GLOBALISATION AND BIRD'S NEST SOUP
This is an amended version of an article first published in International Development Planning Review, Volume 26, Number 1, Liverpool University Press, 2004
Almost un-noticed by outsiders, an extraordinary industry has emerged in Indonesia to meet a specialised demand from the nouveau riche of the Peoples’ Republic of China (PRC). This industry produces the prime ingredient of the famous bird’s nest soup, also used in traditional Chinese medicines and cosmetics. It is an urban industry, using substantial specially designed buildings, that has transformed a number of Indonesian towns.
So far there has been little serious research into this phenomenon. The Indonesian government statistical agency (Badan Pusat Statistik) confesses that the industry output, though considerable, is not captured by its GDP estimates. Enquiries are hampered by the secretive behaviour of the practitioners, who jealously guard their trade secrets.
The author is an economist/planner who first observed the phenomenon when conducting fieldwork for an urban development project in North Sumatera. He is currently preparing a research project on the subject to be carried out in association with Badan Pusat Statistik.
The nests of bird’s nest soup are produced by the genus aerodramus (formerly collocallia), a type of swift, known in the Malay and Indonesian languages as walet. The essential ingredient is the saliva of the bird, almost pure in the nests of the white-nest walet (aerodramus fuciphagus) but heavily mixed with feathers and other material in those of the black-nest walet (aerodramus maxima), which consequently command lower prices.
Figure 1 - Freshly Harvested Nests
The traditional sources of these nests were the enormous limestone caves at Niah and Gomantong in Borneo, which were (and still are) homes to large flocks of walet. Harvesters climb long bamboo poles to snatch the nests, high above the cavern floors. It was from Gomantong, according to legend, that the first nests were taken to China and presented as a soup to an emperor of the T’ang dynasty. It is said that when the ruler complained that there was no special taste, the imperial cook (fearing for his head) asserted that the people of Borneo believed the preparation to be a strong aphrodisiac and to further longevity. The emperor apparently swallowed the story as well as the soup and a cult was started that persists until this day, though scientific tests have shown that the saliva has no medicinal value while Chinese epicures are divided on its culinary properties. (Unless laced with chicken stock, ginger or other flavourings the substance has little taste). Such details do not worry the modern adherents of conspicuous consumption, who currently pay PRC restaurateurs US$ 30 or more for a bowl of soup. A 150 gramme box of high quality nests can fetch around US$ 1,300 on the retail market. As well as being used to make soup, the substance is used in traditional Chinese medicines and in cosmetics.
The emergence of nest farming
In Maoist China consumption of the product was discouraged as a bourgeois excess but with the end of ideology and the subsequent takeoff of the economy, demand in the PRC escalated. The traditional cave sources were incapable of meeting this demand but in the meantime urban dwellers in Indonesia, Malaysia and Thailand had discovered that the birds were ready to nest in the upper floors of their homes. As prices rose, many chose to find alternative accommodation and devote their houses to the walet. They then learned to construct specialised buildings, usually based on the Chinese ruko - a multi-storey reinforced-concrete structure with a shop on the ground floor and apartments above. This is a common building type in urban areas of South East Asia: the name being a contraction of the Malay words rumah (house) and toko (shop).
Fig 2 - Ruko with nesting floors,
Kisaran, North Sumatera
The nesting-house variant of the ruko, shown in Figures 2, 3 and 4, replaces some or all of the apartments by nesting floors. The most prominent characteristics of these floors – which provide instant evidence of nest-farming – are the rows of circular apertures, formed around lengths of standard 10 centimetre waste pipe. Uninitiated observers imagine these apertures to be entrances for the birds but in fact their function is to provide ventilation without admitting harsh sunlight or winds, which are disliked by the nesting walet. The birds navigate by echolocation – like bats – and their predilection for dark environments helps protect them from predators. The favoured gloomy conditions are reinforced by fitting knee bends to the inside parts of the pipes, which also reduces wind speeds. The entry points for the birds are larger, rectangular openings, which can be seen in Figures 4 and 6.
