Required Report - public distribution

**Date:** 5/17/2004

**GAIN Report Number:** ID4017

ID4017

**Indonesia**

**Coffee**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Chris Rittgers

U.S. Embassy, Indonesia

**Prepared by:**

Niniek S. Alam

**Report Highlights:**

As a result of continued low prices, growing production costs, and
declining productivity, Indonesia's coffee production is forecast to
continue falling through 2004/05. Given the expectations for lower
domestic supplies, exports are forecast to decline as well. The low
returns have discouraged investment and expansion in Indonesia's coffee
sector, and prospects for any rebound remain dim. One bright area has
been in production of specialty coffees, which obtain a premium on the
international market. However, these niche market type coffees comprise
a small proportion of Indonesia's total production.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Jakarta \[ID1\]

\[ID\]

Table of Contents

[SECTION I -- SITUATION AND OUTLOOK 3](#section-i-situation-and-outlook)

[Production 3](#production)

[Consumption 3](#consumption)

[Prices 3](#prices)

[Stocks 4](#stocks)

[Trade 4](#trade)

[Policy 4](#policy)

[SECTION II -- STATISTICAL INFORMATION AND TABLES
6](#section-ii-statistical-information-and-tables)

[Table 1. Production, Supply and Demand
6](#table-1.-production-supply-and-demand)

[Table 2. Total Robusta and Arabica Coffee Area and Production 2002\*and
2003\*\*
7](#table-2.-total-robusta-and-arabica-coffee-area-and-production-2002and-2003)

[Table 3-a. Coffee (Green) Export 8](#table-3-a.-coffee-green-export)

[Calendar Year 2002 and 2003 (January-November)
8](#calendar-year-2002-and-2003-january-november)

[Table 3-b. Coffee (Green) Export 9](#table-3-b.-coffee-green-export)

[Marketing Year (April-November) 2002 and 2003
9](#marketing-year-april-november-2002-and-2003)

[Table 4-a. Coffee (Roasted) Export
10](#table-4-a.-coffee-roasted-export)

[Calendar Year 2002 and 2003 (January-November)
10](#calendar-year-2002-and-2003-january-november-1)

[Table 4-b. Coffee (Roasted) Export
11](#table-4-b.-coffee-roasted-export)

[Marketing Year (April-November) 2002 and 2003
11](#marketing-year-april-november-2002-and-2003-1)

[Table 5-a. Coffee (Green) Import 12](#table-5-a.-coffee-green-import)

[Calendar Year 2002 and 2003 (January-November)
12](#calendar-year-2002-and-2003-january-november-2)

[Table 5-b. Coffee (Green) Import 13](#table-5-b.-coffee-green-import)

[Marketing Year (April-November) 2002 and 2003
13](#marketing-year-april-november-2002-and-2003-2)

[Table 6-a. Coffee (Roasted) Import
14](#table-6-a.-coffee-roasted-import)

[Calendar Year 2002 and 2003 (January-November)
14](#calendar-year-2002-and-2003-january-november-3)

[Table 6-b. Coffee (Roasted) Import
14](#table-6-b.-coffee-roasted-import)

[Marketing Year (April-November) 2002 and 2003
14](#marketing-year-april-november-2002-and-2003-3)

[Table 7. Indonesia's Export and Import of Coffee
15](#table-7.-indonesias-export-and-import-of-coffee)

[Table 8. Exchange Rate 15](#table-8.-exchange-rate)

# SECTION I -- SITUATION AND OUTLOOK

## Production 

Low returns, and in some areas political instability, continue to
discourage new investment and improved management practices. While area
expansion has occurred in some areas, this has been negated by
reductions in others. As a result, 2003/04 and 2004/05 area is forecast
to remain at 1 million Ha. Furthermore, low profitability continues to
inhibit advances in plantation management, and quality and yield
improvement remains low. For the last three marketing years yields have
remained constant to falling, and no evidence suggests yields will
rebound in the future. As a result, production is forecast to fall to
360,000 tons (6,000 tbags) and 345,000 tons (5,750 tbags) in 2003/04 and
2004/05, respectively.

While in general area and production are falling, efforts are being made
to expand in certain areas and to focus on certain types of coffee.
Exports of specialty coffees are reportedly growing, particularly where
producers have contract arrangements with overseas branded retailers.
Several areas have been accredited to produce organic coffee. In
addition, advances are being made in one of the most important
coffee-producing provinces (Lampung), where the extension service and
the Indonesian Coffee Exporters Association (AEKI) have successfully
improved yields.

