Indonesia a Business Case for Sustainable Coffee Production

Indonesia A business case for sustainable coffee production

March 2014

An industry study by TechnoServe for the Sustainable Coffee Program, powered by IDH. • Indonesia is the world’s 2nd largest exporter of Robusta. However, the country could become a net Robusta importer within 10 years. Domestic coffee consumption is growing rapidly, while overall production is flat.

• Indonesia has 3x as many smallholder coffee farmers as Vietnam but 1/3 the coffee. Low farmer output and the highly fragmented nature of Indonesia’s production base make sustainability programs significantly more expensive than in Vietnam.

• We estimate at least 7% of Indonesia’s coffee exports are currently certified or verified “sustainable.” Exporters have been the primary investors in sustainability programs to date. If the Indonesian coffee sector continues its current course, with exports declining in significance, sustainability efforts are likely to plateau.

• Maintaining Indonesia’s position as a leading Robusta exporter will require boosting smallholder yields. There is potential to double yields for half a million farmers and generate an incremental 6 million bags of Robusta. This vision could be achieved by 2023, but would require action now.

• The international coffee industry has a rare opportunity to catalyze this change and invest in smallholder training. Boosting yields would address root issues in the sector, raise farmers’ incomes by 70%, and improve the business case for supply chain actors to co-invest in sustainability efforts.

2 Executive Summary

Global demand for sustainable coffee is rising. Under the less developed. In addition to a declining export sector, IDH umbrella, major coffee roasters have set a goal of in- Asia recently replaced Europe as the largest market for creasing global sustainable coffee sales from 8% to 25% Indonesian coffee. This market typically has less demand by 2015. This ambitious target can only be met through for sustainably certified / verified coffees. coordinated effort on the part of stakeholders and targeted investments at different stages in the supply chain. The business case for sustainability can be improved by boosting farm productivity. Yields for half a million small- Indonesia is currently the world’s 2nd largest Robusta holders could be doubled through improved agricultural exporter and 3rd largest producer. As such, it could play practices. This could lift farmers’ incomes by 70% and an important role in meeting demand for additional sus- generate an additional 6 million bags of Robusta supply. tainable coffee. Current production costs are competitive Raising farm productivity would also dramatically improve relative to other origins and the sector is fully liberalized. the economics of certification / verification and lay the groundwork for exporters and other private sector players However, Indonesia could become a net Robusta im- to co-invest in additional sustainability programs in the porter within 10 years. Production is flat and constrained future. by low farm yields, while domestic consumption is rising at a pace similar to other Southeast Asian countries like Boosting farm productivity represents an attractive invest- Malaysia and the Philippines. Without Indonesia’s export ment that could be catalyzed by the international coffee base, or the emergence of a new low-cost producer, industry. The total cost of training half a million farmers is the international coffee industry is likely to encounter a estimated at $95 million over 10 years, but could generate substantial supply gap in the next 10 years. Supply to an additional 6 million bags per year, worth $630 million. international buyers would likely be consolidated into Similar-sized investments could be made in other Robus- Vietnam’s Central Highlands, a region that has succeeded ta producing nations (e.g. Uganda, Vietnam), but offer at increasing its production for 30 years but now faces less potential for new supply. We recommend the interna- environmental challenges that could cap or reduce future tional coffee industry lead this investment, as it has much production. to gain from a diversified supply base. Co-investment from exporters and the private sector, and enabling sup- At first glance, the business case for investing in coffee port from the Government of Indonesia, are also neces- sustainability in Indonesia appears weak, especially sary to achieve broad and sustained impact for the sector. compared to other origins such as Vietnam. Exporters (both local and international) have invested in most sustainability programs to date, but may be deterred from future investment due to high transaction costs and the diminishing size of the export market. Indonesia’s large number of farmers and low farm output reduce economies of scale and increase the costs associated with certification / verification. Other functions, such as aggregation, are also more expensive in Indonesia, as infrastructure is

