Indonesia Expat
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Indonesians Buy More Coffee, Local Output Remains Uncertain

Photo by Jordan Whitt

Every year, the archipelago is jockeying with Colombia for the title of “the world’s third largest coffee producer.” As the country’s middle-class has grown in recent years – and local demand for coffee continues to rise – the price consumers pay in the supermarket for their favourite bag of ground arabica depends on rainfall in Indonesia.

According to our friends at Euromonitor, the pace of retail volume growth for coffee in Indonesia increased last year. This was due largely to smaller average price increases compared to the previous year, which encouraged stronger demand. For the biggest retail category – standard fresh ground coffee – prices remained stable, but instant coffee mixes saw a price hike. Local consumers ended up paying more for the higher cost of added ingredients in their packets (stuff like sugar and artificial sweetener).

Production of coffee in the country is estimated to grow by roughly 10 percent in 2017, says local investments portal Indonesia-Investments. The country has a likely output clocking in between 650,000 and 700,000 tonnes, according to the Indonesia Coffee Exporters Association (GAEKI).

Because median incomes are rising, Indonesia is now the fastest growing market for packaged retail coffee in the world. The space has experienced a compound annual growth rate (CAGR) of 19.6 percent over the past five years. Following Indonesia, India clocked in at a CAGR of 15.1 percent, while Vietnam came in third at 14.9 percent.

“The global coffee industry continues to experience healthy growth, driven by Asian markets in particular. Asia has far more growth potential as traditionally tea drinking consumers are converted slowly but surely into coffee drinkers,” explained Jonny Forsyth, a global drinks analyst at London-based market research firm Mintel.

A strong demand for packaged coffee is a good indicator of economic growth and a burgeoning middle-class. It shows that Indonesian consumers are confident enough to spend on things that could be considered an in-home luxury.

Despite the fact that too much rainfall in Indonesia has stymied local crops in recent years – leading to smaller annual output and in turn higher prices at the supermarket – domestic demand for good coffee continues to rise. In other words, locals couldn’t seem to help but splurge on that bag of Excelso ground Java Arabica, even if it was a few thousand rupiah more expensive in 2016.

A higher price shouldn’t necessarily be the case in 2017, although it’s possible. A GAEKI survey predicts harvests and even the conditions of local coffee plantations in Sumatra’s “golden triangle” are better this year, despite heavy rainfall in recent months.

For those who are less familiar with the science of coffee production, heavy rainfall can cause harm to crops and lower the yield if it comes during the time of the “flowering” period, a stage which already happened several months ago. It can also cause harm during the harvest, which will soon take place during April across Indonesia. GAEKI Chairman Hutama Sugandhi is betting that April will be dry enough for local farmers to get a good harvest in, although it has yet to be seen whether the chairman has a crystal ball.

It’s important to note that coffee production in Indonesia (and all other coffee producing countries for that matter) consists of two different types of beans. Robusta is considered the ‘inferior’ bean of lower quality that is cheaper and produced in great volume. It is the coffee found in most thrifty priced products like the Kapal Api or Torabika packages you can get at Indomaret – you know, the stuff you buy for the office.

Arabica, on the other hand, is considered the ‘superior’ bean of high quality that is more expensive and produced in lower volume. This is the stuff that the more costly Excelso bags are made of – you know, the good smelling stuff you buy for your home pantry.

For the most part, the golden triangle of Lampung and Bengkulu puts out the lower quality robusta beans. Heavy rainfall won’t really have an effect on robusta this year. For arabica, however, it’s a different story. The flowering stage for arabica in the region began in January and February, a time when it was raining cats and dogs in Indonesia.

So far, Sugandhi has been tight-lipped with the media about the possibility of lower arabica yield this year. That said, it’s possible that he just doesn’t know yet. Arabica beans account for about 15 percent of Indonesia’s total coffee bean production.

Industry think tank publication Global Coffee Report recently noted: Conflicting figures and estimates for both output and consumption in producing countries is not a new phenomenon, but in Indonesia an under-reported number for local consumption goes a long way to explaining some of the discrepancies in international statistics.

Looking beyond the supermarket and into the cafe around the corner, however, we can also observe a trend in Indonesia’s “coffee culture.” Five years to a decade ago, there were probably only a few artisan cafes that locals knew about off the top of their heads.

Today, hundreds of hip cafes have opened up in Jakarta and other major cities like Medan, Bandung and Surabaya.

The Straits Times reported that the entry of Starbucks and other foreign coffee chains in the early 2000s helped elevate coffee drinking to a middle-class habit. Essentially, this means in the past five years, avid coffee heads have become more sophisticated, trading in the instant packets for high-quality, single origins speciality coffee. For this, it’s upmarket cafe names like Anomali, Caribou Coffee and Excelso all the way.

More Indonesians are hanging out in trendy coffee shops. They have the cash to order the good stuff on the menu and they aren’t afraid to embrace newcomer brands. Put these things together and you get a dynamic that might cause people like Sugandhi to sweat over the nation’s arabica output in 2017.

With this in mind, April will nonetheless be a make-or-break month for Indonesia’s coffee output, and will determine where the country stays in the horse race with Colombia for the rest of the year.


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