In terms of value, coffee which is mostly grown on smallholder farms, ranked fourth in the exports  of food and agricultural commodities of Indonesia in 2008. Together with state-owned and private  plantations, they add up to 969,082 ha of area harvested – the second largest in the world. Nevertheless,  Indonesia ranked only seventh in the world in terms of yield per hectare. In addition, the coffee sector is  facing many problems related to environment and its sustainability. Eco-labelling can be a solution to indirectly increase productivity and solve environmental problems brought about by coffee cultivation  through better farming techniques imposed by eco-labelling organizations. This research studies the impact  of eco-labelling implementation by Indonesia’s smallholder coffee farmers using financial analysis.

Financial analysis was used to compare the profitability of eco-labelling and non-eco-labelling  smallholder coffee farms. Descriptive statistical analysis was also used to present the stakeholders’ and  farmers’ perceptions of eco-labels in the coffee sector. To get the primary data, survey and personal in-depth  interviews were conducted. Findings show that eco-labelling in the coffee sector is profitable as evidenced  by the results of cash flow analysis for both eco-labelled and non-eco-labelled Arabica and Robusta coffee  farms. Nevertheless, problems still exist in the implementation of coffee certification i.e., limited support  from government, quite difficult to implement due to low educational level of farmers and lack of awareness  of advantages of eco-labels, the differences of certification scheme required by different coffee-importing  countries, and financing problem for the certification fee.