3 Context

Global demand for sustainable coffee is rising Indonesia’s focus is also moving away from traditional Under the IDH umbrella, major coffee roasters have markets, like Europe set a goal of increasing global sustainable coffee Asia’s rising per capita incomes and the growing pop- sales from 8% to 25% by 2015. This ambitious target ularity of processed packaged coffee products have can only be met through coordinated effort on the part driven rapid expansion in regional demand for tradi- of stakeholders and targeted investments at different tional coffee exports from Indonesia. As a result, Asia stages in the supply chain. has overtaken Europe as the primary destination for Indonesian Robusta exports. Asian markets have his- Not all countries and producers will be able to meet torically shown less demand for sustainability-verified this demand products than European markets. If this continues, the Many of the world’s coffee farmers will find it challeng- Indonesian industry’s interest in certification / verifi- ing to be verified or certified. These difficulties vary by cation may wane. A renewed focus on sustainability country and type of producer. In some cases, rising will need to be catalyzed by the international coffee costs of production make it hard to absorb the addi- industry. tional cost of sustainability certification or verification relative to the economic benefits. In other situations, The international coffee industry will need to act if it farmers are not of sufficient scale or are not aggregat- seeks to change this trajectory ed in such a way that the economics can be justified. Support for Indonesia’s coffee sector is critical as there are few alternatives available to the international Indonesia is likely to face challenges attracting invest- coffee industry if Indonesia’s Robusta exports tail off. ment in sustainability Without Indonesia’s export base, or the emergence of Despite its significance as the second largest exporter a new low-cost producer, Robusta supply is likely to of Robusta, Indonesia initially appears to be a less at- be consolidated in Vietnam’s drought-prone Central tractive destination for sustainability investments when Highlands. This would leave the global coffee sector compared to other origins. Indonesia has significantly vulnerable to supply-side shocks and could deepen higher verification costs than Vietnam, driven in large price volatility. The international coffee industry has part by having three times as many smallholders and much to gain from maintaining a diversified supply one-third the average output per hectare. Indonesia’s base and should therefore act as the catalyst for re- export base is also declining due to a fast-growing do- storing growth to Indonesia’s export sector. mestic market (see Exhibit 1). Furthermore, investors are likely to face challenges in leveraging substantial government support as Robusta coffee plays a minor role in Indonesia’s agricultural export portfolio. Greater emphasis has been placed on other cash crops (see Exhibit 2) and on the Arabica sector. These factors increase the cost of producing sustainable Robusta (relative to other origins) and make it challenging to accelerate certification / verification.

4 Exhibit 1: Indonesia is on track to become a net Robusta importer within the next ten years

Indonesia coffee production and domestic consumption projections Growth projection Metric tons, thousands (2013-23)

Indonesia600 coffee production and domestic consumption projections Growth projection Metric550 tons, thousands (2013-23) 500 +1% 450600 400550 Robusta production 350500 +1% 300450 Robusta 400 +8% 250 Domesticproduction 200350 consumption* 150300 +8% 100250 Domestic 20050 consumption* 1500 1002006 2008 2010 2012 2014 2016 2018 2020 2022 2024 50 *Includes both Robusta and Arabica; growth has been primarily in Robusta Source: GAEKI;0 USDA; TNS Analysis

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

*Includes both Robusta and Arabica; growth has been primarily in Robusta Exhibit Source:2: Over GAEKI; USDA;the TNSnext Analysis decade, Indonesia’s coffee consumption is likely to catch up with other Asian countries’ Per capita coffee consumption in selected Asian countries* Growth projection Kg coffee consumed per person per year (green coffee equivalent) (2013-23)

2013 (current) Per capita coffee consumption1.0 in selected Asian countries* Growth projection Indonesia 2023 (projection) +6-8% Kg coffee consumed per person per year (green coffee equivalent)1.9 (2013-23)

1.1 2013 (current) Vietnam 1.0 +5-7% Indonesia 2.0 2023 (projection) +6-8% 1.9 1.2 Thailand 1.1 +3-6% Vietnam 2.0 +5-7% 2.0 1.4 Malaysia 1.2 +3-6% Thailand 2.1 +3-6% 2.0 1.6 Philippines 1.4 +3-5% Malaysia 2.2 +3-6% 2.1 2.1 South Korea 1.6 +2-4% Philippines 2.8 +3-5% 2.2

2.1 * ModeledSouth at Koreacurrent population growth rates +2-4% Source: International trading houses; USDA; GAEKI; World Bank; TechnoServe analysis 2.8

