Wherever you are in the world, there is a good chance the coffee you sip or chocolate you savor is made from Indonesia’s homegrown beans, as the country ranks fourth in cocoa production and coffee exports.

In fact, the European Union could soon open its doors for more Indonesian coffee, cocoa and other commodities traded under the Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA). A 2011 EU-Indonesia partnership calculated that the agreement could add US$2 billion to the Indonesian exports.

But even as Indonesia is poised to get a firmer grip on global coffee and cocoa markets with the pact, industry players and experts are still wincing at current trade conditions, hoping that the stale IEU-CEPA discussions since 2009 will soon conclude to salvage the sector.

According to the International Cocoa Organization, Indonesia’s cacao bean production has declined rapidly, falling from 410,000 tons in 2013 to an estimated 240,000 tons in 2018. A 2019 Food and Agriculture Organization report portrayed a similar trend for coffee and cacao.

The decrease explains the recent closure of several factories in Indonesia and their failure to cater to soaring demand for chocolate.

For existing businesses, the Indonesian Employers Association (Apindo) committee chairman for free trade agreements (FTA), Wahyuni Bahar, saw import and export duties as one of the industry’s main roadblocks.

Based on the Generalized System of Preferences, the EU currently imposes import tariffs of 2 to 4 percent for coffee products from Indonesia — except the duty-free raw coffee beans — and 4 to 5 percent for cocoa products. Top African cocoa and coffee producers are currently liberated from such a fee when exporting to the EU, Wahyuni explained.

He also blamed a 2017 Finance Ministry regulation on cocoa seed import duties for deterring the sector’s competitiveness vis-à-vis neighboring countries like Malaysia, which has also been deliberating an FTA with the EU.

Such weaknesses demand the elimination of similar barriers in the deal’s terms, Wahyuni appealed. A 2015 Centre for Strategic International Studies (CSIS) showed that exports could increase by 5.4 percent or US$1.1 billion should the IEU-CEPA do away with import duties.

“Above all, the [decisionmakers] should especially pay close attention to sustainability during the deliberation,” Wahyuni said. “Remember that we won’t be able to export [some] commodities if trees are kept being cut [for land expansion].”

Should the two parties fail to find middle ground while other countries establish FTAs with the EU, Indonesia will suffer an 8 percent export value decrease worth $1.6 billion, the CSIS study indicated.

The Trade Ministry's undersecretary overseeing European bilateral agreements, Dina Kuniasari, told reporters recently said that different ambition levels had halted progress, including those related to a palm oil cap and import tariffs.

As the government aims to finish it by next year, she said, the ninth round of discussions would take place in December.

Center for Indonesian Policy Studies researcher Felippa Amanta echoed a similar urge to settle the pact, adding that the agreement could provide much-needed investment to the sector.

However, if the country fails to cope with its falling production, Indonesia will again struggle to meet the ever-increasing demand for coffee and cocoa from the EU, when trade finally opens up, Felippa warned.

Currently, a 2014 report from the Centre for the Promotion of Imports from Developing Countries showed that Indonesia only accounts for 1 percent of the EU’s total cocoa imports. The European Commission indicated a better performance for coffee, with at least 4 percent of the overall EU coffee imports coming from Indonesia.

She acknowledged that authorities had pledged to plant 160 million cacao trees across Indonesia between 2019 and 2024 as well as subsidize pesticides and fertilizer, among other measures.

But she said the government had failed to consider different soil conditions during seed distributions amid limited fertilizer access, making it ineffective in parts of the country.

She instead asked the government to partner with several private firms, which had either helped in expanding farmers’ financial access, establishing contracts between buyers and farmers or providing on-the-field guidance.

“The EU is a strategic market for coffee and cocoa, but Indonesia is unable to cater [to EU needs]. We hope IEU-CEPA will stimulate investment that would increase productivity for the market until it goes full circle,” Felippa said.

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