Indonesian Coffee Development Path: Production and International Trade

Abstract

Aims: The objectives of this study are (i) to compare Indonesia's coffee production efficiency among the top five world coffee-producing countries, (ii) to analyze Indonesia's coffee competitiveness against major world coffee producers in the international market, and (iii) to analyze Indonesia's coffee export structure based on unit price of export price to determine profitable differentiation of export destinations. Methodology: A descriptive comparative analysis was conducted on coffee productivity (kg/ha) in the major coffee-producing countries and on the export unit price (USD/ton) received by Indonesia and other exporting countries. To reveal the comparative advantage of Indonesian coffee in the global market, Symmetry Revealed Comparative Advantage (RSCA) is employed, and GL-Index is utilized as an analysis tool for export destination differentiation. Results: The results of this study are (i) Indonesian coffee production is very low due to various factors, including production techniques that do not apply innovation to increase production, (ii) the composition of production is dominated by Robusta Coffee which is known to get a lower price than Arabica Coffee, (iii) exports are in the form of low-quality products so that they attain a meager unit price even though Indonesian coffee has competitiveness with SRCA> 0, and (iv) GL-Index analysis shows that the most profitable export destinations for Indonesian coffee are to the United States and Australia and New Zealand, while contrary to what has been assumed, exports to West Europe, Northeast Asia and Middle East and North Africa do not show conclusive results while ASEAN (Association of Southeast Asian Nations) is not a profitable export destination. Conclusion: Indonesian coffee needs to be improved at various supply chain stages, especially at the production and export levels. Appropriate policies to address the weaknesses of Indonesia's coffee position have the potential to catch up with the existing productivity and export gaps.