A Profit Analysis of Indonesia’s Cananga Essential Oil Production Using System Dynamics

Abstract

Cananga essential oil is a type of oil extracted by distillation from freshly-picked cananga flowers. Cananga oil is of a high economic value for its use as fragrances and flavors. In Indonesia, cananga essential oil is majorly produced by small and medium distillers. The most prominent barrier to cananga essential oil production in Indonesia is the fluctuation in its price. This price fluctuation is responsible for the decrease in profits earned by distillers. The aim of this research was to develop a system dynamics model to maximize profits in the cananga essential oil production in Indonesia. A system dynamics approach was employed to figure out the effect of some variables on cananga essential oil production in relation to profits and the interaction of such variables with each other. The scenarios examined in this system dynamics model include to increase the number of distillers, to decrease the fuel expenses, and a combination of both.
This research assumed that a change in parameter will be able to increase profits from the cananga essential oil production in Indonesia over the next five years. The results show that increasing the number of distillers and decreasing the fuel expenses have been able to increase cananga essential oil production average by 20% and profits by 62%.