Market Reports

Indonesia’s clouded forecast

It has been another rough year for Indonesia’s Robusta coffee growers. After enduring five consecutive crops with weather-induced damage to the main Robusta harvest, growers in the world’s fourth largest coffee producing country finally caught a small break in the last 2015-16 cycle and were able to harvest a small recovery. But what had looked like a healthy flowering at the beginning of the harvest year in early 2015, promising an even more healthy recovery for the first time since 2010, was quickly turned around by yet another instance of drought across the key Robusta-growing belt of Sumatra and Java. It was not just the latest drought to hit Indonesia’s coffee regions that affected the flowering and cherry development of the last harvest. A severe recurrence of El Niño-induced excessive dryness during the first half of 2016 also caused widespread damage to the flowering for the new 2016-17 harvest. “Indonesia experienced a severe El Niño phenomenon in 2015-16, resulting in drought throughout much of the archipelago,” said the US Department of Agriculture in its 2015-16 report on Indonesia. “Dry weather was most acutely felt in lowland areas of Southern Sumatra and Java.” The report also noted that Indonesia’s Arabica production, which is situated primarily in Northern Sumatra, was “mostly unaffected by the El Niño event” and has remained within a range of 1.3 to 1.4 million bags in recent years. “The [Robusta] trees just withered and dried up, making it impossible for the flowering to develop and this drought caused crop failure across the lowland of Sumatra, as well as in many parts of Java,” said Moelyono Soesilo, a manager with Java-based exporters PT Taman Delta Indonesia. “It’s not going to be a big harvest this year,” Moelyono told the local Jakarta Post. “The dry weather disrupted flowering and ripening for Indonesia’s coffee crop, resulting in an expected decline in 2016-17 Indonesian coffee production,” said the USDA in its first report for the current crop year that was released in May 2016. “Growers report that most plantations were heavily exposed to dry weather throughout Southern Sulawesi, Java and Eastern Indonesia. Limited adoption of drought resistant planting stock and low intensity management systems offered little protection from the extreme weather,” it said. While industry officials and analysts agree that production in Indonesia’s new 2016-17 Robusta crop will drop, the question is by how much. The USDA has forecast only a 15 per cent drop year on year to 10 million bags, but local officials and producers in Indonesia say the drop will be much bigger, saying the USDA report was written several months before the full impact of the drought on the new crop could be evaluated. The Association of Indonesian Coffee Exporters (AEKI) said the new harvest might even be the smallest crop in over 10 years. “The expectations by AEKI is that our total production in the 2016-17 harvest will go down by about a third of what we had in the last crop and drop to 400,000 metric tons (6.7 million bags),” said AEKI Chairman Irfan Anwar. This figure includes the Arabica crop of about 1.3 million bags. Total production in Indonesia’s 2015-16 harvest of both Arabica and Robusta coffee reached about 10 million bags, according to AEKI figures, which remains lower than the figures from the USDA. “Our main problem continues to be the weather, which has not been kind to us, and on top of that we have problems with low yields from old trees in many of our farms,” Anwar said, adding that as domestic consumption in Indonesia continues to grow, the country will likely be forced to increase the quota for coffee imports in 2017. Indonesia has for years been importing both green coffee for the local soluble industry, as well as roast and ground and various instant coffee products in order to meet the local demand and still keep up with export demand for the Indonesian Robusta beans, which are much sought after on the global market. Anwar said imports may surge to 1.7 million bags this year, up from about 1 million bags in recent years, in order to make up for the production shortfall. Official coffee statistics are hard to come by in Indonesia, but export statistics compiled by Indonesia’s Ministry of Trade, based on customs records, suggest that AEKI’s figures may be more accurate than those from the USDA, which completed research and analysis for the May report between March and April. Coffee exports in the month of April from Sumatra, Indonesia’s biggest coffee growing island, fell by 79 per cent to 79,767 bags, local press reported from Bandar Lampung, the southern coffee capital of Sumatra. Sumatra is home to up to 75 per cent of Indonesia’s entire coffee crop, including more than 80 per cent of its annual Robusta harvest. Continuing the trend, coffee exports in the month of October were down 43 percent at 371,167 bags, while trade ministry figures showed that total figures in the first seven months of the 2016-17 crop year – which in Indonesia runs