Enforcement of Informal Contracts in Clove Trading in Bangun Village, Trenggalek

Abstract

The clove farming sector in Trenggalek Regency makes a considerable contribution to the local economy; however, this has not been matched by a proportional improvement in farmers’ welfare due to informal transaction mechanisms dominated by intermediary traders. This study aims to examine the function of trust as a mechanism for enforcing informal contracts as well as a form of economic capital in clove trading in Bangun Village, Munjungan District, Trenggalek Regency. This study employs a qualitative approach, with informants consisting of clove farmers and intermediary traders. Data were analysed using the Miles and Huberman interactive analysis model, with data validity assessed through source triangulation. The results show that informal contracts are implemented through verbal agreements, relational contracts, pre-harvest purchasing arrangements, and the handover of goods with deferred payment, which are maintained through social relationships, reputation, and repeated transaction experiences. Trust functions as a contract enforcement mechanism through informal monitoring and economic sanctions in the form of loss of access to financing and trading relationships in subsequent transactions. It also functions as economic capital by providing farmers with access to pre-harvest financing, market certainty, and payment flexibility. However, these benefits may create economic dependence on particular traders, while informal mechanisms have limitations in high-value and long-term transactions because they do not provide adequate guarantees in cases of fraud. This study recommends maintaining trust-based trading relationships while complementing them with simple records of transaction values, prices, and payment schedules to reduce the risk of disputes without eliminating the flexibility of informal relationships.