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Overview of the Coffee Sector in Timor
Leste
January 2003
Table of
Contents
List of Acronyms
AusAID Australian Agency for International Development
ATJ Alter Trade Japan Inc.
CDEP Centro Dezinvolvimento Economia Popular
CFF Coffee Farmers Forum
CCO Cooperativa Cafe Organic
CCT Cooperativa Cafe Timor
DAI Development Alternatives Inc
EASD Economic Affairs and Statistics Division
FLO Fair Trade Labelling Organisation
HCD Halibur Cafe Diak
HEKS Hilfswerk der Evangelischen Kirchen Schweiz
ICA International Coffee Agreement
ICO International Coffee Organisation
MAFF Ministry of Agriculture, Forestry and Fisheries
NCBA National Cooperatives Business Association
NGOs Non-Government Organizations
PARC Pacific Asia Resource Center
PWJ Peace Winds Japan
SCAA Specialty Coffee Association of America
UNTAET United Nations Transitional Administration for Timor-Leste
USAID United States Agency for International Development
Overview of the Coffee Sector in Timor Leste
This report provides a
summary and an analysis of the current situation of the coffee sector of Timor
Leste, both distinct from and within the context of the international crisis in
coffee production.
This report was commissioned
by Oxfam in Timor Leste and carried out between 9th September and 3rd October
20021. A preliminary draft was distributed for comment which were then
incorporated into this final draft. Information used included secondary sources
such as publications, reports, correspondences and notes from interviews kept at
the Oxfam office in Dili and through personal interviews with available persons
actively involved in or knowledgeable of the coffee sector in Timor Leste
during the drafting period. Final editing was undertaken by Oxfam.
This report is intended to
inform those interested in the coffee sector in the hope
that efforts can be coordinated to create and develop a sustainable and
equitable coffee sector
which not only contributes to the economic development of the nation but more
importantly, to the livelihoods of those who rely on coffee the most : the small
producer.
Overview of the Coffee Sector in Timor-Leste
Executive
Summary
Coffee was introduced into
Timor Leste early in the nineteenth century by the Portuguese colonial authority
in an attempt to establish a coffee export industry. By
the mid-nineteenth century, coffee had overtaken
sandalwood as Timor Lestes major export; a situation that continues today. With
the beginning of Indonesian rule in 1975 a new era began characterised by a
monopolistic coffee
export system with little investment in the sector. Yields dropped dramatically
and many of the plantations established during the Portuguese era became
overgrown and began to be harvested by surrounding farmers. In 1994 the Timor
Leste coffee export
industry became de-regulated with the removal of the state sponsored monopoly
allowing the entry of the US National Co-operative Business Association (NCBA)
backed by USAID funding, as well as a variety of other buyers operating mainly
through West Timor. NCBA working through the Co-operativo Café Timor (CCT),
became the major actor in the coffee sector during a
turbulent period both politically (the post-consultation violence in 1999 and
transition to independence) and economically for the coffee sector (a period when
international coffee
prices fell to 30-year lows).
In 2002, coffee remains Timor Lestes
major export. Based on figures provided by exporters, the 2002 harvest is
estimated to be 7,000 to 11,000 tonnes of green bean worth six to ten million
dollars. Production is dominated by an estimated 44,000 small producers
(harvesting on average one to two hectares) representing approximately 25% of
the population. The producers are typically upland subsistence farmers who
harvest areas of coffee
investing little effort in maintenance such as pruning, re-planting, weeding
etc. For these people, coffee sales are estimated
to represent 90% of their cash income.
There are a wide variety of coffee buyers and exporters at present. These include small development projects focusing on small quantities from specific producer groups (a number of NGOs and the Portuguese Mission), ethnic Chinese traders buying mainly parchment and exporting through Indonesia, companies who have invested considerable funds and export directly from Dili (such as TimorCorp Ltd, the largest buyer and exporter and Delta Café) and a hybrid of a development project and co-operative (CCT/NCBA, the largest buyer of cherry).
Producers either sell
cherry mainly to CCT or process into
parchment which is sold to a variety of buyers. According to exporters, in 2002
the majority of coffee is
processed on-farm into parchment using the dry process. The price paid for
cherry in 2002 was 15-18c/kg depending on whether purchased at processing
centers or the road side (a substantial increase from 10-12c/kg paid in 2001)
and for parchment 35 to 43c/kg (depending on the buyer, location and quality).
The increase in prices paid in 2002 has been attributed to a number of factors
such as improved access to premium quality markets, Fair Trade markets, organic
markets, donor influence etc.
At present, the coffee sector faces a number of interrelated issues :
There is currently a large number of organisations and projects involved in the coffee sector; the Coffee Unit within the Ministry of Agriculture, Fisheries and Forestry, exporters (directly from Dili or through Indonesia), producer groups, co-operatives, NGOs, bilateral projects etc. In general, most recognise the above constraints to the sector and are attempting to resolve some of the issues within their own project areas following their own strategies. Each has a role to play within the sector and experiences (positive and negative) to share. Although the above constraints are common to all, there remains little communication between these organisations and projects resulting in high levels of distrust, duplication of effort and an inability to learn from successes and failures. This situation is exacerbated by the absence of a coordinating body.
Although coffee remains Timor Lestes major export, the contribution of this sector to the national development process is best seen in terms of the income it provides to a substantial proportion of the rural population. Although there are significant constraints to the development of a sustainable industry there is still potential. Approximately 80% of the coffee grown is of the Arabica variety and by default through neglect most coffee is organic and forest grown. In addition, few of the worlds coffees are produced on islands at high altitudes. There is therefore potential to produce high-grade coffee for specialty markets capitalising on both Timor Lestes profile and geography. The key issue is to develop and maintain a consistently high quality of coffee. This will require considerable effort at all levels which would benefit greatly from improved coordination throughout the sector.
Overview of the Coffee Sector in Timor Leste
Timor first entered the
annals of the global economy in the fifteenth century, when the records of the
Chinese court noted it as a significant source of sandalwood (Taylor). The trade
in sandalwood remained the island's chief export commodity, supplemented with
honey, wax and slaves, until the mid-nineteenth century when coffee overtook sandalwood
as the major export. Coffee has remained ever
since the chief export from the island. Sandalwood was close to commercially
extinct in Timor Leste by the early twentieth century and the logging of limited
surviving stands is outlawed (DJSB).
From the early sixteenth until the mid-eighteenth century, various groups (indigenous, Dutch and Portuguese) competed for political control of the territory. In 1749 it was agreed that the west of the island would fall to Dutch administration, while the east and the enclave of Oe-cusse would fall to Portuguese administration, a situation that continued largely uninterrupted until the end of the colonial period (Taylor). The Portuguese administration is thought to have introduced coffee to Timor Leste early in the nineteenth century, and by the 1860s, it accounted for more than half the colony's exports. It continues to be the major export commodity to this day, officially accounting for three-quarters of all exports from Timor Leste in 2001 (EASD).
The vast majority of people
of Timor Leste have relied on subsistence agriculture for the greater part of
their livelihood. To this day, the cultivation of coffee represents a source
of supplementary cash to this subsistence existence, with most estimates
suggesting around 44,000 of Timor Lestes families (approximately 200,000
people2) relying on coffee as their major source
of cash (World Bank). Coffee producers are located
throughout Timor Leste, but concentrated particularly in Ermera district, where
perhaps close to half the country's coffee is produced. The
districts of Manufahi, Ainaro and Liquica also produce significant amounts of coffee, as do to a lesser
extent the districts of Aileu and Bobonaro (Baffoun, World Bank,
Laird).
Timor Leste's coffee producers are
characterized as gatherers rather than growers as they generally do not make a
significant effort to tend their coffee bushes, restricting
that effort largely to clearing the land around the bushes to allow them access
for the next harvest. During harvest time, they tend to supplement their own
labor, mostly with kin and to a lesser extent with hired help. The average
producer works only 55 days a year with their coffee plantation and
another 16 days processing the harvest. The average coffee producing family has
six members, four of whom are available to help with the crop. It is estimated
that earnings are between $127 and $200 per family per year, 90% of which comes
from the coffee crop
(World Bank). Sometimes additional labor may be utilized which normally includes
extended family or seasonal workers usually paid in kind
(Atkinson).
While 90% of growers assert
that they own the land they work, many are harvesting coffee from lands abandoned
by the former estates. This land, by law, defaults to the state, but senior
administrative officials are amongst the first to acknowledge the state's
inability to enforce the law, and suggest growers be given de jure as well as de
facto rights to the land. In the meantime, lack of security of tenure for
growers affects their relationship with their plantations. For example, the
extent to which they are willing to invest capital in plant stock or other long
term activities may be limited because they are unsure of accruing long term
benefits from their effort because of uncertainty over tenure (World Bank, da
Cruz).
