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Indonesia’s coffee network

From the January 2019 issue.

Indonesia hosts an expansive and diverse coffee landscape, but it also means navigating a complex value chain. GCR explores a country committed to reviving producing regions and expanding its reach.

Indonesia is a 5100-kilometre-long archipelago – the largest in the world – made up of 17,500 islands with an area of more than 1.9 million square kilometres. With more than 1000 inhabited islands and nearly 750 different languages, Indonesia is one of the most culturally diverse regions in the world.

Indonesia is also a significant contributor to the global coffee industry, following closely behind Colombia at number four in the production ranks, according to the International Coffee Organization.

To fully understand Indonesian coffee, one would have to break down the 15 provinces where it is grown, and their varied farming and processing practices, their varied climates and topographies, their varied coffee flavour profiles, and more. The vast country and its approximate 1.24 million hectares of coffee farms simply does not allow for generalisations.

Diversity breeds challenges
Although the size of Indonesia and its diversity across islands with coffee-growing regions presents some opportunity, especially when today’s Third Wave consumers are increasingly interested in micro-lots and origin stories, the challenges are exponentially greater.

Especially challenging are logistics and communications throughout the industry. Information is not easily transferred along the extensive chain or among the many smallholder farmers, who make up more than 90 per cent of producers.

According to the United States Department of Agriculture’s Foreign Agricultural Service annual GAIN report, Indonesia’s green coffee makes its way to export markets through a complex, multi-tiered value chain that relies upon well-established relationships and logistics. There are up to four different intermediaries between farmer and exporter.

Veronica Herlina of Sustainable Coffee Platform of Indonesia (SCOPI), and formerly of the Specialty Coffee Association of Indonesia, regularly faces communication and organisational challenges in her work.

“Indonesia is not only made up of different cultures, but also languages, farming practices, geographies, and climates,” she tells Global Coffee Report. “Can you imagine trying to teach all of them?”

There is no one-size-fits-all approach. Herlina says extensive research is necessary prior to any support projects to understand what each village needs in terms of knowledge and training, and a translator is always present. Currently SCOPI is working with 25 different governments and 190 master trainers on development and productivity projects.

The vast diversity among the islands, the significant number of smallholder farmers and the extensive supply chain together also contribute to inconsistent quality.

“Because farmers own the land, they feel they have the authority to do whatever they like in terms of farming activities, and then we have long stages in the supply chain with different processes done by different actors,” explains Intan Wahyoe, Indonesian Program Officer of Fairtrade Asia-Pacific. “So it’s not that easy to get consensus in terms of how quality can be achieved.” She says that’s where a certifying body like Fairtrade or FLO-CERT can play a role in organising and motivating standardised farming practices to help improve quality.

Herlina echoes those sentiments, noting the characteristically independent farmers and the strong need for collaboration among the government, private sector, and cooperatives. “The specialty market appreciates differences among farms,” she points out, “but when you need to supply the mass market, you have to have the same taste, quality, and consistency.”

Robusta and Mother Nature dominate
The commodity market receives nearly 90 per cent of Indonesia’s output, with Sumatra Island producing the majority. Although Arabica was the first coffee plant introduced to Indonesia back in the 17th century when the Dutch brought it from Yemen to the favourable growing conditions of Java (resulting in the Java Mocha), Robusta became the majority in the late 1800s. This was a time when producers tried to revive the industry after a bout of coffee leaf rust ravaged Arabica production, according to Benji Salim, a green coffee buyer and café owner of The Q Coffee in Sydney, Australia, specialising in Indonesian coffee.

Today, most of Indonesia’s limited Arabica is dedicated to the export market, particularly its specialty-grade coffee. The islands of Sumatra, Java, and Sulawesi are especially renowned for their high-quality and specialty coffee.

Keen to improve quality and increase specialty production, the Indonesian government has launched initiatives with organisations like SCOPI and Fairtrade. In East Java, for instance, the local government is collaborating with farmers and the Indonesian Coffee & Cocoa Research Institute on a local economic development initiative to revive and expand production in the area, according to Wahyoe. Other regions emerging with new or revived coffee production include the island of Flores and the provinces of Papua and West Java.

While this work will help Indonesia better compete on the global stage for specialty, albeit slowly, expansion into new regions will also help boost overall production and exports, which both declined significantly in the 2017-18 harvest season compared to the 2016-17 harvest.

