Examining Sustainability Risks in Indonesia-UK coffee supply chains

Coventry University project team

Prof Benny Tjahjono
Dr Jennifer Ferreira
Dr Jordon Lazell
Dr Mahdi Bashiri

Funding

QR Strategic Priorities Fund, awarded by UKRI.

Project overview

Through the QR Strategic Priorities Fund awarded to Coventry University by UKRI in 2019/2020, Prof Benny Tjahjono, Dr Jennifer Ferreira, Dr Jordon Lazell and Dr Mahdi Bashiri examined the sustainability risks affecting the Indonesia-UK coffee supply chain. The project aimed to understand perceptions and experiences of sustainability risks across the supply chain of coffee from the coffee farms in Indonesia, right across to the coffee shops of the UK, in order to be able to consider the potential impacts of these risks on the supply chain. The research finds a complex array of sustainability risks that have the potential to disrupt this supply chain, and points to solutions being driven by policy, but supported by a range of stakeholders and the need for greater stakeholder dialogue in the industry.

Indonesia is one of the leading coffee producers in the world, with around 11 million bags (60kg) of coffee produced in 2018/2019. Despite overall growth in the coffee sector in Indonesia and globally, it has experienced a continued downward trend in prices which has presented challenges for the livelihoods of those involved in coffee production, and the sustainability of the sector more broadly. Indonesia is one of the largest coffee producers in the world, producing around 12 million bags (60kg) of coffee in 2018/2019, behind only Brazil (53 million), Vietnam (28 million) and Ethiopia (7 million). For the UK, Indonesia represents an important market to source green coffee, it is the third largest supplier (15%) behind only Vietnam (22%) and Brazil (21%) (CBI, 2019). Therefore, the sustainability risks that affect the Indonesian coffee industry are important for the future sustainability of the coffee industry in the UK too.

As an agricultural product involving relatively complex supply chains, coffee faces a range of environmental, social and economic sustainability risks from climate change to labour shortages. The Indonesia-UK coffee supply chain represents just one of the plethora of supply chains that take place in the global industry, but acts as a starting point to examine the particular sustainability risks which threaten the industry’s future. This starting point is needed to better understand who might be able to lead action to address them, and barriers that might affect their ability to do this.

The project involved three key stages:

A survey of stakeholders in the coffee industry in the UK who have any interaction or interest in the Indonesia-UK coffee supply chain, as well as a series of semi-structured interviews to gain more in-depth insights. The results of the survey and interviews are presented in this document outlining perceptions of key sustainability risks for the Indonesia-UK coffee supply chain.
Interviews, survey and fieldwork with stakeholders in the coffee industry in Indonesia in order to generate responses on the perceived sustainability risks identified by UK stakeholders (in collaboration with Dr Tomy Perdana - Universitas Padjadjaran, Indonesia).
Development of a system dynamics (SD) model to map and understand the relationship between different factors of influence over the Indonesia-UK supply chain with respect to sustainability risks.

SD modelling is a form of quantitative analysis that allows the examination and simulation of complex and dynamic systems to support long-term, strategic decision making. As a form of analysis, SD modelling follows a Systems Thinking approach. This means approaching societal problems by appreciating their interconnected nature. The area of sustainable supply chain management has seen much engagement with system dynamic modelling. This research area is underpinned by the need to rearrange supply chains in a way to lessen their impact on the environment, for example understanding the impact of an increasing global population on production and logistical activities. SD modelling therefore allows researchers to predict the implications of various factors upon supply chains over the course of different time periods, monitoring a number of different outputs, in this case coffee from Indonesia to the UK.

The project revealed several contributions for understanding sustainability risks in the Indonesia-UK coffee supply chain:

It highlighted there are a range of complex and interrelated sustainability risks which affect the Indonesia-UK coffee supply chain but also how there are differences between the understanding of sustainability and the perceived sustainability risks between Indonesia and the UK.
There were also differences revealed between the perceived barriers to address these sustainability risks. Although the project revealed a general consensus across stakeholders about the role of governments and policy makers in addressing sustainability risks, and the need for stakeholder dialogue.
A series of barriers to addressing sustainability risks were highlighted by stakeholders across the supply chain. For Indonesia, these related to farming practices and structural problems in the coffee industry, where as UK stakeholders also felt the availability of finance was a significant barrier.
The research considered perceptions of responsibility for addressing the highlighted sustainability risk, and while there were some differences between Indonesian and UK stakeholders, government and policy makers were identified as key to leading any actions taken.

In order to address some of the sustainability risks identified in this research, it is important the stakeholder dialogue continues across the supply chain, in order to consider the best strategies to foster sustainable futures for all involved. The SD model was developed for the viewpoint of governments and key stakeholders who can influence the Indonesia-UK coffee supply chain. The purpose of developing this model was to allow such stakeholders to gain further understanding of the key sustainability risks and their effects, as well as simulate how potential interventions and future scenarios may impact on these risks. The result of this is a tool that allows better informed decision making by these stakeholders. For example, the low price of coffee and the implications of climate change remain key areas of discussion for the Indonesian coffee sector. By including these factors in the model, and their simulation against wider factors such as the unavailability of processing facilities or the changing nature of consumption trends, the model can predict the effect on outputs such as amount of coffee exported to the UK.

The research process which has led to the development of the SD model can provide insight into how to progress the response to this challenge with its ability to model and understand the complex interactions between a number of different factors at play all the more important considering the ongoing impact of COVID-19.

Further details

Further details are available from Professor Benny Tjahjono in the Centre for Business in Society.