CHAPTER 1
1.1Background
The coffee industry has a general history that can be drew as far as 15th century,
when Ethiopia, the beginning of coffee, exported coffee to Yemen. The coffee trade soon
expanded to Egypt and the Ottoman Empire. With the developing of trade between the
Republic of Venice and the Ottoman Empire, coffee was introduced to Europe, distribution to
England, France, Germany, Austria and the Netherlands. With European colonial expansion,
coffee was existing to the Americas and Asia, and soon became a main industry in various
colonies, especially in South America and India. (Feng, 2017).
Coffee exports is a $20 billion dollar industry production it the second-most-traded
commodity, mostly paid by industrialized nations although being produced by less developed
nations. It has a long and all-embracing commodity chain that includes production, exporting,
importing, roasting, distribution and retail. After harvest, coffee is also purchased from
farmers by middlemen, or straight exported by large coffee estates and plantations. Coffee is
commonly traded to transnational coffee processing and distributing companies at the
standard level set by the international agency, New York Coffee Exchange. The industry
survival and economies for several developing countries. It is an industry monopolized by
huge transnational corporations and chains (Feng, 2017). Coffee is usually produced in
developing countries and imported by developed countries. There are three major kinds of
coffee beans, green coffee, Robusta coffee and Arabic coffee, each has different smell and
flavor. Robusta coffee is commonly developed in western and central Africa, Southeast Asia,
and Brazil. Brazil was the world largest green coffee producer, followed by Vietnam, and
Ethiopia, Indonesia (Feng, 2017). Indonesia is a country with a very supportive geographical
location for coffee plantations and Indonesia is among the world's top coffee producing and
exporting countries (INDONESIA INVESTMENT, 2017).
Indonesia is situated in Southeastern Asia between the Indian Ocean and the Pacific
Ocean. Indonesia is a potential subtropical region for the development of primary plantation
commoditiess and the large population Indonesia is made up of more than 17,000 islands
with over 1.9 million square miles of land, which makes it the 15th largest country. Indonesia
has a population estimated at 266.79 million in 2018 (Indonesia Population, 2018). After
Independence on 17th of August 1945, Indonesia has been known as the third largest country
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beside India and America. With Indonesia's presence in the G20 as one of the strongest
economies in the world and active as a country that builds good relations with other
countries, cooperation in various fields aims to develop the country (wood, 2018).
Indonesia as a coffee producing country that has historically treated coffee as a
strategic commodity. The taste of coffee producing countries is getting tighter as the strategic
environment changes in the global economy so that world coffee exporting countries are
encouraged to increase their export value. Various efforts have been made by each
government of the producing country to support the export share. One of them is the
Indonesian government. International coffee trade have been around since the beginning of
the 20th century, which made coffee one of the first commodities to be regulated
internationally. According to MRS (Material Research Society) Geographical regions for
developing economies are as follows: Africa, East Asia, South Asia, Western Asia, and Latin
America and the Caribbean. Even those with a low share of global exports, rely on coffee for
foreign exchange earnings (Material Research Sosiety, 2019).
In general to maintain relations with another country, Economic factors is the most
important factor in the country’s sustainability (CWanamaker, 2018). The International
relations seen the economic from International Trade, Foreign investment and others.
Indonesia’s good image is important, especially in maintain relations with others country
around the world. To achieve their good image can be achieved of their cooperation’s in term
by success of economic sector. All countries must be involved in international trade to obtain
goods that are not produced by their own country and they sell goods produced to other
countries so that they can pay with profits from the results obtained. Especially under of
President Joko Widodo regime, Coffee become one of the mainstay of export commodities
that has a role as a foreign exchange earner, coffee is a global commodity with high
economic value and one of the most popular beverage ingredients in the world. Indonesia
economy has set boosting the people’s productivity competitiveness in International level and
can compete with Asian countries in agenda goals call“ nawa cita” (UNDP, 2015). Moreover,
President Joko Widodo also infroms that he wants Indonesia to be a good nations branding
abroad to become the soft power and keep invesment in maintaining Indonesia’s branding
abroad (KEMENTERIAN LUAR NEGERI , 2016).
