Tanah Karo Arabica Coffee Development Strategy
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International Journal of Research and Review
Vol.7; Issue: 8; August 2020
Website: www.ijrrjournal.com
Research Paper E-ISSN: 2349-9788; P-ISSN: 2454-2237
Tanah Karo Arabica Coffee Development Strategy
Iska K. Ginting1, Lukman M. Baga2, Anna Fariyanti2
1
IPB University, School of Business, Jl Raya Pajajaran Bogor, Indonesia
2
Department of Agribusiness, Faculty of Economics and Management, IPB University, Jl. Agatis, IPB Darmaga,
Bogor 16680
Corresponding Author: Iska K. Ginting
ABSTRACT Indonesia decreasing each year since 2015.
Decrease production volume caused by the
Coffee is a plantation that has the potential to be bad weather, stock unavailable, and high
developed based on the level of consumption demand of domestic consumption that
and world demand that shows a positive trend. become an opportunity of improvement and
One of the potential areas for coffee
development of coffee agribusiness.
development is Karo Regency, North Sumatra.
Karo Regency develops Coffee after the Indonesia has several production centre
eruption of Mount Sinabung which affected the based on the highest production that are
farmer’s economy. Coffee cultivation is one South Sumatera, Lampung, Aceh, East
alternative to recover the economy of Karo Jawa, and North Sumatera. North Sumatera
farmers. Therefore, this study aimed to strategy is center of production of several single
priorities for coffee agribusiness development of origin coffee such as Deli, Mandheling, and
Tanah Karo Arabica coffee. Sidikalang. The newest location for coffee
The analysis method that used are IFE/ EFE, IE agribusiness development is Karo Regency.
to determine the existing position of Tanah Karo Based on the analysis of FAO and
Arabica coffee agribusiness. Based on the BAPENNAS in order to economy recovery
analysis results, Tanah Karo Arabica coffee
post volcano eruption that cause crop failure
agribusiness is in quadrant II with moderate
internal factors and strong external factors, so almost for whole horticulture and crops,
that the grand strategy for Tanah Karo Arabica coffee is the commodity that could survive
coffee agribusiness is growth and build The on the impact of eruption (BAPENNAS
result of AHP strategies are quality 2016). Coffee was able to be the new
improvement of harvested and processed livelihood source for farmers in Karo
product of coffee, increasing production regency. After the analysis, coffee growing
capacity of harvested and processed products, rapidly in Karo Regency.
and establishing marketing and promotion After the development post eruption,
agency of Tanah Karo Arabica coffee. cultivation area in Karo Regency increasing
during 2015 to 2017 but the productivity
Keywords: development, Tanah Karo Arabica
decreased every year. This phenomenon
coffee, strategies
could become a risk for coffee agribusiness
in Karo regency. This indicates that farmers
INTRODUCTION
Coffee is one of high potential cultivation technique was far from the
development commodity of plantation. standard as cause of lack of knowledge and
World coffee consumption through 2017 to technology. Not only in cultivation,
2018 was 9.6 million tons. Indonesia is the processing subsystem in coffee agribusiness
second country after Brazil as the highest also using traditional technique. End
coffee exporting country with export growth product from coffee farmers are husk that
rate 1.8% every year. (ICO 2019). In 2018, sell to middleman. The further processing
based on ICO (2018), coffee production in done by few small to medium scale of
International Journal of Research and Review (ijrrjournal.com) 232
Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
processing business. Farmers sold husk at threat. Previous study analyzed that strength
range IDR 35 000/kg, while according to of agribusiness coffee including land area,
ICO if husk processed to greenbean worth farmers’ age, and education, access to
to IDR 60 000/kg. Moreover, the quality of infrastructure, geography condition and
the coffee was not optimal based on the transportation. Weakness of coffee
cupping point rate. Tanah Karo Arabica has agribusiness analyzed as low productivity,
disadvantage for flavor taints such as mold traditional technology, capital access, and
and fruit decomposition. Compared to the coffee disease. Opportunities in coffee
other coffee, Tanah Karo Arabica has not agribusiness as external factors consist of
been promoted extensively and limited done national economic system, market demand,
in Karo Regency. Overall, agribusiness policy, research and development institution
coffee of Tanah Karo Arabica has and threat consist of coffee product from
development potency. Based on this another area and country, quality standard,
background, this research expected to and another product of agribusiness
formulate the alternative strategies to (Hariance et al.2016, Zakaria et al. 2017,
improve and develop agribusiness coffee in Sembiring and Sitanggang 2013). Previous
Karo Regency. The objectives to be study identify the alternative strategies to
achieved in this study to formulate the develop coffee agribusiness are
alternative strategies to improve and extensification, product differentiation,
develop Tanah Karo Arabica coffee optimization of government role, fair trade,
agribusiness in Karo regency. labelling, incentive for technology adoption
training, land extension, and agrotourism.
