Author : Hadi Paramu

Summary : The study examined the effects of market changes and government policies in the coffee bean industry using a multi-period mathematical programming model. It showed the response of the production and marketing activities to changes in domestic and world prices, export limit, input price policy, area expansion, area conversion, change in technology, and resource availability. In addition, it determined the optimum mix of production and marketing activities of the coffee bean for domestic and world markets considering an endogenous domestic price of green Arabica and Robusta coffee as well as the risk in the industry. 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.