To enhance the viability of the sector, attention is being paid to
increasing Arabica area, which currently accounts for only 15 percent of
total area and approximately 11 percent of total production. While the
goal is for Arabica to reach 30 percent of total area, several factors
have hamper Arabica expansion, including limited suitable area at high
elevations.

## Consumption 

Domestic coffee consumption remains relatively low (25-30 percent of
domestic production), but has potential to grow. The association is
focusing its efforts on promoting Indonesian coffee to increase
consumption. Modern coffee shops (mostly franchise) have become very
trendy for middle-upper income customers in big cities (they generally
use imported coffee bean and/or blended coffee).

Small-scale home industries have been growing, especially in the coffee
producing areas. This industry uses mainly lower quality coffee beans,
producing traditionally blended coffee powder with many different kind
of spices (the higher qualities wished-for export). Medium and
large-scale industries (producing mainly but not limited to coffee
powder, instant coffee, soluble coffee and other product containing
coffee such as candy) are reportedly also growing. Total production
capacity from the ten largest industries is approximately 30 thousand
tons.

## Prices

In mid-April 2004, farm gate prices of Robusta in the production areas
of East Java were reportedly around Rp. 6,000/kg, or US\$ 705.9/ton at
an exchange rate Rp. 8,500/US\$1 (compare to US\$ 700/ton at London
coffee terminal). Robusta wet processed in this area was sold at an
average Rp. 9,325/kg or US\$ 1,097/ton. Robusta coffee was quoted in
Lampung at a bench prices ranging from Rp. 4,530 to Rp. 5,190/kg or US\$
532.9 to US\$ 610.6/mt. During the first four-months of 2004, farm gate
prices in this area declined from Rp. 4,030/kg in January to Rp.
3,890/kg in April 2004 (US\$ 474.1 to US\$ 457.6/ton).

## Stocks

In addition to the normal pipeline stocks, reportedly farmers and
exporters are holding stocks waiting for better prices. With increasing
domestic consumption and slower exports, stocks are estimated at 471
tbags in 2003/04 and forecast to stand at 416 tbags in 2004/05.

## Trade

Exports are forecast to decline about 15 percent in 2003/04, as
Indonesia's Robusta continues to lose competitiveness on the world
market. Exports in 2004/05 are forecast to remain at 4,000 tbags.
However, to maintain exports at this level, it will be essential to
satisfy two different trade channels, i.e., consistency in the volume
and delivery schedule (for commercial/robusta coffee) and reliability in
quality (for specialty/arabica coffee). Of total coffee bean production,
nearly 70 percent is exported.

To fulfill buyers' demand, traders imported coffee beans (mainly from
Vietnam) for re-export. Imported beans (green and roasted) are required
to blend with local coffee varieties. Vietnam and East Timor are the top
suppliers to Indonesia. This practices allows Indonesia to export a
larger percentage of higher grade Robusta coffee, and the percentage of
exports at higher grades has been increasing. Nonetheless, the
proportion remains low at only about 10 percent for the high grades.

Based on official trade data, Indonesia green coffee (combined Arabica
and Robusta) export prices during January-November increased from an
average of US\$ 664.2/ton in 2002 to US\$ 782.1/ton during the same
period in 2003. Roasted bean export prices are also increased, from an
average of US\$ 1,867/ton in 2002 to US\$ 2,437.6/ton during Jan-Nov,
2003. The average of all grades of Arabica export prices (recorded
during October 2002 - September 2003) was US\$ 1.99/kg, while the
average export prices of all grades of Robusta during the same period
was only US\$ 0.69/kg. The average green coffee import price during
January-November 2003 was recorded at US\$ 966.9/ton compared to US\$
502.2/ton (cif) during the same period in 2002. Roasted coffee was
recorded at US\$ 1,950.4/ton compared to US\$ 1,944.3/ton (cif) in 2002.

## Policy

Despite financial difficulties in funding the membership fee, Indonesia
maintains its position in the International Coffee Organization (ICO).
In the past, the government paid the membership fee, but since 2002/03
the government has assigned some of the payment responsibilities to
AEKI.