* Modeled at current population growth rates Source: International trading houses; USDA; GAEKI; World Bank; TechnoServe analysis

5 Economics of Coffee Production in Indonesia

A smallholder crop Indonesian agricultural markets to respond effectively Indonesian coffee is produced by an estimated 1.5 to incentives (see Exhibit 4) if the right enablers are in million smallholder farmers, with farm sizes averaging place. less than one hectare of coffee. Over 60% of Robusta coffee production is concentrated in Southern Suma- Low productivity tra. Not all coffee farmers are “active” and dependent Indonesia’s farm productivity is significantly lower in on coffee as a meaningful part of their household comparison to Vietnam. In Vietnam, farm sizes are income. We estimate there are 0.5 million “active” Ro- similar (about 1 hectare per household) but average busta farmers. Coffee’s comparative advantage in key yields are more than three times higher than yields growing regions has weakened despite its competitive for Indonesia’s “active” farmers. Vietnam has been income potential for smallholders (see Exhibit 3). successful at steadily increasing yields over the past 30 years whereas Indonesia’s yields have stagnated A liberalized operating environment (see Exhibit 5). Indonesia has a liberalized coffee sector wherein both Minimal fertilizer use (both organic and inorganic, e.g. local and international exporters operate freely. Most NPK) keeps production costs low, but leaves coffee farmers are unorganized and cooperatives are weak. plants undernourished. The productive potential of In- Farmers sell their coffee in unprocessed form to donesia’s aging tree stock has been further limited by aggregators who hull, transport and sell it to exporters the low adoption rate of good agricultural practices, in green form. Additional processing is performed by such as pruning and integrated pest control. exporters to remove defects and prepare green coffee to export standards. Opportunities to increase yields and farmer incomes Low farming costs are counterbalanced by low yields Limited government interest in the sector and reduce coffee’s profitability per hectare (see While Indonesia is an important supplier of coffee Exhibit 6). There is, however, potential to increase to the world market, coffee only accounts for 1% of farmers’ yields while maintaining a fairly low cost export revenues and is not a strategic priority for the base. This can enable farmers to earn a greater profit Indonesian government. State support has targeted from coffee production. commodities that comprise a larger portion of exports or the local tax base such as palm oil and cocoa. The rise of palm oil most clearly demonstrates the ability of

6 Exhibit 3: Coffee is competitive from the farmer perspective relative to other cash crops in Indonesia

Comparison of net income potential for different smallholder crops* Current

US$ per hectare per year Potential**

1500 1,420 1,330 1,250 Comparison of net income potential for different1,120 smallholder crops* Current US$ per hectare per year 1000 Potential** 825 800 750 780 1500 1,420 1,330 1,250 500 1,120 1000 800 780 825 0 750 Coffee*** Cocoa Rubber Palm 500 Agro-climate overlap with Robusta coffee High Medium Low Lag between planting and 0 3-5 years 10+ years 3-7 years positive cash flow (years) Coffee*** Cocoa Rubber Palm * Based on available data and literature review Agro-climate overlap with ** Assuming modest improvements in agronomy, quality,High efficiency; not necessarilyMedium the best practise achievedLow on research plots or private estatesRobusta coffee *** At Robusta LIFFE price of $1700 per ton Source: Veco;Lag Round between Table Cocoa; planting World and Bank/ FSG; IIED; FAO; NAFRI; Interviews; technoServe analysis 3-5 years 10+ years 3-7 years positive cash flow (years)

* Based on available data and literature review ExhibitArable **4: Assuming Land land usemodest dedicated in improvementsSouthern Sumatra into agronomy, palm quality, oil efficiency; has expanded not necessarily the bestrapidly practise achieved compCAGR on researchared plots or private estates to coffeeHectares,*** At Robusta millions LIFFE price of $1700 per ton (1980-2010) Source: Veco; Round Table Cocoa; World Bank/ FSG; IIED; FAO; NAFRI; Interviews; technoServe analysis 1.3 Palm Oil +15% 1.2 1.Arable1 land use in Southern Sumatra CAGR 1.Hectares,0 millions (1980-2010) 0.9 1.3 0.8 Palm Oil +15% 1.2 0.7 1.1 0.6 1.0 Coffee +1% 0.5 0.9 0.4 0.8 0.3 0.7 0.2 Cocoa* 0.6 Coffee +20%+1% 0.1 0.5 0.0 0.4 1980 1990 2000 2010 0.3

