Introduction

Coffee is now the daily needs of people around the world. Some countries like European and
American countries have a culture drinking coffee every day. People in western countries mostly
drink a cup of coffee to start their day. Therefore, many coffee shops are spread around the nation
or even around the world. Some like Starbucks is very famous. According to the data, Starbucks
has 21,366 stores worldwide. Besides, more than 2.25 billion cups of coffee are consumed every
day in the world. In order to fulfill the demand of the coffee, coffee is now become the second
largest trade commodity in the world after crude oil.
There are thousands types of coffee beans in the world but their put into 2 categories based on the
most commonly grown which are Arabica and Robusta. Arabica is world most produced coffee,
around 70% coffee in the world was categorized as Arabica. Arabica planation should be between
600-2000m above the sea level and grow in cool and subtropical climates while Robusta planation
is able to be grown in low altitudes of 200-800m above the sea level. Meanwhile, there is very
famous coffee which said that it is the most expensive coffee in the world, Kopi Luwak. The coffee
bean of Kopi Luwak were produced from the Asian Palm Civet’s feces. However, these Asian
Palm Civet1 only found in Sumatra Island in Indonesia.
UN Comtrade Data (2007) shows petroleum oils and oils obtained from bituminous minerals,
crude lead the pack at $1.09 trillion, while petroleum oils (non-crude) amount to $495 billion.
Natural gas is $200 billion. Copper is $120 billion, not to mention an additional $38 billion listed
under copper ores and concentrates; copper mattes, copper cement. Aluminum is $116 billion, plus
aluminum ores and concentrates for another $16.5 billion. Gold (non-monetary, excluding gold
ores and concentrates) is $87 billion Wheat (including spelt) and meslin, unmilled accounts for
$32.9 billion, Cotton fabrics, woven," yield $25.5 billion. Meat (not divided by type of animal)
accounts for $43 billion, milk for another $31.6 billion and leather $23 billion. Sugars, molasses
and honey draws $25 billion. Finally, Coffee and Coffee Substitutes for $22 billion. Subtract
whatever chicory, barley and other faux coffees sell for, and you have a somewhat lesser figure
for pure coffee.
According to International Coffee Organization (ICO) data 2014, Brazil become the main coffee
exporter in the world following by Vietnam, Colombia, Indonesia and Ethiopia. In 2014, Brazil

1
Asian Palm Civet is known as Luwak while Civet Coffee is known as Kopi Luwak. Kopi is the word for coffee in
Indonesia.
produce 45,342,000 coffee in 60 kg bags, while Vietnam produce 27,500,000 coffee in 60 kg bags
and Colombia produce 13,333,000 coffee in 60 kg bags, following by Indonesia which produce
10,365,000 coffee in 60 kg bags, and Ethiopia which produce 6,625,000 coffee in 60 kg bags.
Brazil has about 220,000 coffee farms involved in the industry with around 27,000 km2 coffee
plantations covering the country. Moreover, Brazil is good in producing third of coffee include
green coffee2, Arabica coffee and instant coffee.
On the other hand, Netherland has the most coffee drinker in the world leading with the number
of 2.414 cups a day consumption per capita, following by Finland with the number of 1.848 cups
a day consumption per capita, Sweden with the number of 1.357 cups a day consumption per capita,
Denmark 1.237 cups a day consumption per capita with the number of, and Germany with the
number of 1.231 cups a day consumption per capita. European Union is the biggest coffee importer
with 42,442,000 in 60 kg bags following by USA with 23,761,000 in 60 kg bags (International
Coffee Organization 2014).

