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Coffee Origin Focus: Indonesia

Indonesia At-A-Glance:

  • Production: ~11m bags of coffee per year, for the last 10 years

  • Coffee Types: Robusta 90% (~10m), Arabica 10% (~1m)

  • Coffee Harvest:

- Oct – Sep (Java crop & North Sumatra crops, Arabica)

- Apr – Mar (South Sumatra & Sulawesi crops, Robusta)

  • Key Regions: Sumatra (South is main region), Java, Sulawesi

  • Other Key Facts:

- Different harvests enable an almost steady flow of coffees across the year - 90% Indo coffee grown by small producers (1-2 hec farms)

- Unique earthy flavor and infamous for its Kapi Luwak

Why Indonesia Matters

Indonesia is an origin with a rich coffee history and impressive share of global coffee production. As the third-largest producer of Robusta in the world (after Vietnam and Brazil), Indonesia's production has major impact on global coffee prices and supply chains.

Indonesia's Robusta beans are a critical component in the blends of many roasters, providing a cheaper alternative to Arabica beans that is essential for coffee consumption worldwide. In addition to its Robusta output, Indonesia also has a sizable arabica production prized in the specialty market that varies in volume from around 1 to 1.5 million bags per year.

Ultimately, Indonesia is one of the key origins that coffee traders need to know well to have a grasp on global fundamentals. It's unique year-round crops and weather patterns requires some examination to understand its place in the global coffee production dynamics and the trends in crop production and vulnerability to weather patterns.

In this article, we will explore Indonesia's role as a coffee origin, its production and consumption backgrounds and challenges, while also outlining the key trends going forward.

History of Production

Indonesia has a long history of coffee production, dating back to when Dutch traders first introduced coffee to the country in the 17th century. Since then, Indonesia has literally become synonymous with coffee, with the local island of Java entering the popular lexicon as nickname for coffee.

Over the years, Indonesia's coffee production has experienced ups and downs. The 90s and 2000s saw a steady rise in production from 5-6 million bag in the 90s, to 8-9 million bags in the first decade of the 2000s. Since 2010, production has continued to grow but competition from other crops has caused production to stabilize around 11 million bags per year (Sources: ICO & UCDA).

Despite these fluctuations, coffee remains a crucial industry in Indonesia and the coffee consuming world has become dependent on Indonesian coffee.

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Indonesia's coffee production has faced several challenges over the years. Most recently, the influence of the La Niña weather pattern resulted in excessive rainfall during the Robusta blossoming season, leading to a projected lower production in 23/24. At least one tradehouse had suggested that this would be the lowest Robusta crop in 10 years.

Additionally, in the past, Indonesia has experienced severe droughts that have significantly damaged production, as weather anomalies such as El Niño and La Niña have often disturbed rainfall patterns, affecting yields and bean quality.

Despite these challenges, Indonesia's coffee production doubled between the late 1990s and early 2010s, according to data from the International Coffee Organization (ICO). However, production has stabilized since then, ranging from 10-11 million bags, according to the ICO and our own S&D database.

Source: ICO & CTA databases

This can be largely attributed to competition from other agricultural commodities such as palm oil, rubber, and cocoa. Together, these contributed to reducing coffee's share of Indonesia's agricultural GDP by nearly two-thirds over the last decade, according to World Coffee Research. This is perhaps beneficial for agricultural diversification, but it also appears to be limiting Indonesia’s coffee production from further rising.

Statistics from Indonesia's Central Bureau of Statistics further support this view, as they show a decline in the size of coffee estates as farmers have shifted their focus to more lucrative products such as the aforementioned.

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Even so, Indonesia's coffee production has generally increased since as late as 2018/19, a year in which production came out at ~10m: nearly 1m bags below recent historical averages. Unfortunately, the forecast for the 23/24 season suggests a low year, on account of the excess rain, with a projected decrease of 700k bags back to the 10m range.

Demand for Indonesian Coffee

Internally, Indonesia hosts a burgeoning coffee culture and has a relatively high domestic consumption of Robusta coffee, estimated at 4-5 million bags per year. An impressive consumption figure that is higher than most other origins. Still, almost all of Indonesia's Arabica production and more than 70% of its Robusta are destined for export, with countries across the globe from USA to Japan demanding Indonesian coffee.

The top 5 consumers of coffee range from nearby countries to far off destinations: USA, Malaysia, Egypt, Italy and Japan. Together these 5 countries make up about 45% of total coffee exports.

Source: Official “Indonesia Coffee Statistics” guide

Internally, Indonesia coffee processing facitlities roast domestically produced coffee, but also import coffee beans from Vietnam at competitive prices and from Brazil's Conilons for their higher quality. This is mostly to compensate for the low quality of the majority of Indonesian Robusta.

Quality can be an issue in Indonesia since the smallholder nature of production creates difficulties in safeguarding quality. This quality differential can lead to Indonesian coffees being on the cheaper end of the international market.

Even with the lower quality robustas, Indonesia is also well known for high quality and specialty coffees. The country is well-known for its unique specialty coffee Kapi Luwak, which is made from coffee beans that have been eaten and excreted by civet cats. Despite worldwide acclaim due to its excellent flavor, the production process of this coffee raises a lot of eyebrows on the unsavory nature of collecting the beans and also ethical considerations for the treatment of the captive civet cats.

Looking Forward

Since 2017, the Indonesian Coffee Exporters Association (AEKI) has been working on a plan to expand the country's coffee plantations and rejuvenate old plantations through intensification programs. The goal was to increase coffee production to between 15-20 million bags annual production by 2027.

However, looking back on the last six years, which represents the first half of the timeframe until the deadline, coffee output has barely reached a peak of around 12 million bags. This suggests that the target of 15-20 million bags per year may not be achieved, at least not on schedule.

It is still possible that the efforts made by AEKI and the government could, although perhaps to a lesser degree, enhance the size and quality Indonesia's coffee crop. At the very least, the initiative should help to prevent this essential coffee origin's production from declining.

… to be continue

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