from April through March – were down 60 per cent at 1.6 million bags. This compares to exports of 5.1 million bags in the April-October period of the 2015-16 crop cycle. The dwindling Robusta shipments have already raised concern on the international market as Indonesia is not the only Robusta grower that has been struggling with drought. “The key of the market will always lie in Brazil as the biggest producer and to a secondary effect in Vietnam, but as we notice production is also down in Indonesia and India, the market is getting nervous as far as the supply of Robusta coffee is concerned,” Marco Ruttimann, President at Coffee Link Brokers in Miami, tells GCR. The last five years of weather problems resulting in smaller crops is something of a paradox in the current debate in Indonesia’s coffee industry, where the focus in recent years has been on how to increase production through a combination of efforts that aim at bringing total output to 20 million bags. But for Indonesia, one of the world’s oldest producing nations and a giant in coffee since it first started cultivation more than 300 years ago, the growing negative implications of climate change as well as years of low prices in the market have not been able to throw the industry’s plans for a revival off course. The main path toward making this happen is through extensive replanting of farms, replacing old trees with new and more productive varieties and increasing the tree density as well, AEKI’s Irfan Anwar tells GCR. “The goal is to increase the average productivity of the coffee farmers to 1.5 metric tonnes per hectare from the current number of 760 kilograms per hectare,” he says. With 1.2 million hectares of land cultivated with coffee, even just reaching a medium target of one tonne per hectare – or the equivalent of 16.7 bags per hectare – would make it possible for Indonesia to complete AEKI’s goal of producing a total harvest of 20 million bags a year. The reality on the ground, however, is more complicated as Robusta farmers in the southern Sumatra provinces of Lampung, Bengkulu and South Sumatra typically harvest average yields of between 400 and 500 kilograms of green coffee per hectare – well below the official AEKI estimate of 760 kilograms. The province of Lampung, located in southern Sumatra on the shores of the Sunda Strait just across from Java island, alone accounts for as much as 35 per cent of the entire Indonesian coffee crop in peak production years, so any improvement to overall yields will be a challenge to achieve without Lampung growers being part of the effort. Lampung is home to one of Indonesia’s oldest Robusta growing areas, with production dating back close to 200 years.
Despite the challenges lying ahead, local industry stakeholders from both AEKI and the Union of Indonesian Coffee Exporters, GAEKI, believe bigger production volumes out of Indonesia could be seen during the next decade. “I think we can achieve a bigger production in the next five to 10 years as long as the government does what it needs to do and supports the coffee industry, both by boosting the production of current plantations and improving infrastructure,” says Isdarmawan Asrikan, secretary general of GAEKI. An estimated 60 per cent of Indonesia’s coffee acreage has a tree population of between 30 and 60 years old, according to figures from the Agriculture Ministry, which between 2007 and 2013 provided financial and technical assistance toward renovation efforts of over 40,000 hectares of coffee farms across the Indonesian coffee islands. As the dwindling Robusta exports from Indonesia have been evident since early 2016, the global coffee market has grown increasingly worried about the overall supply shortage of Robusta beans on the world market where similar damage has been reported to Robusta crops from drought in key growers Vietnam, Brazil and India. “Coffee prices rose significantly in October. The market has been largely driven by the ongoing concerns over Robusta supply,” said the International Coffee Organization (ICO) in its last monthly market report, adding that the Robusta shortfall was the direct cause driving the market to a two-year high for Robusta prices in late October. “Indonesia continued to register lower exports, down by over 25 per cent for the coffee year. The outlook for 2016-17 is less positive following adverse weather conditions earlier this year,” said the ICO in its October report. As coffee consumption continues to boom across the Indonesian islands, AEKI officials see no reason to believe that lower production from the local growers will lead to reduced demand, but rather expect rising competition among traders and buyers in the Indonesian market for green coffee. But despite the weather problems, the industry remains optimistic that it can recover sooner rather than later, says Moelyono Soesilo, of Java exporters Taman Delta. “The harvest will be back to normal in 2018, but only if this year the La Niña is not too extreme,” Soesilo says. GCR

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