Enhancing Indonesian coffee trade: Strategies for navigating and reducing trade barriers

Abstract

This study scrutinizes the intricate relationship between production technology advancements and price reactions in the Robusta and Arabica commodities and their collective influence on profitability exploring   the relationship between market and policy dynamics and the coffee industry in Indonesia. This study delves into the intricate interplay between market dynamics, policy interventions and technological advancements within the Robusta and Arabica coffee commodities in Indonesia.  It employs a historical simulation to scrutinize the multifaceted relationship between production technology advancements, price reactions and their collective influence on the profitability of coffee cultivation in the region from 2008 to 2020. Our research reveals a striking discrepancy between the expansion of coffee cultivation due to technological progress and the delayed price reactions within the Indonesian coffee industry. The industry faces challenges in translating these advancements into immediate profitability for growers despite significant strides in production technology. The study further dissects the role of governmental interventions, such as subsidies in shaping production outcomes and market responses. High bank interest rates emerge as a significant hindrance to industry growth, exacerbating the profitability dilemma faced by coffee growers. Furthermore, the export price elasticity of Robusta coffee exhibits limitations, raising questions about the industry's ability to harness its potential in global markets despite increased production volumes. Our findings underscore the industry's acute sensitivity to policy alterations highlighting the urgent need for strategic reforms targeting high bank interest rates and the expansion of market opportunities. We advocate for comprehensive research efforts that encompass a broader spectrum of variables to yield deeper insights into the complexities of the Indonesian coffee sector.