Arabica Coffee Industry

(BKPM - Indonesia)

General Information

Bengkulu Province on the Island of Sumatra has been designated by the Government of Indonesia as a priority area for the development of Arabica coffee plantations. This is due to the fact that the highland soil in Bengkulu is very suitable for this type of coffee. We would therefore like to invite any interested investors to consider locating their Arabica coffee projects in this area.

The area proposed for development is in the Kabupaten Rejang Lebong, at an altitude of around 1,100 m above sea level. There are several main market access routes, namely via Lampung Province or South Sumatra for sea cargo and West Sumatra for airfreight.

The total area planned for conversion to coffee plantations is 4,500 ha, consisting of 1/3 nucleus area and 2/3 plasma area which can be developed in a partnership scheme with the existing smallholders in the area. The plantation project has prioritized the conversion of both not yet developed hillside and mountain terrain, as well as terrain which is presently is planted with Robusta crops.

The proposed processing industry project would produce roasted, soluble and instant coffee with a product capacity of 3000 tons per annum. Confectionery products are also an additional output with a proposed capacity of 200 tons per annum. The land allocated for value-added processing is estimated to occupy 5 ha of the total project area.

In general, the area proposed for this project has good infrastructure. Most roads are passable, although some sections need intensive maintenance. Electricity is available, and water supplies are abundant from local springs. Telecommunications services are available from both the government and private wireless network.

Market Prospect

Both export and domestic markets have strong prospects for Arabic coffee sales. When value added production is expanded to include soluble and instant coffee, the export market potential becomes even more attractive. The production output is estimated to reach 0.7 -1 tons/ha, somewhat higher than present average smallholder production.

Indonesia's national strategy is to increase the competitiveness of its coffee products in world markets. This strategy includes the adoption of new technologies, the enlargement of production areas, the provision of a secure long-term business climate, and intent to produce environmentally friendly products.

The coffee business is estimated to increase by 2.72% per annum through to year 2005. Domestic consumption is expected to increase by 1.65% per annum,while exports will increase by around 3.4% per annum.

Financial Information

The assumptions developed in the financial analysis are:

a. Land equity equal to US$ 150,000.
b. Nucleus planting (1,500 ha) including the seeds, input and labor during 2 (two) years: US$ 400/ha per annum.
c. Plasma planting (3,000 ha) including the seeds in labor during 2 (two) years: US$ 2,400,000.
d. Construction of main processing plant, storage facilities including purchasing and maintenance of equipment: US$ 650,000.
e. No purchasing of raw material required except 10% local price of average plasma production of 2,000 tons/annum.
f. Export product value: US$ 3,000/ton
g. Interest rate no more than 10% per annum. h. Annual depreciation for building and machinery: 8%.