Supply shortage causes domestic coffee prices to soar

JAKARTA (JP): A shortage of supplies due to delayed harvest and bad weather have caused coffee prices on the domestic market to increase to a level higher than on the world market.

"The domestic price is now 25 cents higher than the price on the world market," the AICE executive, who wanted anonymity, said.

"This is an abnormal situation and very frustrating because farmers have no more stocks to sell," he added.

An executive of the Association of Indonesian Coffee Exporters (AICE) said here on Saturday that coffee prices on the international market have shot up to reach US$2.40 per kilo, far higher than the 85 cents per kilo registered four months ago.

The price increase on the world market has been caused mainly by decreases in production in some countries, including Mexico and the war torn Rwanda in Africa.

A spokesman for the Ministry of Trade said the shortage of domestic supplies has motivated some small-scale exporters to default on their deliveries to foreign customers in order to make bigger profits at home.

He said the defaulting could harm not only those particular exporters, but all Indonesian coffee exporters because importers could lose trust in them.

"Therefore, AICE should warn its members to fulfill their contracts," he said.

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AFP reported that many small and medium-scale exporters from Medan and Surabaya have defaulted on their contracts to deliver coffee due to the tight supply and speculative buying, which are pushing domestic prices to their highest levels in seven years.

The ministry spokesman said because international business contracts have certain rules, importers could sue the defaulting exporters. Importers could also file complaints with the trade attache at an Indonesian embassy. Also, the government could issue a warning to the defaulting exporters, or even cancel their export licenses.

He said businessmen sometimes tend to speculate in trading with foreign partners.

Indonesia, a major Robusta coffee producer, is the third largest coffee producer in the world after Brazil and Columbia.

Indonesia introduced a retention plan on April 1 in which exporters should cut back exports by up to 20 percent to prop up prices on the world market when the prices are less than 60 cents and by up to 10 percent if prices are moving between 65 and 70 cents. Retention is refrained from when prices exceed 70 cents. (yns)