THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
POLICY
Required Report - public distribution
Date:
5/17/2018
GAIN Report Number:
ID1815
Indonesia
Coffee Annual
Indonesia Coffee Annual Report 2018
Approved By:
Garrett McDonald
Prepared By:
Arif Rahmanulloh and Garrett McDonald
Report Highlights:
Favorable weather in Northern Sumatra and lowland Southern Sumatra are forecast to increase
Indonesia’s 2018/19 coffee production to 11.1 million bags, with green bean exports projected to reach
7.2 million bags. Production and exports for 2017/18 are revised downward due to poor weather
conditions affecting both Arabica and Robusta. Imports reach record levels for January-March period.
A disruptive technology begins to circumvent the value chain in Southern Sumatra.
Commodities
Coffee, green
Crop Area
Indonesia’s 2018/2019 coffee crop area remains stable at 1.2 million hectares. Most plantations are
maintained by smallholders at size of 1-2 hectare each. Coffee farms are primarily held by smallholder
farmers with an average holding of 1-2 hectares. As such, conversions from coffee to other crops are
infrequent although many farmers grow multiple complimentary commodities alongside coffee such as
bananas and pepper. The limited expansion of coffee crop area is usually at the expense of cacao,
which has experienced a larger impact from disease.
Geographically, Arabica crops dominate in Northern Sumatra and some mountainous areas in Java,
while Robusta is grown mostly in Southern Sumatra. Sumatra accounts for more than 60 percent of
Indonesian coffee crop area, followed by Java Island with 15 percent and Nusa Tenggara and Sulawesi
with smaller shares.
Although new coffee planting areas are possible, as shown by cooperation between forest state-owned
company Perhutani and farmers in West Java, there are no significant incentives to expand coffee crops.
There are no national programs established for expanding coffee production and only limited local
government programs for distributing planting materials.
Table 1. Indonesia Coffee Area Characteristics
Topography
Key Production
Highland areas (>90 pct)
Arabica
Low (40 pct) and Highland (60 pct)
Robusta
Low and Highland
Arabica, Robusta
Source: Industry contacts
Production
Post forecasts 2018/19 coffee production at 11.1 million bags, an increase of 500,000 bags from updated
2017/18 production. Lowland Robusta areas in Southern Sumatra, including Lampung and Bengkulu,
received adequate precipitation and no sustained strong winds during cherry development. Farmers and
industry contacts expect favorable yields in these key Robusta production regions. Nationally, Post
estimates Robusta production to increase to 9.7 million bags in 2018/19.
Similarly, Arabica production for 2018/19 is projected at 1.4 million bags, up 200 thousand bags from
updated 2017/18 production. Growers in North Sumatra are also expecting higher yields in 2018/19 as
weather patterns have supported the fruit development process.
These increases are forecast despite industry contacts and post field observation confirming Robusta
production in highland areas suffering heavy rainfall and strong winds during cherry development stage.
Although growers in these areas expect 30-40 percent lower production 2018/19, these declines will be
offset by increases in other areas.
The following table shows coffee production by variety from 2014/15 to 2018/19. Post revises 2017/18
production estimates based on grower reports in North Sumatra that flowering stages were disrupted by
strong wind during a wet dry-season, and lower than expected Robusta production in general.
Table 2. Indonesia coffee production (million 60-kg bags)
Variety
MY 2014/15
MY 2015/16
MY 2016/17
MY 2017/18
MY 2018/19
Arabica
1.3
1.5
1.3
1.2
1.4
Robusta
9.2
10.6
9.3
9.4
9.7
Total
10.5
12.1
10.6
10.6
11.1
Inputs
The majority of Indonesia’s coffee crops are maintained with minimum inputs. Smallholder farmers
may receive fertilizer or pesticide from village level collectors on a financed basis as needed, while
larger plantations may use fertilizers once a year. Smallholder growers rely on family labor for non-
harvest activities such pruning and cooperative arrangements are often made during harvest. Harvesting
is often carried out by women who rotate between farms and divide labor costs.
Yields
Indonesia’s coffee crops rely on a balanced amount of sun and rain after flowering to produce optimal
yields. Crops in highland areas may be comparatively less impacted by low moisture as the normal
morning mists may mitigate drier conditions. Yields are often most greatly impacted by too much rain
and strong winds during the cherry development season. Such conditions, which occurred in Southern
Sumatra highlands this year, often cause plants to drop their cherries prior to harvesting.
