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.
Indonesia is one of the top coffee producers in the world. The major markets for Indonesian coffee are European Union (EU), then Germany is the largest importing country. This research analyzed the position for Indonesian robusta coffee in Germany among Vietnam and India as the major producers of robusta coffee as Indonesia. The econometric model of the Linear Approximate Almost Ideal Demand System was used to estimate a position for Indonesian robusta coffee among its competitors. The analysis utilized time-series data from 1996 to 2017. The results of the study showed that the main exporting countries, including Indonesia, tended to have lower import tariffs than other countries, not the main exporters. The demand for imported coffee beans was generally influenced by the prices of major exporters, but demand for imported roasted coffee was not affected by the prices of major importing countries. Indonesian coffee beans in the German market was elastic, while roasted coffee was inelastic. Indonesian coffee competed with Vietnam both for coffee beans and roasted coffee. The expenditure elasticity of Indonesian coffee beans was positive and Indonesian roasted coffee was negative.
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