* 0 Preliminary.2 data for 2010 Cocoa* +20% Source: Ministry of Agriculture; TNS analysis 0.1 0.0 1980 1990 2000 2010

* Preliminary data for 2010 Source: Ministry of Agriculture; TNS analysis

7 Exhibit 5: Yields are low relative to Vietnam, and have stagnated

Average farmer coffee yield* Metric tons per hectare (green coffee)

2.4 2.2 Vietnam A2verage.0 farmer coffee yield* Metric tons per hectare (green coffee) 1.8 1.6 2.4 1.4 2.2 1.2 Large –scale Vietnam 2.0 1.0 planting in 1.8 Vietnam 0.8 1.6 0.6 Indonesia 1.4 (Robusta and Arabica) 0.4 1.2 0.2 Large –scale 1.0 planting in 0.0 Vietnam 0.8 1980 1985 1990 1995 2000 2005 2010 0.6 Indonesia (Robusta and Arabica) 0.4 * National average, i.e. captures all archetypes (smallholders, State Owned Enterprises, Robusta and Arabica) Source: Directorate0.2 General of Estate Crops; USDA; Anthony Marsh / FAO; DCP-MARD; IPSARD; Kuit Consultancy; TechnoServe analysis 0.0 1980 1985 1990 1995 2000 2005 2010 Exhibit 6: Low productivity makes coffee farming less profitable in Indonesia * National average, i.e. captures all archetypes (smallholders, State Owned Enterprises, Robusta and Arabica) underLimitedSource: most input Directorate use price in GeneralIndonesia scenariosof Estate Crops; USDA;But Anthonyresults inMarsh lower / F yieldsAO; DCP-MARD; per IPSARD; KuitResulting Consultancy; in significantly TechnoServe analysis explains lower unit costs hectare lower farmer profitability Production cost Average yield Net margin* US$ per ton green Tons green coffee per hectare US$ per hectare

1,087 2,400 1,447

Limited input use in Indonesia But results in lower yields per Resulting in significantly explains lower unit costs hectare lower farmer profitability

Production cost Average yield Net margin*873 US$57 per4 ton green Tons green coffee per hectare US$ per hectare

1,087 2,400 1,447 800

873 574 Indonesia Vietnam Indonesia Vietnam Indonesia Vietnam 800

* Based on 2013 average monthly LIFFE price of $2075/MT Source: InterviewsIndonesia with industryVietnam stakeholders and projectIndonesia visits; TechnoServe Vietnam analysis Indonesia Vietnam

* Based on 2013 average monthly LIFFE price of $2075/MT Source: Interviews with industry stakeholders and project visits; TechnoServe analysis

8 Emerging Sustainability Trends

7% of exports currently certified / verified “sustainable” (2) Costs are higher Sales of sustainable coffee have increased in Indo- Low output per farmer and high aggregation nesia in recent years. By the end of 2012, an estimat- costs also make it more expensive (on a per ed 7% of Indonesia’s coffee exports were certified / ton basis) for exporters to fund certification verified as sustainable, just below the global average. / verification programs in Indonesia than in Within the Robusta segment, 5% of Indonesia’s sales other producer countries, notably Vietnam (see are certified / verified. Exhibit 7). International exporters typically have a presence in both Indonesia and Vietnam, Most sustainability programs have been financed by but appear to have made greater sustainability exporters investments in Vietnam to date. Most certification / verification programs in Indone- sia have been funded and run by private exporters (3) There is less public sector leverage (both local and international). Under such programs, As the Indonesian government is less engaged exporters typically invest in organizing farmers, in supporting the Robusta sector, private coffee training them, and certifying / verifying that practices companies are unable to build off of a founda- are sustainable. The business case for the exporter tion of government extension to enhance their is typically premised on growing market share and/or training activities. Historically, there has been passing the added cost down the supply chain. greater emphasis on Arabica in the regions where it can be grown. The business case for exporters to continue investing in sustainability is not attractive A better business case starts with improving yields Exporters’ investments in sustainability programs While certification / verification efforts provide a have been tentative and focused on a few specific framework for sustainable production, they are un- roasters. While Indonesia’s smallholders are not likely to alleviate Indonesia’s most pressing problem: likely to face significant challenges meeting baseline low farm productivity. Boosting yields would reduce sustainability criteria, the business case for export- the cost of certification / verification and improve ers to continue investing in certification / verification the business case for exporters to commit to further programs appears questionable. investments into sustainability.