the Indonesian government uses culture to be one of the ones promoted in conducting
public diplomacy. culture is an important role of the public diplomacy of a country, as
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mentioned in the report of the US State Department about the Cultural Diplomacy Advisory
Committee
“... For it is in cultural activities that a nation’s idea of itself is best indicated. And
cultural diplomacy can increase our national security in subtle, wide-raging, and sustainable
way.
To be promoted abroad, Indonesia is using variety of its culture. Indonesia is using
variety of its culture to be promoted abroad, culture is one of the key aspect of public
diplomacy. Moreover, the scoop of culture is very broad, it includes art, culinary, sport,
education, science and several more. The changeover of culture also can be done by the
citizen of Indonesia abroad, not only by the government so it can relieve the way of
Indonesian culture to increase easily.
The minister of agriculture of the Republic of Indonesia, Mr. Anton Apriantono
declare the establishment of Indonesian Coffee Council (Dewan Kopi Indonesia) and will be
officially doing their job on the Indonesian Coffee Exebition on 9th to 11th March 2018 at
Intermark Convention Hall, BSD, Tanggerang, they also would like to initiate to the
government to announce that 11th March as the national coffee day in Indonesia (Aco, 2018)
In adjunct that Indonesian would know more about Indonesian coffee. Our coffee
were very known overseas but not in our own country. Imported coffee were more known
here. How rich Indonesian coffee that known abroad, why is it still lack of appreciation in
our own country (Elsynosa, 2018)
Coffee has also become a reality that can create new social or community relations in
a society. A form of cooperation has been carried out by Indonesia, this is intended to provide
convenience and even opportunities to penetrate the European market. This organization is
AEKI, because AEKI is a coffee organization in Indonesia. Thus, the promotion for
Indonesian coffee overseas is done not only by the representative of the entrepreneurs’ such
as Asscociation of Exporters and Coffee Industry of Indonesia (AEKI), diaspora indonesia,
but also by the embassy, as the official representative of Indonesian government in other
countries. Indonesia has a good bilateral relations with United States. Which can be seen
from the table 1.1 below
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America is the biggest coffee consuming in the world, this has become
the reason why America is a potential market for Indonesian coffee exports.
The United States until this year and still the largest importer of North Sumatra coffee
commodities with various quality demands. The amount of coffee exports to the US is
inseparable from the dependence of coffee producers in the country on coffee from North
Sumatra to be used as a coffee mixing agent. Coffee also one of Indonesia's leading export
commodities with main consumers being the United States. The volume of coffee exports
from Indonesia to the United States over three years tends to fluctuate.
The Ministry of Trade makes coffee products as one of the mainstays of Indonesian
exports to the United States (US). Indonesia is also known as a country that has the most
coffee variants. There are almost 100 types of arabica coffee variants created since 1699,
such as Sumatra Lintong, Java Estate, Sulawesi Toraja, and Papua Wamena. These copies
will be exhibited at the SCAA exhibition later. Therefore, coffee exports will continue to be
increased in the coming years. With the presence of Indonesia at the Specialty Coffee
Association of America (SCAA) Expo 2016 held in Atlanta, Georgia, United States (US) on
April 14-17, 2016, coffee export opportunities from Indonesia will increase. The United
States (US) is the largest coffee market for Indonesia. No less than 63 thousand tons or 13%
of the total national coffee exports are sent to the US with a value of US $ 256 million. The
other main export destination countries for Indonesian coffee are Malaysia, Germany, Italy,
Russia and Japan (Dkatadata, 2018).