“There was a crisis in the region, where supply was too low for market demand, which resulted in high prices at the farm level and disrupted latter stages of the supply chain. The coffee cooperatives and their traders experienced significant financial loss last year,” Wahyoe says.

The declines in production and, thus, exports were largely due to changes in climate and weather. According to the GAIN report, Indonesia’s yields are most greatly impacted by too much rain and strong winds during the cherry development season, which often causes plants to drop their cherries prior to harvesting.

Wahyoe says unpredictable weather and even natural disasters have been more common for the entire archipelago, including earthquakes and flash floods, which then lead to erosion and landslides, especially in hilly areas.

Several earthquakes occurred in 2018, with one triggering a devastating tsunami. Although the 7.5-magnitude earthquake and tsunami at Sulawesi Island in late September didn’t affect any coffee farms because it was concentrated on the coast, authorities confirmed more than 2000 people were killed and up to 5000 are missing.

In July and August 2018, a series of earthquakes struck the small coffee-producing island of Lombok. “The coffee trees are still standing,” says Herlina of SCOPI, “but houses have been destroyed.” SCOPI hosted a fundraiser in September at Jakarta Coffee Week and is working with affected farmers. Baraka Nusantara, a Lombok-based social enterprise, also initiated a movement with Barista Guild Indonesia to support affected farmers.

Natural disasters notwithstanding, farmers and co-ops are more optimistic for the 2018-19 harvest, Wahyoe says. “Especially in the Gayo Highland region of Sumatra, they have observed better weather patterns that benefit coffee plant growth. [As such] they expect better productivity this year. And this optimism is shared across all of Indonesia.”

Total production for 2018-19 is estimated at 11.1 million 60-kilogram bags, a 4.7 per cent increase from the previous year, according to the GAIN report. Similarly, green bean exports are forecast to increase 3.8 per cent to 7.2 million 60-kilogram bags, after a decline of 5.1 per cent the previous year.

Youth drives consumption
Also contributing to declining export numbers has been increasing domestic consumption in line with an expanding local coffee culture. Jakarta in particular has a number of annual coffee festivals and the largest density of coffee shops.

“It’s popular in Jakarta mostly due to the population size, but the coffee industry has grown rapidly in other cities across Indonesia,” Wahyoe says. “It’s also becoming more sophisticated, with locals venturing into roasting and brewing. Even in the small cities you would be amazed by how many entrepreneurs own roasting machines and espresso machines bought from Italy.”

According to the GAIN report, total coffee consumption in Indonesia is forecast to increase a strong 9.6 per cent to 3.9 million 60-kilogram bags this year. Aggressive expansion by independent and multinational coffee outlets is helping facilitate greater consumption.

“The penetration of multinational coffee retailers have created competition,” explains Wahyoe. “Locals have copied the strategy, so what is happening now is the artisan shops owned by small entrepreneurs are also rising.”

Fuelling these activities has been the strengthening of the specialty coffee industry since the founding of the Specialty Coffee Association of Indonesia in 2008. Additionally, Salim attributes some momentum to the Indonesian Ministry of Trade’s Creative Economic Department, which has launched a marketing campaign to promote Indonesian coffee within the country and internationally.

Although greater consumption is happening across the board, younger consumers are largely behind Indonesia’s expanding coffee culture. Many are first exposed to Third Wave coffee while studying abroad, and return to Indonesia seeking comparable offerings. The knowledge-hungry are attending barista schools and learning about innovation in processing and roasting, and the entrepreneurial ones are opening roasteries and coffee shops at a rapid pace.

“They are passionate about coffee and want to build their knowledge about local coffee,” Wahyoe says. “They have the willingness to [visit] farms and are better at storytelling,” – all things the Third Wave consumer is looking for in its coffee.

At the same time, Indonesia’s cities are undergoing of urbanisation and economic development, which is expanding the pool of business professionals in the city centres who demand coffee options. According to market research firm Euromonitor International, growing urbanisation and the more demanding lifestyles of its urban consumers are driving demand for convenient coffee products in particular, such as instant mixes and ready-to-drink beverages. In light of the expanding culture, Euromonitor expects companies to introduce new coffee products targeting off trade, but mimicking the flavours and quality offered in specialty coffee shops.

Meanwhile, greater local demand for high quality and specialty grade coffee has started to eat into export supplies and effectively push prices up. While this has had negative implications for foreign buyers, SCOPI’s Herlina says local demand has helped shorten the supply chain, allowing farmers to sell directly to local roasters – one small logistical victory in the vast web of the Indonesian coffee industry.

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