According to Alf Kramer, a
leading Norwegian coffee
expert, "there is a more or less total confusion and numerous contradicting
opinions of what varieties" of coffee are grown in
Timor-Leste. To give a brief example of how such confusion is amplified,
documents produced by the National Co-operative Business Association (NCBA) to
promote the coffee
emerging from their project describe it as "one of the finest and most unique
coffees in the world", grown in "fertile volcanic soils", the "Hibrido de
Timor". Elsewhere, reports produced by Development Alternatives Incorporated
(DAI), have described Timor's coffee as among the top 1%
in quality and price worldwide (Kramer, DAI 1).
However, the island of Timor
is not volcanic, neither are its soils (which are generally thin and unfertile,
especially at altitude), and despite the claims, very little of Timor-Leste's coffee would be considered
among the best of the world's coffees. The "Hibrido de Timor" is largely
indistinguishable from other hybrids that bring together some of the qualities
of the two main cultivated types of coffee (in particular the
ability to grow in thinner, less fertile soil), and in blending the two types
loses some of the cup qualities of the more highly valued and less hardy type.
In addition to unidentified
strains of coffee being
introduced to Timor, neglect and inattention to coffee plantations over long
periods have produced cross-fertilisations, and no accurate picture emerges of
the type of coffee grown.
The Co-operativo Café Timor (CCT), which relies on NCBA expertise, recognises
three types of Arabica coffee in Timor-Leste,
dependent on altitude and harvest time, and not on the strain (Gautier, Laird,
Kramer, DJSB). There is a reasonable concurrence that the coffee grown in Timor-Leste
is around 20% of the less valued Robusta variety, and 80% made up from various
strains (including the Hibrido de Timor) of Arabica. While some buyers and
bilateral groups have made new coffee plant material
available to growers in an effort to introduce some consistency and some new
growth to the plant stock, these efforts have yet to have any noticeable effect
(Kramer).
Coffee from Timor is
unusual: not much of the world's coffee is grown wild at the
higher altitudes of a tropical island, and the lack of attention paid to the
plantations means it is by default organic. Its organic status however is not
guaranteed as, even if consensus is maintained amongst coffee growers to avoid
synthetic fertilisers, such a consensus will be impossible to maintain across
the entire agricultural sector, and the possibility of leakage affecting coffee plantations remains
(Kramer).
Traditionally, Timor-Leste's
coffee producers have
processed their own coffee from cherry on the
bush to parchment. Based on figures provided by exporters, around 75% of coffee was processed this
way in 2002. Cherry starts to deteriorate only hours after being picked, whereas
properly stored parchment deteriorates slowly. The technique used by growers,
generally known as 'dry processing' produces a wide range in the quality of coffee produced. This
depends on many things, including how much material other than well-picked ripe
coffee is included, how
long before the process is begun, how long the coffee is dried, how clean
the process is, and so on. The varied nature of the techniques used by
individual farmers reduces the quality and the likelihood of consistent quality
across the coffee
processed this way (Pomeroy, Moreno, Kramer, Laird).
The rest of Timor-Leste's coffee is 'wet-processed'. Most wet-processing is carried out at the four factories established in the coffee districts by NCBA/CCT. A smaller amount is also carried out at two older Portuguese facilities that have been refurbished recently by the Portuguese agricultural mission and a smaller amount again at the Pacific Asia Resource Center (PARC) project in Maubisse. Wet processing washes the pulp of the cherry from the bean, rather than waiting for it to dry in the sun, and is generally recognised to produce a better quality coffee. Because coffee is processed in a central location, quality controls are easier to maintain and should result in greater consistency. However, wet processing must be conducted within a minimal time from picking - ideally 12 hours, and no more than 24 hours - or the coffee will ferment uncontrollably, spoiling quality (Kramer, Pomeroy).
The cultivation of coffee in Timor-Leste began
as an experiment in the early nineteenth century, but by mid-century a thriving
regional trade had emerged. The Portuguese had a stronger preference for
establishing large plantations for coffee and by the end of the
Portuguese colonial period (1975) around 45% of the estimated 45,000 tonnes/year
of coffee exported from
Timor-Leste was grown on large plantations. The attempt to establish a
plantation system saw the rise of labour practices that included "forced
cultivation of cash crops, forced and contract labour, illegal recruitment and
starvation wages" (DJSB, Gunn).
The widespread establishment
of coffee as a commodity
occurred at the end of the nineteenth and beginning of the twentieth centuries,
when successive colonial governors forced the rural population, particularly
those living in highland areas, to plant, grow and harvest coffee on their own small
holdings. In one instance, as punishment for a rebellion against taxation in
1911-1912, the colonial Governor required every family to plant and cultivate no
fewer than 600 new coffee
bushes (DJSB, Moxham).
Coffee from small holdings
remains the major source of the coffee crop from
Timor-Leste. During the first half of the twentieth century, numerous attempts
were made to establish large commercial operations, but these mostly fell to
government control after World War II. Large family-owned and run plantations
have only ever accounted for a smaller proportion of total output
(Moxham).
While coffee was the major export
from Timor-Leste, it depended to a great extent on farmers who were not
integrated into the economic system: they either provided coffee to market as a
supplement to their subsistence existence, or provided to plantations the labour
required to continue operation.
Following the Indonesian
invasion in 1975, exploitation of Timor-Lestes coffee producers continued
under the control of the new occupying power in particular, the Indonesian
military. The corporation P.T. Batara Indra became the only entity with a coffee export license
provided by the Government of Indonesia. This monopoly continued until 1995.
Through their subsidiaries, they took over all of the large plantations (P.T.
Salazar) and controlled the buying of parchment (P.T. Denok) through a network
of indigenous rural and ethnic Chinese collectors, many of whom are still
operating in Timor-Leste. An equally well controlled and government supervised
collection monopoly disguised as a cooperative acting on behalf of farmers
(Puskud Timor Timur3 with 16 affiliated district based co-operatives), was
established to coordinate procurement for which they received a fee of
approximately Rp. 100/kg (NCBA). The price however was fixed by P.T. Denok at
levels well below those in other markets (Kramer, DAI).
The coffee industry in
Timor-Leste during the Indonesian period showed little interest in maintaining
or developing cultivation practices, or indeed in contributing any kind of
capital return to the enterprise. They were interested only in extracting income
through the quantity of cheap coffee they could accrue for
forward sale, mostly through the Indonesian port of Surabaya. As a result,
interest in coffee
cultivation amongst the East Timorese generally decreased. Farmers acting as
caretakers simply began to harvest beans annually from the previous large
plantations as well as from their own small holdings.
The widespread replacement
and regeneration of plant stock, the pruning of bushes and clearing of land, and
all farming activity beyond the collection of cherries and their processing for
sale, all but ceased during this period. If there was significant knowledge of
coffee cultivation held
by East Timorese, it was probably largely lost during this period in which the
amount of coffee produced
annually had fallen as low as 6,000 tonnes/year by 1994
(Kramer).
Pressured by the US
Government, the Indonesian Government allowed the existing monopoly in the
Timor-Leste coffee sector
to be broken in 1994 by allowing representatives of the NCBA to begin working in
the sector4. Coffee
producers were given an option on how they might sell their coffee: through the
cooperative, which began paying a farmgate price that reflected the prices NCBA
could obtain in the open market, through more familiar channels into the
Indonesian market or through several other buyers based in West Timor. Producers
enjoyed the benefits that competition brought to the marketplace (the price paid
for coffee increased
fourfold in the first week of NCBA buying in 1994), and the amount of coffee being sold through
NCBA steadily increased, to the point that the total amount of coffee produced in
Timor-Leste was expected to exceed 10,000 tonnes/year by 1999. The opportunity
to increase the cash supplement to their subsistence existence had captured the
interest of the farmers and motivated them to increase output (Moxham, Pomeroy).
The major change in behaviour
for producers selling to NCBA emerged from NCBA's preference for undertaking the
entire processing of the coffee themselves buying
only freshly harvested cherry. This change left coffee producers with more
time to harvest but reduced their involvement along the processing chain.
Traditionally, producers have carried out a 'dry process' for processing their
harvested cherry to parchment, but NCBA introduced widely the 'wet process'
which could be undertaken at their own centralized facilities and ensured a
better and more consistent coffee quality (DAI). For
the producers however, the new processing technique did not substantially change
their harvesting practices, even if they did more of it.
In the wake of the
destruction and political turmoil of 1999, NCBA continued to work with what was
left of the Indonesian cooperative system. A structure of 16 local organisations
known as Cooperativa Cafe Organic5 (CCO) were established under the umbrella of
the Cooperativa Cafe Timor (CCT) (Moxham). With the re-commencement of
purchasing, processing, sales and export operations during the 2000 season, CCT
became the only significant purchaser of coffee.
