Results Todd A. Crawford Principal Economist The Conference Board - - PowerPoint PPT Presentation

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Coffee Sector Analysis and Results

Todd A. Crawford Principal Economist The Conference Board of Canada Jakarta, Indonesia

Presentation Overview

1) State of Coffee Production in Indonesia

• Overview of Production
• Drivers of Production Growth
• Relevance of Coffee to Indonesia’s Exports
• Global Context

2) Indonesia’s Coffee Supply Chain

• From Seed to Cup
• Summary of Value-Added
• Cross-Country Comparisons

3) Key Findings

• Uniqueness of Coffee in GVC Analysis
• Key Barriers to Expanding Value
• The Future of Coffee

Characteristics of Indonesian Coffee Production

• Primarily Robusta coffee

(86% of total coffee production)

• Highly fragmented sector

(over 90% of coffee grown my smallholders)

• Concentrated in Sumatra

(69% of Indonesia’s total coffee production)

Arabia Production Expanding Quickly, but Robust still Dominates

coffee production, millions of 60kg bags

Sources: U.S. Department of Agriculture.

2 4 6 8 10 12 14 Robusta Arabica

Higher Coffee Production Has Increasingly Been Satiated by Rising Domestic Demand

millions of 60 kg bags 2 4 6 8 10 12 Domestic consumption Exports

Sources: International Coffee Organization.

Expanding Middle Class Supporting Rising Per-Capita Coffee Consumption

average annual growth, 2000-16, per cent 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Population Domestic coffee consumption (per- capita) Domestic coffee consumption (total)

Sources: International Coffee Organization; Population Reference Bureau.

Coffee Not Keeping Pace with Overall Agri-Food Export Growth

average annual export growth, 2000-2015, per cent 6.0 8.0 10.0 12.0 14.0 Total merchandise Coffee Total agri-food

Sources: UN Comtrade Database.

Indonesia's Agri-Food Exports Centered Around Palm Oil

trade value of agri-food exports from Indonesia, 2015, $US millions

Sources: UN Comtrade Database.

5 10 15 20 25 30 35 2005 2010 2015 Other Tobacco Coffee Cocoa and cocoa preparations Fish and crustaceans Palm Oil

Coffee Exports Moving into New Markets

destination for Indonesian coffee exports by country, per cent

Sources: UN Comtrade.

20 40 60 80 100 2005 2015 Other Italy, Malaysia, Russia, Thailand USA, Japan, Germany

Indonesia Is a Key Robusta Producer

Arabica and Robusta production by country, 2016, millions of 60kg bags

Sources: U.S. Department of Agriculture.

20 40 60 80 100 Robusta Arabica Brazil Colombia Ethiopia Honduras Vietnam Indonesia India Other

Indonesia Outperforming Main Competitors

coffee production, compound annual growth rate, 2006-2016

• 1.0

0.0 1.0 2.0 3.0 All other producers * World Ethiopia Colombia Brazil Vietnam Indonesia

Source: International Coffee Organization.

.

Limited Production Surplus Restricts Export Capacity

production and consumption of coffee by country, 2016, kg per capita 5 10 15 20 Colombia Vietnam Brazil Ethiopia Indonesia Per-capita production Per-capita consumption

Sources: International Coffee Organization; Population Reference Bureau.. .

Presentation Overview

1) State of Coffee Production in Indonesia

• Overview of Production
• Drivers of Production Growth
• Relevance of Coffee to Indonesia’s Exports
• Global Context

2) Indonesia’s Coffee Supply Chain

• From Seed to Cup
• Summary of Value-Added
• Cross-Country Comparisons

3) Key Findings

• Uniqueness of Coffee in GVC Analysis
• Key Barriers to Expanding Value
• The Future of Coffee

Coffee Production Process

Agricultural Services Chemicals Other Food Products Transportation Fertilizer & Pesticides Raw Coffee Coffee Processing Domestic Consumption Exports Other industrial use Other business services Coffee Plants Land, Buildings & Energy Land & Energy Exports Consumption & Inventories

Fertilizer and Pesticide Usage

share of total material inputs, per cent

10 20 30 40 50 60 70 Colombia Indonesia India*

*only includes pesticides Sources: National I-O tables.

