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Analysis of marketing efficiency and marketing channel choice of organic coffee in Ermera Regency, Timor-Leste
Thesis Abstract:
Coffee is a mainstay commodity of Timor-Leste plantation developed several decades ago using organic system, with the export purpose to increase non-oil and gas foreign exchange, and to create jobs and incomes of 25 percent of farm households in Timor-Leste. Ermera Regency is one of the production centers with 31,616 ha of coffee plantation, with the production contribution of 38 percent of the total production of 9,384 tons in 2013. To increase the income of coffee farm households, it needs efficient marketing system. Coffee marketing in Ermera Regency involves several factors such as merchant middlemen and whole traders with different activities. Choice policy of organic coffee production system provides opportunities for Timor-Leste coffee marketing in the international market, as well as the increase in prices accepted by farmers in choosing the channels that give optimum benefit.
This research was conducted in Ermera Regency with the purposes of analyzing (1) market structure and barriers of entering and exiting the market, (2) market conduct, (3) market performance, and (4) factors influencing the choice of marketing channels by coffee farmers. Primary data were collected through cross-section of 100 respondent farmers, five merchant middlemen, and four whole traders using questionnaires as the aid tool, while secondary data were obtained from relevant agencies such as the Ministry of Agriculture and Fisheries of Timor-Leste, the Directorate of Industrial Crops and Agribusiness, the Ministry of Finance of Timor- Leste, and related agencies, as well as from literature. Descriptive analysis was used to describe the institutions involved in the coffee marketing and the functions carried out. Quantitative analysis using Logit Regression was used to analyze the efficiency of marketing, market performance, and marketing channel choice.
The structure of coffee market in Ermera Regency, Timor-Leste has not been efficient and is indicated by the coffee market, which leads to imperfect competition market (oligopsonistic). This condition indicates that whole traders have a great mastery level in influencing the market. On the other hand, the farmer groups have not been able to function well in coffee marketing activities. This is because the sale of coffee is not carried out in groups, but individually, putting farmers in a weak position on setting the price. At all levels, whether they are at the farmers or at the merchant middlemen and the whole traders, there is product differentiation marked by processing and storage activities. On the other side, coffee also has business barriers related to capital and market information, while for the merchant middlemen, the barriers faced are capital, transportation, and coffee drying facility and warehouse. CR4 value reaching 0.98 indicates that the coffee products in this regency are more concentrated in the four companies. While the value of minimum efficiency scales (MES), reaching 62 percent suggests that for the marketing of organic coffee in Ermera Regency, there are barriers for the new companies that will enter.
The coffee price in Ermera Regency is determined by whole traders both in the sales of coffee berry and the sales of horn, although coffee prices are based on international prices. Farmers in general are in weak price bargaining power due to various constraints such as sales volume, non-functioning of coffee farmer institutions, price information, and coffee processing facilities. Many farmers are not doing good lawn care, and the income from the sale of coffee is not enough to cover a wide range of farm inputs. The price of coffee cherry is sold at a price range of USD 0.25–0.50 per kilogram, while parchment coffee is at an average price of USD 1.25.
The analysis of coffee market performance in Ermera Regency indicated that it is not inefficient yet. An uneven margin distribution was observed, and price share received by farmers in parchment coffee sales channels only by 47 percent. In coffee cherry sales, farmers gained 54 percent share, while traders only gained by 46 percent. This indicates that coffee cherry sales are more profitable, although it is realized that the processing goal is to obtain the value added. In order to improve efficiency, it can be reached by choosing the channel giving the value of higher price share by reducing marketing costs and time for the sale of the coffee. From the results of analysis, statistically, it is known that only farming experience factor and the price of parchment coffee can significantly influence the choice of coffee marketing channel in Ermera Regency.