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Ministry of Foreign Affairs and Ministry of Trade through their institution called the
Indonesian Trade Promotion Centre (ITPC), Ministry of Tourism, and Indonesia’s
representative in United States, Indonesian Embassy in Washington DC and Consulate
General of Indonesia in Houston, were working together with non-government coffee
association such as the Association of Coffee Exporters and Industries of Indonesia (AEKI),
the participation of Indonesia on the 28th Annual Specialty Coffee Association of America
(SCAA) Expo that took place in Atlanta in 2016. In this exhibition, various institution of
Indonesian government that has been done.
1.2 Problem Identification
Indonesia is an agricultural country that is mostly Indonesian livelihood as a farmer,
Indonesian coffee production is mostly export commodities and Indonesia is the 4th largest
exporter in the world, this proves that Indonesian coffee export commodities can compete
with coffee commodities from other coffee exporting countries in the world, this is proven
with the high Indonesian coffee exports to various countries in the world, especially America
as the largest coffee importing country (INDONESIA INVESTMENT, 2017). As a producer
country, coffee exports are the main target in marketing coffee products produced by
Indonesia. Export destination countries are traditional consumer countries such as the USA,
European countries and Japan. United States, has become of the important partner of
Indonesia, not only politically, but also economically which can be seen from the fact that
United States is one of Indonesia’s crucial trading partner. Indonesia coffee is one of the
country's large foreign exchange earnings.Coffee is the one of Indonesia’s potential
commodities export in the world with high demand and Indonesia Government continuously
conduct the practice of public diplomacy through the promotion of culture to support the
achievement of national interest. (Indonesia-Investment , 2017).
Throughout all of those promotions, Indonesian coffee now is having a good place in
the heart of the Americans, Bob Fulmer, the president and co-founder of Royal Coffee
Company, a green coffee importer company from America on a video released by Indonesian
Trade Promotion Center (ITPC) Los Angeles, under the Ministry of Trade of the Republic of
Indonesia stated that “Indonesian coffee means a lot to us. Because, it is become one of the
pillars that help build the world coffee (Angeles, 2017).
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From the table shows that Indonesian coffee might has a good reputation and accepted
abroad. When Indonesia participating on the expo that held by the Speciality Coffee
Association of America (SCAA) in April 2016, they managed to seal a deal worth of 35
million USD for 392 containers delivery until 2017 and 11.900 USD on the first coffee
auction that Indonesia Involved in.
Coffee that has become the icon of the country has also been promoted all over the
world. The promotion of coffee is believed to be able to show the world how rich Indonesia
is, not only because the variety of coffee exist within the country, but also the large amount
of coffee that can be produced in the country which can be seen through the total export of
coffee abroad (Badan Pusat Statistik , 2017). Tingginya jumlah export kopi ke U.S
membuktikan bahwa Indonesia mampu melakukan public diplomacy sehingga U.S percaya
untuk import coffee dari Indonesia. Maka dari itu, penulis memutuskan untuk meneliti the
government implement promotions strategies in increasing the demand of export coffee to
USA from 2015-2017.
1.3 Statement of the Problem
The research conducted for this thesis analyzed several key points, which then
constructed into the statement of the problem to determine the thesis as a whole.
Topic
: Analysis on Indonesia – USA Economic Diplomacy in Increasing the
Demand of coffee In USA (2015 – 2017).
Question
: How did Indonesia goverment implement promotions strategies to increase
the demand of export coffee to USA (2015-2017)?
1.4 Research Objectives
The researcher’s objective of writing this thesis is to analyze the effort of Indonesian
government in the United States of America
The objectives of this research are:

To analyze the attention and strategies taken by the government in increasing
exports to the United States of America market.

To analyze the promotion done by the Indonesian Trade Promotion Center is
effective to maintain the export number of coffee to the United States of
America.
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1.5 Significance of the Thesis
Through this research, the researcher hopes to be able to:

To find out whether the promotion successful to boost Indonesian coffee
export to the United States of America.

