This paper discusses the institutional settings along the cocoa supply chain in Sulawesi. It explains how the Indonesian cocoa sector has seen rapid expansion under free-market conditions, followed by declining profitability due to pest infestations compounded by market imperfections. The complex needs of farmers in the face of pests and disease, sustainability concerns and quality decline are not being satisfied by informal mechanisms that facilitated earlier expansion. The author claims that the government has, for the most part, been a passive actor throughout these developments. Development agencies, international and national industry actors and national policymakers are now operating to sustain farm profits and prevent serious sectoral decline. The options being discussed among Indonesian cocoa stakeholders are directed largely towards serving downstream industrial interests rather than sustaining farm profits. However, the primary challenge for government intervention is to incorporate local informal institutions within national policy and to exploit benefits being offered by globally coordinated development initiatives. The author argues that state-led intervention alone is unlikely to result in the necessary improvements; rather what is needed is to effectively—and equitably—enrol smallholders within a globally coordinated array of institutional settings.

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