Cocoa smallholders generally have limited contact with markets, leading to little awareness of product suitability, quality or choice of crop. This paper examines the characteristics of cocoa industries in Indonesia and Papua New Guinea, discusses key issues for improvement and sustainability of the industries, and describes research and development initiatives aimed at improving smallholder incomes. For Indonesia, the paper explores the Sulawesi cocoa industry. It illustrates the efficiency of the supply chain, noting the large share (70 per cent) of the selling price that cocoa farmers receive. There are few intermediary collectors and traders, who make relatively low profits. However, there is room for quality improvement, which could be overcome through introducing differential pricing, and reducing farmers' losses through improved integrated pest management. The authors note that programs to support the cocoa industry have many elements critical to sustainability: a well-identified market, and strategies to reduce losses and improve productivity. The challenge will be to foster wide adoption of improved cultivars, encourage adherence to control measures recommended for pod borer and diseases, and link farmers to manufacturers to enable adequate income improvements to cover increased costs of management.

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