To elaborate the understanding of Indonesian government strategies in
increasing the Indonesia’s Coffee to United States of America.
1.6 Theoretical Framework
Based on diagram above, Economic Diplomacy is all activities held by Country A which
aims to Protect and Promote its Economic Interest. The economic interest of Country A
could be achieved through participating International Trade Activities and these activities
is about the Export-Import to the Country B. As the result, the country B would give
advantage to country A and these efforts make economic interest of country A well-achieved.
1.6.1 Economic Diplomacy
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Economic theory is the main tool in achieving national interests related to other countries or
international organizations. To influence the simulation of international trade and investment
can be done with economic diplomacy. Economic diplomacy also has the potential for trade
between countries with different levels of development. The strongest economic diplomacy
impact for trade comes from middle-low income countries. Government activities involve
economic diplomacy and networks between nationalities and can be defined as users of
government relations and government guidance to enable international investment and trade.
The government also interacts with foreign and domestic companies to stimulate trade and
investment through domestic institutions (Office of investment promotion and export) which
stand under the auspices of the economic diplomacy .the decision of economic diplomacy is
to influence cross-border economic activities pursued by the government and state actors
(Nicholas bayne, 2011).
Economic diplomacy is concerned with economic policy issues, e.g. work of
delegations at standard setting organizations such as WTO and BIS.
Economic diplomats also monitor and report on economic policies in
foreign countries and advise the home government on how to best influence
them. Economic Diplomacy employs economic resources, either as rewards
or sanctions, in pursuit of a particular foreign policy objective. This is
sometimes called “economic statecraft” (G.R.Berridge, 2001)
The term economic diplomacy has built itself in the Croatian sources as an umbrella
term for all the actions of the national state to protect and promote its own economic interests
in the international environment. below the broader concept of economic diplomacy we
distinguish the activities of economic diplomacy and commercial diplomacy. The economic
instruments of foreign policy are divided into two major groups: economic (development) aid
and economic sanctions. Contrary to these traditional concepts we have a newer phenomenon
called 'country branding'. Some countries use different systems of organizations to promote
their economic interests in the global environment, and such a system is called model of
economic diplomacy (Zirovcic, 2016).
1.6.2 International Trade
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International trade theory is a theory that defines international trade with the concept
of exchange of goods and services between two parties or entities and based on mutually
agreed agreements. International trade is the concept of this exchange between people or
entities in two different countries. Economic growth becomes important in the economic
context of a country because it can be one measure of growth or economic achievement of the
nation, the intended population can be in the form of individuals (individuals with
individuals), between individuals and the government of a country or government of a
country with another country's government. In many countries, international trade is one of
the main factors to increase GDP. Although international trade has been going on for
thousands of years, these actors practice this activity because they believe in the benefits they
will get from the exchange. International trade also encourages industrialization,
transportation progress, globalization, infrastructure, and the presence of multinational
companies (Theories Of International Trade, 2017).
The development strategy of a country depends on the exports carried out. However,
there are constraints that are limited because international trade is usually supported by the
most economically strong countries, they often maintain selective protectionism for
strategically important industries such as protective tariffs applied to agriculture in the United
States and Europe. On the other hand it is a new opportunity that can be utilized for the
successful implementation of national development. In international trade, export and import
activities can be found where export activities can be found in trade barriers such as
regulations for export destination countries (Yusdja, 2016). So the government role is needed
to solve the problem. International trade regulations are carried out through the World Trade
Organization at the global level. Therefore international trade and the government of a
country can recognize the practice of economic diplomacy. Because of promotional activities,
moreover what is done by the official government can be more attractive and gain more trust
with good diplomacy and positive results from targeted companies and is likely to be an
increase in bilateral agreements between the two countries.
1.7 Research Methodology
The purpose of this research is to find answers to problems How Indonesia government
increase the demand of coffee in USA through Indonesia – USA economic diplomacy. The
data is expected to help research the ideas of this research and look for answers to the
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proposed research questions. The qualitative method will allow the researcher to analyze and
explore the topic so it will make the readers easier to understand the topic.
