Demand for Indonesian cocoa beans in a dilemma: Case study Malaysian market

Abstract

Indonesian cocoa industry has been transforming into a processed cocoa exporter by imposing export taxes. The policy has managed to increase exports of processed cocoa and decreased cocoa bean exports. However, overall export value of cocoa commodities (cacao bean and processed cocoa) has a declining trend, where an increase in the export value of processed cocoa has not been able to offset the decline in the export value of cocoa beans. This study evaluates the impact of the cocoa bean exporttax policy on demand for Indonesian cocoa in the Malaysian market using elasticity and ARDL model. Findings/Originality: This study finds that the demand for Indonesian cocoa is short-term in nature, and the volume of Malaysian demand for Indonesian cocoa is rapidly decreasing because cocoa beans is a complement for other cocoa suppliers. These conditions indicate that the quality of Indonesian cocoa does not meet the standard. That is also indicated by the increase in imports of cocoa beans to meet the processing needs of cocoa in Indonesia.

A Comparative Analysis of Dynamic Interactions between European and Indonesian Cocoa Markets during the 2008 Global Financial Crisis and the 2011 European Debt Crisis

“…The study incorporates representative and relevant variables into a Vector Auto-Regressive (VAR) equation system to answer the objectives of the research. Within the VAR framework, the endogenous variables influence each other (Nazlioglu and Soytas 2012;Wang, Wu, and Yang 2014;Dewanta 2019). Before estimating the VAR model, in the first step, the study needs to ensure data stationarity using unit root tests (Giuliodori and Rodriguez 2015) based on the following equations:…”

“…Additionally, when the Indonesian cocoa prices increased, the inability of Indonesian cocoa beans to meet international standards due to their low quality (Dewanta 2019) drove consumers to demand more cocoa commodities from European countries due to their lower price and high quality. The European commodities market could sustain its high cocoa demand by selling its cocoa commodities at a competitive price in the long run.…”

“…Nearly 90% of cocoa beans in Indonesia are sold in the local market (Dewanta 2019). Accordingly, changes in the global oil price caused a more long-lasting effect on the Indonesian domestic market.…”

“…Since Indonesia exports the raw cocoa beans mainly to the neighboring countries of Malaysia and Singapore, which used them as inputs for their processed cocoa products (Dewanta 2019), these countries would reduce their cocoa demand from Indonesia in the long run. This practice, in turn, causes the price of Indonesian cocoa beans to plunge.…”

“…Thus, hedging cocoa commodities is viewed as the paramount strategy to minimize the market risk due to price sensitivity to exchange rate fluctuations (El-Khatib and Hatemi 2018). Moreover, the Indonesian cocoa beans traded in the foreign cocoa markets are of low quality and non-fermented (Witjaksono and Asmin 2016) in the cocoa-derived products industry in Malaysia, Indonesian cocoa beans are commonly used as auxiliary raw material for the finest quality of cocoa beans from Ghana (Quarmine et al 2012;Dewanta 2019). The Indonesian cocoa market was also adversely impacted by the 2011 EDC.…”