Theoretical Backgrounds
David Ricardo observed that trade was driven by comparative rather than absolute costs (of
producing a good). One country may be more productive than others in all goods, in the sense that
it can produce any good using fewer inputs (such as capital and labor) than other countries require
to produce the same good. Ricardo’s insight was that such a country would still benefit from
trading according to its comparative advantage—exporting products in which its absolute
advantage was greatest, and importing products in which its absolute advantage was comparatively
less (even if still positive). The Heckscher-Ohlin proposition maintains that countries tend to
export goods whose production uses intensively the factor of production that is relatively abundant
in the country. Countries well-endowed with capital, such as factories and machinery, should
export capital-intensive products, while those well-endowed with labor should export labor-
intensive products.
According to Food and Agriculture Organization (2007) 25 million small producers rely on coffee
for a living worldwide while in Brazil alone, almost a third of all the world's coffee is produced,
over 5 million people are employed in the cultivation and harvesting of over 3 billion coffee plants.
Where it means Brazil has labor-intensive than alternative-intensive in producing coffee. Ric

2
Green coffee is unroasted coffee beans.
Rhinehart said that the number of people who depend on coffee for all or most of their living is in
excess of 75 million. Ethiopia alone has nearly 15 million people actively involved in cultivating,
harvesting, processing, transporting and commercializing coffee.
Coffee is a major export commodity where it was the top agricultural export for twelve countries
in 2004 (FAO Statistical Yearbook, 2004). And coffee also the world's seventh-largest legal
agricultural export by value in 2005 (FAO Statistical Core Trade Data, 2007). Moreover, coffee is
the second most valuable commodity exported by developing countries (John M. Talbot, 2004).
Stefano Ponte (2002) observe that over 90% of coffee production takes place in developing
countries, while consumption happens mainly in the industrialized economies. The United Nations
was negotiated the agreements to establishing International Coffee Organization (ICO) in 1963
since coffee has been a valuable international trade commodity since the 1800s. ICO (2006) figure
that Green coffee beans trade was $17.1 billion, higher than the FAO amount, and that both figures
included re-exports.
According to Sobésa Café (2008) coffee has been consumed for over a thousand years and now it
is the most consumed drink in the world with the number of more than 400 billion cups every year.
Ric Rhinehart (2008), the executive director of the Special Coffee Association of America brought
up that more than 150 million Americans (18 and older) drink coffee on a daily basis, with 65
percent of coffee drinkers consuming their hot beverage in the morning. In 2008, it was the
number-one hot beverage of choice among convenience store customers, generating about 78
percent of sales within the hot dispensed beverages category. Jose Dauster Sette of the ICO
observed that it really doesn't matter whether coffee is second or 50th in world rank, he believe it
is more relevant to emphasize the important social role played by coffee in the generation of rural
employment and income.

Production
World coffee production data is divided based on the coffee types, Arabica and Robusta.
According to 2011-2015 data, the world coffee production is keep moving. Sometimes the
producing number is moving up and sometimes go down. The producing of Arabica coffee is also
uncertain, while the demand of Robusta is keep increasing every year. The world producing
number can be seen on the graph below.
 In thousand 60kg bags
World Coffee Production
Total Production Arabica Robusta

160000

140000 150858 152105

146648 147994
120000 136571

100000
91511 90540
82007 85239 85814
80000

60000 59346 61564 61410 62179

54564
40000

20000

0
2011 2012 2013 2014 2015

Figure 1 – World Coffee Production http://www.ico.org/prices/po-production.pdf

The number shows in the graph is in thousand 60 kg bags. First, in 2011, the production coffee
was only 136,571 in thousand 60 kg bags but in 2012 the production rapidly increase by 14,287 in
thousand 60 kg bags. The demand of coffee between 2012 and 2013 were relatively high compare
to the year before. The production start to decrease in 2014 and 2015 but the number is not too far.
Coffee is produced in subtropical climate. It is only some countries can produce a good quality of
coffee because of their climate and area. Some region can dominating the production of world
coffee production. According to ICO data 2011-2015, South America has the highest number on
producing coffee in the world, following by Asia and Oceania, Mexico and Central America and
at last Africa. But in 2015, there are a changing position of Africa and Mexico and Central America.
Africa that usually in the last position switch with Mexico and Central Asia in 2015 producing
coffee. But the market still dominating by South America. It is because South America have Brazil
that best at producing coffee, following by Vietnam, Canada and Indonesia. In 2015, Brazil itself
can produced 48,425 thousand in 60 kg bags coffee of 66,997 thousand in 60 kg bags coffee in
total South America production. The gap between Brazil and the other countries and regions is
relatively high. While Vietnam which in the second position can only produce 27,500 thousand in
60 kg bags coffee and Indonesia only produced 11,525 thousand in 60 kg bags coffee in the same
year. The figure below will show which region producing coffee the most.
 COFFEE PRODUCTION ACCORDING REGION
Africa Asia & Oceania Mexico & Central America South America

