Indonesia's status as the world's fourth-largest coffee origin makes it a critical factor in global coffee balance sheets, particularly for Robusta. To fully understand this pivotal origin and the coffee it produces, it is necessary to have a thorough understanding of its production geography and its distinct harvest cycles.
In this article, we are going to provide an in-depth analysis of the crucial coffee growing regions in Indonesia, shedding light on production trends and examining how they are influenced by weather fluctuations.
Indonesia Producing Regions & Harvests
Indonesia's coffee production is divided into 4 main regions across 2 harvesting cycles, with a climate that’s particularly conducive to Robusta growth. However, a smaller quantity of Arabica is also cultivated in certain mountainous regions and is prized by the specialty coffee industry.
Indonesia's tropical climate, characterized by relatively high temperatures averaging between 78-82°F (26-28°C), creates an ideal environment for the growth of Robusta coffee, a variety that thrives at lower altitudes and can withstand higher temperatures (75-68°F /24°C to 30°C) than Arabica. These factors, combined with the fact that Robusta is easier to farm, make it a natural fit for Indonesia's smallholder-dominated agricultural landscape.
As a country that straddles the equator, Indonesia has two harvesting periods across its four major coffee producing regions. This provides a sustained crop yield and with year-round supply, a distinct advantage over origins with only one harvest. This can provide a measure of price stability that helps smallholders cope with their financial limitations.
The main coffee producing regions in Indonesia, in descending order of output, are South Sumatra (42.4%), North Sumatra (20.6%), Java (16%), and Sulawesi, with other islands such as Bali, Sumbawa, Flores, and West Papua contributing minor amounts (21%).
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Harvest: April to March
Sumatra Island is the largest coffee-producing region in Indonesia (~60% of total). South Sumatra is the powerhouse, as it accounts for approximately 42% of Indonesia's coffee output, with a yearly production of ~4.8m bags of Robusta coffee.
Therefore, when analyzing the impact of weather on coffee production in Indonesia, we should focus our efforts on Sumatra, especially the Southern region.
One example of weather impact would be the La Niña 2010 phenomenon. This event caused high and intense rainfall that particularly affected South Sumatra, reducing Indonesia's coffee production from around 11m to 7m bags over the subsequent three years.
Harvest: October to September
North Sumatra is known for its Arabica coffee, but actually includes both varieties and averages 2.26m bags per year, with an estimated 780k bags of Arabica and 1.46m bags of Robusta.
Arabica beans sold from this region are known under the trade name as Mandehling.
Elevations of 2,000 to 5,000 feet provide ideal conditions for growing Arabica beans in the mountainous regions (given its reduced temperatures) concentrated in the extreme north of the island. Indo Arabicas are considered specialty coffee, with the North Sumatran province of Aceh being the key producer of these high valued Arabicas.
Harvest: October to September
Java is an important region to the internal market, and is where the first Indonesian coffee was planted. Today it is less important than Sumatra, but still boasts an average production of approximately 1.76m bags per year. This island produces an estimated 220kbags of Arabica and 1.54m bags of Robusta.
Like North Sumatra, Java also has some mountainous terrain that is favorable for Arabica cultivation. However, towards the northeast of Java, there are more areas suitable for Robusta production, given their lower altitudes. Java coffees are often a major source for Indo’s high internal consumption.
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Harvest: April to March
Sulawesi has an average annual production of approximately 1.1m bags (estimated 100k Arabicas to 1m Robusta's). While the region is predominantly known for Robusta production, some areas to the north with higher altitude also cultivate Arabica beans.
Weather Impact – La Niña
Weather plays an outsized role in Indonesia, because the small holder’s farmers lack the resources to maintain quality standards during anomalous weather. The two primary issues are excess precipitation (this one, in particular) and drought.
Indonesia's coffee crops are particularly vulnerable to wetness during La Niña periods. This susceptibility is attributed to the smallholder nature of the industry, which leads to quality issues. High levels of moisture hinder fertilization, plant development, and drying activities, particularly if they occur excessively and in the off-season.
As Indonesian coffee is sustained with minimal inputs, excessive wetness has been found to decrease productivity and increase the already existent quality issues. This was particularly evident in 2010, where rainfall rates doubled versus average standards, reducing production by an impressive 36% from 2009 to 2011. The impact of these events was mainly felt in Sumatra, the most important producing region in the country.
Most recently, the years of La Niña have caused similar problems, although to a lesser degree than in 2010. Hence, a 6-7% reduction in production is expected in the 2023/24 season, although others are estimating steeper cuts. However, it’s noteworthy that the Indonesian crop is ultimately rust-resistant (Robusta), which somewhat helps constrain the potential negative outcomes of excessive moisture.
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Indonesia Coffee Characteristics
Indonesia's location near the equator and vast microclimates provides a range of flavors. Arabica beans are cultivated for their fine flavor qualities, and Indo Arabica typically commands high premiums in the international market.
Indonesia is one of the few origins where “earthiness” is used in a positive contect when applied to the cup profile. Other flavors tend to congregate on the Nutty, cocoa and tobacco side of the flavor wheel (opposite to fruity and sour flavors). My suspicion is that the wet environment tends to facilitate these types of flavors, but that is purely a guess.
Regardless, the Arabica coffees are very well enjoyed the world over and as a result, Arabica is mostly exported rather than consumed locally.
On the other hand, Robusta is favored for its high caffeine content. The taste is bitter and acidic and tends to lack the distinct flavor profiles of the Arabica. However, it’s of a lower quality compared to the Arabica and is usually sold at a discount in the domestic market. Local roasters often use Indo Robusta's as components of blends.
Relation to the Futures Market and global trade
Indonesia plays a vital role for physical coffee traders, consumers, as well as futures market traders and analysts, because of the sheer scale of the country’s as well as the unique flavor profiles.
For the ICE Europe (formerly LIFFE) futures market, Indonesia is one of the core origins that make up the certified inventory. Traders concerned with the calendar spreads and futures prices would be wise to watch the production and physical prices coming out of this origin to anticipate when Indonesian coffee could be shipped to the exchange.
Additionally, Indonesia is a one of the top 4-5 producers of coffee globally and thus contributes meaningfully to the overall balance sheet which can impact not only the Robusta futures market, but also the Arabica “C” market.
Studying the geography and production regions of Indonesia will go a long way to enabling traders to predict availability for this origin. By monitoring the regions and their respective seasonality, it is possible to anticipate the risk of weather events and supply shocks that could affect Robusta production and prices.
A focus on Sumatra, particularly the southern region of the island, can help identify weather issues that could lead to potential shocks and result in trend shifts in RC and/or reduce outputs of specialty Arabicas.
Ultimately, Indonesia’s large production is an essential component of the global supply, and the vulnerability to weather shocks means that traders need to watch this region. A surprising shift in volume from a weather event, as happened this past year, can represent the difference between a global surplus and a deficit.
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