(1) Traditional export markets are shrinking Green coffee exports are declining in significance for Indonesia. Overall production growth has been slow and domestic demand has surged. Indonesia also has a fast-growing soluble (instant) coffee manufacturing industry that now represents over 20% of the country’s total coffee distribution. The local and regional markets where these products are sold have historically had less demand for sustainability.

9 Exhibit 7: Low output per farmer makes verification relatively more expensive in indonesia

Group verification costs US$ per ton green

>150

50-70

<20

Vietnam Indonesia 1 Africa 2

Cost per farmer 3 $10 $12 $8 = Exports per farmer 4 590 200 50

1For archetypical Robusta farmer in Southern Sumatra (i.e., 1 hectare and 800 kg/ha yield) 2 Average of Ethiopia and Uganda smallholders 3 Annual cost; includes auditing, one training session (group, classroom-based), and basic Internal Control System (ICS) management 4 Kgs; assumes 25% of farmers’ total verified production is exported as “sustainable” Source: TechnoServe analysis

10 Boosting Yields and Farmer Incomes

Potential to add 6 million bags of Robusta by 2023 require significant upfront cash outlays. Indonesian Yields could be doubled for over half a million Indone- smallholders have minimal disposable incomes and sian smallholders. The current average Robusta yield limited access to formal financial networks. Increas- is around 800kg/ha. With improved farming practices, ing access to finance is challenging due to the high yields of +1,500kg/ha are attainable (see Exhibit 8). A risk environment and limited presence of agricultural doubling of yields could bring an extra 6 million bags development banks in coffee growing regions. to the market annually by 2023. In the absence of financing, agronomic practices Enhancing awareness and adoption of improved could be intensified gradually so as to minimize farming techniques the need for large cash expenditures upfront. For A farmer training program designed to boost yields example, yields could be increased initially by im- would improve farming practices, particularly fertilizer proving husbandry methods (e.g. pruning, weeding, use (both organic and inorganic), tree rejuvenation mulching), while minimizing the use of related inputs, (e.g. pruning, grafting, new planting) and integrat- such as herbicide. This would provide farmers with ed pest management. In addition, farmers could be additional income to invest at later stages to expand trained to gradually replace damaged tree stocks with fertilizer use, or to offset income lost during replanting higher-yielding and disease-resistant varieties. Ad- phases. herence to these practices will lay the foundation for certification / verification efforts in the future.

Minimal upfront farmer cash outlay: gradual replanting and intensification of input use Farmers will likely be reluctant to adopt practices that

Exhibit 8: Improved agronomy could nearly double yields

Incremental cost Yields could double* Through improved agronomic practices by Year 10 Kg green coffee per hectare USD per hectare

Current • Tree rejuvenation (stumping/pruning) $30 Potential • Fertilization $266

1,500 • Gradual replanting $20

• Integrated pest management (IPM) ($4) and disease control 800 • Other costs $80

• Total cash costs $392

• Overall farm management (labor)** $195

* According to stakeholder interviews and ongoing projects visited ** Mix of family and paid labor, so not entirely a cash cost Source: Interviews with farmers, industry stakeholders and project visits; technoServe analysis

11 Strategies for Reaching Farmers

High-impact, intensive farmer training ers who are not reliant on coffee as a primary source Existing farmer training programs in Indonesia have of income, as well as farmers who do not have many predominantly employed classroom-based teaching coffee trees (i.e. less than 0.25 hectares planted or models. Such programs have the advantage of being 500 trees). relatively inexpensive to run; however, to effectively change smallholder farming practices, a more inten- Closely involve women sive approach is recommended. The “farmer field Women play a significant role within Indonesia’s school” method, for instance, features local trainers agricultural sector, performing an estimated 40% of and participatory teaching methods delivered to small farming activities. Targeting female farmers along- training groups on a frequent (e.g. monthly) basis. side male farmers will be important to ensure broad Such programs offer lasting impact on yield and farm- adoption of improved agricultural practices, as well as ing practices and typically cost up to $200 per farmer to enhance progress in combatting gender inequality for two years of training. in rural areas.

