bandung. While the GVC- Table 7
A comparison of participant and non-participant farmers in Sumedang during 2015.
inspired literature on coffee has focused primarily on ‘North-
South’ value chain models, the growing consumption of specialty Summary statistics Non-participants Participants
coffee, which is tied closely to income growth, in producing coun- Average price 2015 (cherry, Rp/kg) 5000 5486
tries such as Indonesia may offer different opportunities for small- Approximate conversion to USD/kg 2.3 2.5
holder upgrading and engagement. While 10 years ago almost all (green beans)
Mean Farm-gate price relative to 70% 75%
high-quality coffee was exported, it is now common for domestic
ICO ‘Other Milds’
roasters to compete with export value chains for access to specialty
Reason to sell to KT
coffees, and the marketing of coffee origins is particularly pro-
Good price 5%
nounced amongst domestic coffee houses. Easy to sell 15%
The West Java case-study village is located in a densely- The KT is close to me 15%
populated rural setting about two hours from the provincial capital I am a group member 65%
of Bandung, where coffee is grown on nearby Perhutani6 land. In Reason not to sell to KT
2015 we conducted a survey of a randomly selected sample of 41 Price is worse 5%
I already have a collector 78%
participant and 49 non-participant farmers in the village at a time
It is too far to go 17%
when the roaster was still purchasing coffee (by the 2016 harvest
they had ceased sourcing from the village). Table 6 presents some
general characteristics of the coffee farming community, again dung cafes. However, the main turnover for the KT comes from the
emphasizing the relatively minor role held by coffee within broader sale of parchment coffee to traders operating in the area. Asep con-
livelihood strategies and the greater access to land enjoyed by trols the operations of the KT, whose office and production equip-
participants. ment are located at his home. Asep is well-educated and has close
Coffee was not really an important crop in the village until relationships with local government agriculture and forestry
around 2010 when two of the village leaders, one of whom we’ll officers.
call ‘Asep’, visited another district and saw an opportunity to pro- Table 7 presents some of the outcomes for farmers in the sam-
mote coffee production in the village. Along with 15 fellow farmers ple survey, at a time when the ICO Other Milds price was around
from the village, Asep formed a KT to facilitate coffee production 3.3 USD/kg. While member farmers have received a marginal price
and, importantly, to attract government development funds. The benefit selling cherry to the KT compared to other coffee farmers in
KT was given a pulper by the government in 2012, with other pro- the area, there is again no profit sharing. Farmers tend to highlight
cessing equipment provided and a UPH building constructed (next the importance of social (rather than purely economic) relation-
to Asep’s house) in 2013. Through the KT, Asep then began buying ships in shaping their decision of where to sell their coffee.
cherry from member farmers for wet-processing. The capital generated by the KT is used for marketing, travel
In 2013, the Bandung-based roaster established a direct rela- expenses for Asep to attend exhibitions, and cherry purchasing
tionship with Asep with the aim to improve quality. The roaster capital. 20% of the cherry purchased by the KT in 2016 came from
made an informal agreement with Asep to buy coffee from the Asep’s own land, or land he has access to from Perhutani. Asep also
KT, and this relationship was facilitated by the proximity of the maintains a relationship with the Perhutani officials as the head of
KT to Bandung, enabling the roaster to make frequent visits and the local forestry users group, and villagers must go through him to
purchase relatively small quantities of green bean. However, simi- access plots. 25% of the 40 ha of village Perhutani land is controlled
lar to the first two case studies, this relationship subsequently by Asep, who employs the other KT members to work on his land.
broke down, in this case apparently due to payment issues and per- He has also accumulated privately owned paddy land in the village.
sonality clashes. Asep claimed that the roaster did not honour its In 2016, the district government supplied the KT with an espresso
payment promises and owed him money, while the roaster machine and grinder. In 2017, the KT processed 50 MT of cherry
claimed that he had paid in full and simply wished to help develop and 15 MT of wet parchment. However, 30 MT of this cherry came
production bases elsewhere. Since then the KT has found alterna- from farmers outside of the district who are not members of the
tive buyers, although on a smaller scale, and Asep has even been KT, highlighting what is essentially the trading function performed
featured in local media publications as an example of a quality- by Asep.