LITERATURE REVIEW (Petit 2007, Arifin 2013, Sarirahayu and
Indonesian coffee in global market Aprianingsih 2018, Reiders and Ingenbleek
has competitive advantages but in domestic 2012, Manurung et al. 2016, Lyon 2013).
level several disadvantage such as According to Wheelen and Hunger (2012),
dominated by small farmers, not intensive development strategies formulation will
management, and low production, processed trough several process. David (2013)
product quality as cause of low adoption, explains 3 stages of strategy formulation:
domestic demand oriented while the The input stage
consumption was low affected the whole In this stage, information about
aspect in coffee agribusiness. (Narulita et al. internal and external factors needed to be
2014, Wahyudi and Jati 2012).Coffee from known. This stage indentified and evaluated
Indonesia was known has unique taste and existing position of organization or
flavor. Coffee introduced while Arabian company. In this case, internal and external
trader came to Indonesia and cultivation factors of coffee agribusiness indentified
commercialized after Netherlands came. using each subsystem approach such as
Coffee in several area in Indonesia upstream, on farm, downstream, and
developed in many way. Gayo, Lampung, supporting subsystem.
and Java Preanger is some of coffee that The Matching Stage
belong to coffee specialty. There were a few These stages aimed to formulate the
differentiation in agribusiness coffee based alternative strategy based on combination of
on area of cultivation. each factor in internal and external factors.
According to Wheelen and Hunger (2012) The Decision stage
management strategy is instrument that used The last stage will obtained the priority
by organization to achieving goals and strategy based on alternative strategies
maintains existence and sustainable formulation. The decision stage used
competitive advantages. Internal factors Analytical Hierarchy Process (AHP). Saaty
consist of strength and weakness while (1993) formulate AHP as decision making
external factors consist of opportunity and technique for complex issues based on men
International Journal of Research and Review (ijrrjournal.com) 233
Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
logical thinking. The stages in AHP and Analytical Hierarchy Process (AHP).
including: This analysis used application tools such as
Hierarchy decomposition Ms. Excel and Expert Choice.
The issues decomposed to several parts IFE and EFE method used to explain
hierarchically. In this study, the hierarchy internal and external factors of agribusiness
arranged by goal, factors, actors, and coffee in each subsystem. Identification then
alternatives. formulate to strength, weakness,
Pairwise Comparison opportunity, and threat. The result of IFE
Comparison was done by compare each of and EFE obtained the existing position of
element in each level of hierarchy. Tanah Karo Arabica coffee agribusiness that
Comparison used range in 1-9 to get a formulated using IE matrix. IE matrix
picture of the relative influence of a part of consisting six quadrant which have
the hierarchy on the purpose of the problem. generated six various of grand strategy.
The comparison is done by pairing one The steps of IFE and EFE matrix are:
element with another element that might 1. Sorting the factors in accordance with
produce differences in qualitative terms: strength, weakness, opportunity, and
equal, weak, strong, very strong, and threat based on the condition of Tanah
absolute. Comparisons are made between Karo Arabica Coffee agribusiness.
elements at the same level that will affect 2. Weighting in range of 0.0 up to 1.0.
the level above it which would generate the Total of the weight is 1.
priority. In the same element that is 3. Rating 1 and 2 for weakness factors, 3
compared is given a value of 1 and the and 4 for strength, 1 up to 4 for
elements that have been compared so if it is opportunity and threat factors.
compared upside down will produce an 4. The multiply result of weight and rating
inverse value as well. These values are then is weighted score
solved by solving mathematical equations. 5. The sum up of weighted score turns out
Consistency Ratio as total weighted score.
