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WORLD'S EXCESSIVE STOCKS OF COFFEE TO AFFECT INDONESIA'S COFFEE SECTOR.

Excess in coffee supply is expected to continue to glut the world market until 2001. The glut is feared to weigh heavily on the country's coffee industry. Apart from a decline in exports, the price of the commodity is feared to continue to dive on the domestic market. Currently the world market is hit by glut. The excess was caused partly by a large release of stocks by producing countries especially in the past year.

Coffee stocks in the world market are estimated at 131.8 million bags or about 20% larger than the world's consumption of 106 bags a year. Worse still is supply is expected to continue to increase especially from Brazil, which is estimated to produce 36 bags of coffee beans this year. The world stock are expected to last until 2001.

Indonesia is highly vulnerable to instability in the world market as more than 60% of its coffee production is exported. A reduction in exports would mean an increase in stock on the domestic market and this would be almost certain to affect prices on the domestic market.

Coffee retention scheme not easy

The call from Colombia and Brazil for the reintroduction of export retension in a bid to shore up prices in the world market is not an easy proposition for Indonesia, although it could be effective in creating price stability. The cost of retention is high - around US$ 150 million for only 100,000 tons of coffee beans. It would not be easy for the country. In Colombia and Brazil the retention cost is provided by theft governments as the governments buy coffee from farmers and keep it in government warehouses.

The Indonesian government has no fund for that purpose and a retention agreement could not be expected to be reached among the exporters, especially as they have other more pressing problems such as a drag on trade financing scheme, non performing debts and debt restructuring. They would not have cash to pay the farmers, interest and warehouse fee. Colombia and Brazil, however, reportedly continue the campaign for export retention directed to other members of the Association of Coffee Producing Countries (ACPC).

Prices of coffee beans

In 1998, coffee exporters enjoyed handsome profit with good prices in the world market and soaring value of dollar against rupiah. But now large stocks have dampened exports. The price of arabica hit a new low of US$ 103.44/1b late February, down 8.43% from January.

The price of robusta even dived deeper by 40% to US$ 48.86/1b in March. The price of Lampung robusta late 1999 in New York was US$ 85/1b.

Table - 1

Average price of Lampung robusta in New York, 1995 - October 1999
Year Price
 (US$ cent/lb)

1995 145.41
1996 115.67
1997 184.92
1998 - January 165.21
 - May 128.94
 - September 118.14
1999 - January 116.00
 - April 101.04
 - June 106.14
 - September 85.21
 - October 94.23



Source: CBS/Data Consult

On the domestic market, the price of Lampung coffee boomed in 1998 reaching a price of Rp 15,000 per kg when the dollar was more than Rp 10,000. Now the price plunged to Rp 4,000 in February. The price of export quality was Rp 6,500 per kg. The robusta price fall on the domestic market followed the glut in the world market and the rupiah appreciation to around 7,500 to the dollar.

Table - 2

Average price of robusta coffee on the domestic market, 1997 - December 1999
Year/month Average price
 (Rp/kg)

1997 4,821
1998 - January 8,750
 - February 10,250
 - March 8,894
 - June 9,000
 - July 14,875
 - August 16,084
 - December 15,084
1999 - January 15,750
 - May 15,667
 - June 14,709
 - September 10,565
 - December 10,565



Source: CBS/Data Consult

Production down

The country's production of coffee shrank in 1997 following long drought and unfavorable climate. AEKI said, the country's coffee production dropped 19% to 387.869 tons. In 1998, the production rose 8.8% to 422,000 tons, according to the plantation directorate general.

The increase in the production of coffee beans in 1998 was encouraging. Farmers were boosted to increase production by the soaring value of dollar and the high price in the world market. The price of robusta reached as high as Rp 17,000 per kg that year. The production, however, was still lower than 1996's 478,850 tons as La Nina, the wheather phenomenon, still affected production until 1998 especially in eastern Indonesia. However, Lampung the largest production center, recorded a high increase in production.

Table - 3

Developments of Indonesia's production of coffee, 1994 - 1999
Year Production Growth
 (tons) (%)

1994 450,191 -1.7
1995 457,801 1.7
1996 478,851 4.7
1997 387,869 -19.0
1998 422,000 8.8
1999(*) 500,000 18.5



(*) Estimate

Source: Directorate General of Plantation/AEKI/Data Consult

Exports up in 1998

In 1994, foreign exchange earned from coffee exports peaked at US$ 745.8 million when exports totaled only 230,181 tons. In the following years exports rose in volume but declined in value. In 1998, exports totaled 357,550 tons valued at US$ 584 million or an increase of 14.2% from 1997's 313,118 tons valued at US$ 511 million. The involvement of foreign investors that offered to buy coffee directly from farmers or traders in production centers contributed to increase in exports.

The largest buyer of Indonesian coffee is the United States. Exports of robusta to that country totaled 57,274 tons valued at US$ 90.97 million in 1998, followed by Hongkong to which exports totaled 51,835 tons valued at US$ 89.58 million and Germany 51,435 tons valued at US$ 75.43 million in the same year. Arabica exports to the United States totaled 8,061 tons valued at US$ 24.01 million in 1998. Other major buyers include European countries, Japan, South Korea and Singapore.

Table - 4

Indonesia's exports of coffee, 1994 - 1999

Tons (US$' 000)
Year Arabica Robusta Other Total Growth
 (%)

1994 26,546 226,737 16,021 269,304 --
 90,575 618,511 36,717 745,803
1995 20,088 202,429 7,664 230,181 -14.5
 72,434 501,775 22,523 596,732 -20.0
1996 10,803 331,517 24,282 366,602 59.3
 28,280 512,479 54,509 595,268 -0.2
1997 18,547 285,794 8,777 313,118 -14.6
 62,645 431,768 16,907 511,320 -14.1
1998 21,957 329,567 16,907 357,550 14.2
 59,988 514,419 9,836 584,243 14.3
1999(*) 21,858 305,996 7,703 335,557 --
 48,594 376,973 16,737 442,304



(*) January - November

Source: CBS/Data Consult
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Comment:WORLD'S EXCESSIVE STOCKS OF COFFEE TO AFFECT INDONESIA'S COFFEE SECTOR.
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Apr 25, 2000
Words:1139
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