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Indonesia eyes larger share of global coffee market
Old way: Women roast coffee beans in the traditional way at the Mount Menoreh area, south of Borobudur temple, near Yogyakarta recently
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span class="inline inline-center">Old way: Women roast coffee beans in the traditional way at the Mount Menoreh area, south of Borobudur temple, near Yogyakarta recently. Coffee farmers are struggling to acquire the latest know-how technology to process coffee beans as many of them still use outdated methods.(JP/Tarko Sudiarno)
There was nothing much Indonesian coffee farmers could do when the El Niño weather phenomenon called the shots last year. Most of them saw their yields plunge by half as the unseasonably warm weather devastated crops in the world’s fourth-largest coffee-producing nation.
Sasmitra, 25, a coffee farmer in Bengkulu, was among those who suffered harvest failure late last year. His poor knowledge about the impact of El Niño made it difficult for him to anticipate the impact of the prolonged dry season on his Robusta beans, which needed regular irrigation to survive. And then another problem was waiting for him at the end of the road.
“In the coffee business, there are too many middlemen involved in the supply chain. Hence, we are forced to sell our coffee beans at minimum prices to middlemen, who resell them to another two or three counterparts before the products are finally exported from [the neighboring province of] Lampung,” Sasmitra recently told The Jakarta Post.
Indonesia’s coffee production has gradually decreased in recent years, from 750,000 tons in 2012 to around 680,000 tons last year, according to the Association of Indonesian Coffee Exporters and Businesses (AEKI).
Output is expected to fall further to 625,000 tons this year as a result of El Niño, which lasted until last May, and the anticipated La Niña phenomenon, which has the opposite effect, during the second half of this year.
Currently, there are 1.2 million hectares of coffee-producing areas nationwide, only 950,000 of which are considered productive land. With annual production levels of around 715 kilograms per hectare, Indonesian yields are far behind those of Brazil, the world’s largest producer, which produces around 1.12 tons per hectare.
To help local coffee farmers boost production volumes and expand their knowledge about post-harvest management, the AEKI recently signed a deal with the International Islamic Trade Finance Corporation (ITFC), a member of the Islamic Development Bank (IDB) Group, to secure financing of US$100 million for the next three years.
Under the cooperation agreement, the ITFC will disburse the money to small and medium-sized coffee exporters affiliated with the AEKI. Each company is expected to get a cash injection of between $1 million and $3 million through a murabahah scheme, a sharia-compliant financing structure where the lender buys a product and then sells it to the client at a profit, thus avoiding the need to charge interest.
The exporters are expected to develop their businesses by setting up common and private warehouses and building a stronger network through independent cooperatives, which could also shorten the supply chain.
“Indonesian coffee is very attractive to so many countries in the world. Hence, we would like to increase the coffee quality and quantity and help Indonesian exporters expand their coverage area worldwide,” ITFC CEO Hani Salem Sonbol said.
Last year, Indonesia exported 502,021 tons of coffee with a value of $1.2 billion, according to the Geneva-based International Trade Center (ITC). The US, Japan and Germany were the three biggest importers of Indonesian coffee over the past five years.
“This year, the export figure might decrease by 5 to 10 percent because of lower production and higher domestic consumption,” AEKI chairman Irfan Anwar said.
Apart from the loan agreement, the AEKI-ITFC cooperation also plans to provide the North Sumatra provincial administration with a $70,000 grant and a 2-hectare plot of land worth $30,000 to build a training center for local coffee farmers.
At least 40,000 coffee farmers in the province will be trained over the next few years on coffee cultivation techniques, including how to anticipate bad weather and preserve the environment. The local administration will also supply them with seeds and fertilizer.
It is hoped national coffee production will soar to 1,500 kilograms per hectare, surpassing Brazil’s yield, within three years, for both Arabica and Robusta types.
Robusta beans, which are more acid and bitter, are used primarily in instant coffee, espresso and as a filler in ground coffee blends. Arabica beans, meanwhile, tend to have a sweeter, softer taste, with tones of sugar, fruit and berries.
Based on AEKI data, 95 percent of coffee farmers in North Sumatra grow Arabica, while 98 percent in Lampung cultivate Robusta. Currently, the two types fetch $4 and $2 per kilogram, respectively, in the global market.
In another effort to expand coffee exports, the government recently announced plans to open a coffee shop in Bojeong-dong Café Street, Gyeonggi province, South Korea, within the next few months. (vps)