Indonesia Captures Large Share of the Value their Agricultural Exports

Domestic Value-Added in Agri-Food Exports

75 80 85 90 95 100 Vietnam Brazil Colombia Indonesia India

Sources: TiVA Database, OECD.

Visualizing Higher Fertilizer Use

Scenario 1 (Current)

9.4 0.6 Domestic Content Foreign Content

Scenario 2 (Potential)

17.2 2.8 Domestic Content Foreign Content

Presentation Overview

1) State of Coffee Production in Indonesia

• Overview of Production
• Drivers of Production Growth
• Relevance of Coffee to Indonesia’s Exports
• Global Context

2) Indonesia’s Coffee Supply Chain

• From Seed to Cup
• Summary of Value-Added
• Cross-Country Comparisons

3) Key Findings

• Uniqueness of Coffee in GVC Analysis
• Key Barriers to Expanding Value
• The Future of Coffee

Uniqueness of Coffee in GVC Framework

• Generally coffee is processed close to where it is consumed (this can

limit moving higher up smile curve).

• Less of an emphasis on moving up value chain, more of an emphasis
• n expanding value (at least for now).

Key Barriers to Expanding Value

• Stagnant Farm Productivity
• Supply Chain Inefficiencies
• Quality Control Issues

Farm Yields Flat Over Past Decade

right axis: average coffee yield, kg/hectare; left axis: index of coffee yields, 2006=100 500 520 540 560 580 600 80 90 100 110 120 130 2006 07 08 09 10 11 12 13 14 15* Average coffee yield (right) Smallholder Estates

*preliminary figures. Source: Statistics Indonesia.

Factors Limiting Growth in Farm Productivity

• Modern agricultural practices not widespread:

▪ Pruning and weeding ▪ Erosion control ▪ Coffee nutrition (e.g. limited use of fertilizers) ▪ Composting ▪ Shade management ▪ Pest and disease control

• Deficiency of training to accompany material inputs provided to

farmers by government.

• Limited investments into replacing ageing coffee plants.

Slack in Supply Chain

• High number of middlemen impede timely movement of coffee to
• market. (At times, this results in quality deterioration to such an extent

that coffee is rejected for export markets.)

• Geography puts Indonesia at a disadvantage in transporting goods

efficiently.

• Poor quality of infrastructure represents another impediment to

efficient transportation.

OECD Index of Comparative Quality

• f Infrastructure

20 40 60 80 100 Quality

• f overall

infrastructure Quality

• f roads

Quality

• f railroad

infrastructure Quality

• f port

infrastructure Indonesia Thailand India China Malaysia

Challenges Surrounding Quality Control

• Weakens reputation of Indonesian coffee (hurts customer base and

impacts sales potential).

• Limited awareness of increasingly stringent international food safety

regulations/standards.

• Promoting more widespread certification of coffee would help to

promote higher standards.

The Future of Coffee

• Coffee demand continues to outstrip supply.
• Demand driven by rising consumption in non-traditional

markets.

• Supply constrained by volatility in growing conditions caused

by climate change.

• Specialty coffee continues to grow in prominence.

Key Takeaways

• Indonesia has a comparative advantage in coffee production.
• Vital activities that will allow Indonesia to expand its value along

global coffee supply chain include:

• Process upgrading (improve farmer productivity)
• Product upgrading (expansion into higher-value coffee
• fferings)
• Growth in post-production activities (e.g. marketing) driven by

expansion in domestic market.

• Supporting vertical integration of stakeholders will help to reduce

supply chain inefficiencies, bolster functional upgrading.