Report Highlights:

Growing coffee consumption in Indonesia is transforming Indonesia’s coffee trade. Industry sources estimate that local consumption is growing by approximately six to eight percent annually. Given the reported growth of local coffee consumption, Post revises 2013/14 domestic use up to 2.83 million bags (GBE) and 2014/15 domestic use up to 3.05 million bags, while 2014/15 coffee exports are revised down from 7.2 to 6.9 million bags. 2014/15 Arabica production is revised down 100,000 bags to 1.45 million bags, following reports of drier weather in northern Sumatra.

Production: 

USDA Post’s Indonesian coffee production estimate remains unchanged at 9.5 million bags (60 kilo) green bean equivalent (GBE) for the April-March 2013/14 marketing year. 2012/13 production is also stable at 10.5 million bags. 2014/15 Arabica production is revised down 100,000 bags to 1.45 million bags, following earlier reports of drier weather in northern Sumatra. Mid-November weather reports indicate that light rains have arrived in northern Sumatera as well as Bengkulu on the west coast, while Lampung and Palembang in southern Sumatera continue to anticipate rain for the end of November. Semarang in central Java also reports light rain, with the expectations for more substantial precipitation towards the end of November. Growers recognize that a late onset El Nino phenomenon will result in yield declines, although U.S. National Weather Service forecasters have downgraded their confidence in a late 2014 El Nino event from 80 to 58 percent, noting that if an El Nino event does occur, it will be weak. 

Indonesian industry contacts continue to report that growing local demand is fueling increased planting, firming up prices and ensuring stable returns. Local coffee buyers expect planting expansion should continue into the foreseeable future. Industry contacts also cite marginal yield increases due to improved pruning and cultivation techniques. Farmers, however, concede that improved cultivation techniques are slow to catch on, regardless of potential yields. Despite planted area expansion, recent weather events have caused 2013 and 2014 coffee production to decline. Long-term trends, however, demonstrate modest growth. 

Consumption: 

Local roasters report an average increase of 6 to 8 percent annually in coffee consumption as popularity of the beverage increases. The largest growth category for Indonesian coffee is the ready-to-drink (bottled) beverages category. While originally introduced as an import, local companies have started producing ready-to-drink coffee beverages. Industry contacts estimate that ready-to-drink beverages comprise 20 to 25 percent of the local market, and that the sector is growing rapidly from a small base. Soluble coffee is popular for its low price point and simplicity, although growth is now stagnant. Soluble coffee is estimated to comprise 25 to 30 percent of the Indonesian market. While roast ground domestic consumption remains stagnant, shifts are occurring as the market for premium coffee and espresso grows. The premium coffee market is being pushed ahead by the expansion of international and local franchise coffee shops. Jakarta is also experiencing the growth of local independent coffee houses, which are springing up throughout the capital city. Given the reported growth of local coffee consumption, Post revises 2013/14 domestic use up to 2.83 million bags (GBE) and 2014/15 domestic use up to 3.05 million bags. 

Trade: 

Growth of Indonesia’s domestic consumption is a major driver transforming Indonesia’s coffee trade. Industry sources estimate that local consumption is expanding six to eight percent annually, contributing to the decline of exports. Post therefore revises 2014/15 coffee export figures down to 6.9 million bags from 7.2, reflecting increased domestic consumption. Post also revises imports for 2013/14 and 2014/15 up, based on industry comments that local roasting capacity is greater than Post estimates. Although high quality Arabica beans are plentiful in Indonesia, local roasters require imports from various origins in order to market single-origin coffees. 

Stocks: 

2014/15 coffee stocks are expected to remain low as coffee prices are relatively high. High prices are supported by declining production in the 2014/15 period that was the result of excessive moisture during the 2013 dry season. 2012/13 and 2013/14 stocks are unchanged