Effects of market changes and government policies on the Indonesian coffee bean industry

Results of the study showed that the modules under risk averse seem to be unrealistic since they allocated zero quantity of green Arabica coffee to the domestic market. And, the model validation showed that the monopolistic case under risk neutral model explained the activities in the industry relatively better. The optimal solution showed that the industry was export maximizing. The model was very sensitive to changes in domestic demand. However, it was not sensitive to the changes in the export price. The export limit of green Arabica and Robusta coffee was binding indicating that the dual value existed for both commodities. The changes in the export limit influenced the production and marketing activities. Under 20 and 10 percent export retention scenario, there had been a contraction in the production activities as well as marketing activities. Allocation to domestic market was not maximizing the revenue of the industry. Also, a decrease in the objective function value was observed. Meanwhile, under 10 percent export expansion, the industry gained a significant revenue increase. These indicated that the implementation of stock retention was not appropriate for the industry. Rather, an export expansion was more favorable. The industry profitability was susceptible to the increase in input prices. The percentage change in input prices would cause a decrease in the industry income with a lesser percentage. The expansion especially for Arabica plantation would be beneficial if the industry could increase its marketing activities both in the domestic and/or world markets. The conversion of Robusta plantation to Arabica plantation was feasible in these periods when the opportunity cost of conversion was zero. The change in technology caused the change in the area of Arabica and Robusta plantation as well as increased the production quantity. Unless, the export was expanded, the increase in production would lead to the excessive allocation of both commodities to the domestic market. The industry was less affected by the resource availability but, a minimum level of resource supply has to be assured to optimize the industry activities