RI coffee expected to perk up in 2000

RI coffee expected to perk up in 2000

By Sylvia Gratia M. Nirang

JAKARTA (JP): The year 2000 is expected to be a good one for
Indonesia's coffee industry, with experts predicting coffee
production will bounce back after being hit by a severe dry spell
caused by El Nino and excessive La Nina-caused rains.

The Association of Indonesian Coffee Exporters (AICE) has
predicted that Indonesia's coffee production will rise to between
470,000 and 500,000 tons in the 1999/2000 production year ending
in September, from 381,512 tons the previous year. They are
forecasting the increase based on expectations of favorable
weather.

Association vice chairman Mustafa Sulaiman and executive
secretary M. Noer Madjid told The Jakarta Post weather in key
coffee growing areas in Sumatra, including Lampung and North
Sumatra, was normal despite some rain in the highlands.

The wet conditions brought about in 1999 by La Nina, a weather
pattern which brings higher-than-normal rainfalls, has helped to
create friendly conditions for 1999/2000.

"La Nina might have had a bad effect on last year's coffee
harvest, but the wet conditions it caused in 1999 will bring
about comfortable conditions for the 1999/2000 coffee harvest as
it has helped coffee flowers bloom," Noer Madjid said.

Indonesia normally produces around 480,000 tons of coffee
annually on over 1.1 million hectares of coffee plantations.

But the arrival of El Nino followed by its sister La Nina
dealt a serious blow to the country's coffee industry.

The El Nino-caused drought which lasted throughout 1997 to the
middle of 1998 cause coffee production in the 1997/1998
production year to drop to 420,000 tons from 470,000 tons the
previous year.

Indonesia's coffee production dropped further to 381,512 tons
in the 1998/1999 production year because of the continuing
effects of El Nino, which were exacerbated by the arrival of La
Nina.

Indonesia's coffee production is 90 percent robusta and 10
percent arabica. The country is the world's third-largest coffee
producer after Brazil and Colombia, but the world's largest
producer of robusta.

Robusta, a mainstay of the instant coffee industry, is
bitterer than the higher grade arabica coffee, which is
predominantly grown in Central America, South America, East
Africa and India.

Indonesia's main robusta-producing areas are South Sumatra,
Lampung and Bengkulu. These three Sumatran provinces -- which
traders call Indonesia's coffee triangle -- account for up to 70
percent of Indonesia's total coffee production.

The country's arabica coffee is produced in Aceh; North
Tapanuli, North Sumatra; Toraja, South Sulawesi; and on state-
owned coffee plantations in East Java and Central Java.

To boost coffee production, AICE chairman Oesman Soedargo said
Indonesia must increase its coffee yield per hectare by improving
the planting system.

Yield currently stands at between 600 to 700 kilograms per
hectare. "If we can increase (yield) to one ton of coffee per
hectare, that would be very good for us," Oesman said.

Exports

The association is also predicting an increase in Indonesia's
coffee exports as a result of higher production on domestic
plantations and increases in coffee prices on the international
market.

Noer and Mustafa said Indonesian coffee exports were expected
to increase by 10 percent over the 325,000 tons exported in
1998/1999.

Indonesia exports its robusta coffee to the United States,
Japan, Germany, Singapore, the United Kingdom and several other
European countries. Its high-grade arabica coffee is exported to
Japan and the U.S.

Japan is the largest importer of Indonesian coffee in Asia,
while Germany is the main market in Europe.

Indonesia exported 56,832 tons of coffee to Japan in
1998/1999, accounting for some 20 percent of the country's total
coffee exports.

Noer said the decline in coffee production in 1998/1999 led to
a 15 percent decline in exports to around 325,000 tons valued at
US$433.3 million, compared with the 335,477 tons exported in
1997/1998.

But Mustafa warned that security disturbances in several key
coffee producing areas could hamper production and export growth.

He said coffee exports from Aceh had stopped over the past
several months due to unrest and violence in the province.

The rampant looting of plantations across the country,
particularly in East Java, has also dealt a blow to coffee
exports.

Mustafa also said that while farmers enjoyed increased profits
from the rupiah's depreciation against the US dollar, exporters
faced difficulties because of the increased costs of transporting
and warehousing coffee, higher interest rates and fierce
competition.