Each element is then logically The next step is arranging the
grouped and ranked consistently according SWOT matrix to formulate the alternative
to specified criteria. Consistency becomes strategies. SWOT built by combine
very important to determine the validation strengths and opportunities, strengths and
of expert opinion.. The consistency ratio threats, weaknesses and opportunities,
value must be less than 10%. weaknesses and threats. The result of the
Xg combinations then used as element of
Xg = geometric mean analytical hierarchy process. AHP in this
n = number of respondents study consisting four level, the first level is
Xi = comparison by the i respondent goals to achieved, the second level is factors
that determine the agribusiness
METHOD development, the third level is actors or
The objects of this study are primary stakeholders that influence, and the last
and secondary data. Primary data obtained lavel is the alternatives strategies that
from expert in-depth interview and obtained from SWOT analysis. AHP
stakeholders in Tanah Karo Arabica coffee determined the priority strategies that need
agribusiness. The secondary data obtained to be done refer to the whole hierarchy in
from literature review based on government Tanah Karo Arabica coffee agribusiness.
data, research publication, internal, journal,
and books. Data processing method used in RESULT
this study are qualitative methods such as Karo Regency is one of agriculture
internal factors evaluation (IFE), external center in North Sumatera. Agriculture in
factors evaluation (EFE), SWOT matrix, Karo Regency consisting several sub-sectors
International Journal of Research and Review (ijrrjournal.com) 234
Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
such as crops, horticulture, plantation, of science and technology application, short
fishery, and livestock. Karo Regency is a of alignments of Karo Regency
highland that suitable to Arabica coffee Government, short of training and
growing. Karo Regency Farmers started counseling, high usage of pesticide,
cultivate Arabica coffee post eruption of oligopsoni market system. Total weighted
Sinabung Mt that caused severe crops score of internal factors based on IFE was
failure. Government, BNPB and FAO 2.41 which categorized as moderate.
researched in order to recover the household External factors included in
economy that coffee is resistant from the opportunities were positive trend of
impact of eruption. BNPB and FAO then domestic and international coffee market,
enforced training and assistance to farmers development of culinary and tourism in
to plant coffee as the new main commodity. Karo regency, Center Government policy
After that until 2019 coffee development specifically for micro and intermediate
grow fast and production increased business scale, issue of coffee impact on
significantly. In other hand, coffee health, export standardisation policy from
development also caused by downward another country, marketplace development,
trend of orange cultivation that once was the and Pesta Tahunan culture of Karo
main focus commodity in Karo Regency as Regency. Threats in Tanah Karo Arabica
known as ‘Jeruk Medan’. Conversion from Coffee agribusiness were another area
orange to coffee obtained by flies disease coffee products, forgery and blending,
that handled costly and impact the farmers currency, and coffee tax policy. Based on
income. Coffee cultivation cost was much EFE matrix, the total weighted score was
lower than orange. Complexity and higher 3.02 that categorized as strong. The
time spent of orange cultivation also impact combination of total weighted score of IFE
the conversion to coffee (Ginting et al. and EFE generate the existing position of
2018). In 2018, coffee farmers in Karo Tanah Karo Arabica coffee agribusiness that
Regency were 13 135 household with 9 178 classified in second quadrant. In second
Ha area. By 2020, Tanah Karo Arabica quadrant, the grand strategy for developing
Coffee already had the Geographyc a business was growth and build. This mean
Indication (IG). Geographyc Indication was that Tanah Karo Arabica coffee agribusiness
the guarantee that only coffee from Karo had not reach the optimal utilization of
Regency that could using Tanah Karo strengths and minimize the weaknesses
Arabica Coffee brand. This became the whilst has responded the opportunities and
protection guarantee from another area managed the threat maximally. Growth and
coffee product and value added for Tanah build strategy consisting of market
Karo Arabica coffee in order to escalate the penetration develop market share, and
global or domestic market trust. product development. In operational side,
Internal and external factors of Tanah Karo forward and backward integration and
Arabica Coffee agribusiness indentified in horizontal integration were needed to be
each subsystem. The result showed that done.