67122

66997
in thousand 60kg bags

62990
58400

57232

47428
46573

45693
45379
41919
20194

18481

18001

16831

16739
16632

16585

16569
16240
16058

2011 2012 2013 2014 2015

Africa 16058 16632 16240 16569 16831
Asia & Oceania 41919 45379 46573 45693 47428
Mexico & Central America 20194 18481 16585 18001 16739
South America 58400 67122 57232 62990 66997

Figure 2 – Coffee Production According Region http://www.ico.org/prices/po-production.pdf

Coffee Price

ICO Indicator Prices - October 2015 in US cents/lb

ICO Composite Colombian Other Milds Brazilian Robustas
Indicator Milds Naturals
Average 118.43 143.10 153.25 127.47 82.78
High 125.08 152.18 162.61 136.90 85.49
Low 113.48 136.56 146.78 120.43 80.64
Table 5 – Price Indicator October 2015
According to the data above, they separate the price into 5 coffee categories with different range
of prices. Based on the table, Robustas is the cheapest than the others while Other Milds is the
most expensive. The table was shows the number in US/lb. The average coffee price indicator of
October 2015 was 118.43 cents/lb with practically 143.10 cents/lb was on Colombian Milds,
153.25 cents/lb was on Other Milds, 127.47 cents/lb was on Brazilian Naturals and finally 82.78
cents/lb was on Robustas.

Consumption
World Coffee Consumption Importing by Country in thousand 60 kg bags
2011 2012 2013 2014
European Union 40 765 41 018 41 875 42 442 1.4%
USA 22 044 22 232 23 417 23 761 2.5%
Japan 7 015 7 131 7 435 7 494 2.2%
Russian Federation 3 695 3 696 3 648 4 021 2.9%
Canada 3 574 3 498 3 514 3 913 3.1%
Algeria 1 942 2 117 2 125 2 154 3.5%
South Korea 1 801 1 714 1 760 1 910 2.0%
Australia 1 407 1 631 1 542 1 543 3.1%
Saudi Arabia 1 000 1 186 1 279 1 279 8.6%
Ukraine 1 324 1 238 1 338 1 215 -2.8%
Switzerland 1 035 1 047 1 123 1 028 -0.2%
http://www.ico.org/prices/new-consumption-table.pdf

Coffee consumption could not define by

how many a country imported. Based on
the table above, European Union was the
world biggest coffee importer and USA
was in the second place. However, in
practice of consuming coffee, USA not on
the second place but in the 16th place.
Following by Japan, Russian Federation,
Canada, Algeria, Australia, Saudi Arabia,
Ukraine and Switzerland. Meanwhile, not
much of the Japanese were consuming
coffee even though Japan is on the third
place of importing coffee. The figure explains countries consumption on coffee per capita per day.
Netherland, Finland, Sweden, Denmark, Germany, Slovakia which part of European Union was
on the 6 top countries in consuming coffee with the number of around 1.2 cups to around 2.4 cups
per capita per day. Following by Serbia, Czech Republic, Poland, Norway, Slovenia and Canada
with around 1 cup to around 1.1 cups per capita per day and USA, Austria, Costa Rica, Greece and
the other countries with the consumer level under 1 cup per capita per day.
Coffee has a really big and potential market. Most of peoples around the world are consuming
coffee. Every country has its own coffee brand and there must be some coffee shop in every
countries or even in every regions. Hence, many franchise restaurant like McDonald and Dunkin
Donuts have their own coffee shop in every store they have. For example, McDonald has McCafe
which has specialty in selling coffee and sweet desert like cakes and macaroon while Dunkin
Donuts also selling coffee besides selling doughnuts. Coffee really has promising market and large
demand. Starbucks now is the largest coffee shop in the world. It was only have 165 stores in the
world in 1992 which the 146 stores was located in USA but now it has more than 21,500 stores
worldwide separate in 64 countries.