Local coffee exporters face increased competition from foreign
coffee traders, who now can deal directly with local farmers.

The government's new open-market policy allows foreign traders
to buy coffee directly from farmers, forcing more than half of
all local coffee exporters out of business.

Mustafa said of the over 120 coffee exporters in the country
in 1997, only some 50 are still in business.

"Foreign traders are now able to deal directly with farmers in
coffee producing areas. They bring huge amounts of cash with them
so they can pay farmers in advance and give them better prices.
Local exporters, most of whom lack capital, cannot compete with
them," he said.

Vietnamese Coffee

Despite the optimism, the association warned that Indonesia's
coffee was likely to lose some of its export markets to
Vietnamese coffee.

Vietnam's coffee exports have surpassed Indonesia's for the
past two years, and Vietnam is now the world's third largest
coffee exporter, bumping Indonesia down to number four.

Vietnam's coffee production exceeded Indonesia's in 1998 due
in large part to the bad weather which hit Indonesia's coffee
production that year.

Vietnam trailed Indonesia in coffee production in 1997,
producing 6.29 million 60-kilogram bags of coffee (377,400 tons),
of which some 6.18 million bags (370,800 tons) were exported. In
the same year, Indonesia produced 6.8 million bags of coffee
(408,000 tons), exporting 5.7 million bags (342,000 tons).

Vietnam produced 6.59 million bags of coffee in 1998, while
Indonesia's coffee production fell to 6.34 million bags.

Noer said Vietnam's coffee production was expected at 7
million bags of coffee in 1999/2000 due to conducive weather and
good harvests.

The United States Department of Agriculture put Vietnam's
coffee production in 1999 at 6.79 million bags.

Vietnam exported 6.2 million bags of coffee in 1999, while
Indonesia's coffee exports reached 5.36 million bags.

"Ten years ago they (Vietnam) hardly produced anything and
look at them now," Noer said.

Indonesia would be allowed to increase its coffee exports if
it was able to produce more coffee. The Association of Coffee
Producing Countries has given Indonesia an export quota of
350,000 tons a year since 1997/1998.

However, Indonesia has not been able to meet this quota
because its production has continued to decline.

Aside from declining production, another reason Vietnam's
coffee exports now surpass Indonesia's is that a large portion of
Indonesia's coffee is sold on the domestic market.

AICE estimates that domestic coffee consumption should rebound
to about 100,000 tons in 1999/2000, from around 80,000 tons in
1998/1999. Domestic coffee consumption was 100,000 tons in 1997
and 120,000 tons in 1996.

The projected increase in domestic consumption is based on the
improving purchasing power of Indonesian consumers and the
country's improving economy.

Prices

The projected rise in domestic coffee consumption coupled with
the predicted increase in coffee exports are expected to keep
coffee prices on the domestic market high.

In addition, Noer said the stabilization of the rupiah at
7,000 against the US dollar would help maintain the price of
coffee in the domestic market.

"The fluctuation of the rupiah will continue to be a price
mover in Indonesia's local coffee market throughout 2000," Noer
said.

AICE secretary for research and development Miftakhul Kirom
said the price of grade-four robusta coffee reached Rp 10,000 per
kilogram in Lampung in January 1999, when the rupiah was at 8,000
against the dollar.

Coffee prices in Lampung hovered around Rp 6,500 per kilogram
last November, when the rupiah was quoted at 6,900 against the
dollar.

AICE also predicted coffee prices on the international market
would remain high due to an expected fall in coffee production in
Brazil, the world's largest coffee producer.

The Brazilian government predicted the country's coffee output
could drop 30 percent in the 1999/2000 production year, from 24.8
million 60-kilogram bags of coffee (1.49 million tons). The
predicted drop in production is based on expectations of a
continuing drought.

Brazil led world production with over 35.2 million bags of
coffee in 1998, followed by Colombia with 11.6 million bags. The
two countries account for some 40 percent of the world's annual
coffee production.

Noer said improving coffee prices on the domestic and
international markets would encourage local coffee producers to
work their land and take care of their coffee plants in an effort
to boost production.