oriented coffee farmer. The KT is experimenting with its own
branding and packaging, attempting to sell roasted beans to Ban-
5. Discussion
6
Perhutani is an Indonesian state-owned forestry company, which allocates access
rights to forest lands through community agreements for local households to
The relationship coffee model is positioned by both roasters and
cultivate various crops, including coffee. The substantial growth in Java-based coffee some development agents as representing potentially transforma-
production since around 2000 has been strongly driven by these agreements. tive upgrading opportunities for Indonesian farmers. How do these
34 M. Vicol et al. / World Development 110 (2018) 26–37
claims resonate with the experience of households in each of our
case study sites? As an initial starting point, the interventions
described above have presented opportunities for upgrading as
described in the GVC literature. In each case, there has been a
transfer (to various degrees, and often only temporarily) of tech-
nology, ideas, knowledge, finance and infrastructure from non-
local firms to actors located in producer regions. Through this
transfer, leaders of KTs have positioned themselves to oversee
higher-value processing, establishing direct linkages with specialty
coffee roasters. In some cases, farmers have indirectly received
quality-related training, and for the most part, individual farmers
have obtained slightly higher prices for coffee sold to the KT
because of the direct relationship with the roaster. In that sense,
relationship coffees have facilitated product upgrading for pro-
ducer organizations, with some benefits for individual households
as suppliers of raw materials.
Our qualitative research revealed that farmers are also gener-
ally appreciative of interventions that allow them to sell red cher-
ries rather than parchment coffee, thereby saving time and effort in
processing the coffee themselves. From the perspective of a farm
household, this benefit could also be attained by selling to a cen-
tralised private wet-mill operator, which may also be better-
positioned to function efficiently and sustainability compared to
the project-supported UPHs. While this may be considered ‘‘down-
grading” since a less-processed form of coffee is being sold, this is
not necessarily a negative livelihood trajectory for households.
Ponte and Ewert (2009), for example, document how downgrading
led to positive outcomes for emerging wine producers and grape
growers in South Africa.
It is at this juncture, however, that the envisaged rural develop-
ment narrative faces difficulties. While benefits are accruing at the
upstream end of the value chain, in each case benefits have been
subsequently captured by individual local elites (such as Arrung,
Wayan and Asep), who have assumed effective control of producer
organizations and operate them as if they were private businesses.
To enable broader development outcomes, we need to assume that
the value captured by these individuals is distributed within the
community. In this institutional context, the logical claim made
by the roasters that the relationship will result in meaningful
improvement in farm incomes across the community is therefore
contestable. In addition (and discussed below), in all three cases
the original relationship between roaster and UPH/cooperative
subsequently broke down, and many farmers have not continued
selling cherry to the cooperative or UPH. What has led to this mis-
match between the expectations of roasters and development
agencies engaging in these interventions and the actual outcomes
on the ground, and what does this tell us about value chain inter-
ventions for rural development?
First, upgrading in smallholder-based value chains cannot be
conceptualised in the same capital (firm)/labor (worker) terms as
upgrading in industrial sectors. In the coffee value chains studied
in this paper, upgrading is not a scale-neutral process, as process-
ing requires aggregation and consequently producer organization.
These interventions inherently favour rural actors at particular
scales through the way in which they couple with the prevailing
institutional and political economic structures of coffee producing
regions. These scale effects are rarely accounted for in agricultural
upgrading interventions. This neglect of scale, we argue, is a conse-
quence of the origins of the upgrading framework in analyses of
industrial East Asian firm upgrading (Gibbon, 2001). In industrial
sectors of the economy, value chain relations may be readily con-
ceptualized as exchange relations between firms (capital-capital),
or production relations between firms and workers within those
chains (capital-labor). Economic upgrading interventions can be
clearly demarcated at the scale of production (i.e., the firm level),
as in the East Asian experience where, for example, local electron-
ics firms upgraded from simple assembly to globally dominant
branded manufacturers through their exchange relations with
American and European firms (Gereffi, 1999). Relationship coffee
interventions in Indonesia, however, are intersecting with a
heterogenous landscape of smallholder households, engaged in a
diversity of livelihood practices and enmeshed in complex social
and political relationships, both with their neighbouring house-
holds and political actors at the local and regional scale. Misunder-
standing of this institutional reality of smallholder coffee
landscapes leads to unexpected outcomes for roasters, and vastly
uneven capture of upgrading benefits by different rural actors.