Coffeehouse Revenue Worldwide 2014 in billion USD

Coffeehouse Worldwide Revenue 2014

On the figure above shows the worldwide revenue of the coffeehouse. Starbucks sit on the first
place with 16.45 billion US Dollars revenue. Some research also shows that around 30% of coffee
consumer in 2010 were get their coffee at home while 15% of coffee consumers were get their
coffee at Starbucks. As Starbucks is the largest coffee shop in the world, lets took it as an example.
From the figure above, it proves that coffee really has a big demand worldwide nowadays. The
sales of coffee in coffee shop surprisingly really high as seen on the high revenue. The sales of the
coffee in coffee shop worldwide reach up to the number of billion dollars. The role of coffee in
world trading commodities must be very important.

Indonesian Coffee Trade

By looking on the production figure, Brazil will be on the top country of exporting coffee. But
Indonesia is also in the fourth position in producing. Even though Brazil dominating the export
market, in Indonesia coffee is one of the main export commodity. Besides, Indonesia more
exporting Robusta than Arabica. Indonesia today have around 1.24 million hectares of coffee
plantation. The 933 hectares is used for plant Robusta and the rest 307 hectares is for Arabica
plantation. Indonesian biggest threat is Vietnam because the coffee produced is quite similar as
both country has similar demography and climate. While country like Brazil, Columbia and Costa
Rica tend to produce higher quality Arabica beans. Indonesia now export 80% of Robusta from
total coffee export.
Indonesia biggest import partner is United States, following by Germany and Japan. In 2015,
United State spent 281.15 million USD in purchasing Indonesian coffee. It’s around 23% of
Indonesian coffee export market. While Japan spend 104.96 million USD or around 8.7% of
Indonesian coffee export market and Germany spend 88.4 million USD or around 7.4% Indonesian
coffee export market.3 And Indonesia earn 1.12 billion USD in exporting coffee on 2015.

3
https://www.bps.go.id/linkTabelStatis/view/id/1014
The table above shows Indonesian coffee export data in the volume of thousand ton from 2007-
2013. For the green beans and roasted coffee, from 2011, the export is constantly increasing both
in volume and value. According to the data, the demand of Indonesian coffee keep increasing since
2011 because the value of export keep rising. Compare to the import table below.

The gap between export and import relatively far. In 2011, Indonesia successfully export 1,303,494
thousand tons coffee while they only import 122,080 thousand tons coffee. Indonesia still shows
surplus on coffee trading because the export number is much greater than import.

Impact on Indonesian Economy

From the data above, the total value of Indonesia in exporting coffee is 1,303,494 thousands USD
in 2011 and increasing to 1,566,805 thousand USD in 2012. The data shows quite big number of
Indonesia in exporting coffee. The revenue gained will also relatively high and impact in Indonesia
foreign exchange. On the international market, Indonesian coffee commodity demanded is quite
big, but Indonesia do not have enough goods to fulfill the demand of coffee. The local demand
itself is relatively big, so Indonesia try to fulfill the local demand first rather than. The lack of
plantation and labor also become a factor for Indonesian coffee sector grow slowly. If Indonesia
can increase the number of plantation and develop the coffee sector, the revenue gained will be
much higher because the high demand of Indonesian coffee inside and outside the country. Coffee
is predicted to be one of the commodity that have potential in Indonesia international market. But
besides the lack of coffee plantation and labor factor, the quality of the coffee is also become a
problem to Indonesia.
Indonesia tend to produce a lower quality of Robusta and the Robusta exported is 80% of total
coffee export. A lower quality of Robusta is caused by climate, area and soil chosen to grow the
coffee. Most of Indonesia coffee farmer have a little knowledge on growing coffee and lack of
facilities on producing coffee is one of the factor cause Indonesian coffee bean have a lower quality.
In order to increase the global demand, Indonesia must fix the local problem first. Government can
support this sector by facilitating coffee farmer a land or plantation and give an education for
planting coffee to lift up the quality of Indonesian coffee.
Today, opening a coffee shop is become a new trend in Indonesia. In the last 2 years there are
many coffee shops were newly open across the Java especially in Jakarta, Surabaya, Bandung and
Malang city. Young Indonesian people have a new habits to sit in the coffee shop with their friends
and drink coffee. It will increase the consumption of coffee through the nation. When the
consumption is high, the demand of the coffee is also high. The table below shows the coffee
consumption of local people per capita per year in kilogram. From the right table, the data shows
that the consumption of coffee is keep increasing from 0.8 kg in 2010 become 0.94 in 2012. And
the prediction it will keep increasing and reach 1.15 in 2016.
On the other hand, some modern coffee shop tend to use the import coffee beans to attract
consumers beside the imported beans have a better quality. The use of import coffee beans can
increase the import transaction and if the import transaction exceed export, then Indonesia will
face a trade deficit.
By increasing the quality of Indonesian coffee, Indonesia not only attract international market to
use Indonesian coffee product but also attract local coffee shop. If all of local coffee shop using
local product, the import number will be lower and Indonesia have a trade surplus. As Indonesia
have a potential area and climate to grow a good coffee bean, it can be a tools for Indonesia to
increasing the value of export.

