Identifying Optimal Market Choices to Increase the Profitability of Coffee Farmers in Sultan Kudarat through Modeling and Scenario Analysis

TL;DR

This paper develops a supply chain network model and simulation to identify profitable marketing strategies for smallholder coffee farmers in Sultan Kudarat, Philippines, highlighting that selling dried cherries maximizes profits.

Contribution

The study introduces a novel supply chain model and simulation approach to optimize market choices for coffee farmers, considering costs and prices across different product forms and outlets.

Findings

Farmers profit most by selling dried cherries.

Selling green coffee beans results in negative profit due to costs.

Allocating 70% of dried cherries to the association is beneficial.

Abstract

This study focuses on the coffee chain of Sultan Kudarat - the coffee capital of the Philippines, where most of the farmers are smallholders. Coffee farmers in this area allocate their harvested cherries as fresh cherries, dried cherries, and green coffee beans to five market outlets: Nestle Philippines, local traders, association, direct selling, and other markets not mentioned (e.g., coffee shops and hotels). Hence, a supply chain network design (SCND) model and simulation are developed to investigate the changes in the profits of coffee farmers as they market their products, whether to be sold as fresh cherries, dried cherries, or processed into green coffee beans before marketing to the market outlets mentioned above, based on the average annual costs affecting the production, primary processing, and market prices of coffee products. Assuming that the annual coffee yield per tree and the average prices of coffee products in different markets are constant, the simulations show that farmers can gain a positive annual profit if they sell all dried cherries. However, results show that if farmers decide to produce and sell all green coffee beans, the farmers gain a negative profit due to the additional annual average dehulling cost and the minimal difference in average selling prices between dried cherries and green coffee beans in different markets. Furthermore, members of the association producing dried cherries can gain by allocating the required 70 percent of their product to the association and 30 percent to the other markets. In contrast, selling 30 percent of green coffee beans to any market generates a negative profit. The developed model can also be modified and used for regular coffee farms and other commodities.