Farm households often respond to interventions in counterintu-
itive ways to how roasters might imagine. For example, a typical
complaint of roasters and development agents is that farmers do
not implement the improved practices that they are taught
through the training that the interventions provide, or they do
not show up to training sessions at all. From a firm perspective, this
makes little economic sense when the improved practices would
raise yields or improve quality and therefore lead to higher returns.
However, from the perspective of a farm household, whose priority
may not be maximizing profit from each coffee tree, but rather bal-
ancing the different competing needs of the household, such deci-
sions may make logical sense. Further, coffee-producing
households in the case study sites are not just coffee farmers.
Rather, they engage in a diversity of livelihood activities, both on
and off the farm, with varying success. Coffee is just one among
these strategies and is often viewed by households as a crop that
provides a reliable, modest source of income, but that is not worth
extra investment. On the other hand, the assumption of roasters is
that coffee represents the best pathway out of poverty for these
households. In different contexts, a household’s best chance for
transformative livelihood improvement may not lie in coffee at
all. This was the finding of Neilson and Shonk (2014) in a study
of value chain interventions in coffee-producing areas in the Toraja
region of South Sulawesi, where the livelihood fortunes of most
households were in fact dependent on migration and remittance
pathways.
Individual rural households thus make unreliable partners for
roasting firms. Therefore, although production happens at the
household scale, relationship coffee upgrading interventions typi-
cally target the scale of the prevailing producer organization. In
each of our case studies, although the relationship is promoted
as being between roaster and farmers, in reality it is between the
roaster and a local village elite. The reasons for this are also eco-
nomically logical: the firm seeks out capable individuals through
whom interventions can be funnelled, given the high transaction
costs of dealing with multiple individual farmers, and so both pro-
duct and functional upgrading only happens at scale. In the case
studies described herein, roaster engagement at this scale has led
to elite capture of upgrading. In each case, this has been facilitated
by a lack of attention to local institutional contexts by lead firms
and agencies promoting the relationships. This manifests particu-
larly in the use of cooperatives or UPHs as the ‘idealized’ institu-
tional form through which the relationship should be
implemented, despite the chequered institutional history of farmer
cooperatives in the Indonesian context (Neilson, 2008). In the
Suharto era, instead of being meaningful economic actors, farmer
cooperatives were highly politicized units closely associated with
misuse and corruption, and many farmers today still view them
with suspicion.
The influence of the internal politics of cooperatives on the
(often highly unequal) distribution of benefits from Fairtrade
schemes has been documented in detail, for example in Mexico
by Jaffee (2007, 2012). In Indonesia, the interaction between rela-
tionship coffee interventions and local governance structures takes
on a different flavor. This is because in each of the case studies, the
 M. Vicol et al. / World Development 110 (2018) 26–37
cooperative or cooperative-like structures that roasters imagine
essentially exist only on paper. In reality, each cooperative or
farmer group functions as a patronage network controlled by local
elites and reinforced by the operating capital, technology and other
benefits provided by the state, NGOs and roasting firms. There is an
absence of redistribution of earnings or profit sharing to individual
households in all three case studies. Benefits for individual farm
households are dependent on higher prices being paid for raw
materials, improvements to yields and/or quality through training
interventions. Upgrading of the capacities of local elites may also
still lead to positive development outcomes if the benefits flow
through to farmers, whether through higher cherry prices,
improved growing practices or increased labor opportunities. The
upgrading possibilities of farming households themselves, how-
ever, are largely limited to process or product upgrading (improv-
ing yields or quality), where transformational impacts on
household livelihoods would appear to be limited (Gibbon, 2001;
Neilson, 2014). The higher prices paid by the cooperatives to farm-
ers for their cherries and the labor saving attached to selling cher-
ries instead of parchment may also function as a form of social
upgrading for farmers. However, these benefits are not guaranteed
in the same way as wage or working condition gains to workers in
a firm are, and our case studies suggest that any premiums are
minimal and largely disregarded by individual farmers.7
A second aspect to the issue of elite capture is the way in which
politically-connected local elites leverage the connections created
by the intervention to attract new resources and funding. This
serves the interests of a range of actors (e.g. government officials,
politicians, local elites) that all converge on the development ‘pro-
ject’ as a vehicle for rent-seeking (Li, 2016). Local elites who
demonstrate leadership capabilities become favoured vehicles
through which to funnel intervention funds. As Li (2016) argues,
maintaining the flow of (largely public) funds becomes the modus
operandi of the intervention, rather than achieving any meaningful
rural development impacts, with the additional effect of crowding
out any political debate about potential alternatives to improve the
lives of rural households. All three case studies also demonstrate
the often-ephemeral nature of the intervention itself, which is far
less enduring than the social structures it attaches to. In many
ways, the roasters themselves have become unwittingly embroiled
in a local political ‘project’ aimed at consolidating prestige and
reinforcing patronage systems rather than achieving development
outcomes.