Inside, these nesting houses are bare spaces, the main fittings being vertical wooden battens, placed below the ceilings, against which the walet build their nests (Fig. 3). Like other swifts, the walet cannot perch but it can hang by its claws from these rough wooden surfaces.
Fig 3 - Interior of a new nesting house.
Battens on the ceiling & knee bends on
Nest farmers also supply water tanks for the birds to bathe in and sometimes scatter rotten fruit on the floors to attract the insects upon which the birds feed. But normally the birds leave the nesting house during the day to forage for food in the open. An informant told us this was no cause for worry:
They always return. We provide them with safe accommodation and bathing facilities, just like a hotel. They leave us during the day, just as would a hotel guest, but they always come back to us
This hotel symbolism is a recurring theme of the industry: for example, a recent handbook for potential nest farmers is entitled How to Construct a 5-star Walet Building*. Just like hoteliers these entrepreneurs must find ways of attracting their guests. The handbook recommends roving areas in the nesting buildings, analogous to the lounges of hotels, where the walet can wheel around before entering their nesting places. As with hotels, a prime locational criterion is an urban – preferably town-centre – position, for the birds apparently like to flock over busy urban areas. One exception to the general hotel theme is a recommendation that excreta of the birds should be liberally painted on the walls and battens, to make new guests feel at home.
*PHILIP YAMIN dan FARRY B PAIMIN (2002), Membangun Rumah Walet Bintang 5, Jakarta, Penebar Swadaya.
It is also claimed that nesting houses should be within 20 kilometres of the sea and on low lying land where temperature and humidity are moderately high, though there are nesting houses in places where none of these conditions apply. As might be expected, fengshui (the traditional Chinese theory of space and location) is also important and farmers pay careful attention to detailed location and orientation. They also experiment with the entry apertures, originally opening large numbers, but closing down those that fail to be used and reducing the size of those that are successful, to make entry more difficult for owls and other predators. Most buildings have audio equipment which plays recordings of walet song to attract the birds; if this fails there are specialists who claim to know “black magic” techniques that can achieve the object.
Fig 4 - Nesting Houses, Kisaran, North Sumatera
Even so, it often happens that such stratagems fail, with the result that many of these expensive buildings remain empty. The problem has given rise to a new trend, which is to create a captive population by raising residents from the egg. A recent issue of a specialist “agribusiness” magazine describes the technology of incubation, feeding and care of such walet ternak. It is claimed that this solution can enable nesting-houses to thrive in rural locations, away from expensive city centre sites.
But so far it is an urban industry. In Indonesia, the business was restricted in the Soeharto era by the granting of a marketing monopoly to a member of the President’s family. Since 1998, however, entrepreneurs have been free to sell to other bidders and the industry has grown to astonishing levels, such that Indonesia is now believed to be by far the world’s largest producer. Nesting houses can be found in towns and cities all over the country, but above all in North Sumatera, where there is a particularly strong Chinese business influence, largely because of that province’s proximity to Singapore and Malaysia. Within North Sumatera the main concentration is in the town of Kisaran, a place of 70,000 population – where my colleagues and I counted 300 walet houses in the town centre alone – around a quarter of the buildings in that centre. There are smaller concentrations in the nearby towns of Lubuk Pakam and Pematang Siantar. The centres of these settlements have extraordinary townscapes, dominated by the stark walet buildings (Figs. 4 and 5).
Fig 5 - Main street in Central Kisaran, North Sumeterat
Fig 6 - Nesting Complex at Lubuk Pakam, North Sumeterata
More recently, there has been a move towards large specialised complexes like that shown in Figure 6. In Medan, the provincial capital, we found such a complex where the developer was offering vertical subdivisions of his buildings for sale or rent to prospective walet farmers. In general, however, walet houses are built and operated by the same owner, though in the small towns some of these appear to be absentees based in Medan, which restricts the benefits to the local economy. The industry is capital-intensive, with very few personnel needed for harvesting, maintenance and security.