However, during this period, as the Indonesian control over Timor-Leste was collapsing, so was the international market for coffee, as a result of structural oversupply problems that had flooded the market with cheap coffee (Brown). The international coffee price for 2000 as indicated by the New York C price was significantly lower than in 1994 ( DAI 2). The combination of CCT becoming the only significant buyer and the significantly lower price offered for cherry (related to the international market) led to resentment amongst coffee growers and activists. Many believed that with the competition out of the way NCBA/CCT was now engaging in the same kind of monopolistic behaviour Timor-Lestes growers had experienced in the past. Some growers formed an association and demanded that the United Nations Transitional Administration for Timor-Leste (UNTAET) take action against the perceived injustice, threatening to take the matter into their own hands if their demands were ignored (CFF).
In 2002, producers have
several options for sale of their coffee, and political
tension in the coffee
sector is considered low. Coffee producers depending
on the price, location and time within the harvest season, may sell most of
their harvest directly as cherry to buyers such as CCT and process the rest
themselves into parchment for sale at a later date through other channels. The
prices paid by CCT in 2002 for cherry ranges between 15 and 18c/kg (Gum 1).
Buyers of parchment include Chinese Traders, Agriculture Service Centers, Timor
Corp etc. Prices paid in 2002 for parchment vary between 35 and 43c/kg.
Processing coffee cherry
to parchment before selling represents a potential loss of earnings as well as
increased processing effort, as 1 kg of parchment is equivalent to approximately
4 to 5 kg of cherry.
An emerging social
implication of the switch to selling cherry without processing has been the
change in the way cash income from coffee is received by
growers. When they were processing coffee themselves, they were
able to sell their coffee
in small lots as they required cash (for example, for school fees, or for
alcohol and cigarettes). The parchment they held acted like a bank account to be
drawn on. However, if farmers elect to sell cherry, they must sell it
immediately after harvest. As a result, growers receive most of their yearly
cash income from coffee
in a very short period. The long party that increasingly takes place in the coffee regions at the
conclusion of the harvest, means that little work is done in this period - by
the growers, or by extended family members who may travel a great distance to
join them at party-time. The excesses of this period mean that less cash is
available at other times of the year (da Cruz).
Timor Leste's coffee producers remain poor, disorganised and prone to exploitation, but the post 1999 era has boosted the potential for large changes in the lives of those linked to the coffee sector (Moxham). The most radical changes in Timor Leste's coffee sector have been seen among the buyers and exporters. What was a closed and controlled market with a restricted number of organisations involved a decade ago is today deregulated. Particularly since 1995 with the start of deregulation the sector has undergone major changes which are likely to continue for some time before stabilizing. In addition, to the increase in numbers of buyers and exporters as a result of deregulation, there is also a great variety of projects and initiatives in the coffee sector supported by a range of donors, government and Non-Government Organizations (NGOs) and, in at least one instance, coffee growers themselves.
In Ermera, in 2002, a group
of around 30 coffee
producers, most of whom already claim ownership of larger than average holdings
(of seven to ten hectares, compared to the average of one or two hectares), have
formed an association to represent their interests. Aware of the access they now
have to the outside world that was previously denied them, they hope to improve
their market power, to improve the quality of the coffee they produce, and to
take possession officially of some abandoned coffee land. Augustino
Carmilo Exposto, the association's coordinator, says that if successful, the
association intends to greatly increase in size, and already has representatives
in other districts. The Ermera coffee growers association
has already approached the NGO Peace Winds Japan (PWJ) about the possibility of
assistance to establish a Fair Trade arrangement with a coffee importer in Japan.
PWJ continues to talk with the group, although its commitments elsewhere may
mean it is unable to assist in this case (Exposto,
Kanamaru).
However, the initiative shown
by this producer-driven association may be unique. Other initiatives have
emerged, particularly linked to efforts by NGOs to establish fair terms of
trade for producers, including initiatives in villages near Portuguese era
processing centres rehabilitated recently by the Portuguese agricultural
mission. Currently, PWJ is working with a small group of around ten families in
Letefoho (Ermera District) and is planning to sell coffee to Japanese buyers
beginning with 15 tonnes of green bean from the 2003 harvest.
An international NGO PARC in
collaboration with a national NGO, Yayasan Hak, has already assisted a group of
34 farmers in the Maubisse area to process 10 tonnes of parchment. This is
currently being processed in Dili to green bean (approximately 6 tonnes) and
will be exported to Japan. The buyer, Alter Trade Japan (ATJ) may also be
interested in purchasing from the group supported by PWJ in the future. The
project has also assisted the group with the provision of basic processing
equipment that is intended to be paid for by the group when their harvest has
been sold. Producer groups using Portuguese facilities and their own facilities
have earned significant premiums after adopting new processing practices
(Kanamaru, Junko, Moreira).
ATJ at present also imports
products such as organic bananas from The Philippines, naturally grown shrimps
from Indonesia and coffee
from growers cooperatives in Peru, Mexico and Tanzania. ATJ imports on behalf
of consumer co-operatives in Japan and is mandated to promote direct
relationships between producer and consumer groups following principles of
self-reliance and environmental sustainability (ATJ Home Page). ATJ is now in
the process of buying coffee from the Maubisse
group as an experiment and is interested in pursuing a long-term relationship
with these producers. PARC and ATJ hope that, if successful, the program will be
extended to other areas in collaboration with other NGOs (Gum 2, 3).
Less encouraging is the story
of Halibur Cafe Diak (HCD), an organisation of 41 producers and their families
from Liquisa District. According to Antonio da Silva, HCD sold coffee to Switzerland in
2000 and 2001 through the Swiss NGO Hilfswerk der Evangelischen Kirchen Schweiz
(HEKS). However, the group has been told that this was 'emergency' support, and
that if the export of coffee to Switzerland is to
continue, the group must first demonstrate its ability to export coffee using its own
expertise. Consequently, the group is trying to meet a commitment to an
Indonesian buyer to deliver 100 tonnes of coffee to Surabaya by
November this year, in order to demonstrate their ability to meet conditions
they have been told is required for a Fair Trade arrangement with Swiss groups.
The group is undertaking this risky activity with some assistance from an
Indonesian association of lawyers, AKMAR, which has no previous expertise with
the coffee sector and
generally provides legal support to underprivileged communities (da Silva). The
growers have had no contact with the HEKS since February
2002.
Other NGOs such as Centro
Dezenvolvimento Economia Popular (CDEP) have been involved in assisting producer
groups to roast and package coffee for the local market.
This coffee is sold
through some of these NGOs and was displayed at the Expo Popular during the
Independence celebrations in May 2002 although it is unclear how much is sold on
an ongoing basis.
In general, coffee producers and their
families have no effective system of organisation and management. Most
encouraging is the Ermera growers association, which seems to be self-motivated,
responsible and clearly focussed on working within the environment of the
international market, in an effort to improve the income, expertise and
wellbeing of the association's members, their families, and even their
descendants. If the association can maintain its momentum, it is likely to meet
with some success. The independent success of the association may serve as an
example or a model for other producers. Indeed, other community based
initiatives which this study failed to unearth may already be active
(Exposto).
The interest of local and
international NGOs in Timor Leste's coffee sector has largely
been inspired by the impetus to establish Fair Trade arrangements between groups
of growers in Timor Leste and foreign specialty, buyers at this stage focusing
on buyers in Japan such as ATJ6. In seeking to establish such arrangements, the
greatest inhibitor has been a lack of quality in Timor Lestes coffee. Ito Junko, working
with PARC in Maubisse maintains that while direct contact with outsiders is
often enough to convince Timor-Lestes growers to adopt new practices, it will
take several years at least before the group she is working with to be able to
properly maintain a Fair Trade arrangement. PWJ has also begun working towards a
Fair Trade arrangement between a pilot group of ten growers and supporters of
PWJ in Japan. Recognizing the problem of maintaining coffee quality, PWJ is
proposing to bring in trainers from Indonesia and Japan to help the pilot group
to improve their cultivation and processing practices. The pilot group is
expected to generate a more general change in local cultivation and processing
practices once an appreciation of the preferential terms of trade for quality
spreads through the local community. PARC and ATJ are hoping to expand on this
model in collaboration with other NGOs once further demand from foreign buyers
has been developed.
At the moment, the inability
to ensure delivery of consistent quality coffee is inhibiting the
development of fair and alternative trade arrangements (Gum 1). Buyers are
unwilling to commit to the long term contracts Fair Trade standards require
without an assurance that they will receive coffee of consistent quality
which they can market (Starbucks). PWJ is using fair or alternative trade as an
incentive to motivate coffee producers to change
their practices with the expectation that this will contribute to consistent
quality coffee, which in
turn will help realize long term fair trade contracts resulting in improved
incomes.
