2012

Quality Equals Money in Indonesia

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BIt has been said by many in the coffee industry that if we can just improve the quality of the coffee, the farmer can get more money and improve their lot in life. The frustrating part is that so few in the industry have the ability to follow the money and really feel the impact. It leads one to wonder if it really works at all.

This question was answered definitively this week at the second specialty coffee auction of Indonesia. The results were dramatic. But some background will help put the success in perspective.

The Specialty Coffee Association of Indonesia (SCAI) has been in formation since 2009. Many organizations of this age are still floundering and trying to find their way. SCAI is a great exception as they have grown their membership to a self-sustaining level and receive AID money to help with quality programs in Indonesia as well as marketing Indonesian coffees. They are a small but energetic and efficient team dedicated to the improvement of coffee quality and producer livelihood.

Indonesia is a producer of both Arabica and Robusta coffees. In fact, they are the 3rd largest producing country when counting both varieties. To look at the improvement of coffee in this country you must examine what is happening in both types of coffee.

Robusta coffee is being treated like a commodity where volume is the goal and quality of the coffee has a fairly low bar. This is how Robusta is treated pretty much anywhere it is grown in the world. There are a few segmented lots and the result is outstanding. As you will see in the auction results below, if the quality of Robusta rises, so will the prices that roasters are willing to pay for it. Specialty is specialty regardless of the varietal.

Arabica coffee is incredibly diverse in Indonesia for a number of reasons. To get a feel for the situation let’s examine the growing and processing conditions. Indonesia is a series of Islands that stretch as wide as the United States. Each Island has microclimates, volcanic activity, and soil conditions that can be very different from each other. The farming technology varies from extremely sophisticated at the state run mega plantations to the koteka-wearing people of Papua trying to operate their new pulping machine. Often the time and distance the coffee has to travel from the farm to the exporter is hundreds of Kilometers and several days. As a result, coffee is partially dried and wet hulled along the way so it will not be a lost cause when it gets to a major city. Also, it has to travel through as many as six different transporters from the start of its journey to the end.

The question for Indonesia becomes this, How in the heck can you improve quality, educate the supply chain and make sure the farmer gets rewarded for their efforts? The answer has to be a comprehensive strategy. This is what SCAI is providing for their country. It comes down to Education, Marketing, and Reward.

SCAI knew that in order for the quality to rise, quality must be understood. It also needs to be communicated to consuming countries in a way that provides both marketing and feedback for the association and its members. So, step one was to engage Coffee Quality Institute (CQI) to provide Q-Grader and R-Grader classes in country. This has produced a group of people that are able to communicate fluently about the quality of coffee both amongst themselves and with the consuming world. In addition an  ‘education roadshow’ was provided to several very rural farmers to show how simple improvements increases quality and that they can be rewarded for it.

This effort has paid off for Indonesia. It paid off both in Arabica and Robusta. The auction of specialty lots brought record prices and validated the premise that Higher Quality = Higher Rewards. The following is an auction recap.

Over 60 lots were submitted to SCAI for consideration in the auction. About half did not pass either the green grading standard and/or the cupping standard of 82+ on the CQI grading scale. A selection of 24 samples made it to the auction in three categories: Robusta, Arabica, and Luwak processed.

Before the auction an international panel of judges from Indonesia, Australia, Korea, Taiwan, and The United States evaluated the lots. Under the leadership of Ted Lingle as the head judge the coffees were scored, ranked and the top were selected to be in a final round of twelve coffees to be re-evaluated by the panel. The top-top coffees were picked and ranked. The coffee was now ready for auction.

SCAI did run into a problem where the auctioneer they were planning on had to drop out at the last minute. Your humble author was asked to step in. (Speaking only for myself, I thought I did a damn good job!)

On auction day the C market for Arabica was $1.61/lb and the LIFFE price for Robusta was at $.94/lb.

The proof that quality pays is this: The top Robusta got $3.18 per pound! The top Arabica got $20.45 per pound! The Luwak got $45.45 per pound! The overall Arabica average was $5.11 per pound for the entire auction. If that is not proof that quality pays, it would be hard to say what is!

Perhaps even more impressive and important is that of the top 5 coffees, all were submitted by cooperatives. This means that the money is flowing back to the people that produce it. It is often frustrating as a consumer because you do not really know if the producer is being compensated for improved quality. In this auction they did! Also significant is that the top Arabica and the top Robusta were purchased by an Indonesian roaster and the coffee will be consumed in country! Indonesians have not had coffee this good to drink in, well, ever!

The other beautiful thing that happened at the auction is that the buyer and seller got to meet, shake hands, and even hug at the conclusion of bidding for each lot.

ONGOING QUALITY IMPROVEMENT:  It is now a week after the auction and there is a Q-Grader training in Jakarta. One of the students is a member of the cooperative that submitted the Arabica that garnered the second highest price at the auction. Another is the roaster  – retailer ‘my Kopi O!’ owned by Darma Santoso that purchased both the highest priced Arabica and the highest priced Robusta. Both are committed to understanding how to communicate about quality in the supply chain. With their efforts and all of the work being done by SCAI, quality in Indonesia will continue to improve, and the producers are certainly getting the benefit!

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