internal factors included in strengths were: The next stage was using SWOT
potential area of cultivation, ideal matrix to formulate the alternative strategies
geography condition, input accessibility of combination of internal and external
(seeds, fertilizer, agriculture tools), factors. Combination of strengths and
accessibility of capital, infrastructure and opportunity (SO) conduced five alternatives
transportation accessibility, and unique taste strategies namely build partnerships
of coffee whilst internal factors that between farmers and processors/marketers,
included in weaknesses were unskilled develop agrotourism, improve the quality of
human resources, no institutions in each of harvests and processed products, develop
the subsystem, high wages, short adoption marketing and promotion agency for
International Journal of Research and Review (ijrrjournal.com) 235
Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
processed Karo Coffee products. provincial and central government with
Combination of strengths and threats (ST) farmers and processors. And the last
generated increase the capacity of harvest combination of weakness and threats were
production and processed Karo coffee establishing identity labeling policies on
strategy. Alternative strategy by combined Karo coffee harvest and processed product,
weaknesses and opportunities (WO) namely and establishing storage facilities for
training following SOP for coffee farmers, harvested coffee.
establishing production cooperative for
farmers, bridging the consolidation of the
Picture 1. Hierarchy Process of Tanah Karo Arabica Coffee Agribusiness
Source: processed by researcher (2020)
The analysis continued by arrange human resource quality. Based on weight
the hierarchy in Tanah Karo Arabica coffee score the priority of factors that influence to
agribusiness. Hierarchy contain four level achieve the goal sequentially were coffee
based on in-depth interview with expert and quality, human resource quality, coffee
stakeholder. The first level was goal of the quantity, market chain, stakeholders
main purpose that needed to achieve, in this partnership, Karo regency government
study the goal was develop Tanah Karo policy, and promotion. The third level of
Arabica coffee agribusiness. The second hierarchy was actors that effect to achieve
level was factors that influence the goal. the goal were Karo Regency government,
The factors namely coffee quality, coffee farmers, supporting institutions,
partnership between stakeholders, Karo processing agent, and marketing agent.
Regency government policy, coffee Sequentially the factors priorities were
quantity, market chains, promotion, and coffee farmers, supporting institutions, Karo
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Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
regency government, processing agent, and because farmers were the producers of the
marketing agent. The fourth level of very first products in coffee agribusiness.
hierarchy was alternative strategies that The farmer determined the quality and
conducted by SWOT matrix. The priority quantity of coffee produced by their
strategies sequentially were improve the knowledge and skills. The actor who had the
quality of harvests and processed products, second biggest influence was the supporting
increase the capacity of harvest production institution. Supporting institutions could
and processed Karo coffee strategy, develop become facilitators for the introduction of
marketing and promotion agency for technology, improvement of skills and
processed Karo Coffee products, knowledge to farmers and processors.
establishing production cooperative for Supporting institutions could also develop
farmers, training following SOP for coffee business scale with access to capital.
farmers, build partnerships between farmers Supporting institutions also became
and processors/marketers, establishing facilitators to build wider networks outside
identity labeling policies on Karo coffee the scale of Tanah Karo Arabica coffee
harvest and processed product, establishing agribusiness. The third priority is the
storage facilities for harvested coffee, government. The government had the
bridging the consolidation of the provincial authority to determine policies, intervene,
and central government with farmers and and become a forum for every actor in
processors, develop agrotourism. coffee agribusiness. The government also
had a role in creating an investment climate
DISSCUSSION regarding the ease of procedure in coffee
In the first level of hierarchy 3 of the agribusiness (Tanan 2012).
priority factors that determined the main The priority strategies of that
goal including coffee quality, human concluded in this study were to improve the
resource quality and coffee quantity. The quality of harvests and processed products
quality of coffee produced would affect the of Tanah Karo Arabica coffee, increase the
competitiveness of products with other capacity of harvest production and
similar products. The quality of coffee processed of Tanah Karo Arabica coffee
produced depended on the cultivation and strategy, develop marketing and promotion
processing that is carried out. The quality of agency for processed Tanah Karo Arabica
coffee produced coupled with the unique coffee products. The ideal geographical
taste of Tanah Karo Arabica coffee would situation must be utilized along with the
add value to the quality and price of coffee. accessibility of inputs and capital to
The quality factor of human resources was improve the quality of the harvest and
the second priority in the development of processing of Tanah Karo Arabica coffee.