Other significant factors limiting the establishment of more Fair Trade arrangements are both social and institutional. Coffee producers are in general unaware of coffee marketing issues and the need for consistency and quality. This is compounded by generally low education levels and a lack of organisational and management skills. In order to change cultivation and processing practices in response to market demands much time and skill in working with rural communities is required. NGOs such as PARC and PWJ appear to have these skills but are limited by resources and therefore confine their activities to limited areas. The expansion of these kinds of projects is also contingent to an extent on the availability of Fair Trade buyers. Recent research has indicated that coffee suppliers on the Fair Trade register7 could supply 6 times the quantity of coffee to Fair Trade buyers than they are doing at the moment (Oxfam 1). It is therefore unlikely that the Fair Trade movement can absorb coffee from all producers.
TimorCorp Ltd.
The biggest buyer and
exporter of coffee in
2002, Timor Corp Ltd, did not exist prior to the political split with Indonesia.
The company is largely owned and controlled by an Australian businessman, Mr.
Kenny Lay. Mr Lay, who was born and grew up in Timor Leste before becoming
successful in his adopted country, decided that he wanted to 'do something' for
the country of his birth. To date, Timor Corp represents his biggest interest in
Timor Leste.
Timor Corp buys coffee as parchment from all
sources, mostly agents, and hopes to purchase around 6000 tones of coffee this year, having
already purchased 1,500 tones at the time of interview and 4,000 tones in
the 2001 season The manager Jeff Lunny, the only expatriate amongst a staff of
70, maintains Timor Corp was paying the highest price for best quality parchment
at 43c/kg in September 2002. Timor Corp prefers that suppliers deliver direct to
its warehouses in central Dili (formerly used by PT Denok), but also runs a
number of trucks. Timor Corp has invested in excess of USD $ 1.5 million in
plant and equipment for processing coffee beans for
export.Timor Corp exports mostly to Europe, where it sells coffee at a substantial
discount of around 44c/kg below the NY 'C' equivalent. Smaller amounts are
exported to the US, Australia, Singapore and Japan. Timor Corp has had some
problems maintaining the quality of its product exported to
Europe.
About 25% of the beans
received as parchment are rejected as waste during processing. Lunny states that
Timor Corp is trying to instill in producers an understanding of the need for
quality in the coffee
they sell, but says he has yet to overcome resistance from growers, and is also
quick to blame 'rapacious traders who buy coffee of any quality for
export to Indonesia, where it is generally mixed with local coffee and sold as
Indonesian coffee. Timor
Corp employs Timorese buyers from non-coffee growing districts, as
buyers from within coffee
districts are unable to enforce quality control in areas where they are known
and where they have family relations.
Lunny states that Timor Corp
is currently operating at a loss because of quality issues and the global slump
in coffee prices. While
he feels that a revival in the global market would make the company profitable
in the short term, ultimately Timor Leste's coffee industry will only
survive if the growers make a commitment to higher quality coffee and better management
of trees and plantation areas. He thinks that this is unlikely in the immediate
future. He adds that Timor Corp however, is committed to remaining
involved in the Timor Leste coffee sector irrespective
of the current overall conditions within the industry both in Timor Leste and
globally. As the level of development assistance declines in Timor Leste, the
role of the privately owned and operated companies in the coffee industry will become
more important (Timor Corp).
Co-operativo Café Timor
Although the CCT is a
cooperative, it operates like any other commercial operation. Assessments of the
viability of CCT commissioned by the United States Agency for International
Development (USAID), the major donor to NCBA, are made in just these terms. CCT
inherited the structures of its Indonesian predecessor (PUSKUD Timor Timur), and
as such, tends to operate much more as a top down structure, rather than as a
cooperative built up from the grassroots. Although membership is approaching
20,000, many growers continue to express distrust of the cooperative and its
employees, and disinterest in extending their relationship with CCT (Atkinson 1,
Atkinson 2, Lao Hamutuk). However, if CCT continues to pay significantly higher
prices every year as indicated by the prices paid in the 2002 season, growers'
views of CCT are likely to improve. Nevertheless, NCBA reports continuing
threats of violence by growers against buyers who have refused to buy coffee they considered bad
quality (DAI 1, DAI 2, Baffoun, Gautier).
CCT today operates as a
quasi-commercial operation with the members as owners enjoying the above market
price equivalent CCT is paying for coffee cherry, the limited
dividends the cooperative pays, and access to the cooperative's 8 fixed health
clinics, 24 mobile health clinics and 16 demonstration and training facilities.
However, CCT continues to rely on the expatriate experience of NCBA for its
management and sales components, and on the ongoing financial support of USAID8.
Between 1994 and the end of 2002, USAID will have committed over $17 million9 to
its coffee project in
Timor Leste and CCT will be holding around $7 million in assets as a result.
While USAID funding for the project is set to wind down at the end of 2002,
there is an expectation amongst NCBA and CCT staff that it will be extended for
at least another 3 years.
Considerable discrepancies
emerge between the descriptions of CCT and its operations provided by NCBA and
CCT staff on the ground in Timor Leste, and those provided by USAID and NCBA
staff located elsewhere. These discrepancies relate to the price, volumes and
quality of coffee bought,
processed and exported from Timor Leste, to staffing levels and abilities, and
to the profitability and sustainability of CCT as an independent entity. Some
discrepancies can be attributed to a desire of managers located elsewhere to
emphasise positive aspects of the project. However the inaccuracies which emerge
in the two Development Alternatives International reports prepared for USAID in
2001 into the sustainability, both general and financial, of NCBA's Timor Leste
coffee project are
excessive (DAI 1 and DAI 2). When tested, local information has proven more
accurate, and has generally been used throughout this
document.
CCT employs around 200
permanent staff, rising as high as 1800 staff during the peak of the harvest
season. Staff are employed particularly at the five factories CCT operates, but
also throughout the coffee districts as buyers,
administrators and other staff working for the CCOs. In 2002, NCBA in Timor
Leste has 2 expatriate positions directly supporting the operation. This number
is expected to decline in 2003 to one full time and one half time position as
one position will become more involved in non-coffee agricultural
operations (NCBA).
The strategic plan of
USAID/NCBA/CCT, though not explicitly stated, goes approximately as follows.
Having been initiated as a political maneuver, large funds have been made
available to assist with establishing a world class coffee sector in Timor
Leste, led by a profitable corporation owned by the growers that succeeds in
improving their livelihood. The group acknowledges the generally poor quality of
coffee in Timor Leste and
is working hard to improve this by installing infrastructure to improve coffee processing from the
earliest possible intervention (hours after it is harvested), by training East
Timorese to manage the process, by insisting that growers work to improve the
quality of their harvest, and by providing a social premium (health care) to
members as an incentive to produce better quality coffee.
Staff are frustrated by
difficulties in changing the attitudes of producers although they acknowledge
that the general quality of cherry from members has improved in 2002. They and
their East Timorese colleagues are aware that the East Timorese are many years
away from managing the business at current levels by themselves. Estimates vary
with regard to how much continued external assistance is required until CCT
becomes self-sustaining. This will depend on the continuing internal
organisational development of CCT as well as external factors such as the
success in changing the basis of coffee production from
harvesting to farming and the ongoing development of the nation and government
as a whole (NCBA).
In 2002, the 16 regional
affiliates (CCOs) of the CCT paid around $2.5 million to purchase around
12,500 tonnes of cherry. From this cherry, it is estimated that 1600 tonnes of
certified organic green bean will be produced, which will be exported directly
to either the USA, Canada, Australia, New Zealand, Japan, Great Britain,
Holland, Denmark or Gemany (NCBA). The price paid for cherry this year
(15-18c/kg) is a significant increase compared to the prices paid last year
(10-12c/kg) and is considerably more than the international market price (NY
'C') equivalent. During the 2002 season, when the higher prices were offered the
CCT facilities were overwhelmed at times, so much so that they were unable to
process all the coffee
before significant losses were incurred through spoilage. This is an example
where the lack of competing buyers has had a negative effect on the buyer
instead of the growers: the buyer in this case was unable to lower the price on
offer so as to divert flow to an alternative facility (Gum 1, Laird). The size
of the NCBA/CCT operation also determines the acceptable price for all other
buyers and has been used by the NGO PARC as a non-negotiable factor in their
project area (Gum 4).
Externally, NCBA/CCT is
trading on the name of Timor Leste along with their ability to access specialty
markets such as premium grade, Fair Trade and organic. NCBA claims that the
prices paid for cherry during the 2002 season has been determined by the prices
that premium specialty South East Asian coffees are currently able to receive
(NCBA) although others have suggested that the price also reflects Fair Trade
and organic market prices as well as the influence of the main donor (Gum
1).
