Written by Angga Dwiartama, Assistant Professor, Institut Teknologi Bandung
Indonesia exports 7% of world coffee production. The crop generates 0.6% of total Gross National Product and 17% of all agricultural exports from Indonesia.
In the past, farmers traditionally planted, harvested and processed arabica coffee beans, and sold these to collectors. The collectors would then deliver the coffee beans to a processing factory, before the green beans were exported or sold to domestic roasters.
Nowadays, roasters are driven to source coffee beans directly from farmers. They are also trying to improve the welfare of these mostly poor farming families.
This creates what we call “relationship coffee”.
Relationship coffee is the product of a relationship between coffee buyers (roasters) and farmers that usually involve personal interaction, trust and price transparency, as well as a commitment to quality improvement and farmers’ prosperity.
A roaster, with government and nongovernmental organisation (NGO) support, for example, builds a harvest processing unit to be managed by farmers.
However, our research found that these relationship coffee efforts, although done with good intentions, are not helping much in alleviating farmers’ poverty.
Our research, which was funded by the Australian Centre for International Agricultural Research (ACIAR) from 2008 to 2020, involved six case studies of specialty coffee production centres in North Sumatra, West Java, Bali, East Nusa Tenggara, and South Sulawesi.
Through this long and intensive interactive study with stakeholders in the coffee industry, we identified at least nine myths about coffee farmers believed by the government, NGOs and entrepreneurs.
Nine myths about coffee farmers
1. Increasing coffee income will always improve farmers’ living standards.
Coffee farmers do not just depend on coffee harvest income. More than 2 million farmers in Indonesia plant coffee as part of their livelihood, but very few only cultivate this crop.
Coffee is not always the main source of income for farmer households. The farmers’ living is frequently built on enterprise diversification (farming and non-farming) to reduce risk.
In cases that we found, increasing income from coffee was done by upgrading the production or quality (which affect price).
This require additional resources (funding, crop area or labour). Larger effort in coffee farming comes at the cost of the farmers’ other enterprises, so it does not always improve their living standard.
2. Producing quality coffee results in higher income.
This does not always happen because quality improvement involves higher costs and risks for farmers.
These includes labour costs for selective picking, routine cherry skin removal, bean selection, drying, and careful storage.
The selling price often fails to cover these additional costs.
3. Eliminating collectors will result in higher prices for farmers.
The view that collectors are exploitative is not always right. Often, the collector plays a role as an efficient logistics provider and quality supervisor.
These roles are always needed by farmers, farmers’ cooperatives, or downstream buyers.
When these roles are replaced by the farmers’ cooperative, inefficiency and bad management frequently lead to higher operational costs and lower prices for the farmers.
Further, collectors also have other roles, such as providers of loans and basic supplies, which can be hard to access for farmers.
4. Advanced coffee processing will always add value.
In general, arabica coffee processing includes peeling, fermentation, washing, drying, peeling the horns, cleaning and grading, roasting, grinding, and brewing drinks.
Although all of these steps are worth doing, farmers do not always see them as important because the steps take more time and money.
When these processing activities are carried out on a small scale, the costs often exceed the added value generated.
5. Limited capital is the main problem for coffee farmers.
Farmers may not have access to financial services, but farmers might not choose to invest in coffee even when they do have the access.
Households in rural Indonesia often view farming as part of livelihood diversification to reduce risk, instead of as a “business”.
For farmers, getting involved in financial services and being in debt can actually be counterproductive.
6. Coffee grown in certain areas has superior taste.
Certain areas have strong reputations as producers of high-quality coffee (such as Toraja in South Sulawesi or Gayo in Aceh). This is often connected to geographic conditions and local cultural practice.
It has triggered a strong interest in Geographical Indication (marking of product origin) in the coffee world, including from the Indonesian government.
But, in fact, quality is the result of a combination of the geographic environment and the post-harvest management system – with the latter factor being dominant.
7. Farmers’ cooperative is the best way to organise farmers.
One purpose of a cooperative is to strengthen farmers’ bargaining position.
But coffee prices in general are decided internationally by the world’s supplies and demands.
A local farmer cooperative will only have a stronger bargaining position if it operates as a farmer union and if its performance is monitored effectively – which has not been the case.
Globally, value chains are increasingly being driven by buyers.
Even in the context of developed countries with a strong cooperative tradition, the bargaining position of farmer cooperatives against retailers and large companies in the downstream industry (lead firms) is still weak.
8. Relationship coffee produces a better-quality coffee.
Cafe owners and roasters often assume they will get better-quality coffee by buying directly from farmers.
But a lot of specialty roasters are small businesses with limited turnovers.
This means they may not have enough funds to recruit experts on the supply chain.
Dealing with a buyer with limited funds, it is only logical for a farmer to “negotiate” by reducing cost and giving minimum quality.
9. The relationship between farmer and roaster is sustainable because of mutual interest.
Relationship coffee sustainability depends on customers’ and producers’ commitment.
Problem is, market pressures and unexpected challenges such as production obstacles, quality reduction, and bad weather can damage the trade relationship.
This happens because in the end roasters will be driven to seek profit in a competitive business.
Creating sustainable relations
Our study draws a complex relationship between coffee and rural development.
Although some farmers receive benefits in terms of price, knowledge and skills, in general, the impact on farmers’ livelihoods and rural growth are often inconsistent with the roasters’ and development agents’ claims.
What is the future of relationship coffee? Does this model offer a sustainable alternative for the upstream value chain and improve the welfare of small coffee farmers?
If roasters are serious about rural development, we recommend they think again about the above myths.
The key message here is that it is important to manage risks effectively and distribute them fairly towards involved actors.
The theoretical framework of “livelihood” can often help explain how certain interventions can succeed while others fail.
Although many stakeholders act in good faith in rural development, the assumption that coffee is the best way to get out of poverty is not always in line with local people’s life priorities.
Wiliam Reynold translated this article from Indonesian.