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Value chain profile for Robusta and Arabica coffee in
Indonesia and its impact on farmer livelihoods
Jeffrey Neilson
School Geosciences (Economic Geography)
Overview of Presentation
1. The value chain for Indonesian coffee
2. Value chain upgrading through downstream processing
3. Value chain upgrading through quality improvement
4. Value chain upgrading through more efficient production
5. Conclusions
The Value Chain for Indonesian Coffee
+/- 75% of production exported as green beans
+/- 20% of production
Consumed in
Indonesia (mostly
Robusta)
+/- 5% of production
Exported in
processed coffee
Overseas Consumers
‘Lead Firms’
International Distributors
These may also be
international roasters
(FDI)
Adapted from Sendall (2013)
Large Scale estates
(<5% of production)
Global consumption patterns are changing
Coffee Consumption (‘000 60kg bags) - compiled from ICO (2014). ‘Other Emerging Countries ’ refers to
all other markets (includes the former Eastern Bloc, North Africa and much of non-tropical Asia)
Indonesia Green Bean Exports by volume
2013 data. Source - Uncomtrade
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Exports from Lampung - fluctuating
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
2009
2010
20,000,000
2011
10,000,000
-
› Robusta = bulk, undifferentiated ‘commodity’ coffee
› An apparent decline in exports to the USA and Europe?
› Emerging markets (India, Russia, Morocco, Philippines, Malaysia, China) are
increasingly important to Indonesian Robusta?
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Exports from Medan (Arabica) – stable
› Indonesian Arabica is a specialty product
› Markets are more stable and are dominated by established coffee consumer
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Increasing upstream role of buyers
› >50% of Indonesian coffee is now exported by global trading companies
› Roasting companies (lead firms) such as Nestle, Mondelez, JM Smucker
and Starbucks are getting increasingly involved in farmer development in
Indonesia
- As well as an increasing number of smaller specialty coffee roasters
› Is this a threat or an opportunity for coffee farmers?
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Small contribution to exports earnings:
Is this affecting government policy?
› Source: UNCOMTRADE (2014). % of total export value
Opportunities for upgrading
There are 3 primary modes of value chain upgrading (following Humphrey &
Schmitz, 2002):
1. Downstream Processing: taking on new functions in the value chain
(processing coffee beans instead of exporting green beans)
2. Quality Improvement: moving into new (higher-value) product lines such
as specialty coffees, or organic coffee
3. Enhanced Productivity: producing the same product more efficiently and
more profitably (eg. Using precision-farming and improved technologies
to produce green coffee more profitably or introducing new technologies
to the roasting process)
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1. Downstream processing in Indonesia
› Indonesia already has a highly developed coffee processing sector, comprised of both
domestic and foreign investments.
- The Kapal Api Group (Santos Jaya Abadi), - with brands like Kapal Api, ABC and
Good Day,
- PT Mayora Indah (Torabika coffee),
- PT Nestle Indonesia (Nescafe),
- PT Jaya International Indonesia (Indocafe), and
- Wings Corporation (Top Coffee).
› And a dynamic retail sector:
- Starbucks (with 147 stores across Indonesia in 2013, based on internet web search),
- Coffee Bean and Tea Leaf (47 stores),
- Black Canyon Coffee (31 stores)
- J. Co Donuts and Coffee (Johnny Andrean Group with 135 stores) and
- Excelso (owned by the Kapal Api Group, with around 100 stores).
And it is internationally competitive!
In USD (HS Codes 210111 and 210112). Source: UnComtrade
Challenges for exporting processed coffee
› Freshness: quality can deteriorate soon after roasting
› Blending: to ensure consumer uniformity, roasters will blend coffees from
around the world (cannot rely on 1 origin)
› Market knowledge: roasters need to be very sensitive to the changing
needs of their customers – this works best when spatially proximate
› Logistics and infrastructure: It is cheaper to send beans from Medan to
Korea than to Jakarta, from Medan to Rotterdam rather than Makassar to
Medan!. It is also more expensive to ship roasted coffee than green beans.
Greater opportunities exist in the soluble coffee sub-sector rather than
premium quality exports
AND, domestic processing is unlikely to significantly impact upon farmer
livelihoods or farm-gate prices.
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2. Value adding through quality Improvement
› Upgrading can also occur through getting a higher price for green beans
› The specialty coffee market is growing – this presents new opportunities for Indonesian
farmers
› The per unit value of higher quality specialty coffee sold as green beans may even be higher
than for processed soluble coffee
› Average export prices for Arabica (from Medan) were $6.6/kg, compared to only $1.93/kg for
Robusta (from Lampung) - 2011 prices.
Model ‘Kemitraan’
› Transfer of skills and quality awareness
to farmers
› Reduces risk by having a certain market
› Direct relationships can develop quality
incentives
3. Upgrading through productivity and efficiency
› Incomes can be improved through on-farm technological innovations,
› New farming technologies to improve productivity generally include Good
Agricultural Practices (GAP) and the introduction of improved planting
material,
› Efficiencies can be gained through new processing methods and new
value chain structures,
› What role for public-private
partnerships in extension?
Successful upgrading in a value chain
› Integration within a global value chain is often a key element within all 3
forms of upgrading (downstream processing, quality enhancement and
productivity increases),
› In the contemporary global economy, access to knowledge, skills,
technology and markets is often facilitated through tighter engagement
with buyers along global value chains,
› Policy support settings (in Indonesia) could be focused on identifying
opportunities for ‘strategic coupling’ with the willingness of buyers to
deliver supports to farmers along the value chain.
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Future ACIAR Research on Coffee Value Chains
2015-2018: Research partnership between the University of Sydney, ICCRI,
BALITRI, UNILA, UNHAS and COSA
1. What impacts are sustainability programs having on farmer livelihoods?
2. How can ‘Relationship Coffees’ (Kemitraan) be supported to benefit
farmers?
3. Do Geographical Indications (GIs) offer a new tool for rural
development?
4. What opportunities exist to further develop the international
competitiveness of the downstream coffee processing sector in
Indonesia?
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