Fair Trade markets generate
sales at higher prices, as buyers are aware that the increased price they are
paying is going to the benefit of the growers (the social premium used for
community initiatives such as health clinics). Similarly, buyers in the organic
markets are aware that the increased price they are paying is used to compensate
producers for not using synthetic chemicals. In 2002, it is estimated that more
than half of CCTs 2002 sales will be made to the South East Asian premium
specialty market and by late October 2002, CCT has been able to market 416
metric tonnes as certified organic coffee and 129 metric tonnes
as certified Fair Trade (NCBA). However, it is unclear how sustainable the
current prices paid for cherry is considering the ongoing quality issues
affecting Timor Lestes coffee sector and the
limitations of the organic and Fair Trade markets (see Section 6 of this
report).
The USAID/NCBA/CCT project in Timor Leste has been a major 'driving force' without which Timor Leste's coffee sector could not 'evolve' (Moreno). The arrival of NCBA transformed the coffee sector in Timor Leste, exposing the coffee producers to the international coffee market as well as prompting a more competitive domestic buying market. The project is bringing many benefits to Timor Leste's coffee sector and particularly to its members: greater income through higher prices paid for coffee, social premiums (particularly free access to health care), access to knowledge and training to improve growing technique and coffee quality, and a global profile for East Timorese coffee. The major risk the project brings is to introduce unsustainable distortions to the market by overpaying for coffee, creating unsustainable expectations and forcing from the buying market other buyers attempting to compete in a more open market without access to donor support. However, these risks are seen as limited as CCTs market is less than dominant at around 20% of volume, and while they continue to purchase and process their coffee through members and through a distinct system (Laird, Gautier, DAI 1, DAI2).
Timor Leste's ethnic Chinese
have always worked as traders, some in the coffee sector to the
exclusion to all others. At least four (My Friend, Always, Cafe Timor Lorosae
and an un-named group warehoused in the Bidau area of Dili) were trading
significant amounts of coffee in 2002. During the
Indonesian period, they used their own networks to purchase coffee outside the
cooperatives system, but were required to sell to the corporation that at the
time held the export monopoly (P.T. Denok). Since 1999, they have purchased
parchment from agents and growers, hulled and polished it to green bean, and
mostly exported directly themselves, mostly to Indonesia, where undiscerning
buyers pay low prices for low quality coffee.
In September 2002, buyers in Surabaya are only paying 57-58c/kg for green bean. At least one trader, Artinko Ximenes of My Friend, has bought only 300 tonnes this year (after buying 1000 tonnes last year) and has now ceased buying. He is now paying around 50 labourers 5c/kg to handpick a container load of premium coffee from the stock he is holding for export to Hong Kong. He and his wife are both assisting in this activity. Another trader, Michael Sing of Cafe Timor Lorosae is continuing to buy coffee at 38c/kg for parchment, or 48c/kg for bean, for sale in Surabaya. He has already sold 550 tonnes and hopes to reach again the 1000 tonnes he sold in 2001, but admits that he and his 14 staff (including his parents) are operating on a very slim margin (Ximenes, Sing).
Of the other groups buying coffee in Timor Leste,
perhaps most significant is the Portuguese company Delta Cafe, which exported
probably a few hundred tonnes of both wet and dry processed coffee this season. This
includes perhaps as much as 50 tonnes of coffee wet-processed through
two small, rehabilitated old Portuguese processing centres. Delta Café buys
directly from producers and sometimes from CCT. They carry out final processing
in Dili and export to their own buyers/roasters in Portugal (Gum 1). Delta
representatives were not available at the time this report was prepared. Other
groups are also buying, processing and/or exporting coffee from Timor Leste,
probably in smaller amounts (Pomeroy, Moreira).
Summary
Timor Leste's coffee exporters are not
well organised. Two meetings of a proposed exporters association were held in
2001 at the initiative of Alister Laird of NCBA, and a number of exporters
attended, but no more meetings have occurred since. The association listed as
its primary concerns the quality of Timor Leste's coffee and the education of
its growers, and as its secondary concerns lobbying the Ministry of Agriculture,
Fisheries and Forestry (MAFF) and the government more generally over the high
costs of labour and transport, the lack of extension officers in the coffee sector and other
regulatory and legislative issues (Laird 2). Timor Leste's new National
Parliament has yet to address issues on a district-specific basis, and coffee has not been the
subject of specific legislation.
The amount of coffee to be exported as
green bean from Timor Leste from the 2002 season falls somewhere between 7000
and 11,500 tonnes, on the basis of purchase, sales and projected sales figures
provided by buyers, processors and exporters. The value of those exports as an
amount returned to Timor Leste is an equally unsure figure, somewhere between
six and ten million dollars, again based on figures provided by exporters. No
data on volume and value of coffee export sales is held
at the MAFF. If data is held at the Ministry of Finance's Border Control office,
it is not available to the public. A report on the export of goods from Timor
Leste in 2001 available from the Economic Affairs and Statistics Division of the
Ministry of Finance values coffee exports for that year
at USD 2,902,000, or 75% of total exports, which, given the substantially higher
estimates for that season made elsewhere, calls into question the accuracy of
the official figures (EASD, Pomeroy, DAI 2).
Although there is an increasingly diverse array of buyers and exporters, which ultimately should work to the benefit of the producers, there are risks. Neither of the two largest buyers of coffee (who certainly bought more than 50% of coffee in the 2002 season), Timor Corp and CCT, are operating at a sustainable level. Timor Corp, a commercial operation, is running at a loss. CCT, a strange hybrid of a commercial operation and an aid project, will depend on considerable ongoing support from NCBA and funds from USAID for some time to come. If access to these funds or specialty markets are lost, the operation in its present form cannot run sustainably and growers may find their returns diminishing. Of course, however, if international coffee prices rise these companies may begin to become profitable and growers may also experience higher coffee incomes.
The MAFF has seven goals for the agricultural sector in Timor Leste :-
(Government of Timor
Leste)
Although the emphasis is on
food security the MAFF intends to improve overall agricultural efficiency by
promoting different crops and different kinds of agricultural production in the
regions to which they are best suited (da Cruz, Moxham). Within this context, coffee is relevant as the
primary cash crop in upland areas and the main export crop. The MAFF has
established a small coffee unit within the
Department of Forestry consisting of three to five staff with a small budget of
around $17,000 in 2002.
The Coffee Unit has a number of objectives :-
The first two of these tasks
are also being addressed through bilateral support from the Portuguese
agricultural mission, the third is an extension of work begun with bilateral
support from the Australian Agency for International Development (AusAID). Given
its limited resources, it will be difficult for the Coffee Unit to successfully
implement all these tasks (Amaral). Fernando Egidio Amaral, head of the Coffee Unit, identified a
lack of coordination across the sector as a major problem, stating that
stakeholders rarely contacted the department about their activities. On the
other hand, the coffee
section did not seem to be pro-actively working with stakeholders either. For
example, there is no plan for distribution of the information it is collecting
from the field (Amaral).
The department's attitude
towards assisting the coffee sector points towards
its coordination with other departmental activities, in particular
agro-forestry. Initiatives in this area are led by staff from the Portuguese
agricultural mission, whom consider the cultivation of coffee as an essential
component of the approach to a more sustainable future for Timor Leste's
environment. Led by Nuno Moreira, an agricultural extension officer, the
Portuguese agricultural mission is well-respected where it is known across the
coffee sector (Amaral,
Moreira, Laird).
The Portuguese agriculture
mission is employing agro-forestry as an important strategy combining
re-forestation and agriculture techniques which help to reduce soil erosion,
diversify production and promote environmental sustainability. The existing
forests in upland areas in Timor Leste are coffee plantations. These
are not burned off or cleared every year and are characterised by a high canopy
(shade trees) over coffee
bushes. The soils in these forests are thicker, retain water well and are far
more fertile than surrounding de-forested land. Agro-forestry is being
introduced using coffee
forests as a model.
A number of small communal coffee processing plants
(led by two, located at Umboi and Matata in Ermera district) have been made
available to growers on the condition that they receive coffee seedlings (of a
higher quality strain) to gradually replace their aging bushes, as well as
seedlings of a selection of new shade trees that have been identified as
suitable for their terrain. These include rosewood (which provides shade, is a
legume tree that improves soil fertility, and also produces commercially
valuable timber), fruit trees and sandalwood (a well-known and highly valued
species).
In addition, two major
nurseries and a series of peripheral nurseries at locations convenient to
growers have been established including some small-scale infrastructure
particularly for water management (small dams and irrigation systems). Further
research is also being conducted particularly at the higher altitudes and on
steeper slopes where water retention is worst, on how agro-forestry might be
established with coffee
as a central component. The mission has been able to succeed on a small scale,
working like an agricultural extension service and focusing on one or two
villages at a time. It is estimated that 200,000 seedlings will be distributed
and planted in 2002. This however is a far cry from the planting of 8
million seedlings the Portuguese colonial administration oversaw in 1916!
(Moreira, Moxham, Pomeroy).
