The growth of international specialty coffee markets has increased the demand for high-quality coffee production at origin, offering opportunities for smallholders to engage in product upgrading and potentially increase the farm-gate price of their coffee. This paper examines smallholder farmer engagement in specialty coffee production across the islands of Sulawesi and Flores. The study integrates global value chain analysis with a livelihoods approach to address the critical linkages between quality upgrading in the value chain and farm livelihood strategies, asking the question whether or not quality upgrading directly contributes to improved livelihood outcomes without further institutional support. A key finding from this research is that distinct livelihood strategies affect both the willingness of farmers to participate in value chain upgrading as well as their potential to gain tangible benefits from enhanced value chain integration. The authors suggest that government interventions should no longer focus on areas of market failure or the provision of public goods, but instead areas of rural development not being provided through value chains.