Consumption
Indonesian’s desire for coffee and coffee products continues to grow. Post estimates Indonesia’s coffee
consumption will increase to 3.9 million bags in 2018/19, about 340,000 thousand bags higher than
updated 2017/18 consumption. The continuing growth is seen across the board in roasted ground coffee,
soluble coffee and ready to drink (RTD) coffee beverages and aligns with an increasing middle class and
its growing taste for coffee.
Recent reporting shows RTD coffee volumes more than doubling over a five-year period. Sales of RTD
coffee have been boosted by increased urbanization and the spread of chain convenience stores. RTD
coffee registered 13 percent off-trade volume growth in 2017.
Table 3. Indonesia RTD Coffee off-trade volume 2012-2017 (million liter)
Year
2012
2013
2014
2015
2016
2017
RTD Coffee
23.8
47.6
62.1
77.4
93.2
104.9
Source: Euromonitor Passport
Coffee consumption has also been supported by an increasing number of retail coffee outlets opening in
public areas such in office buildings and shopping malls. Both independent and retail chains such
Starbucks, Maxx Coffee, Excelso are aggressively expanding. By early 2018, Starbucks Indonesia
operated over 320 outlets, twice as many as 2013.
Trade
Exports
Post forecasts Indonesia green bean exports for 2018/19 at 7.2 million bags. Exports for 2017/18 are
revised downward to 6,939 million bags due to lower than expected production of both Arabica and
Robusta and as well as updated trade data. These figures represent a 5 percent decline in exports
compared with 2016/17.
Indonesia exports more than 60 percent of its production mostly in the form of green beans. Major
markets include the EU, U.S., Malaysia and Japan. Notably, shipments to Malaysia have almost
doubled since 2008. Exports usually peak in on June – July following the harvesting period in Southern
Sumatra.
Figure 1. Indonesia Green Bean Exports by Destination, 2017
Source: GTA
Imports
Trade data indicates record-high green bean imports during Jan-Mar 2018 as the harvest from Vietnam
came online and farmers there sold off stocks prior to the Tet Holiday, driving down prices. This
coincided with increased demand driven by lower than expected production of Robusta resulting in
lower stocks available for roasters. Increasing use of imports for blending and soluble production added
to the strong import demand. Post forecasts 2018/19 Indonesia green bean imports will drop to 300,000
bags in conjunction with increasing domestic supplies.
Figure 2. Indonesia Green Bean Imports (ton)
Source: GTA
Value-Chain
Indonesia’s green bean coffee finds its way to export markets through a complex, multi-tiered value-
chain structure that relies upon well-established relationships and shifting value parameters based on the
needs of exporters.
The coffee harvesting period, which can run from March to June, requires multiple harvests as cherries
on different trees and even the same plants ripen at different times. This often leaves smallholder
farmers with relatively small amounts of coffee to sell at any given time during harvest. As a result,
local collectors often travel to different farms to collect 30-100 kg bags on the backs of motorcycles
where they are then transported to a village collector.
Village collectors have small storage facilities on site and are well-known to local farmers, often acting
as representatives for local grower groups. Village collectors usually keep a small shop at their
premises, selling fertilizer and pesticides to farmers in need. The village collector may also stock staple
commodities such as rice and cooking oil that a farmer may use their coffee to barter for. These
transactions may be financed against the future delivery of the farmer’s crops. As such, village
collectors are often the first line of defense for smallholder farmers facing pests, adverse weather or the
need to bridge essential items between harvests.
Since the storage capacity of most village collectors is limited (approx. 1.5 tons), coffee is usually
collected again at the district level. District collectors are normally located in larger towns outside of
farming areas. With warehouses reaching 10 tons of capacity, they provide the crucial link between the
farm and village operators and the exporters located in larger cities. Their purpose is two-fold: to
provide the volume of beans necessary to fill the minimum 8 tons required for trucking beans to the city
and to provide the linkage between savvy agents and exporters and small scale farmers and collectors
who rarely operate outside of their local district. District collectors may sell their beans directly to
exporters or they may use an agent to shop around for the best price for a commission.
Numerous agents or brokers operate in the cities, bringing samples from district collectors to various
exporters and seeking a buyer whose interest in the particular qualities of that lot of beans may result in
a higher price. Some agents may also buy beans directly from the district collectors and sell themselves
to the exporters, though the risk of taking possession and the costs of storage make this a much riskier
proposition.