The mission's impact is
limited by its size. Moreira hopes NGOs may be able to coordinate with the
activities of the mission to establish Fair Trade arrangements for those
villages that have adopted improved cultivation and processing techniques. He
has sold 400kg of coffee
in Portugal packaged within reed and bamboo containers made by womens groups in
coffee producing
villages, and says the groups are prepared to extend this activity (Moreira,
Laird). The project has enjoyed some success in working with unmarried and
widowed women, giving them responsibility for supervision of a number of its
smaller nurseries (Moreira).
AusAID has also provided some
support to the coffee
sector in Timor Leste. Recently, a report commissioned by the agency was
prepared detailing the extent of disease amongst the Paraserianthes/Albezia
shade trees that cover almost all coffee plantations. The
agency has also provided some literature in several languages and graphic
material to help growers understand the importance of providing quality coffee to market
(Old).
In addition, a Norwegian company, Morlands Coffee (a member of the European Specialty Coffee Association) are interested in establishing a national coffee institute (including quality control over plant material and cup tasting experts etc) in Dili. Morlands hosted an international specialty coffee conference in Norway in June which included representatives from Timor Leste. They are awaiting the results of a funding request to the Norwegian government and plan to organise a national coffee conference at the end of 2002. Morlands assessment of the coffee sector includes the following points :-
(Gum 5, Kramer)
International Coffee Prices (see also Section 8 below)
While the amount of coffee produced in Timor
Leste is insignificant in global terms, it is significant in Timor Leste, where
it represents the largest single source of income to many rural families and one
of the largest areas of employment in the country. The current crisis in world
coffee prices have caused
problems for Timor Leste's coffee producers, although
not to the same extent as elsewhere and amongst those who have made a
significant capital investment in their plantations (Baffoun, CFF). East
Timorese coffee
producers have had only limited opportunities to benefit from the higher
coffee prices of the past
and in general are characterised as low investment coffee gatherers. Indeed, if
the current global coffee
crisis forces many farmers throughout the world to leave the coffee sector, those
producers such as the average East Timorese producer who invests little in coffee production and has
few alternatives, maybe in a position to wait for and benefit from an
international price recovery (DAI 2).
Anecdotal evidence however
points to some social effects as a result of lower cash incomes brought about by
the global crisis, most disappointingly in the removal of children from school
because of inability to pay fees (Atkinson, Moxham 2). The extent of these
effects at present is difficult to gauge as although international prices have
declined over a long period, in Timor Leste, prices paid for cherry this year
have increased substantially compared to 2001.
In general, the coffee sector in Timor Leste
is not highly capitalised or under pressure to generate income returns at a
particular level to meet capital return requirements. However, if the
international coffee
crisis continues indefinitely, it will have an influential effect on strategies
to further develop the sector into a major viable export industry for the
nation.
Marketing of Timor Leste Coffee
Limited material is available
about the extent of the potential market for East Timorese coffee. Many commentators
note that Timor Leste coffee industry will be
protected from the worst effects of the global markets by focusing on specialty
coffee markets (premium,
organic, Fair Trade etc) capitalising on its current international high-profile.
Little research has been conducted into the potential extent of the specialty
market and there is no common international marketing strategy. The primary
issue here is the quality of Timor Leste coffee. At present, it does
not reach top international standards although there is potential. More
alarming, there is only limited understanding of the quality assessment
standards in the gourmet specialty markets (Kramer). This lack of understanding
exists throughout all levels of the coffee sector in Timor
Leste.
The primary buyer of Timor
Leste Fair Trade coffee
has been the Starbucks franchise based in the USA11 although some recent
small-scale initiatives have also been started with buyers in Japan. At present
CCT is certified as a Fairtrade organisation (since 2001) by the Fair Trade
Labelling Organisation (FLO), based in Germany. As a normal part of this
process, an inspection of CCT is planned, the results of which will be forwarded
to the Certification Committee which will decide whether the group remains
certified and on what conditions ( FLO 1). An inspector has been trained and the
inspection has been planned for September 2002 although the results of the
inspection will not be made publicly available (FLO 2). A previous analysis of
Fair Trade in coffee in
Timor Leste has however suggested that CCT would need to review its
organisational structure and procedures before meeting FLO certification
criteria (Baffoun). Loss of this certification may have serious consequences
with regard to prices paid to growers.
The future of the Fair Trade
market in Timor Leste is constrained by the same issues of quality and cost of
production as well issues of certification and the size of the market. Quality
of Fair Trade coffee has
been cited as a major constraint to expansion of the global Fair Trade market
(Starbucks) as has the cost of certification. The system for Fair Trade
certification is yet to be rationalised and applied in Timor Leste and it is
doubtful whether current sales to Fair Trade markets, which are already limited,
can be maintained without this in place.
In addition, the
international market for organic coffee, another source of
premiums for coffee
growers, is already saturated, and generally does not generate the premiums in
sales (around 5%) to match the costs in production and certification costs
(about $23,000/year for CCT Gum 1). All of CCTs produce is certified organic
coffee but in 2001 only a
quarter was marketed as such and able to attract the organic premium (DAI 1).
The issue of quality is also important here; low quality organic coffee will still receive a
low price reflecting the cup quality.
Market opportunities for East
Timorese coffee is also
limited by cost. The production costs for coffee in Timor Leste are
relatively high compared to other international producers (Baffoun). This
situation is compounded by use of the US dollar as the national currency. The
high production costs relate to labour compared to neighbouring Indonesia12
(Lao Hamutuk), transport and the poor state of infrastructure such as roads and
bridges etc. The use of US dollars also reduces the ability of the Government to
undertake currency devaluation as a strategy to make exports more attractive.
The National Development Plan notes that the combination of current wage levels
and the use of US dollars as the currency renders Timor Leste internationally
uncompetitive on price alone (Government of Timor Leste).
Biological Factors
Current international prices
are not the only threat to Timor Lestes coffee industry. The state
of coffee plantations in
Timor Leste is poor. The general lack of attention paid to plantations by
producers (to the extent that they are simply harvesters of wild cherry, rather
than growers) has lead to a number of problems for the sector. Lack of pruning
and re-planting has resulted in low yields, estimated between 100 to 200kg/ha,
compared with estimates of around 600kg/ha during the peak of the Portuguese
colonial period, and with yields as high as 2000kg/ha in parts of the world
where coffee is grown
intensively.
In addition, the lack of
attention to regular re-planting has resulted in aged coffee and shade trees
increasing vulnerability to disease. The rust disease currently affecting shade
trees in more than two-thirds of plantations is expected to accelerate and
result in widespread die-off which could wipe out virtually all the shade trees
in just a few years. This will negatively impact on coffee production through
invasion of weeds (through increased penetration of sunlight) and physical
damage from falling branches and collapsing trees. The latter will also
significantly increase hazards for passing traffic and workers within coffee forests (Old). There
are also unconfirmed reports of disease among coffee trees (Gum 5).
In particular, the age of the coffee bushes makes them
vulnerable to attacks of cherry borer, especially at lower altitudes (World
Bank, Kramer, Old, Moreira, Laird).
In short, all bushes and
shade trees should be replaced in as short a period as possible. This task is
made more difficult as most coffee is currently produced
on small holdings requiring mass mobilisation of producers. USAID has supplied
200,000 new shade trees to growers in 2002, and a World Bank survey has
suggested that most growers would replace their plant stock and shade trees over
a ten-year period if seedlings were available. Buyers who have made plant stock
available dispute this, saying that producers asked both to be paid for planting
the seedlings and to be compensated for lost income from removing old bushes.
This attitude perhaps reflects uncertainty of land tenure. Producers are not
assured ownership of the land they use making them less inclined to invest in
improving it. The Portuguese mission reports success in convincing producers to
replace aging bushes by concentrating on key community members (chefes do suco,
chefes aldeia, and priests) and by demonstrating how seedlings can be
incorporated into plantations by growing them in the shade of productive bushes.
However, they acknowledge that success followed many meetings and the 'smoking
of many cigarettes (Laird, World Bank, Lunny, Moreira).
Compounding the above issues,
the existing varieties of coffee trees in use and
currently being introduced is also subject to some debate. The absence of a
regulatory mechanism for introduction of plant material will in the long term
have a negative effect on overall quality of coffee produced (Kramer).
Coffee harvests in Timor
Leste are also vulnerable to weather patterns, in particular the El Nino effect.
The El Nino of 1997 and 1998 may have reduced the harvest by as much as half,
and the delayed rainy season at the end of 2001 has also been identified as a
cause of harvest shrinkage across the agricultural sector (Pomeroy, Lunny,
Cesar). It is widely expected the 2002/2003 wet season will be affected by El
Nino.
Information Sharing and Coordination
The issue of information and
access to information affects every stakeholder in the coffee sector extending from
the producer to the international buyers and the national policy makers. Much of
the existing information regarding the coffee sector in Timor Leste
is contradictory and not well shared which is compounded by the generally poor
level of coordination among the main stakeholders and absence of a forum for
constructive discussion. Across the entire sector the general lack of
communication and understanding of what others in the sector are doing results
in high levels of distrust between various stakeholders, in duplication of
efforts and in an inability to learn from other's successes and failures
resulting in missed opportunities to develop synergies. This situation is
exacerbated by the absence of a coordinating body.
