Integrating system dynamics to value chain analysis to address price volatility in the Indonesian chilli value chain

Abstract

The price volatility observed in agricultural value chains presents a significant socio-economic challenge, particularly for smallholder farmers. The issue of price volatility in agricultural value chains is complex due to the dynamic and interconnected nature of these value chains. The objective of this study is to integrate system dynamics with value chain analysis in order to address price volatility in the Indonesian chilli value chain. In order to ensure stakeholder engagement and enhance the robustness of the proposed solutions, a participatory approach will be employed. The utilisation of system dynamics enables the quantitative simulation of the inherent dynamics of the chilli value chain, thereby facilitating both ex-ante and ex-post assessment of policy interventions. A collaborative process with stakeholders was employed to develop, test, and validate a system dynamics model that operates at both provincial and national levels. The findings demonstrate that the model accurately replicates the price volatility observed in the Indonesian chilli market. The key factors contributing to this volatility are seasonal production, disorganised market governance and high postharvest losses. The analysis of policy options indicates that while the importation of chillies can stabilise prices in the short term, it has a negative impact on the income of those involved in the value chain. More sustainable solutions to mitigate price volatility include the implementation of year-round planting and the enhancement of market governance. These strategies present potential avenues for achieving a more stable and equitable chilli market, offering valuable insights for broader agricultural value chain stability.