Joseph Kirschke
January 15, 2012

A Civet eats ripe coffee fruits at a coffee plantation that produces what’s thought to be the world’s rarest and most expensive coffee in Liwa, a town in Sumatra, Indonesia, on Oct. 7, 2010. (Photo: Tri Saputro, Demotix, Corbis

In a steamy coffee plantation amid fertile fields in western Java, a young entrepreneur named Gary Sjafwan leaned forward to inspect the freshness of a new, chocolaty tasting, Lembang bean he hopes to take worldwide.

“The taste of the coffee has to do with the stones in the earth,” explained Sjafwan, a former geologist, referring to the science of stratigraphy, or a study of rock layers he uses along with organic medicine, to cultivate his harvest. “We focus on the quality.” 

Leading Southeast Asia’s multi-billion dollar commodities boom with its untold reserves of thermal coal, minerals, natural gas and palm oil, Indonesia is also the world’s third-biggest coffee producer after Brazil and Vietnam, and the number-two exporter of premium arabica, a bitter-tasting bean often widely used in instant blends.

As one of the main foreign exchange earners for ASEAN’s powerhouse economy—plantation commodities here surged overall by $8.4 billion to $35.7 billion in 2011—the stakes for the domestic industry are high. In a market of Starbucks and Coffee Bean behemoths, Sjafwan and his peers face fast-changing realities, from unforgiving weather to an equally capricious global economy threatened yet again by a swelling European debt crisis.

But the outlook is positive for now, as Indonesian coffee production continues to accelerate. In 2012, in fact, the archipelago’s output may reach a 15-year high, predict industry analysts—having grown by 33 percent to 8.3 million bags, at 132 pounds each, since April’s season. But heavy output can often be offset by economic woes elsewhere—namely Europe, whose roasters are the big buyers of Indonesian beans—leading to curbs in demand and profits.

Memories are fresh of a global recession where worldwide coffee sales plunged a record 2.6 percent, according to the U.S. Department of Agriculture—the biggest drop in 16 years.

Indonesia’s tropical storms create frequent setbacks. After pollination failure following 2010 downpours, the Indonesian Coffee and Cocoa Research Institute reported a 30 percent fall in production to 400,000 tons by year’s end. Aging trees also resulted in lower yields; both factors propelled arabica beans to their highest prices in 34 years.

But where a government-led restructuring program has improved quality and productivity, international donors see an industry with short-term problems worthy of long-term investment. The International Finance Corporation (IFC), the financing arm of the World Bank, notably, has identified Indonesian coffee as a key source of $1 billion in development loans for its agricultural projects across East Asia.

For Indonesian growers, stable demand from domestic roasters means prices will likely hold steady at $2,200 a ton—the highest since 2008. In a G-20 economy strongly driven by a fast-growing middle class, the government expects domestic consumption to jump to 1.9 million bags—a 3 percent increase….

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