El Niño and other extreme weather conditions drive up Indonesian coffee prices.

Excessive rainfall has led to the lowest coffee production levels in Indonesia in over a decade,Real-time foreign exchange market query driving global coffee prices to historic highs. Recently, droughts caused by the El Niño phenomenon could further weaken Indonesia's coffee output, the world's fourth-largest coffee producer.

Indonesia mainly produces Robusta coffee beans, which have a stronger and more bitter taste than Arabica beans. The decline in Indonesian coffee production may lead to further increases in the prices of coffee and related goods. Since the beginning of the year, Robusta coffee prices have risen by more than 40%, reaching a new all-time high in June due to extreme weather conditions.

Carlos Mera, Head of Agricultural Commodity Markets Research at Rabobank, stated that data indicates El Niño weather conditions could cause drought in Indonesia at the end of this year and the beginning of the next, potentially leading to a further decline in Indonesian coffee production in 2024 to 2025.

The Indonesian Meteorological Agency (BMKG) says that El Niño typically brings prolonged hot and dry weather to the country, currently affecting more than two-thirds of the regions, including parts of Java and Sumatra islands, which are Indonesia's main coffee-producing areas.

Last week, a US government meteorologist stated that the likelihood of El Niño occurring from December 2023 to February 2024 exceeds 95%, heightening the risk of heatwaves and floods in some countries and exacerbating concerns over the supply of coffee, crops, and other commodities.

According to the US Department of Agriculture, Indonesian coffee production for 2023 to 2024 is projected at 9.7 million bags, not only lower than the 11.85 million bags a year ago but also the lowest level since 2011 to 2012.

Although most Indonesian coffee plantations are rainfed, increased rainfall in the past few months on the islands of Sumatra and Java has led to decreased coffee production in these regions. A Robusta coffee grower at the southern end of Sumatra, Peratin Buchori, mentioned that excessive rain caused early flowering drop, resulting in a 30% decrease in this year's harvest compared to last year.

A coffee trader from Sumatra in an interview said that compared to last year, coffee beans have decreased by 25%, and the reduced supply has triggered panic buying in the last few months.

Indonesia's approximately 1.25 million hectares of coffee plantations are almost entirely cultivated by smallholder farmers. Despite government efforts to encourage reforestation, including providing coffee seedlings, fertilizer subsidies, and low-interest loans, official data shows that since 2018, only 2% of the coffee plantations have been replanted.

Muhammad Rizal, Director of Annual and Perennial Crops at the Indonesian Ministry of Agriculture, mentioned that the ministry is considering a new plan that would involve corporations to train local coffee growers and act as buyers for the coffee market. Rizal paralleled this plan with Indonesia's schemes for other top commodities like palm oil.

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