1.8 Literature Review
In order to understanding and elaborate the process of the settlement, author of this
research found a journal with title” Analisis Posisi Ekspor Kopi Indonesia di Pasar Dunia"
from Desi Ratna Sari, Ermi Tety, and Eliza said that Coffee demand is influenced by
consumption of both domestic and foreign consumption and coffee imports in coffee
importing countries in the world. Coffee quality such as superior seeds must be observed by
the government in the country by providing superior seeds at each production center in
Indonesia to increase the production and quality of Indonesian coffee and the delivery of
appropriate postharvest coffee handling techniques for Indonesia and have International
Quality standarts. Coffee is a type of tropical plant that can grow anywhere, except in places
that are too high with very high temperatures or barren areas that are not suitable for plant
life. Coffee is a type of tropical plant that can grow anywhere, except in places that are too
high with very high temperatures or barren areas that are not suitable for plant life. Further
research is needed on the development of Indonesian coffee in terms of quality, so that it can
provide input to the government to take appropriate policies. (Desi,Ermi,eliza, 2016).
In research entitle “Analisa Daya Saing Ekspor Kopi Indonesia di Pasar Dunia” The
results of the study explain and analyze the competitiveness of Indonesian Coffee exports in
the international market. Indonesia is the fourth largest coffee producer in the world in 2015,
even though Indonesia is included in the 4 largest coffee exporting countries in the world, but
Indonesia still cannot compete with Japan, Germany and America. The low value of
Indonesia's coffee exports is the low quality of coffee. Indonesian coffee shows that
Indonesia has an advantage over factors related to natural resources. The weakness is in the
conditions related to human resources, science and technology, access to capital, and the
availability of infrastructure that supports the development of the coffee industry. The
production produced is still lacking when compared to coffee land owned by Indonesia. So
the suggestion from this study is that Indonesia must conduct a review to improve the quality
and productivity of coffee (Purnamasari, 2014)
In the journal entitled “Ekspor dan Daya Saing Kopi Biji Indonesia di Pasar
Internasional: Implikasi Strategis Bagi Pengembangan Kopi Biji Organik from Bambang
Dradjat, Adang Agustian, and Ade Supriatna” explained that the performance of coffee
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export in 1995-2004 is still not satisfactory so it can be said that the competitiveness
Indonesian coffee is problematic. This study aims to analyze the competitiveness of
Indonesian coffee in the international market. Currently, Indonesian Coffee competitiveness
is still inferior to its competitor countries which are Colombia, Brazil, and Vietnam. But
Indonesia still has the opportunity to develop organic coffee beans for export. With the role
of government that should facilitate market development through the provision of market
information and the provision of export facilities (Supriatna, 2007).
In the Journal “Analisis Ekspor Kopi Indonesia from Rexsi Nopriyandi and Haryadi”
said that It is expected that local coffee agribusiness development strategy in Indonesia can
be done include increasing local coffee production, both on quality and on quantity so that
Indonesian coffee commodity can be superior in International market. In expecting the
government to be more aggressive in doing export activities, gross Indonesia continues to
increase. Strategies that can be made in increasing exports is to increase domestic investment,
which if increased investment will have a good impact on the Indonesian economy. The
government is also expected to further maintain the stability of the economy to keep the
exchange rate stable as the success of export activities is strongly influenced by the
fluctuating exchange rate (Haryadi, 2017)
Moreover, in the Journal entittled “Upaya Daya Saing Ekspor Indonesia” from
Ahmad Ramadhan Siregar said that there are some goods that excel in a country. However,
there are some goods that are still less competitive in the area of international trade.
