1. Value chain profile for Robusta and Arabica coffee in Indonesia and its impact on farmer livelihoods
Jeffrey Neilson
School Geosciences (Economic Geography)

2. Overview of Presentation
The value chain for Indonesian coffee
Value chain upgrading through downstream processing
Value chain upgrading through quality improvement
Value chain upgrading through more efficient production
Conclusions

3. The Value Chain for Indonesian Coffee
+/- 75% of production exported as green beans
+/- 5% of production
Exported in processed coffee
+/- 20% of production
Consumed in Indonesia (mostly Robusta)
Overseas Consumers
‘Lead Firms’
International Distributors
Key Points:
Processed Exports are increasing
International companies are involved in Indonesia – this is not a bad thing
These may also be international roasters (FDI)
Large Scale estates (<5% of production)
Adapted from Sendall (2013)

4. Global consumption patterns are changing
The
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)

5. Indonesia Green Bean Exports by volume
2013 data. Source - Uncomtrade

6. Exports from Lampung - fluctuating
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?

7. Exports from Medan (Arabica) – stable
Indonesian Arabica is a specialty product
Markets are more stable and are dominated by established coffee consumer

8. 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?

9. Small contribution to exports earnings: Is this affecting government policy?
Source: UNCOMTRADE (2014). % of total export value

10. Opportunities for upgrading
There are 3 primary modes of value chain upgrading (following Humphrey & Schmitz, 2002):
Downstream Processing: taking on new functions in the value chain (processing coffee beans instead of exporting green beans)
Quality Improvement: moving into new (higher-value) product lines such as specialty coffees, or organic coffee
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)

11. 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).

12. And it is internationally competitive!
In USD (HS Codes and ). Source: UnComtrade

13. 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.

14. 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) prices.

15. Model ‘Kemitraan’ Transfer of skills and quality awareness to farmers
Reduces risk by having a certain market
Direct relationships can develop quality incentives

16. 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?

17. 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.

18. Future ACIAR Research on Coffee Value Chains
: Research partnership between the University of Sydney, ICCRI, BALITRI, UNILA, UNHAS and COSA
What impacts are sustainability programs having on farmer livelihoods?
How can ‘Relationship Coffees’ (Kemitraan) be supported to benefit farmers?
Do Geographical Indications (GIs) offer a new tool for rural development?
What opportunities exist to further develop the international competitiveness of the downstream coffee processing sector in Indonesia?