Economics of nest farming: investment costs
The activity presents serious research problems. Most Indonesian - Chinese businessmen are understandably secretive, but walet farmers are especially alive to the dangers of providing information. In the wrong hands, this could be passed on to the taxation authorities or worse, used to inform potential competitors about the secrets of walet farming. We carried out many interviews with farmers but only a few of them yielded concrete information. Other sources are the trade handbooks, whose authors have some insight into the business, though even they seem to be subject to occasional confusions.
The handbook cited above estimates construction costs of Rp 0.6 million per square meter (at 2002 prices) for a fully finished two-storey nesting house with 200 square meters total floorspace. (Conversions to US dollars are provided below) These estimates are, however, for a single-use building with 30 centimetre thick infill walls (as opposed to the usual 10 centimetre) and heavy steel entrance doors to keep out robbers. Moreover, the handbook recommends an expensive pitched, tiled, roof. Our observations suggest that the typical building in North Sumatera is a modified ruko with commercial premises on the ground floor, often an apartment on the next, and nesting accommodation on the upper stories (as in Figs. 2 and 4). In such buildings, security measures on these upper floors are not crucial, while the pitched roof is invariably omitted. Construction costs for the nesting floors are probably nearer Rp 0.4 million per square meter (including special equipment, design and supervision, etc)*. If we assume three floors with 160 square metres per floor then the total construction cost would be Rp 192 million.
*In this and the succeeding paragraphs the author has made independent estimates of building and land acquisition costs based on his experience of formal and informal-sector transactions in Indonesia over the past nine years
To this must be added land acquisition costs, around Rp 0.08 million per square metre in the centres of towns like Kisaran. Plot coverage of rukos is high – around 80% – which gives a plot area of 200 square meters and consequent acquisition costs of Rp 16 million. If this is split equally between the lower floors and the three nesting floors then the amount attributable to the nesting floors is Rp 8 million, giving a total investment in the nesting business of Rp 200 million. At the prevailing exchange rate for 2002 this is equivalent to US$ 22,000.
An investment of this order is not unusual for a small-town Indonesian-Chinese businessman. It is certainly less than he would invest in three floors of a conventional ruko, built as apartments at construction costs of around Rp 1 million per square metre. Finance for such enterprises is probably provided through informal networks, rather than through the banks, which in 2002 were attempting to lend funds at 20 per cent per annum or more. Nevertheless, it appears that some of the buildings in Kisaran are owned by absentee investors, mainly from Medan.
Economics of nest farming: returns
Returns to the walet farmer are much more difficult to estimate since both yields and unit prices are subject to large variations. On price, the figure of Rp 20 million (US$ 2,200) per kilogramme is widely quoted as the price at which export agents (described below) purchase from farmers. But this appears to be at the high end of a wide range: a handbook in the same series as that cited above – by Herman Taslim* – describes a complex system for grading and pricing nests.
*HERMAN TASLIM (2002), Trading Sarang Walet, Jakarta, Penebar Swadaya
We summarise the criteria of this system with our comments in italics:
The first criterion is the type of nest, those of the white-nest walet commanding far higher prices than those of the black-nest walet and, within the first, red-hued nests being more expensive than white or cream-hued nests. It is widely believed that the red colour comes from the blood of the walet but it is more likely that the birds that produce these nests have ingested iron oxides.
Black nests are normally sold as fragments, after separation of the impurities, but with white nests the shape is critical - the most favoured being a perfect half-cup shape that is large, but not too thick, and without holes. End-users in the PRC and other markets pay particularly high prices for such perfectly-formed specimens. This is of course in the nature of conspicuous consumption. Such specimens are presumably displayed to guests as evidence of the host’s largesse before being boiled down for soup. (Or could it be that poorer specimens are substituted in the kitchen?) Perfectly-formed nests are not necessarily original: there are ways of correcting faults by bonding fragments from other nests. Conversely, hopelessly-shaped nests are broken up and either used for repairs or sold as fragments at much lower prices.
