Brewing tension: Coffee producers call for help as virus saps demand

Indonesia’s coffee producers and farmers are calling for support, including financing and product absorption, to weather the pandemic’s dire effects on upstream coffee demand.

Rahmah of Ketiara Cooperatives in Central Aceh said on Wednesday that some 400 tons of coffee were being held under a warehouse receipt, 150 tons of which had yet to be sold.

A warehouse receipt is a financing system that allows smallholders to deposit their harvest in a warehouse as collateral for a loan, in exchange for a receipt.

“Farmers are already struggling. They want to sell but the offered price is low,” Rahmah said during a webinar hosted by the Cooperatives and Small and Medium Enterprises (SME) Ministry. “Exporters are also experiencing difficulty. They want to export, but there are no buyers.”

Hendarman, a member of the Bengkulu chapter of the Indonesian Farmers Cooperatives (KPI), echoed the sentiment, highlighting the urgent need for financial support.

“The most crucial part is the upstream [portion of the industry]. There should be a financing institution that serves as an off-taker so that there is a guarantee of the absorption of the coffee product being produced,” he said.

Indonesia, the world’s fourth-largest coffee producer, saw its household spending contract by 5.51 percent year-on-year (yoy) in this year’s second quarter as the economy shrank by 5.32 percent yoy, Statistics Indonesia (BPS) data shows. Lower household spending has impacted coffee consumption.

However, despite the pandemic, International Coffee Organization (ICO) data shows that Indonesia’s coffee exports grew by 1.1 percent year-on-year (yoy) to 668,000 60-kilogram bags in July this year.

The statistics, however, have yet to represent the disruptions experienced within the country’s coffee supply chain, as government officials have acknowledged the need to finance the local coffee industry better during the disruption. 

“The president has instructed me to find ways to absorb these agricultural products, as they have yet to be fully absorbed by the domestic and export market,” Cooperatives and SME Minister Teten Masduki said during the webinar. 

The ministry is preparing multiple financing schemes to accelerate absorption, including financing for cooperatives that collect the coffee and link it to off-takers.

The schemes have been endorsed by acting Aceh Governor Nova Iriansyah. 

“There needs to be support for cooperatives that export coffee in the form of of cheap financing to increase their purchasing power during the harvest season,” Nova said.

He added that 70 percent of the coffee harvest in Aceh would occur between the end of September of this year and January 2021. An estimated 52,000 tons of beans will be harvested during the period. 

Financing organizations have chipped in to ease the financing burdens of coffee farmers and cooperatives.

State-owned Bank Rakyat Indonesia (BRI) small, retail and medium business director Priyastomo said the bank had been supporting the country’s coffee industry, through the warehouse receipt subsidy scheme, among other initiatives. 

The bank is offering an interest rate of 6 percent to farmers, farmer associations and cooperatives that use the warehouse receipt system as collateral. The additional 5.25 percent interest is subsidized by the government. 

“The warehouse receipt is a government program that aims to support the continuity of production and sustainability in terms of agricultural product prices,” Priyastomo said. 

He added that the bank had channeled Rp 266 billion (US$17.9 million) to the coffee industry, including Rp 40.9 billion in the warehouse receipt subsidy scheme.