Indonesia has approached Vietnam to cut coffee production and lower
exports to boost (robusta) prices. However, it is unlikely that this
will be successful. Other efforts to improve quality and productivity
will also be problematic. In Indonesia, where 95 percent of the
production is under smallholder management, quality enhancement would
require a broad and sustained systematic effort.

As one of the largest robusta producing countries, Indonesia continues
escalating its efforts to produce a larger percentage of higher coffee
bean quality and to promote domestic coffee consumption. With nearly 220
million inhabitants, the market has abundant potential, as current
coffee and products consumption is only at around 0.5 kilogram/capita
per year.

The sector has request that the government stop assessing a 10 percent
sales tax on coffee beans. The tax adds an additional burden to farmers
as they receive lower prices; and also discourages exporters; while they
are eligible to be reimbursed for the tax, it takes a long time to
process.

The industry is also attempting to establish geographic denominations
for certain types of coffee (from Bali). This is currently being
processed for domestic, but may be also be attempted for the
international market. Indonesia has an ill-fated experience when
Indonesian specialty coffee (Toraja coffee), which has been successfully
marketed in Japan and in the United States.

# SECTION II -- STATISTICAL INFORMATION AND TABLES

## ![](media/image2.wmf)Table 1. Production, Supply and Demand

Note: "Old" column is FAS/Washington data. For FAS/Jakarta's previous
PS&D see ID3027.

## Table 2. Total Robusta and Arabica Coffee Area and Production 2002\*and 2003\*\*

![](media/image3.wmf)

Source: Estate Crops Statistics, Directorate General of Estate Crops
Production, Ministry of Agriculture. Processed by FAS/Jakarta.

+-----------------------------------------------------------------------+
|   -------                                                             |
| --------------------------------------------------- -- -- -- -- -- -- |
|   Note:                                                               |
|  Table is presented to describe major coffee                          |
|   produ                                                               |
| cing areas and does not reflect the figure in the                     |
|   PS&D                                                                |
| table.                                                                |
|                                                                       |
|   \* :                                                                |
| Final figure                                                          |
|                                                                       |
|   \*\*                                                                |
| : Preliminary figure                                                  |
|   -------                                                             |
| --------------------------------------------------- -- -- -- -- -- -- |
+-----------------------------------------------------------------------+

## Table 3-a. Coffee (Green) Export

## ![](media/image4.wmf)Calendar Year 2002 and 2003 (January-November)

  -----------------------------------------------------------------------
  Source: Global Trade Statistics

  -----------------------------------------------------------------------

## Table 3-b. Coffee (Green) Export

## ![](media/image5.wmf)Marketing Year (April-November) 2002 and 2003

Source: Global Trade Statistics

## Table 4-a. Coffee (Roasted) Export

## ![](media/image6.wmf)Calendar Year 2002 and 2003 (January-November)

Source: Global Trade Statistics

## Table 4-b. Coffee (Roasted) Export

## Marketing Year (April-November) 2002 and 2003

![](media/image7.wmf)

Source: Global Trade Statistics

## Table 5-a. Coffee (Green) Import

## Calendar Year 2002 and 2003 (January-November)

![](media/image8.wmf)

Source: Global Trade Statistics

## Table 5-b. Coffee (Green) Import

## ![](media/image9.wmf)Marketing Year (April-November) 2002 and 2003

Source: Global Trade Statistics

## Table 6-a. Coffee (Roasted) Import

## Calendar Year 2002 and 2003 (January-November)

![](media/image10.wmf)

Source: Global Trade Statistics

## Table 6-b. Coffee (Roasted) Import

## ![](media/image11.wmf)Marketing Year (April-November) 2002 and 2003

Source: Global Trade Statistics

## Table 7. Indonesia's Export and Import of Coffee

![](media/image12.wmf)

Source: Trade by SITC, BPS Statistics Indonesia. Processed by
FAS/Jakarta.

Note: \*/ Preliminary. For January-November period.

## Table 8. Exchange Rate

![](media/image13.wmf)

  ---------------------------------------------------------------------- --
  Source: BPS Statistics Indonesia and Business Indonesia Daily          
  Newspaper.                                                             

  Note: - November 2003 exchange rate is quoted for November 21, 2003    

  \- January 2004 exchange rate is quoted for January 30, 2004           

  \- February 2004 exchange rate is quoted for February 27, 2004         

  \- May 2004 exchange rate is quoted for May 7, 2004                    

  \- BPS data available up to August 2003                                
  ---------------------------------------------------------------------- --

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