Focus on Southern Sumatra’s half a million active farmers Training could be prioritized towards Southern Su- matra’s half a million “active” farmers (see Exhibit 9). These farmers are more likely to be committed to coffee farming and thus interested in adopting changes to farming practices. Less active farmers are typically found outside of Southern Sumatra and include farm-

Exhibit 9: An ambitious traning program could reach Southern Sumatra’s half a million “active” coffee farmers over a 10 year period

Potential production from Indonesia over next 10 years Bags (60-kg), millions

+5.9 13.9 13.0 12.0 11.0 10.1 9.4 8.9 8.5 8.6 8.0 Active farmers, 12.6 11.7 trained to boost yields 10.7 9.7 8.8 7.7 8.1 6.7 7.3 7.4

1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 Less active farmers

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Interviews and TechnoServe analysis

12 Returns on Investment

The international coffee industry can catalyze this work world’s Robusta supply is already highly concentrated The international coffee industry’s role as a catalyst in Vietnam’s drought-prone Central Highlands. If In- is critical in the face of limited government interest in donesia’s export base disappears, the coffee industry the sector. Investing in improved productivity rep- has few alternative options. resents an opportunity to increase farmers’ incomes, to achieve progress towards sustainability goals and An attractive opportunity to grow global supply to maintain a diversified supply base of green coffee. World Robusta demand is projected to increase by 15 to 30 million bags over the next 10 years. Without in- An investment of $95 million in training tervention, the global coffee industry may experience The total cost of providing intensive training to In- significant supply shortages. donesia’s half a million most active coffee farmers Indonesia represents a cost-effective opportunity to is estimated to be $95 million over a 10 year period. boost global supply. An estimated 6 million bags of This investment is equivalent to a cost of $26 per ton Robusta – 20% to 40% of expected growth in global of green coffee across Robusta exports of 6 million demand – could be generated over the next 10 years bags per year. with appropriate investment.

A return of $250 million in farmer income An attractive opportunity relative to other op- An investment of roughly $200 per farmer has poten- tions tial to double yields and eventually increase farmers’ Other Robusta origins require investment, but offer incomes by $500 per year. This represents a 70% less upside potential for the coffee industry (see increase in coffee income, from a base of about $700 Exhibit 10). Vietnam’s growth prospects are limited per year. Higher farmer revenues would more than as yields are already the highest in the world. These offset increased expenditure on farming practices yields may not be sustained in the long-term, as such as fertilization and tree rejuvenation. If scaled Vietnam’s tree stock ages and farms face growing out to half a million smallholders, then a total of $250 environmental constraints (e.g. declining soil fertility, million in added income could be created. water scarcity). Brazil may also struggle to increase production, as its coffee sector faces competitive- Improved economics of certification / verification ness issues and fast-rising production costs. African A farmer training program designed to boost farm producers, led by Uganda, have potential to increase productivity can vastly improve the economics of output, though this will require an even greater invest- certification / verification for local supply chain actors. ment per ton of coffee produced. The cost of supply-chain led certification / verification could be halved with a doubling of yields, and per unit transaction and other supply chain costs would likely decrease with higher volumes.

A diversified supply base The international coffee industry requires a diversified supply base to mitigate risks and market volatility. The

13 A Road Map for the Sector

Phased scale up of farmer training program role in supporting growth of a sustainable coffee in- Intensive training for Indonesia’s half a million active dustry across multiple dimensions, including: Robusta smallholders could be implemented across - Creating a strong enabling environment for stake- three phases. The first phase would include pilots to holder investment test training approaches, refine curriculum, and create - Enacting regulatory changes to support farmer infrastructure necessary for scaling. The second adoption of improved agricultural practices and to phase would be focused on rolling the training pro- deter unsustainable practices, such as production gram out across the full set of 500,000 farmers. The inside the buffer zone of protected forests and the third and final phase would concentrate on embedding use of banned pesticides trainers into permanent roles within the supply chain - Promoting policies and programs to increase the and industry, so that the knowledge created by the presence of formal financial institutions in rural program can be sustained. areas