Tanah Karo Arabica coffee agribusiness. Increasing the quality of the harvest needed
The quality of human resources could be to be done so that farmers’ products and
known from the skills and knowledge by the processing product would match with the
actors in Tanah Karo Arabica coffee standards of the market, especially the
agribusiness, the mindset of business export market. Some countries applied
objectives is also part of the quality of several standards for cultivation so that
human resources. The third priority is the products were able to enter their countries.
quantity of coffee produced. Large Improving the quality of coffee would
quantities of coffee would match the market provide advantages to be able to compete
needs so that marketing becomes more with coffee products from various regions to
efficient without any shortages of stock. match with the demand for domestic and
The most influential actor in the international coffee. Quality improvement
development of coffee agribusiness was could also be used to take advantage of
farmers. Farmers had priority influence marketing and promotion opportunities
International Journal of Research and Review (ijrrjournal.com) 237
Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
through emerging markets. This strategy can be established so that this strategy could be
be carried out in an integrated from implemented to achieve the main goal
upstream to downstream (Arios 2019, (Wahyudi et al. 2020).
Hariance et al. 2016). Improving the quality The strategy of increase capacity of
of harvests and processed products could be harvest production and processed Tanah
done by collecting data on the harvested and Karo Arabica coffe aimed to utilize the land
processed products produced by farmers and that potential to plant with coffee by farmers
processing to determine quality based on with an ideal geographical situation, ease of
standards. By knowing the quality position, accessing inputs such as seeds, fertilizers,
improvements able to formulate for each and agricultural equipment, and ease of
indicator that builds the quality of products accessing capital to increase coffee husk
both coffee harvested and processed. production and other processed coffee
Quality improvement could be done by products. Increasing quantity was also an
evaluating the cultivation process, post- effort to overcome the threat of competition
harvest, and processing. The evaluation will from products produced in other regions and
be used as a reference to improve and minimize blending or counterfeiting by
enhance the skills and knowledge of the individuals due to a shortage of coffee
actors involved. Skill utilization and supply. By increasing production capacity,
knowledge accompanied by the introduction it is expected to increase tax revenues in
of technology could be done by maximizing accordance with tax policies imposed by the
counseling and training. Intention of farmers government and provide economic benefits
to improve the quality of crop yields can be to coffee farmers and entrepreneurs. This
done with the application of Good strategy will also influence coffee prices to
Agricultural Practices of coffee (a good remain stable (Arios 2019). According to
quality of varieties, pruning of containers, Mugendi et al. (2015) the increase of
planting and trimming of protective trees, harvested coffee quantity was influenced by
making rorak, loosening soil, organic the adoption of coffee certification
fertilizing). Awareness for the application of standards produced by farmers. This
GAP is enhanced by Government certification can affect changes in
intervention in pricing based on quality and cultivation patterns that have been carried
cultivation techniques. Farmers and out by farmers. Changes in cultivation
processors must be introduced to several patterns will affect the long-term
certification systems that include cultivation sustainability of coffee agribusiness (Anh et
and processing standards which affect the al. 2019, Ibnu et al. 2019, Nguyen and
price to be received. The price difference Sarker 2018). Utilization of natural potential
will encourage farmers to produce premium such as organic fertilizer derived from
quality coffee so that the mindset of coffee livestock manure can increase the net
cultivation can change to become business weight of coffee beans. Increasing the
oriented. Seed quality will also affect the quantity can be done by integration between
quality of coffee produced, so research farms and coffee plantations (Suyasa and
needed to be done to produce superior Parwati 2015). Improving the quality will
varieties of seeds that are appropriate for increase the selling price so that it becomes
cultivation according to geographical one of the stimulation for farmers to
conditions of Karo regency In addition, increase their production and start utilizing
certification of seeds for institutions or seed their another land by cultivating coffee.
entrepreneurs could also be carried out so Increasing the quantity of coffee can also be
that the seeds produced are qualified. done by local government regulations on
Partnership between farmers, supporting easier access to capital for farmers,
institutions, especially counseling NGOs, processed entrepreneurs, and marketing
processing agents, and the government must actors, infrastructure improvement, creating
International Journal of Research and Review (ijrrjournal.com) 238
Vol.7; Issue: 8; August 2020Iska K. Ginting et.al. Tanah Karo Arabica coffee development strategy
a good investment climate, and ease of evaluating the strategies that have been
business establishment licensing for carried out. Therefore, further research can
processed entrepreneurs and marketing continue until the evaluation process.
actors.
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