A lot of knowledge is being
generated and not being distributed through the sector. The Portuguese mission
is conducting research into the suitability of different strains of coffee to different regions
of Timor Leste. Just as its experience can benefit others, others are able to
assist with the research by supporting its field experiments. The coffee unit within the MAFF
is creating knowledge about the location and productivity of different coffee plantations. It is
also tracking the spread of disease amongst shade trees. But no plans are in
place for the distribution of this knowledge. Different groups are working on
different media already, and in many cases duplicating the work others are
doing. For example, at least three groups (AusAID, TimorCorp and NCBA/CCT) have
prepared and are preparing documentation to assist growers to become more aware
of the importance of quality in the coffee they produce. A more
coordinated approach on their behalf will produce a more consistent
understanding of quality in the groups they are targeting.
The general level of
knowledge among coffee
producers regarding coffee cultivation and
processing techniques and marketing remains poor. More importantly a
demonstrated commitment on their behalf to put such knowledge into practice is
generally low. This may reflect uncertainty of tenure or a response to low
prices but more likely suggests deficiencies in extension systems. Groups
working in the coffee
sector who are reporting the most success in changing grower attitudes and
practices are those working most closely, even on a personal level, with the
growing communities and on a small scale. Often these groups are from NGOs and
have expertise in the development field, rather than the coffee field. Their efforts
however are highly localised reflecting the time consuming nature of their
approach to working with farmers. At the same time, many coffee experts are
experiencing great frustration in their efforts to communicate with growers.
There are obvious opportunities for development experts and coffee experts to benefit
from each others experience in order to build a more effective system of
agricultural/coffee
extension.
Much of the existing reports
on the Timor Leste coffee
sector emphasise technical issues and solutions without fully appreciating other
issues affecting producers. There is a tendency to see the coffee sector in isolation,
and not as part of a greater social, economic and agricultural system, resulting
in a distorted understanding. Perhaps one of the most common misunderstandings
is the widespread perception of 44,000 coffee producers as growers,
when they could be described more accurately as subsistence farmers who also
produce coffee. This
suggests that analysis of the coffee sector may require a
more multi-sectoral approach and analysis.
Within the existing
documentation of the coffee sector in Timor
Leste, there is almost no gender analysis and only limited social analysis.
Social changes resulting from producers receiving lump sum payments for their coffee sold as cherry
compared to gradual sale of parchment is reported to have occurred. Doubtless
other social changes are also underway. Groups like PWJ, with sociologists and
anthropologists amongst their expert staff, may be able to detect impending
social problems and be in a position to provide advice to the sector more
generally such as for the need for rural banking services. The absence of
adequate gender analysis is even more alarming given the importance of the role
women play within rural households in general but also the role they play in
harvesting, processing and sale of coffee and their involvement
as seasonal workers within the industry. Improved coordination and collaboration
by different organisations involved in the coffee sector including
sharing of relative expertise will provide the opportunity for more thorough
analysis of the issues facing the sector.
There is also great
opportunity to improve coordination between sectors. The World Bank provided
funding several years ago for a series of eight agricultural radio stations.
While this project has devolved into a series of community radio stations, the
location of some of their transmitters in coffee districts creates
potential for dispersal of information and feedback. This infrastructure is
being commissioned now, to be complete before the end of 2002. As yet, no links
between it and the coffee
sector have been established, despite the enormous overlap of community
interest.
Roads and Infrastructure
During the Indonesian period,
Timor Leste's roads enjoyed significant improvement, with the amount of paved
road increasing from effectively zero to around 4500km by the time of the
Indonesian departure. With independence, the new Government of Timor Leste has
acknowledged that maintenance of this wide network is beyond the capacity of the
present administration with its limited funds, and has set a target of
maintaining only around 1200km of roads between district centres in their
current condition (Aedy, World Bank). This will have serious implications for
the coffee sector as
roads extending beyond the primary link roads begin to deteriorate.
The viability of 'wet processing' depends on the rapid transit of cherry from plantation to factory. CCT depends on being able to collect cherry from growers at the roadside. If the trucks delivering to the four large factories belonging to CCT can no longer collect cherry from the roadside, CCT will no longer be able to 'wet process' that cherry. Much cherry is already transported some distance to the roadside collection point by pony or by hand. Many growers are already beyond the reach of the factory, and thus are limited to 'dry processing' their cherry (Laird, Atkinson, DAI 1). There is thus a strong link between infrastructure and production of quality coffee, indicating a need for improved communication between ministries such as MAFF and Public Works. Affected coffee producers and buyers may be able to generate an economic model that demonstrates to the government the economic viability of maintaining selected smaller roads, they may undertake road repairs themselves, or they may establish more smaller wet processing factories closer to the plantations.
Coffee represents an
estimated 90% of the annual cash income for as many as 25% of Timor Leste's
population. These subsistence farming families depend on this cash for many of
the things they cannot produce themselves: for clothes, tools, and for school
fees (World Bank, Pomeroy). This income for the average family in a good year
when coffee prices are as
depressed as they are currently, is equivalent to around two months salary at
the minimum wage level set by the government. While no coffee producing family is
likely to abandon immediately the easy income the coffee harvest represents,
this income is highly variable depending on the international coffee market. In order to
sustainably increase income to these farmers strategies such as diversification
of crops, small business activities or looking for off-farm employment maybe
more rewarding.
At least 350 people have
permanent employment in the coffee sector in 2002, and
the total could be far higher, perhaps even twice as high. The highest estimates
place the number of seasonal workers engaged in coffee production in excess
of 11,000 at the peak of the harvest season, though in reality this number may
be far fewer. In a country where unemployment is estimated as high as 90%
(although this estimate also includes subsistence farmers), the coffee sector remains one of
the nations largest employers (Pomeroy).
Coffee is currently the major source of export income for Timor Leste, estimated to be worth from 6 to 10 million dollars in 2002. However, it is expected that in the future, the contribution of coffee to national income will decrease as sectors such as tourism develop and income from Timor Sea oil and gas commence. To put this into perspective, for the 2002 fiscal year income from taxes and royalties from the Joint Petroleum Development Area is estimated to be $21m (Gum 6) and from 2005 is expected to climb to an estimated $3.2 billion in revenue over 17 years (Timor Sea Office). It is therefore helpful to see the coffee sectors real value within the context of a cash income to small-scale subsistence farmers and a source of seasonal employment.
The global situation for coffee is not pleasant
reading. On September 18th 2002, Oxfam International began an international
campaign to raise awareness and promote solutions to an international trade
crisis that is affecting international commodity prices in general but is best
illustrated by the coffee
industry. The following is an excerpt from Oxfams report on the international
coffee
crisis.
There is a crisis destroying
the livelihoods of 25 million coffee producers around the
world. The price of coffee has fallen by almost
50 per cent in the past three years to a 30-year low. Long-term prospects are
grim. Developing-country coffee farmers, mostly poor
smallholders, now sell their coffee beans for much less
than they cost to produce only 60 per cent of production costs in Viet Nams
Dak Lak Province, for example. Farmers sell at a heavy loss while branded coffee sells at a hefty
profit. The coffee crisis
has become a development disaster whose impacts will be felt for a long time.
Families dependent on the
money generated by coffee
are pulling their children, especially girls, out of school. They can no longer
afford basic medicines, and are cutting back on food. Beyond farming families,
coffee traders are going
out of business. National economies are suffering and some banks are collapsing.
Government funds are being squeezed dry, putting pressure on health and
education and forcing governments further into debt.
The coffee market is failing. It
is failing producers on small family farms for whom coffee used to make money.
It is failing local exporters and entrepreneurs who are going to the wall in the
face of fierce international competition. And it is failing governments that had
encouraged coffee
production to increase export earnings.
Ten years ago
producer-country exports captured one-third of the value of the coffee market. Today, they
capture less than ten per cent. Over the last five years the value of coffee exports has fallen by
US$4bn
The coffee market
will also, arguably, end up failing the giant coffee-processing
companies
The big four coffee roasters, Kraft,
Nestlé, Procter & Gamble, and Sara Lee, each have coffee brands worth US$1bn
or more in annual sales. Together with German giant Tchibo, they buy almost half
the worlds coffee beans
each year. Profit margins are high Nestlé has made an estimated 26 per cent
profit margin on instant coffee. Sara Lees coffee profits are estimated
to be nearly 17 per cent a very high figure compared with other food and drink
brands. If everyone in the supply chain were benefiting this would not matter.
