Indonesia Coffee Sales Falling as World Cup Boosts Demand

Bloomberg - Yoga Rusmana and Eko Listiyorini  Feb 20, 2014

Coffee shipments from Indonesia may drop 17 percent this year to the lowest since 2011 as elections and the soccer World Cup raise local consumption to a record and rain cuts output in the third-biggest grower of robusta beans.

Sales may drop to 375,000 metric tons from 450,000 tons in 2013, according to the median of five exporter and roaster estimates compiled by Bloomberg. That’s the lowest in three years, Central Statistics Agency data show. Domestic demand will rise 7.5 percent from about 200,000 tons, compared with average growth of 5 percent annually in the past three years, the Association of Indonesian Coffee Exporters and Industry says.

Declining supplies of robusta beans, used by Nestle SA (NESN) in instant drinks, may extend a bull market in futures. More than 100 million voters in the third-largest democracy will elect a parliament in April before the presidential poll in July. Election campaigns usually boost consumption of everything from rice to sugar and coffee, says Oversea-Chinese Banking Corp. The World Cup will also expand demand, says the industry group.

“This is a political year where food and beverage demand typically gains,” said Hutama Sugandhi, chairman of the Indonesia Coffee Exporters’ Association. Contenders “will be holding meetings and gatherings and people will drink coffee.”

Futures entered a bull market in December, rebounding 37 percent to $1,957 a ton on NYSE Liffe in London yesterday from a three-year low in November on estimates of a global coffee shortage. Arabica beans, favored for specialty drinks by Starbucks Corp. (SBUX), rose 56 percent to $1.726 a pound on ICE Futures U.S. in New York this year.

Output Declines

Production in Indonesia may decline to 520,000 tons in the year starting April 1 from 600,000 tons a year earlier, the median of estimates from the five respondents and another exporter showed. That would be the lowest since 2011-2012, according to the U.S. Department of Agriculture. Domestic demand advanced in 2012-2013 to a record 2.67 million bags of 60 kilograms each or 160,200 tons, USDA data show.

“We do see private consumption remaining a key linchpin of the Indonesian growth story,” Wellian Wiranto, an economist at Singapore-based OCBC, said in an e-mail. Still, “we would likely see some impact from the higher interest rates,” he said, referring to the effect on household consumption which represents more than half of the economy.

The country grew at the slowest pace in four years in 2013 as the central bank embarked on a series of rate increases to shore up the rupiah and reduce a record current-account gap. Bank Indonesia will probably raise its reference rate by 50 basis points this year, according to Nomura Holdings Inc. The rate is 7.5 percent, the highest level since 2009.

Campaign Frenzy

“As various parties try to drum up support ahead of the many rounds of elections this year, it wouldn’t seem like a proper campaign-party atmosphere if there is no loud music, colorful T-shirts, and free food and beverages including cups of coffee,” said Wiranto.

Campaigning for July’s presidential vote will start in earnest following the legislative poll in April. Only parties with at least 20 percent of parliamentary seats, or 25 percent of total votes, are allowed to nominate a presidential candidate. Otherwise they must form coalitions to do so.

Demand will also increase during the World Cup in Brazil, said Pranoto Soenarto, head of specialty coffee at the exporters and industry group.

Soccer Boost

ANTV and its sister television station tvOne will broadcast all 64 games of the June 12-July 13 event in Brazil to about 190 million viewers, according to ANTV. The stations are free-to-air channels owned by PT Visi Media Asia. Sport’s most-watched event will kick off at 3 a.m. for fans in Jakarta.

“Soccer fans will be staying up overnight at home or at a cafe,” Pranoto said. “Wherever there’s a TV, people will watch the World Cup and drink coffee.”

Rising demand may benefit companies from PT Mayora Indah (MYOR), the maker of Torabika instant coffee and Kopiko candy, to Kapal Api Group, owner of Excelso coffee shops and maker of Good Day instant drinks. Mayora may see a 3.3 percent increase in net income this year, according to a Bloomberg survey.

Production may decline after rains and winds disrupted flowering in Lampung, Bengkulu and South Sumatra, the main growing regions, said Moelyono Soesilo, marketing manager at Semarang, Central Java-based trader PT Taman Delta Indonesia.

“Many people, including me, had expected that the harvest will be good,” said Soesilo. “When we conducted a crop survey in West Lampung last month, I was surprised to find lots of flowers and small cherries were knocked off the trees.”

Java and Sumatra received as much as 30 inches of rain in the past month, or 200 percent to 300 percent above averages, increasing the risk of crop disease, Donald Keeney, senior agricultural meteorologist at MDA Weather Services, said Feb. 5.

Global arabica and robusta supplies will probably trail usage by about 5 million bags in 2014-2015, Volcafe Ltd., the Winterthur, Switzerland-based coffee-trading unit of ED&F Man Holdings Ltd., said in a report last month.