- Cleanliness. If the farmer wishes to obtain a good price he must remove all traces of feathers or other impurities. Black nests are usually cleaned by stirring them in a mixture of water and cooking oil, but this reduces the nest to fragments. White nests must therefore be cleaned by hand if the shape is to be preserved. If the farmer does not do the cleaning the agent will do it himself and reduce his price accordingly. The cleaning process often creates holes, which affects valuation under the previous criterion.
- Water content. In all the main export markets there are specifications for maximum and minimum water content of each type of nest. For the main market, Hong Kong, the maxima – generally around 10 per cent - are considerably lower than the norm for raw nests and agents claim it is therefore necessary for them to dry out the nests before export. Conversely with some minority markets such as Taiwan the agent may need to increase the water content by spraying the nest with clean water. Clearly, such adjustments can make a major difference to the price obtained but it is not evident how the process is controlled. Taslim claims that there are simple techniques for estimating water content without the use of specialised equipment but does not give an adequate account of these techniques. One can speculate that clever farmers may increase their prices by spraying their products before sale but in practice it is probably the agents – with their superior knowledge - who win out on this (and other) criteria.
The handbook gives a table of average prices ranging, in 2002, from Rp 25.4 million per kilogramme for Siek Yen (red-hued nests) down to Rp 5.0 million for Chao Yen (black nests) But around these averages there will be variations according to the grading criteria listed above. The table also gives prices for each year back to 1998. There were some fluctuations with no clear trend up or down. (In the same period the US dollar exchange rate has also fluctuated between Rp 6,000 and Rp 15,000 so it is even more difficult to discern a clear dollar trend).
Apart from price differentials, floorspace yields also show wild variations. We were told of buildings that yielded more than one kilogramme of nests per square metre per year, while at the other extreme there are many that failed to attract a single bird. Our best estimate, based on information from handbooks and the more reliable informants is that the average is around 100 grammes per square metre per year, but it must be emphasised that this is extremely tentative. Accepting this basis the 480 square metre building described above would produce 48 kilogrammes of nests each year. At an average price of Rp 15 million this would fetch Rp 720 million. Operating costs are modest – the remuneration of an attendant/guard, a proportion of the owner’s time, repairs to buildings and equipment and small quantities of water and electricity. Even with a generous allowance for depreciation, total outgoings are unlikely to exceed Rp 35 million which would leave a profit of Rp 685 million (US$ 76,000) per year.
This is equivalent to a return of more than 340 per cent on the investment calculated earlier. Such a result may seem implausible but the risks are great, while entry into the market is restricted by imperfect knowledge. We are assured by informants that these estimates are if anything conservative.
The distribution system
Almost all the Indonesian production is exported – there are hardly any Indonesian-Chinese restaurants that have bird’s nest soup on their menus while there is no evidence of locally-produced medicines or cosmetics.
We are aware of only one serious analysis of the international trade: by Lau and Melville*, in 1994. This was largely based on Hong Kong government import statistics, which the authors believed to have been reasonably accurate on the grounds that there were then no customs duties on edible nests. For similar reasons they rejected the export statistics of the main producing countries, which they believed to be heavily under-reported because of smuggling – especially from Indonesia to Singapore. We endorse this rejection: there are smuggling routes to Singapore from the many Indonesian islands that border it and, as we show below, the incentives for smuggling are not confined to evasion of customs duties. More fundamentally, as we point out in other parts of this paper, the Indonesian BPS admits that it cannot provide any reliable data on domestic production of the industry, let alone exports. The statistics of the other main exporting countries - Malaysia and Thailand - were probably not much better. At the time of Lau and Melville’s analysis the Hong Kong Government statistics were the only source that was in any way plausible.
*AMY SM LAU AND DAVID S MELVILLE (1994), International Trade in Swiflet Nests with Special Reference to Hong Kong, TRAFFIC International.
