Indonesia to see stagnant cocoa output this year

Indonesia to see stagnant cocoa output this year

Dow Jones, Singapore

Indonesia expects to see stagnant cocoa output in 2004 as aging trees and disappointing prices continue to suppress productivity, traders and analysts said.

Having fallen behind Ghana, which became the world's second largest cocoa producer in 2003, Indonesia will also have to face competition from Vietnam while widespread pest infestation and unfavorable weather hinder its crop.

"Production is expected to remain unchanged around 400,000 (metric) tons because the cocoa trees are old and prices are still relatively weak," said Halim Razak, director of PT Pallangga Utama, a cocoa export firm based in Makassar.

The Indonesian Cocoa Association, or Askindo, estimated Indonesia's cocoa output for the 2002-03 crop year ended July at 390,000 to 400,000 tons, down from 450,000 tons in 2001-02, as prolonged dry weather and rampant pest infestation have taken their toll on the crop.

Halim, who is also the vice chairman of Askindo, said presently, there are too many trees older than the productive age of 20 to 25 years and their susceptibility to disease further limits productivity.

Moreover, "the current price of around Rp 10,000 (US$1.17) a kilogram is still too low for farmers to earn enough to invest in fertilizers to boost their cocoa crop," he said.

Indonesia's Sulawesi fair-average-quality cocoa beans are currently quoted around Rp 11,800-Rp 12,000/kg, free on board Makassar, down 32 percent from around Rp 17,900-Rp 18,200/kg, FOB, in January.

To create more awareness among farmers on better crop management, Indonesia is banking on the success of its nine-month-old model cocoa village to convince farmers that they should adopt innovative growing techniques to boost output.

The plantation, in the Mamuju area of Makassar, currently has 2,500 hectares of cocoa under cultivation and will span 7,000 hectares when completed.

Cocoa has been predominantly grown in the south, central and southeast provinces of Sulawesi since 1975, which account for around 75% of the country's total cocoa output.

"The model cocoa village remains our big focus to boost the country's cocoa production and consequently raise farmers' income per capita to around $2,000 to $2,500 per year, from the current $600 per year," said Zulhefi Sikumbang, director of PT Setia Abadi Nugraha, a Jakarta-based commodity trading firm.

The village is experimenting with protecting cocoa pods by wrapping them in transparent plastic sheets to stop the pod borer insect from reaching the beans.

The area under pod borer attack has been growing by an average 10% every year for the past three years.

"The standard cocoa bean count is 110 beans per 100 grams, but in the 02/03 season, we saw the poorest bean quality in recent years at 120-130 beans per 100 grams," said Zulhefi, who is also the chairman of Askindo.

"But so far, this village has produced beans at 100-115 per 100 grams, and we're hopeful that the quality will be maintained," he added. A lower bean count means higher quality.

Zulhefi said the project will need one to two years to obtain good results before farmers are convinced of the effectiveness of the new technique.

He added that some farmers who have adopted this technique are seeing an increase in their yields and coupled with forecasts of stronger cocoa prices in 2004, he remained optimistic that Indonesia's cocoa output could reach 450,000 tons in 2003-04.

Indonesia also plans to stimulate the country's beleaguered cocoa processing sector by imposing an export tax on unfermented cocoa to ensure more supply for local processors.

Indonesia currently exports up to 80 percent of its cocoa beans to the U.S., Brazil, Singapore and Malaysia.

In November 2003, Indonesian Trade Minister Rini Soewandi said her ministry had proposed to the Finance Ministry that the government impose a 2 percent-3 percent export tax on cocoa to prevent large-scale exports without domestic value addition.

"The next move ought to be the removal of the 10 percent value added tax (VAT) on farmers when they sell their beans to local grinders, which has encouraged them to export rather than sell directly to local processors," said a senior official from The Association of Indonesian Cocoa and Chocolate Producers.

"Even though the 10 percent VAT can be reimbursed, it takes some time to be processed, and by then, it'll be eating into farmers' working capital," he said.

He hopes that by lifting the VAT and imposing the export tax, more cocoa beans can be processed locally, while more farmers will be encouraged to ferment their beans to boost their income.

"Indonesian farmers are usually not that keen to wait more than five days to ferment their beans, even though they can sell them at higher prices (if cocoa is fermented longer), because they prefer to cash in on their stocks immediately," said a veteran trader, who runs a Sulawesi-based trading house.

Fermented beans currently make up only around 5 percent of Indonesia's overall exports.

"But it's an important step to improve quality in order to fetch higher prices" and penetrate the quality-conscious European market, he said.

"Ultimately, farmers will stand to gain when the prices are higher, and they can better invest in their plantations to reap more yields," he said.