As it is, with farmers getting a price that is below the costs of production,
the companies booming business is being paid for by some of the poorest people
in the world
Oxfam is calling for a Coffee Rescue Plan to make the coffee market work for the poor as well as the rich. The plan needs to bring together the major players in coffee to overcome the current crisis and create a more stable market. Within one year the Rescue Plan, under the auspices of the International Coffee Organisation (ICO), should result in:
The Rescue Plan should be a pilot for a longer-term Commodity Management Initiative to improve prices and provide alternative livelihoods for farmers. The outcomes should include:
(Oxfam
2)
Two factors are generally
credited with the slump in coffee prices. The first of
these is the collapse of the ICO following the withdrawal of support for the
International Coffee
Agreement14 (ICA) by the USA at the end of the Cold War. The ICA, had been
initiated by South American coffee producers several
decades earlier to prevent a price war that was escalating between Brazil and
other emerging South American coffee producers. As an
international organisation it had succeeded to an extent only exceeded by OPEC
in stabilising prices and setting quotas for production in most world markets.
The second factor is the greatly increased production capacity that emerged
following the end of the ICA, particularly in Vietnam (which had never been a
member of the ICO), where the government encouraged small farmers to switch to
coffee production. In
addition, major producers such as Brazil also increased production capacity
substantially.
Worldwide, the vast majority
(around 80%) of coffee is
produced by small hold farmers. Most of the rest is produced on privately-owned
plantations that employ local and seasonal labour. Many of the new producers
rushing to enter the market in the early 1990s obtained credit to establish
their plantations. With repayments due, these farmers were unable to stockpile
supplies when prices began to decline (and coffee loses its quality and
corresponding value when stockpiled anyway), creating a glut in the market, and
accelerating the decline in prices. With no alternative sources of income, and
having already endured a wait of three to five years to mature their coffee bushes, these new
producers are trapped in a buyer's market. At the same time, they have damaged
the livelihoods of many longer-standing growers, forcing down their incomes as
well. Before the price collapse, coffee was the second
highest in value traded commodity globally second only to oil (Brown,
Greenfield, Baffoun, La'o Hamutuk, Moxham).
While many see Fair Trade as
a strategy to address the global coffee crisis it is only one
of a number of potential solutions. The Chief Executive Officer of Starbucks has
noted that the international volume of certified Fair Trade coffee is limited but has
potential for tremendous growth, provided that quality standards are
maintained. He recommended more collaboration between Fair Trade organisations
and NGOs in order to improve the quality of coffee produced, expand
beyond just small cooperatives, simplify and reduce the cost of certification
and lastly to work more closely with industry
(Starbucks).
Although this study has
documented a diversity of opinions and perspectives with regard to the coffee sector in Timor
Leste, there is a general consensus on two issues. Firstly, the need for
improvements in the quality of coffee produced and
secondly, the inter-dependence of the producers, the buyers and the exporters on
each other. An important need for the sector is a more coordinated approach,
through greater communication between the stakeholders (producers, buyers,
exporters, NGOs, donors, Government, international buyers etc), greater
understanding of where the sector stands in relation to Timor Leste more
generally, and greater appreciation of the role that others play in relation to
the sector. The ultimate goal is to develop a sustainable and equitable coffee industry that
supports the livelihoods of men and women who produce coffee, are employed by the
sector and the businesses that trade in it.
A present, there a number of
major issues facing the coffee sector in Timor
Leste. There is a consequent need for ongoing international assistance
throughout the sector which at this stage will be required for an extended
period into the future. However, there exists already a number of promising
initiatives supported by a diverse range of organisations which are approaching
the sector from three general long term perspectives.
One long-term outlook is for
things to remain much as they are, with large numbers of rural subsistence
farming families engaging in coffee production. The main
distinction between this and the current situation is that in the future the
quality of coffee
produced by small producers will improve through new plant stock and improved
cultivation, processing and management practices. This in turn will lead to
improved marketing and sales of Timor Leste coffee resulting in improved
returns to the growers whose livelihoods are correspondingly improved. This is
similar to the outlook of the two largest coffee exporters, Timor Corp
and CCT.
Another long term outlook
sees coffee producers
diversifying their incomes by incorporating the cultivation of coffee into an integrated
farming system including the cultivation of other crops. This outlook is
centered around an agro-forestry approach which involves the gradual replacement
of the existing bi-cultural coffee plantations with more
diverse forests. This strategy would gradually extend coffee forests to rejuvenate
cleared and unproductive land in the highlands. Overall levels of coffee production would be
maintained or increased through new plant stock specifically identified as
suitable for particular areas, and through the extension of forests. In
addition, because growers are producing a more diverse range of products, they
would be less vulnerable to sudden downward trends in the global markets for any
of the commodities they produce. This is similar to the outlook presented in
particular by the Portuguese agricultural mission, and also that of the
MAFF.
A third long-term outlook is
for small groups to professionalise their approach to coffee production resulting
in higher quality through improved cultivation and processing techniques, use of
better plant material and improved organisation and management. These groups
will be able to provide consistent quality coffee under long term
contracts with international buyers (primarily fair and alternative trade
buyers) that return substantial benefits to the groups. A key strategy is to
develop links between the international buyers and producer groups. These groups
will transform their livelihoods from one of subsistence towards a more
commercial farming basis. This outlook has much in common with the activities of
NGOs working in the coffee
sector.
All of these long-term
outlooks could be put into effect in a ten-year timeframe. They are not
incompatible and indeed converge towards improved livelihoods for coffee producers and those
commercially involved in the coffee sector. However, the
likelihood of a successful outcome for any or all of these strategies would be
greatly increased by improved coordination and increased understanding and
appreciation of what others are doing in the sector. In order for a coordinated
and integrated approach to be adopted, the current low level of communication
between the major stakeholders in the sector must be addressed. This would not
involve major costs and could start with regular, informal meetings of
organisations working in coffee. These can be
extended to include seminars, to address particular topics, as a basis for media
products like radio and video programs, and for extension officers working most
directly with coffee
growing communities.
Between the farm gate and
retail outlet, from coffee cherry to roast, coffee is described and
valued in a confusing array of terms. The literature discussing the global coffee industry often slips
from valuing coffee in
one form to another without drawing attention to the change, and creating
confusion for the reader.
The coffee production process
begins with the coffee
cherry, which should be carefully picked directly from the bush when ripe (red
in colour). Depending on the processing technique used, coffee may then be sold in
an intermediate form known as parchment, which leaves the two green beans in
each cherry wrapped in two thin layers: parchment and an inside silver skin. A
kilogram of parchment can be produced from approximately five kilograms of
cherry.
However, the international
markets for coffee are
expressed in terms of green beans, the parts of the coffee cherry which are
included in the finished product - those parts which go into the roast. A
kilogram of green beans can be produced from as little as six kilograms of
cherry although decreasing quality in the beans corresponds to a higher ratio
(for example, CCT produced each kg of green bean from an average of between 7
and 8 kgs of cherry in 2002).
The two major international
markets for coffee are
New York for arabica coffee (where coffee prices are expressed
as pounds of green beans), and London for robusta coffee (where coffee prices are expressed
as tonnes of green beans). All of the quality coffee produced in the world
and most of the coffee
produced in Timor Leste is arabica.
Once the exporters have
passed their green bean over to the companies that roast and/or retail coffee, it takes on a
variety of forms before being sold to the consumer. Most of these forms are
weight-related, though there is no defined correspondence between the weight of
the retail product and the green bean from which it came. Some forms are related
to the volume of coffee
product produced (eg. a cup of coffee) or the type of coffee product (eg. a
cappucino).
The range of final uses for
coffee, and different
types of coffee products
brings two related factors other than quantity into coffee valuation: quality
and type. Related since a particular type of coffee in the international
market will often have a reputation for having a particular quality. Once
picked, coffee is usually
graded on a scale of one to four, from premium to reject, though more
complicated variations of the scale are also used. Quality is also dependent on
the processing the green bean has undergone, and the time that has lapsed since
it was processed. Type is associated with a particular taste or flavour inherent
to the coffee, which may
vary in popularity between different coffee drinkers, and with
the originating location of the coffee, which may, as it
does in the case of Timor Leste, generate a particular empathy with the
consumer.
The higher quality and more
popular tasting coffees will command a premium on the international market.
Premiums rarely exceed 20% of the market price, particularly when quality
related. They can however more than double the market price of particularly
sought after types. For example organic coffees generate premiums of between 5%
and 15%. However, already more organic coffee gets to market than
can be sold at an organic premium.
Most market analysts suggest that the market for speciality coffees (coffees of a particular type and of good quality) is growing and represents the best prospect for future interest in the sector, though no clear indication of the extent of the market is available. Good quality coffee is mostly likely to be sold at market price, that is, on or around the NY 'C for arabica. Coffee of less-than good (fair to average) quality is likely to be sold at a heavy discount. In an oversupplied market, low quality coffee is unlikely to find a sale at all.
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