Marketing and Institutional Characteristics of Dairy Industry In Indonesia

Development of agricultural sector, including livestock is one of the strategic choice to support the national economy and the region, This choice is based on the consideration that the agricultural sector has repeatedly proved itself as a sector that is resistant to the economic crisis and a property assets basis for public welfare as well as for the overall economic development activities. Farming is a field of business that is very important in the life of mankind. This is related to the readiness of the livestock sub-sector in providing public food from animals, essential for development and growth. Nutrient content of livestock and dairy products until now have better value than the original nutrient content plants. In order to achieve the goal of livestock development to meet the nutritional needs, the development of animal husbandry at this time, has been directed at the development of more advanced breeding through territorial approach, the use of appropriate technology and the adoption of a new principles that are the efficiency, productivity and sustainability. 

Sustainable rural development is an issue that many developing country governments, donors and nongovernmental organisations continue to grapple with. Agricultural markets are promoted as a possible pathway to rural development, as they are seen as important for economic growth and addressing poverty (IFAD 2010). Milk and milk products are economical important is consumed as whole fresh milk or in fermented form farm commodities and dairy farming is an investment whereas 46.6% is used for butter making and only 5.2% option for smallholder farmers (Tsehay, 2001). Dairy processing and marketing are important in the development of the dairy industry (ILCA, 1980). Efficient processing apart from extending the shelf-life of milk, add value to products, while an efficient marketing system will tend to encourage production and increases income leading to better welfare of dairy farming farmers. The study of milk marketing systems is also essential to provide vital and valid information on the operation and efficiency of milk product marketing system for effective research, planning and policy formulation (Adebabay, 2009).

 Access to markets for smallholder rural farmers, however, has numerous challenges. Market access issues present local to global connections that can be both opportunities and challenges for rural smallholder farmers (Kapungu, 2013). On one hand the structural changes in markets through integration on national, regional and international markets provides an opportunity for participation and profit for smallholder farmers who are able to supply new product lines and meet the market’s needs (IFAD 2010). On the other hand, however, these new opportunities present risks of marginalisation of small rural farmers in favour of larger producers who are able to meet the stringent market requirements and meet the higher entry costs (IFAD 2010). Therefore, market access issues touch on a range of other issues that need to be addressed if rural smallholder farmers are to benefit from market access (Kapungu, 2013). Duguma and Janssens (2014) suggested that improved and appropriate milk processing technologies and formal marketing system to be in place to improve milk processing and marketing for sustainable dairy production. The formation and development of smallholder dairy farmers’ groups aims to increase and commercialize dairy production activities and exploit economies of scale by capitalizing on collective action through group processing and marketing. The farmer orfanizations and collective actions are seen as key factors in enhancing livestock farmers’ access to market (Hellin, et al., 2008). 

The mobilization of smallholder dairy farmers into groups intends to provide better market opportunities through collective action. Acting collectively for market access can also help correct some of the market imperfections, such as high transaction costs and missing credit markets, and fill in coordination gaps especially for dairy products (Markelova et al., 2008).

 Dairy cattle business in Indonesia mostly run as a secondary occupation so that its management is still far from the principles of good farming practices. Starting from such a condition characterized by the dairy farm in small-scale enterprises, venture capital limited capabilities, management is still semi-traditional, yet fully using appropriate technology, productivity and product quality is still low. On the other side shows the limited availability of infrastructure, both related with the procurement of production inputs, as well as post-production. These conditions make the development of domestic dairy industry tends stagnant. From the institutional side, the majority of dairy farmers in Indonesia are members of dairy cooperatives. The cooperative is an organization that acts as a mediator between farmers with milk processing industries. The role of cooperatives as a mediator needs to be maintained. The service needs to be improved by improving the quality of human resources and strengthening cooperative networking with processing industries as well as by implementing contract farming. Unfortunately, farmers are still facing problems. Among other low ability farming especially regarding animal health and a low quality of breed. These deficiencies result in slow growth besides milk production also affects the quality of milk produced. It is also the difficulty of land as a source of forage grass for feed, high transportation costs, as well as smallscale enterprises. In terms of marketing milk from farmers in the country, the presence of Presidential Decree No. 4 of 1998 on the coordination and development of national milk which is part of the Letter of intense (LoI) set by the IMF, the government regulations that restrict imports of milk, which requires the dairy processing industry absorbing domestic fresh milk as a companion of milk imports for raw materials industry became no longer valid. 

Milk imports with the instruction free entry into a commodity. Processing industry has the option to satisfy the required raw material is fresh milk from domestic or imported. It is also then leads to a relatively low price of fresh milk received by farmer in the country. Another problem, the dependence of farmers on the processing industy in the fresh milk market is still high. The absence of concern of the government to farmers will lead to a tendency that the fresh milk price received by farmers is relatively low. The existence of enforcement of strict standards of raw materials by industry among dairy farmers sit on bargaining (bargaining position) is low. 

Policy of dairy industry in Indonesia is firmly focused on the development of people's dairy cooperatives collected in milk container. Thus, the patterns of these efforts have not been able to increase profits optimally for dairy farmers or income level generally still low. Income reward dairy farmers new people is labor, which on analysis of revenue is never taken into account and that too with the value per month is very low, averaging only approximate value of the regional minimum wage (Santosa, 2008). Dairy farm which is actually dominated by dairy farmers of the people, an agribusiness activity that has the role of a strategic, among others: (1) Establishment of National GDP, (2) Increasing net exports or reduce the net import of national, (3) Absorption of labor, (4) Provision of national food, (5) Equitable development and development results, and (6) Protecting the environment to ensure sustainable development (Aviliani, 2008). 

The role of farmer groups for the development of farming, especially dairy farmers to realize the independence of the business is very important. Function group is a place of teaching and learning for its members to improve the knowledge, skills and attitudes as well as the growth and development of self-reliance in to farm so that increases productivity, incomes grow and become more prosperous life. The objectives of this study were: 1) to describe the institutional characteristics of dairy industry in rural farmers in their respective marketing agencies and farmers, and 2) to analyze the distribution and marketing of milk, from production, processing to market.