From the Field, News, Resources for Roasters

Monday, January 10, 2022

Why Is Indonesian Coffee So Expensive?

Why is Indonesian coffee so expensive this year? It’s a question we’ve gotten frequently, so, we’ve spoken with Daniel Shewmaker, Managing Director Indonesia & Timor Leste to help us understand the complex supply issues that contribute to increased costs. Even as we explore these factors, it’s good to remember that these increased costs can often be worth it: our partners are continually innovating and investing in processing techniques and infrastructure, creating spectacular coffees that we think you’ll love.

What’s Driving Prices in Indonesia...and Beyond?

“At its most basic, it’s a supply and demand issue,” Daniel explains. “Indonesia is a unique origin with a unique profile and is difficult to replace with other origins. So, when Sumatra or Java is not available, there’s not really another choice for substituting it. This leads to increased prices as people battle it out for the coffee they need.”

Unlike many other origins, Indonesian coffee prices are not directly correlated to the C Market. Whereas other countries’ differentials typically change in response to C market fluctuations and rarely change more than 5 or 10 cents at a time, Indonesian differentials can move over 50 cents over a few days and can rise and fall regardless of the C market price.

Higher prices are also the result of uncertainty about crop sizes. “There’s a lack of good data on expected crop size,” Daniel says. This is a result of a complex supply chain, remote producers and changing production per hectare. The lack of information leads to more speculation and more variability in pricing, he explains.

Another factor influencing cost and crop size is the weather. Indonesia is one of the wettest coffee-producing countries, and too much rain can lead to smaller flowerings and make it more difficult to properly dry coffee, both of which can raise prices. Disasters such as volcanic eruptions and heavy rains can also impact coffee production by damaging farms or causing internal displacement.

On top of all these environmental factors, farmers are also choosing to transition to other crops, reducing the total volume of coffee produced. “Last year, prices were the lowest in over 10 years,” Daniel explains. “There is a strong domestic demand for vegetables, fruits and more, so, when prices are low, a lot of producers switch to these other crops to increase their profits, and they don’t go back to coffee.” In North Sumatra and Kerinci, farmers are transitioning away from coffee at record rates last year and up to 30% of land previously planted with coffee was changed to other crops. Low prices also mean that many farmers who keep their crops do not have the funds to invest in fertilization and annual maintenance, which in turn reduces overall crop size.

A final factor to consider is middlemen. As a series of islands, Indonesia’s supply chain is long and complex. This means that there are many middlemen purchasing green coffee and reselling it along the supply chain and often, when prices are higher, more middlemen actively purchase and sell coffee to benefit from increased prices. “There’s a lot of speculation, especially when coffee prices are higher,” Daniel says, and this speculation drives up prices. Additionally, we expect to see higher freight rates this year at 5 to 10 times pre-pandemic levels.

Impact on Specialty Coffee

When commercial coffee prices are driven up by all these factors, specialty prices rise as well. Cherry prices doubled in 2021, impacting the cost of producing specialty and commercial coffees. On top of that, it’s more difficult to find farmers committed to specialty harvesting & processing when commercial prices are high and yields low. To many, it just doesn’t make financial sense to invest the extra time and money in specialty production when commercial prices are so high.

In addition to the effect this can have on specialty availability and quality for that year, this also has resounding effects on specialty coffee for years to come. When farmers choose not to invest in processing infrastructure or proper pruning and fertilization, their coffee quality can be affected for several years, not just the year they make the decision to minimize efforts.

What to Expect

Higher commercial prices mean higher specialty prices too, so expect that Indonesian coffees will cost more this year. These prices can be worth it, however. Our partners are working on some incredibly unique and tasty coffees using experimental processing methods that we think you’ll love.

“Our specialty partners are continuing to invest in their processing infrastructure this year, and that’s yielding some really spectacular coffees,” Daniel says. They’re also experimenting with new fermentation methods that are leading to some really delicious profiles are well.  

The Sumatra harvest is late and peaked around November and December this past year. Preshipment samples will begin shipping around December, January and February and coffee is projected to begin arriving March to June 2022.  For pricing, availability, and forward booking, contact your trader.