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Indonesian chili faces some problems in increasing production, added value, and competitiveness of chili products, mainly in terms of quantity, quality, and continuity. The objectives of this study are (1) to analyze the private and social profitability of chili farming, (2) to analyze the chili competitiveness from both competitive and comparative advantage perspectives, (3) to examine government policy impact on chili performance, and (4) to formulate strategies to encourage chili development in Indonesia. The results of the policy analysis matrix revealed that chili farming in Indonesia’s production centers is profitable, both privately and socially. It also has competitiveness, both competitive and comparative advantages. The highest competitiveness occurs in Bandung district, West Java, with a coefficient of private cost ratio (PCR) of 0.416 and a domestic resource cost ratio (DRCR) of 0.269. Meanwhile, the lowest competitiveness occurs in Tabalong district, South Kalimantan, with a PCR coefficient of 0.857 and a DRCR of 0.556. This study also concluded that for Indonesia, it is more profitable to increase domestic chili production than importing from abroad. Strategic policies for chili development can be implemented by using hybrid seeds, complete and balanced fertilization, improving irrigation infrastructure and farming roads, increasing the capacity of farmers’ resources, and expanding the objectives and market segments.

Competitiveness and impact of government policy on chili in Indonesia