June 22, 2023
JAKARTA – Increased fertilizer costs and weather-hit crops are projected to cause a global shortage in coffee production this year, which will drive up prices, but Indonesian growers are unlikely to benefit.
“The world coffee market is expected to run another year of deficit, a shortfall of 7.3 million bags,” reads the International Coffee Organization’s (ICO) latest Coffee Market Report.
As a result, global coffee prices have risen since the start of the year and are predicted to climb further due to production constraints in Brazil, Vietnam and other major producing countries, capping supplies to the global market.
Higher coffee prices tend to push demand for robusta, a relatively cheap type of coffee, as producers seek to prevent too steep a price hike for consumers. Furthermore, robusta stockpiles in the number-one producing country, Vietnam, have been shrinking.
Normally, that should be good news for Indonesia, the world’s second-biggest robusta exporter.
However, domestic coffee output is projected to drop by a double-digit percentage figure this year.
Andri Bagdja, executive director of the Indonesian Coffee Exporters and Industry Association (AEKI), acknowledged the opportunity of high global prices as consumption rises while production is constrained.
“There is indeed a tendency for prices to go up more than usual, even in the local coffee bean market,” he told The Jakarta Post on June 11, adding that this made for a strong market environment for local producers, because “Indonesia exports 60 to 70 percent of the coffee it produces to foreign countries.”
The United States was the main destination last year, importing almost 58,000 tonnes, 15 percent of Indonesia’s total exports, for some US$202 million, he added.
Shortage of beans
Annette Anhar, from the family-owned Tugu Group, which has an 850-hectare coffee plantation in Blitar, East Java, said the driving force behind rising coffee prices was increasing nationwide and worldwide demand, while climate change had also played a role, because it severely affected production.
Speaking to the Post on June 12, she said the perfect rainfall for coffee was 2,500 milliliters, but in the past two years, it had been almost twice that.
“The plantation used to produce approximately 800 to 1,000 tonnes of coffee beans in each harvest, but due to the increased rainfall in the past few years, the last harvests only yielded 500 to 600 tonnes,” she elaborated.
Indonesia coffee production at 9.7 million bags in 2023/24 indicates an 18 percent year-on-year (yoy) drop, according to the US Department of Agriculture (USDA), which notes that excessive rainfall was disrupting the cherry development stage and thereby lowering yields in major robusta-producing areas.
Meanwhile, Indonesian green bean exports are projected to decrease 32 percent yoy in 2023/24 to 5.2 million bags on lower exportable supplies, according to the USDA data.
“So, for now, we are pricing our robusta beans at $3.50 to $4 per kilogram, while we price our arabica at $8 per kg. Thus, it really hinges on us maintaining our bean quality. We keep our beans organic, so we pay attention to the water and the fertilizers,” said Annette.
The 39-year-old added that she was glad to keep receiving orders from clients despite the higher prices, as Indonesia had a huge market of coffee enthusiasts.
According to the ICO, Indonesia became the fifth-biggest global coffee consumer in 2020–2021.
Despite its position as a major global coffee exporter, Indonesia also imports significant quantities of beans. According to Statistics Indonesia (BPS), coffee imports from Vietnam totaled 7,700 tonnes in this year’s first quarter. Brazil came in second place with 733 tonnes shipped to Indonesia.
Discerning local consumers
Eldon Darmatatya Andrianus, founder of the Kopituju coffee shop in Malang, East Java, said he mainly used beans from that regency. He concedes that costs have risen in the past five years but said the increase was manageable.
“Local beans can be stale at times, especially if they have been selected to compete at the national level; in this case, obtaining the beans for at least a year may be difficult,” Eldon explained to the Post on June 5.
Local beans, he claimed, were preferred to foreign ones among his clients. Imported beans were occasionally marketed to a niche clientele ready to pay extra.
Andri of the AEKI said the Indonesian market featured many connoisseurs of local coffee beans, and Indonesia was acknowledged worldwide as a country of coffee enthusiasts.
“People already consider coffee [part of] their culture, so many coffee businesses have switched to local beans for a more affordable price,” Andri said.
Similarly, Annette pointed out that the Tugu Group was deemed “safe” in the face of a coffee bean deficit driving up prices, because the firm relied on its own plantation.
“As we produce our own beans, we are able to press down the price of the coffee we sell in our hotels and cafes,” she said.
Meanwhile, Eldon explained that his café sought to entice customers with a varying menu that included periodic collaboration with his wife’s pastry business to remain attractive in the face of high coffee bean prices.
Noting that his cafe’s pastries and coffee were handpicked for package deals, the coffee price hike would not immediately turn consumers away.
Dianitya Yuli, 40, who describes herself as a coffee connoisseur, is not too worried about the elevated coffee prices, adding that she occasionally enjoys specialty beans available in selected coffee shops.
“I am a coffee enthusiast, and although I usually opt for piccolo or filtered coffee, I enjoy variation, so I would choose the coffee depending on which is available and right for my mood,” Dianitya said.
“I believe that, amid steep rises and subsequent falls in prices, true coffee connoisseurs will always return,” Eldon concluded.