Their Hong Kong figures display a rising trend in Hong Kong imports from around five tonnes per annum in the early 1950s to 80 tonnes in 1964. For the next 20 years there were fluctuations around this level, followed by a growth to 140 tonnes in 1991. Unrecognised by Lau and Melville, it is now clear that this growth was connected with the strengthening of Hong Kong’s role as the world centre, importing from producing countries like Indonesia and then re-exporting to the PRC and the Chinese diaspora. Since then, with the escalation in PRC demand and the emergence of nest farming, the trade has probably undergone even more dramatic increases. Unfortunately it is impossible to update Lau and Melville’s analysis because of changes in the Hong Kong overseas trade statistics but for indicative purposes we can attempt a very rough updating – together with an estimate of Indonesian production - using the following brave assumptions:
- That from 1991 to 2002 the Hong Kong trade increased by 10% per annum, slightly more than the growth rate of the PRC economy.
- That Indonesian exports accounted for 70% of this trade by 2002.
- That the average price obtained by Indonesian exporters in 2002 was US$3,000 per kilo.
This would give a total Hong Kong trade of nearly 400 tonnes in 2002, of which 280 tonnes would be attributable to Indonesia, with a value of US$839 million. This is equivalent to around 0.5% of Indonesian GDP in that year. Looking at it another way, it matches almost a quarter of the total product of Indonesia’s fishing industry.
Taslim’s handbook sets out the steps necessary to export the product officially from Indonesia. These include formidable bureaucratic obstacles such as full company registration, production of tax records and evidence of technical competence, before an exporter’s license can be obtained. (The reader will realise that those who manage to meet these requirements must also satisfy the demands of rent-seeking officials). At the other end, in Hong Kong or other import centres, the exporter must provide detailed documentation to satisfy customs officials. So it is not surprising that there has emerged a class of agents who have developed specialised knowledge of how to negotiate or evade these regulations. Successful agents also need to have built up a relationship of trust and equality of bargaining power with their buyers in Hong Kong.
With the help of Indonesian-Chinese friends we managed to interview one of these agents. He had a smart ruko in downtown Medan, with two new Mercedes automobiles parked in the ground floor. He seemed to be fairly open about his business, but in the following account we have to note some salient problems with his information.
He said his main business was the export of timber products and that walet nests were a sideline for him, though he was reluctant to reveal the scale of his walet business. He purchased nests directly from the farmers and exported them to what he called the “Hong Kong mafia” who control the international trade. This trade was primarily from Hong Kong to the PRC, though smaller amounts went to Taiwan, San Francisco and other centres of Chinese settlement. Like most of his peers he did not export to Singapore, which he said was mainly a stepping-stone to Hong Kong with consequently lower margins for him. In any case it was difficult to get significant amounts of the product past the Singapore custom authorities. (The reader will note, however, the attractions of Singapore that we set out earlier) His goods were normally taken by air to Hong Kong, by himself or by “friends”, as carried or accompanied baggage, up to 20 kilograms at a time. Occasionally he used couriers such as DHL, paying five per cent of the value as insurance, split between himself and the purchaser. He had a good relationship with his Hong Kong purchasers who often sent him advance payments pending receipt of the goods.
On the input side, he travelled around the “line of producing towns” – Kisaran, Luwuk Pakam and Pematang Siantar – to buy nests, usually from regular farming contacts. His top price for prime quality nests was US$1,700 per kilo but at this price the goods had to be perfectly clean and well shaped, because this was what his purchasers required. Dirty or distorted nests fetched a much lower price because he had to process them in-house. This involved picking out dirt and feathers by hand and repairing or reshaping broken or distorted nests using spare fragments bonded by water (though he denied using other solvents). He also found it necessary to dry out most nests for at least three days in an air-conditioned environment because their water content, typically 30 per cent, was well above the eight percent fixed by the Hong Kong purchasers. He denied reports (which we had received from other informants) that there was a further layer of middlemen who bought nests from the farmers, processing them as described above, and then selling them on to agents like himself.