Simultaneous improvement can improve the price structure and improve the quality of the
product. Stakeholders are also expected to support every move to improve national
competitiveness, such as creating a corporate strategy to improve the competitiveness of
Indonesian exports. Products produced by all domestic companies must be ready to compete
in the face of free trade and can take advantageous positive opportunities and exploit the free
market so that domestic products are well known and have a good market abroad. It is good
that all stakeholders in Indonesia need to unite to improve the competitiveness of Indonesian
goods and services (Siregar).
In last journal released by Adrian D. Lubis, a researcher of Research and
Development Center of Foreign Trade of the Ministry of Trade of Republic of Indonesia
entitled “Analisis Faktor yang Mempengaruhi Kinerja Ekspor Indonesia” explained the key
variables that influenced the value of Indonesia’s export. This study aimed to build another
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assumption to predict the Indonesian export performance. Furthermore this study use
multiregression analysist, and found out that Indonesia export is tiedly dependent on ten
major partners, which are: United States, Australia, China, France, Germany, Japan, Korea
Rep., Malaysia, Thailand, and United Kingdom. Indonesia export performance to those
countries is influenced by fluctuation of their GDP per capita. This study also found that the
Indonesia export performance for agricultural and industrial goods in general depend on
fluctuation of comodity price, GDP per capita, and real exchange rate. Moreoever, according
to this study realizing that GDP per capita of trading partner country is very crucial as key
determinants of Inodnesia export, then there will be necessary to established policy which
anticipate the offer and export demand of Indonesia as for the information can be obtained
from the trade representative like the ITPC or Indonesian trade attache which located in host
country (Lubis, 2013).
Literature review results that have been completed then it can be resolved that coffee
commodity is Indonesia's superior export commodities that have high competitiveness in the
world market. However, Indonesia still has obstacles in the development of coffee exports,
the obstacles faced one of them is the lack of processing of Indonesian coffee, Indonesian
coffee quality and the government and exporters are needed the cooperation in this case to
increase coffee exports. The role of government is very important and very influential to the
increase of coffee commodity.
1.9 Scope and Limitations of the Study
The author of this study focuses on How Indonesia government increase the demand
of coffee in USA through Indonesia – USA economic diplomacy? Based on this, there should
be an encouragement to increase Indonesian Coffee exports to America.
The scope of this research covers the trading of Indonesian coffee commodities with America
because America is the main destination for Indonesian coffee exports in Europe. America is
the biggest coffee consuming in the world, this is the reason why America is a potential
market for Indonesian coffee export.
1.10 Structure of Thesis
1.10.1 Chapter 1 : Introdution
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This first chapter provides the overview of topic that is being researched.This chapter
consist of the background of the study, problem identification, statement of problem ,research
objective, significance of study,theoritical framework, scope and limitation of the research,
literature review and as well as the definition of term that might be found within this thesis.
And also this chapter will provides the structure of the thesis itself which gives a brief
explanation about the discussion in every chapter.
1.10.2 Chapter II : Coffee as Major Commodities in Indonesia
In This chapter provides the history of Indonesia coffee, Indonesia coffee industry,
Indonesia coffee export policy, quality of Indonesia coffee, United States’ policy regarding
coffee import. And the government partners in increasing Indonesia coffee export.
1.10.3 Chapter III: Indonesia – United States Trade Relations in coffee commodities
This chapter will provide all Information about the trade relation between Indonesia –
United States of America export, and also provided about the opportunies and obstacle of
coffee export Indonesia to United States of America.
1.10.4 Chapter IV: Indonesia Government Strategies to Increase the demand of export
coffee to United States (2015-2017)
The fourth Chapter is the main part of this thesis because in this chapter will provides
the research and analysis of strategies of Indonesia’s government to Increase the export of
Indonesia Coffee commodity to USA. Starting from strategies to internal which standard
coffee regulations to improve coffee quality and also strategies external promotion of
Indonesia coffee exports in United States of America.
Chapter V: Conclusion
In this last chapter will concludes the finding of research regarding the topic from the
introduction chapter to the analysis chapter which answer the research question.
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