April Coffee Origin Focus: Indonesia

My great grandfather was a fairly big 400-ha estate owner in Sumatra, Indonesia – Dutch Indies territories at the time. He grew mostly rubber trees. All I know is that his son, my grandfather, was trained and schooled to take over the business but was brutally expelled during the Japanese occupation from 1942 to 1945. During this time, he faced many challenges and was eventually sent off to build the Thai Burma Railway. Luckily enough, he finally made it back to Holland. His persistence is one of the reasons why I am able to write this today. On that note, let’s dive into a little Indonesian coffee history and explore some of the challenges our partners face at origin.

Indonesian Coffee Landscape

Coffee exports from Indonesia date back to the 17th and 18th centuries when the VOC company (worth a staggering 8 trillion in today’s dollars at its peak in 1637) monopolised trade with the East.

Batavia (now known as Jakarta) was their main hub rendezvous port. In 1696, the first seedlings were introduced, and by 1711, exports from Java to Europe had begun. It wasn’t sold cheap: coffee was delivered to Amsterdam and was sold for 3 guilders per kilogram, the equivalent of several hundreds of US dollars per kilo today.

After the VOC formally dissolved in 1799, the company was nationalised, and the Dutch government implemented a (forced) cultivation system for planting cash crops such as coffee trees from 1830-1850.

Each village had to devote 20% of the land to the growing of government crops. The alternative for the peasants was to work on the plantations for 60 days of the year.

By 1870, Arabica coffee-growing areas had expanded into Sumatra, Bali, Sulawesi, and Timor. In 1876, coffee rust disease spread through the islands and wiped out most Arabica plants. Robusta replaced Arabica in South Sumatra and Java, which is still grown today.
Dutch-owned plantations on Java were nationalised in the 1950s, soon after independence, and now managed as state-owned plantations under PTPN, Perusahaan Terbatas Perkebunan Nusantara.

There was a steady rise in coffee production from 5 million bags in the 90s, to 8 million bags in the 2000s. However, competition from other agricultural commodities such as palm oil, rubber, and cocoa caused production to stabilise around 10-11 million bags per year (ICO & UCDA). This is where it sits still today. Bear in mind that 80-90% of this is still Robusta, and only 10-20% (1-5 million bags) is Arabica.

This season (2023/24), the El Niño phenomenon has brought dryness to Southeast Asia, reducing production in the low-lying (Robusta) areas in Indonesia (and Vietnam) and causing a spike in local prices. Excessive rain during cherry development then lowered yields further and caused sub-optimal conditions for pollination in Sumatra and Java, where approximately 75% of the robustas are grown. As we will see later in this report, this yield is already one of the lowest worldwide.

What is going on now with the crop in Sumatra is unusual for April. Typically, there is very little or no more to harvest around this time of year. Sumatra has its main crop in December, January, and February, but this year, we saw good volume around the end of January, start of February. So the question we have now is: will the delayed main crop affect the fly crop, which usually starts in May? What would be the impact of this delay on the fly crop?

So even if the volume remains the same, that delay is causing the price to spike. It has softened a bit now; however, if we experience another delay for the fly crop with lower volumes, prices may rise again.

On top of this, Indonesia’s local consumption ran up close to 5 million bags. It increased 4% annually over the past decade (almost double the global demand increase of 2.2%/year). They actually started importing about 1.5 million bags of lesser-quality beans, mostly from Brazil. This is to justify the immense growth of the bigger chains such as the Jiwa group (900 stores) and Starbucks (500 stores – sourcing locally). But demand from local mid-sized roasters & speciality roasters has also been popping up. The number of cafes have increased tremendously and many people in Indonesia now enjoy a good cup of coffee. A very young population fuels this growth, as half of the total population of 270 million citizens are under 30 years old.

Local Supply Chain

Now, let’s look at the supply chain and systems in place that allow us importers to source these amazing Indonesian Coffees. Lets look at how this works locally before it hits the vessels for export.

Traditionally, the supply chain starts with a smallholder farm that sells wet or dry parchment. If dried at all, it is done quickly and taken to the local market each day. Here, there’d be a broker, and that broker is either independent or connected to a dry mill, which has a collection station. That dry mill, usually outside the growing area, will sort and process the coffee and then sell that coffee to an exporter, who will prepare the cargo for shipment. However, this is now gradually changing, and more farmers are trying to organise themselves into Cooperatives (owned by the farmer members), whereby each farmer can go and sell his or her coffee at the cooperative’s processing station as either cherry or parchment. The cooperative will take full control over the rest of the chain and further process, sort, and, in some cases, export the final green beans.

One of the unique aspects of Indonesian coffee is its processing. In the Indonesian Bahasa language, they call it ‘Giling Basah’, which translates to ‘hulled’ and ‘wet’, meaning ‘wet-hulled’. This refers to a processing method specific to Indonesian islands like Sumatra and Sulawesi and contributes to these regions’ full-bodied, earthy, and forest-like cup profiles. You can learn more about this here.

Producer Updates & Challenges

Tom and Hannah travelled to Sumatra late last year. They spent ten days visiting Sari Makmur, Wahana Estate, Permata Gayo and Ketiara, soaking up the local food, coffee, culture and hospitality along the way.⁠ You can read more from their trip here. I also connected with them recently to better understand some of the challenges they have been facing at the cooperative and the farm level.

Challenges faced by cooperatives and privately owned companies as per Ketiara:

• Since Covid 19, prices have been rising in Sumatra but Ketiara’s sales have decreased. They believe this is because they are unable to compete on price with big exporters based in the capital of North Sumatra (Medan).
• The number of exporters in Medan has surged from less than 50 to 60-65 in the past five years, many backed by powerful Asian conglomerates.
• As a cooperative, Ketiara only sells coffee produced by its members, who are all based in the Gayo highlands, Takengon. Compared to other coffee regions in Sumatra (such as Lintong, Sidikalang, Tapanuli), coffee from Gayo is unique and is considered a must-have for blending to improve quality. Due to this geographical restriction and the inability to buy coffees outside of these regions, they cannot blend their coffees to meet the demand.
• Unlike multinationals, local cooperatives have a very limited access to machinery, network, working capital, and well-skilled and educated human resources etc. Cooperatives are more oriented to their main priority, which is paying their farmers first.

That said, there are a couple of challenges faced at the farm level. The average yield is under 800kg/hectare in Indonesia which is considered low. In comparison, Brazil yields an average of 1800kg/hectare of Arabica. Additionally, the increased cost of production, mainly due to inflation, labour costs and logistics, is having a harsh impact on some producers. 

Farmers in Sumatra benefit from relatively high internal coffee prices, which help them earn decent incomes during good harvests. Cooperatives like Ketiara and Permata Gayo provide training and use certification premiums to support smallholders, mitigating climate change effects. Wahana Estate also aids local producers by planting newer, higher-yield coffee varieties to counter climate challenges.

Ending on a positive note, cooperatives like Ketiara boast dedicated members and offer high-quality, meticulously prepared coffee. They prioritize sustainability, with many adopting organic practices. Some are even involved in projects like the Hutan Project, a reforestation initiative backed by DRWakefield, further highlighting their commitment to environmental stewardship and community development.