A final important point relates to the sustainability of each
intervention. In each case, the cooperative or UPH leader provided
a channel through which to facilitate the intervention. However,
they also ultimately lacked the capacities, business skills and cap-
ital to manage production at the scale needed to make the relation-
ship a profitable and viable one for the roasting firm. In all three
cases, the relationship has fallen apart, either because of losses
due to bottlenecks in the production process (South Sulawesi), or
a breakdown in trust (West Java and Bali). This has meant a sharp
reduction in the volume of specialty grade cherry being processed
by each cooperative, and therefore a reduction in cherry purchases
from farmers. The position of the cooperative leaders does not
seem to be seriously affected by the breakdown of the relationship,
but rather further entrenches patronage relations with other
households. For example, in the West Java case, Asep has used
the relationship to consolidate his access to forest land, where he
now employs other farmers to cultivate ginger for him. In South
Sulawesi, Arrung has used the intervention to attract further pro-
7
Furthermore, global coffee prices fluctuate across a far wider range than price
premiums, and yields are affected by weather, a changing climate and pests and
disease, all of which are far more important to farmers than the relatively minor price
premium.
35
ject funds from government and donor sources. When analyzed
from the perspective of the cooperative leader, the breakdown of
the relationships is not surprising. These quasi-cooperatives ulti-
mately do not act like firms; instead they operate as extensions
of local patronage networks, where local elites are only marginally
interested in maximizing production efficiencies. The fleeting nat-
ure of all three relationships between roaster and production site
also emphasises the transfer of risk achieved by roasters by engag-
ing in NGO or state-supported development interventions. Roast-
ers benefit from the provision of processing equipment to the
intervention site provided by the state without having to assume
the risk of investing in physical capital. The rapid withdrawal of
roasters from all three case study sites raises questions about their
full commitment to the relationship model.
The overall impact of the interventions described in this paper
therefore departs significantly from the discourse of roasters and
the narrative of the value chain development literature. Instead,
the interventions have reproduced local patronage and power rela-
tionships with few broader rural development benefits. This points
to a contradiction between the discourse and reality of upgrading
interventions: they are necessarily exclusionary. According to
Coles and Mitchell (2011, p. 152), while the aim of upgrading is
the reduction of poverty, ‘‘the only way to reduce poverty is to
increase the rents captured by participants from the target group-
. . .which necessitates the exclusion of others from the chain.”
Issues of politics and power are largely absent from Coles and
Mitchell’s analysis, however; power is analyzed solely in terms of
governance relationships between upstream actors and lead firms.
Exclusion is viewed as an organizational issue that can be solved
through ‘horizontal coordination’, however the Indonesian analysis
in this paper suggests this may be wishful thinking.