A collaborative framework to assist implementation A catalytic role for the international coffee industry Effective implementation will require collaboration The international coffee industry can play a catalytic between private and public groups across the supply role in realizing this opportunity by developing pub- chain. The Sustainable Coffee Program is investing lic-private partnerships across industry players, state in a collaborative framework among stakeholders in institutions in coffee consuming countries, and Indo- Indonesia and the international coffee industry to em- nesia’s local private sector. These actors all have a bark on this path. strong interest in maintaining the vitality of Indonesia’s export sector, and a public-private partnership of this Government role in developing supportive policies kind could help to leverage greater support from the The government of Indonesia can play an important Government of Indonesia in the future.

Exhibit 10: Indonesia represents a cost effective option for expanding the global Robusta supply base

Current and potential Robusta supply after 10 year farmer training program* Sustainable Bags (60-kg), millions Other sales

Indonesia Vietnam Uganda Double yields Sustain soil & water Double yields

+5M bags

30 25 +6M bags

14 +3M bags 8 6 3

2013 2023 2013 2023 2013 2023

Est. cost of intervention $95M $75M $70M over 10 years

* Does not consider interventions in Brazil, which are premised on a conducive macroeconomic environment, or in a new origin, which is likely to cost over $100M and have less certain supply potential Source: TechnoServe analysis

14 Acknowledgements

Key sources About the Sustainable Coffee Program Institutions: The Sustainable Coffee Program (SCP) is a global, 4C Association; Armajaro; Directorate General of Estate pre-competitive, public-private initiative; which involves Crops; Ecom Trading; Food and Agriculture Organization industry and trade partners, (local) governments, NGOs (FAO); Indonesian Coffee Exporters Association (GAE- and standard setting organizations in the coffee sector. KI); Indonesian Coffee and Cocoa Research Institute Our ambition is to help bring global sustainable coffee (ICCRI); Institute of Policy and Strategy for Agricul- production and sourcing practices to scale, by aligning ture and Rural Development (IPSARD); Louis Dreyfus stakeholder investments in producer support programs, Commodities; Mondelez International; Nestle; OLAM; which aim to improve farmer livelihoods, enable coffee PT Indo CafCo; Rainforest Alliance; Sarimakmur; UTZ producers to become more resilient in an ever-changing Certified; Volcafe. market and increase sustainable yields to meet growing demand. Members of the SCP Steering Committee Data: include: Mondelēz International, Nestlé, D.E Master Bank Sentral Republik Indonesia (BI); International Insti- Blenders 1753, Tchibo, The European Coffee Federation tute for Environment and Development (IIED); Interna- (ECF), and IDH, The Sustainable Trade Initiative. tional Coffee Organisation (ICO); Kementerian Perta- nian Republik Indonesia; Tropical Commodity Coalition About TechnoServe (TCC); United States Department of Agriculture (USDA); TechnoServe is a non-profit organization that works with VECO Indonesia; World Bank enterprising people in the developing world to build competitive farms, businesses and industries. TechnoServe Special thanks: develops business solutions to poverty by linking people Junda Aulia, Laurent Bossolasco, Wisman Djaja, Daniel to information, capital and markets. Our work is rooted in Hazeman, Yusac Willson Hendra, Erisman Junaedi, Arif the idea that hardworking people can generate income, Kartika, Kamto, Dr. Misnawi, Midhun Pachayil, Ribut jobs and wealth for their families and communities. With Riyanto, Dr. Ir Zaenudin more than four decades of proven results, we believe in the power of private enterprise to transform lives. About IDH, The Sustainable Trade Initiative The Sustainable Trade Initiative (IDH) accelerates and up-scales sustainable trade by building impact oriented coalitions of front running multinationals, civil society organizations, governments and other stakeholders. Through convening public and private interests, strengths and knowledge, IDH programs help create shared value for all partners. This will help make sustainability the new norm and will deliver impact on the Millennium Development goals.

Jenny Kwan Carl Cervone Program Manager Strategic Initiatives [email protected] [email protected] www.sustainablecoffeeprogram.com www.technoserve.org

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