The Effect of Trade Policy on The Position of Indonesian Coffee Market among The Major Importing Countries

Abstract

Indonesia is the largest coffee producer in the world after Brazil, Vietnam and Colombia, but it was confronted with market problems. This paper, therefore, analysed the demand system as the position market for Indonesian coffee, either green bean or roasted coffee in the main importing countries such as Germany, Japan and The United States. The linear Approximate Almost Ideal Demand System (LA/AIDS) model was used to analyse the position of Indonesian coffee and its competitors. Time series data from 1996 to 2017 were obtained for the analysis. Empirical results indicated that most of the slope coefficients were statistically significant and in accordance with microeconomic theory. The variables of trade policy effected the Indonesian coffee trade. Indonesian green bean was found to be elastic in Germany, Japan, and The United States. Then, Indonesian roasted coffee was found to be inelastic in Japan. Indonesian green bean was a luxury good only in Germany, but Indonesian roasted coffee was an inferior good in Germany and The United States. Both Indonesian green bean and roasted coffee were a necessity in Japan. Almost Indonesian coffee substitute for Brazilian coffee and Colombian coffee, and complementary with Vietnamese coffee as its competitor.