We discussed the question of how frequently farmers harvested their nests. It was his firm opinion that most of them inspected their buildings at least once a week and removed nests as soon as they were complete. Not only did this increase perceived yields, it also ensured that the nests were not made dirty by egg-laying and the subsequent rearing of infants. He thought that few farmers took account of the danger that such harsh exploitation might drive away their carefully-collected walet.
An interesting sideline was that his neighbour’s ruko had been converted to a nesting house several years before but was still unpopulated. He did not give an explanation for this failure.
There are clear risks with such interviews. We are inclined to believe most of his statements recorded above, but it is advisable to note other statements that were much less credible. He repeatedly claimed that his top sale price to Hong Kong purchasers was around US$ 1,900 per kilo, which after transport and other costs would leave him no margin over his quoted top purchase price of US$ 1,700. There are similar inconsistencies in the Hong Kong prices given by Taslim, which are mostly below the corresponding Indonesian farmgate prices: we must assume that exporters’ prices are much further along the road towards the Hong Kong retail price of around US$ 8,000 per kilo. The agent also seemed intent on over-stating the degree of competition in the trade. He claimed there were 150 agents like himself in Medan, though farmers and other informants said there were less than 10. Similarly, he asserted that there were 500 buyers in Hong Kong, though Lau and Melville detected only five in 1994, whileTaslimlists only 16 in 2002.
Given the research difficulties noted above, this account has been unable to draw on hard data in a number of areas. The Indonesian government statistics agency, Badan Pusat Statistik, confesses that the industry is not captured by its local or national estimates of GDP, for the agency has inadequate funds for the kind of specialised enquiries that are needed*. It is therefore difficult to estimate the impact on local economies such as that of Kisaran.
*Personal communication with senior BPS officials at North Sumatera Provincial HQ and Kisaran Regency
We can provisionally fill the gap with a rough estimate like those made earlier. In Kisaran we counted 300 nesting houses in 2002. Earlier in this paper we estimated the value-added of a typical building to be around Rp 700 million per year which would give Rp 210,000 million (US$ 23 million) for the total product of nest farming in Kisaran.
Now, on the basis of local estimates provided by BPS the Gross Regional Domestic Product of the Kisaran urban area would have been around Rp 465,000 million (US$ 52 million) in that year. But as pointed out above, these BPS estimates fail to include nest farming itself. In addition the actual impact on the Kisaran economy will be lessened by leakages to absentee owners of nesting houses. Even so, it is clear that nest farming must account for a substantial proportion of the local economy and there will of course be additional multiplier effects.
There is a further important point. It is a feature of medium-sized Indonesian towns that their basic industry is dominated by government services and administration. Manufacturing industry is usually small, agricultural marketing functions are limited and other private services are weak. Kisaran is unusual in having a substantial independent economic base.
There are certainly some negative impacts to be set against the positive: many local residents voice strong complaints about noise and droppings from the birds, together with the displacement of housing and conventional town centre activities. Another question relates to the sustainability of the trade. Bodies like WWF have argued that the industry threatens the continued survival of the species, though their evidence is confined to the traditional cave-based activities where there is ample verification of premature harvesting, before the eggs have time to hatch or the infants have time to become independent. The Malaysian state governments in Borneo claim to have imposed strict limits on cave harvesting. In Sarawak there is a long-standing limit of once every 75 days, while more recent controls in Sabah reduce this to two times a year. Such regulations can of course be circumvented. With the modern nesting houses the position is completely different: it is true that the prospects of successful regulation are no higher but given the difficulties faced by nest farmers in attracting birds one might expect them to be cautious about excessive harvesting. Why go to the trouble of providing expensive facilities to attract the walet, only to risk driving them away by over-exploitation? We have received contradictory evidence on this point. Trade publications like those quoted above usually advise entrepreneurs to limit their harvesting. On the other hand informers say that many if not most practitioners are unable to resist the temptation to carry out frequent premature harvesting while the nests are still clean.