This suggests, therefore, an urgent need to develop an appreci-
ation of the political economy of upgrading in value chain inter-
ventions. This requires understanding relationships of power and
local institutions in upgrading interventions (Neilson & Pritchard,
2009). Upgrading interventions in the Indonesian specialty coffee
sector are frequently presented as value-free technical and man-
agerial responses to market pressures. In each of the Indonesian
cases, the limited attention afforded by each relationship to the
political, social and economic realities of small farming households
has inevitably privileged local elites who capture most benefits of
the relationship. Potentially transformative functional upgrading is
therefore only accessible to those already in positions of social and
political power, while other rural households are relegated to pur-
suing diminishing returns through process and product upgrading
(see Gibbon, 2001). While the elite capture documented here is not
unique to coffee value chain interventions (for example there is a
significant body of literature assessing elite capture in
community-based development interventions in Indonesia and
elsewhere, e.g. Lund & Saito-Jensen, 2013; Mansuri & Rao, 2004;
Platteau, 2004; Victoria & Anirudhha, 2006), relationship coffee,
and agricultural value chain interventions more broadly, are a fer-
tile site for appropriation of value by elites in Indonesia. This is
because such interventions inherently aim to create value, and in
an institutional context dominated by patronage and vastly
unequal power relationships, this created value is readily appropri-
ated by those in privileged social and political positions.
6. Conclusion
The ongoing penetration of capital into rural areas of the global
south via value chains may be inevitable (and in some cases the
only source of much needed investment) (White et al., 2012).
Given this, the GVC framework provides a fruitful approach to
understanding how agricultural value chain interventions will
36 M. Vicol et al. / World Development 110 (2018) 26–37
impact patterns of agrarian change and rural development. This is
particularly important given the way in which the upgrading con-
cept has been operationalized by development agencies and gov-
ernments in recent years. Through this approach, we have shown
that upgrading interventions in the Indonesian coffee sector cannot
be understood in the same way as upgrading in industrial value
chains.
However, an increased appreciation of power relations and
institutions is needed to reinvigorate the GVC approach. Impor-
tantly, power relations in all three of our field sites go beyond
the vertical (firm-firm). Instead, upgrading outcomes within value
chains will be co-determined by both vertical chain processes and
horizontal social relations of class, politics and gender (Selwyn,
2012; Neilson & Pritchard, 2009). In our three cases, local elites
have assumed leadership of socio-political organizations that con-
trol critical nodes in the upgrading process, which they subse-
quently manage as a firm-like economic entity that is capable of
(temporarily) appropriating surplus within the value chain.
Upgrading does occur at the scale of the producer organisation,
however not in the pro-poor way envisioned by roasters or devel-
opment agencies, and (at least based on our Indonesian case stud-
ies) the interventions are rarely sustainable.
For upgrading interventions in specialty coffee value chains to
represent a transformative approach to development, roasters
and development agencies would need to adopt a more nuanced
understanding of the social and economic identity of the rural
actors engaged in upgrading interventions, who do not behave like
profit-driven firms. As our case studies show, the logic driving the
increasing intervention of roasters into production sites, and the
logic of upgrading, may not match the logic that drives rural actors
and their livelihood decisions within particular social and political
contexts (Pegler, 2015). Roasters are not development agencies,
and for all their good intentions are ultimately driven by the logic
of ensuring sustainable profits and competition.
As it stands, the broader rural development benefits of upgrading
interventions that are promoted by roasters have not yet material-
ized in Indonesia. At best, these interventions provide an upgrading
vehicle for local elites, who are already positioned to capture the
benefits of development projects. At worst, these interventions
reproduce patterns of exclusion and inequality. This stands in stark
contrast to the discourse of many specialty coffee roasters and their
rural development claims. This paper makes a specific contribution
to the upgrading debate when applied to a socially differentiated
rural landscape, focusing on an understudied form of value chain
coordination in the specialty coffee sector in Indonesia. Further-
more, it is our contention that diverse value chain structures, such
as those described herein, are increasingly influential catalysts for
new processes of social differentiation amongst rural communities
in the Global South. Our analysis suggests that future research
focusing on the political economy of upgrading can make a signifi-
cant contribution to enhancing the broader positive outcomes from
interventions in agricultural value chains.
Conflict of interest
None.
Acknowledgments
This research was undertaken as part of the broader research
project ‘Evaluating smallholder livelihoods and sustainability in
Indonesian coffee and cocoa value chains’, funded by the Australian
Centre for International Agricultural Research (ACIAR)
(AGB/2010/099). We thank three anonymous reviewers for their
insightful comments on the original paper.
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