A New Supply Chain
A coffee farmer in a rural area on the island of Java, Indonesia posts an image of their processed cherry on Instagram announcing that they’re looking for roasters to purchase their harvest.
Within a few minutes or hours, the unthinkable happens: with a ‘ping’ a notification appears on the farmer’s phone, announcing that a roaster, based in say, Jakarta, has commented on their Instagram photo.
This roaster is looking to buy their harvest. Jackpot.
This kind of interaction is, incredibly, becoming the norm in Indonesia, the island nation so well known for producing a uniquely processed coffee called wet hulled, known locally as giling basah. The growing national interest in single origin lots and coffee as a whole is revolutionizing the country’s international export business.
“That’s leading to really good prices for producers,” says Daniel Shewmaker, Manager Indonesia and East Timor for the MTC Group. Farmers can take their few kilos of coffee to the post office and mail their harvests to roasters in mid-sized cities, Shewmaker explains. “They’re getting much higher prices: twice as much as any roaster in NYC would want to pay for their coffee.”
“There aren’t these massive supply chains,” he continues. “It’s flowing in a million little directions. People are making a life and a living and having some amount of participation in that. It creates a lot of jobs. A little more value as well.”
The Indonesian Coffee Scene
While Indonesia is also a big tea drinking nation, coffee shops have been popular for a long time. In part, this is due to the country’s 90% Muslim majority. Islam prohibits drinking alcohol, making coffee shops a key gathering place. Like in other countries, coffee shops also play a role as an important social center for young people and students.
“Coffee’s always been a big thing in Indonesia,” says Shewmaker. Coffee shops run the gamut from “everything from the basic coffee stall, [which is] usually basic Robusta sometimes roasted with corn and served with a ton a sugar, all the way up to modern cafes with all the bells and whistles.” But as Shewmaker points out, in the last five years, the modern cafes have overtaken the ‘traditional ones’ and these are increasingly focusing on single origin coffees from Indonesia.
Indonesian Coffee Production
Indonesia has a long coffee growing history dating back to the 1700s when Dutch colonizers brought coffee from Eastern Africa and the Middle East for the first time. The Dutch companies grew rich on the coffee that grew on Indonesia’s volcanic-enriched soils. However, Indonesia lost much of its coffee crop in the 1870s when coffee rust swept through the islands, devastating coffee production.
Robusta varietals were introduced to the island of Java in the early 1900s and Javanese plantations were nationalized during independence in the 1950s. Both Java and the surrounding islands were replanted with new, rust-resistance Arabica varieties around the same time.
Today, coffee production is a major part of Indonesian life. “Indonesia is a very diverse place, so I think people celebrate that with coffee,” says Shewmaker. “There’s always a festival happening, and barista competitions are very popular.” Even the Indonesian president demonstrates his love and support of the country’s coffee production by posting numerous images of him cupping on his Instagram page.
In fact, Shewmaker says, “because there’s all that local consumption, the pride, the awareness and the spotlight that coffee has in the local sphere, [coffee careers are now considered] a bit more of an interesting occupation.” Shewmaker increasingly meets people from urban areas that want to become coffee millers or plan to move to a remote rural location and build a washing station.
However, farming is “a whole other thing.” Due to the small plot sizes and continued low global prices, farming coffee remains a difficult enterprise, even in Indonesia where farmers typically receive more than their peers in other countries. “You still have that risk where in remote areas, the children are going to leave and find a better way to make money,” Shewmaker points out.
Understanding the New Supply Chain
Shewmaker has worked in exporting for many years and prides himself on introducing new markets “that weren’t there before” where farmers are able to sell their coffee for more money and “you have a client that is getting a unique coffee that was never exported before because it was always blended into something else.”
However, his work is changing thanks to the emerging supply chains that are popping up with the help of social media. Whereas he previously worked almost exclusively with international importers and buyers, Shewmaker is now increasingly turning his attention to the many small roasters in Indonesia. While the bulk of his business is still with international clients, the balance is shifting.
The local market is also impacting prices internationally. While the local market is more lucrative for most farmers and processors because local buyers are often willing to pay substantially higher prices for coffee, it remains far smaller than the international one. “Sometimes producers or collectors kind of gamble,” Shewmaker explains. “You’ll see these situations where the [international export] prices are affected by the higher local prices.” Sellers will sometimes leverage the higher local market price to bargain for higher prices with exporters, who purchase a far larger portion of the total coffee supply. This can bring up prices for international buyers.
Will National Markets Incentivize Quality?
A potential benefit arising from increasing national consumption is the potential for coffee quality improvement and enhanced growing practices. As the market stands now, there’s relatively little space for improvement projects that increase the cost of production through inputs or extra labor. “Because we’re talking about a coffee where the benchmark price for a relatively average coffee is so high, if you add costs…there’s really no export market for a coffee that expensive,” says Shewmaker.
But, because the internal market pays considerably higher prices for coffees, there is wider wiggle room for increased production costs while maintaining a reasonable profit. Additionally, the internal market, which is focused on both quality and originality, seems to have more space for experimental or highly specialized production.
The State of the Market
Increased national consumption can be good for international consumption as well. When more money is captured by and for local actors, a greater return of profits can be portioned to the local coffee ecosystem. This can lead to improved production and processing as farmers invest in farm improvements and show more interest in improving quality. As farmers improve quality and market their harvests as single lots, these new coffees can also be available to international buyers, thus widening the variety and quality available.
There is potential for the two markets—national and international—to positively support each other. Like an ecosystem, it’s all cyclical: National markets may help funnel more money back to farmers and processors. This can lead to improvements in quality and an expansion of single origin offerings. Meanwhile, international markets can continue to buy the bulk of coffee production while benefiting from increased quality. This increased quality can in turn funnel more money into the system that can then be converted back into improved quality and higher yields.