Economic Feasibility And Value Chain Analysis Of Sustainable Coffee Farming In Rural Indonesia

Abstract

Sustainable coffee farming has become an important strategy for improving farmers' livelihoods while addressing environmental and economic challenges in rural areas. This study aims to evaluate the economic feasibility and analyze the value chain of sustainable coffee farming in rural Indonesia. A quantitative research approach was employed using descriptive and analytical methods. Primary data were collected through structured interviews and field observations involving 120 respondents, including coffee farmers, collectors, cooperatives, processors, and exporters, while secondary data were obtained from government publications and relevant literature. Economic feasibility was assessed using Net Present Value (NPV), Internal Rate of Return (IRR), Benefit-Cost Ratio (BCR), Net Benefit-Cost Ratio (Net B/C), and Payback Period (PP). Value chain analysis was conducted to identify major stakeholders, value creation, governance structures, marketing channels, and value distribution across the coffee supply chain. The results indicate that sustainable coffee farming is financially feasible, with a positive NPV, an IRR exceeding the prevailing discount rate, a BCR greater than one, and an acceptable payback period. Specifically, the investment generated an NPV of USD 7,845, an IRR of 24.8%, a BCR of 1.87, a Net B/C ratio of 1.54, and a payback period of 4.2 years. The value chain analysis reveals that although sustainable coffee production generates considerable economic value, the distribution of benefits remains uneven, with downstream actors capturing a larger share of the final market value than smallholder farmers. Cooperative participation significantly improves farmers' bargaining power, market access, product quality, and income through collective marketing and certification support. The value distribution analysis also shows that farmers captured 27.6% of value added, while roasters and retailers obtained the highest profit margin at 36.0%. Furthermore, sensitivity analysis demonstrates that sustainable coffee farming remains economically viable under moderate fluctuations in production costs and coffee prices, indicating strong financial resilience. This study contributes to the literature by integrating investment feasibility analysis with value chain analysis to provide a comprehensive assessment of sustainable coffee agribusiness. This integrated approach allows financial performance and value distribution to be assessed together, providing a broader view of the sustainability of smallholder coffee farming The findings provide practical implications for policymakers and agribusiness stakeholders in developing strategies that strengthen farm profitability, improve value chain governance, promote equitable income distribution, and enhance the long-term sustainability and competitiveness of Indonesia's coffee sector.