Besides, agriculture sector also playing an important role especially in reduce unemployment rate.
Coffee has become one of the main commodity exported by Indonesia. Besides export and import,
coffee is also very important in local economy. Indonesian coffee production always increasing
every year and the labor needed in producing coffee will also increase. It helps Indonesia to reduce
the unemployment rate especially in the country side. Reminding that agriculture sector absorb
most of the labor force in Indonesia (figure above).
Indonesia infrastructure and development mostly focus on the central and Java Island. While the
other provinces like Borneo, Sumatra, Papua is not as sophisticated as the central area. Coffee can
open a new chance of jobs for the people near those area. From the figure below, Sumatra is the
Indonesian biggest coffee producer in Indonesia. Around 22% of Indonesia coffee is produced in
South Sumatra while 8% is produced in North Sumatra and 4% is produced in West Sumatra. The
second largest producer is Lampung, following by Bengkulu and East Java. Coffee can help to
develop the country side area especially Sumatra as it is the largest Indonesia coffee producer.
Reminding that Sumatra is not as develop as the other province in Indonesia, by investing on coffee
sector, government can also help to build Sumatra and raise Sumatra economy.

Conclusion
Nowadays, coffee is daily needs of the people around the world with promising market and large
demand. Drinking coffee like become a culture for some of peoples. Some research shows that per
second people consume 28,985 cups of coffee around the world. Coffee was said the second most
valuable commodity exported by developing countries with the number of people who depend on
coffee for all or most of their living is in excess of 75 million. They differ coffee by the most
commonly grown which are Arabica and Robusta but 70% of produced coffee in the world was
categorized as Arabica. In production sector, Brazil was the largest producer in the world following
by Vietnam, Colombia, Indonesia, and Ethiopia. In export sector, Brazil was also the largest with
25% of coffee supply around the world was produce by Brazil following by Vietnam, Colombia,
Indonesia and Peru. Besides, European Union was the biggest importer and re-exporter of coffee
following by USA which also import and re-export. However, in consumption sector, Netherlands
was the biggest coffee consumers in the world following by Finland, Sweden, Denmark, and
Germany which part of European Union. In market sector, coffee was very promising business as
McDonald and Dunkin Donuts were open their own coffee shop and Starbucks stores was
surprisingly increasing from 165 stores to more than 21,500 stores worldwide in terms of 1992 to
2015. In pricing, Robustas was the cheapest and Other Milds was the most expensive coffee
according to ICO October 2015 price indicators.
Coffee is affecting the economics of the fourth largest coffee producer country, Indonesia. The
commodity have a potential on country’s growing economy. It is become one of the main
commodity exported by Indonesia. Coffee can drive a better economy for Indonesia from reducing
unemployment rate and make a trade surplus. Indonesia keep increasing the number of production,
export and consumption every year. The main coffee product of Indonesia is Robusta that
dominating 80% of Indonesia coffee exported. But the lower quality of the beans become a factor
affecting Indonesian coffee in international market. By increasing the quality of the coffee beans,
Indonesia can increase the demand on international and local market.