Figure 3. Robusta Supply Chain in Southern Sumatra
Source: Association
Large exporters (trading companies) use a various parameters to determine the price offered to agents or
district collectors. Since the beans will ultimately move to foreign markets, exporters must be cognizant
of the qualities and characteristics of their buyer’s desire. This often leads to discrepant pricing among
exporters for the same lots of coffee. Agents or district collectors that understand these nuances stand to
gain a better price for their beans.
Once samples are tested and the general terms are agreed to exporters will take possession of the beans
and pay an initial lump sum amount to the seller, who then transfers the money back through the value
chain. The final amount paid will be determined by the exporter’s formula for discounting the actual
quality and characteristics of the beans received versus the parameters set forth in the contract (see
below sample of quality/discount formula).
Table 4. Beans Quality Specifications / Parameters
Quality
Finding
Deduction
MC (moisture content)
19 percent
6 percent
Husk
1.0 percent
1 percent
Dust (5<mm)
2.0 percent
2 percent
Total Triage
20 percent
5 percent
Cherry
2 percent
1 percent
Foreign Matter
0 percent
0 percent
Rendement / Return
85 percent
Source: Association
Disruptive Technology
Recently, some larger exporters have sought to short-circuit the established value chain by giving
farmers and village collectors access to mobile applications on their smartphones that allow them to
directly calculate the discounted price for their beans, sometime even supplier the smartphones.
With this technology farmers and village collectors can see real-time prices, make calculations for
discounts based on dust, husks, foreign material and moisture and potentially shop around to receive a
better price for their crop. Some companies have even set up temporary buying stations for farmers to
bring in their beans and circumvent the entire value chain.
This disruption has not been well-received by agents, district collectors and some village and local
collectors whose livelihoods have been threatened. While it does provide the opportunity for farmers to
fetch a better price, it also may prove disadvantageous in the long-term as farmers often rely on village
collectors for financing and inputs throughout the year. Larger companies are unlikely and probably
unable to fill such a role. While it remains to be seen if the short-term profit may come at the expense of
a greater loss during trying times, the use of technology is likely to continue expanding. Industry
sources suggest that 10-15 percent of Robusta beans in Southern Sumatra may already be sold outside of
the traditional value chain.
Price Table
Table 5: Indonesia Robusta spot price in Lampung and Arabica spot price in Medan 2017-2018 (IDR
per kg)
Robusta
Arabica
Apr-17
24,812
54,384
May-17
23,318
53,420
Jun-17
23,976
51,575
Jul-17
25,981
51,989
Aug-17
25,873
52,139
Sep-17
24,289
52,359
Oct-17
24,545
53,223
Nov-17
24,704
54,154
Dec-17
24,787
56,846
Jan-18
24,930
57,495
Feb-18
25,855
56,625
Mar-18
26,317
56,591
Apr-18
25,265
55,820
Source: Bappebti
Co ffe e, Gre e n
Ma rke t Be g in Ye a r
Indo nesia
U SD A
Offic ia l
N e w
Po st
U SD A
Offic ia l
N e w
Po st
U SD A
Offic ia l
N e w
Po st
Area Planted 1240 1,240 1250 1250 1250
Area Harvested 1200 1,200 1210 1210 1210
Bearing Trees 1160 1,160 1160 1160 1160
Non-Bearing Trees 15 15 15 15 15
Total Tree Population 1175 1,175 1175 1,175 1,175
Beginning Stocks 46 46 12 12 797
Arabica Production 1300 1300 1300 1200 1400
Robusta Production 9300 9300 9600 9,400 9700
Other Production 0 0 0 0 0
Total Production 10,600 10,600 10900 10,600 11,100
Bean Imports 342 342 340 877 300
Roast & Ground Imports 10 10 40 48 20
Soluble Imports 391 391 350 828 400
Total Imports 743 743 730 1,753 720
Total Supply 11,389 11,389 11,642 12,365 12,617
Bean Exports 7309 7,309 7450 6,939 7,200
Rst-Grnd Exp. 48 48 50 69 60
Soluble Exports 800 800 810 1,000 1,020
Total Exports 8,157 8,157 8,310 8,008 8,280
Rst,Ground Dom. Consum 2410 2,410 2470 2,650 2,900
Soluble Dom. Cons. 810 810 820 910 1,000
Domestic Consumption 3,220 3,220 3,290 3,560 3,900
Ending Stocks 12 12 42 797 437
Total Distribution 11,389 11,389 11,642 12,365 12,617
- - - -
2018/ 2019
Ap r-18
(1000 HA) ,(MILLION TREES) ,(1000 60 KG BAGS)
2016/ 2017
2017/ 2018
Ap r-16
Ap r-17