Far Eastern Economic Review

East Timor

Strong Brew

-- The premium customers are willing to pay for organic coffee provides this poor country a lifeline

By Mark Dodd/Dili

Issue cover-dated February 27, 2003

In the laboratory of Café Cooperative Timor (CCT), senior adviser Alistair Laird, a "cupping" expert, is applying a final quality-control test to assess the fragrance, aroma and taste of a range of samples of East Timor's finest organic certified arabica coffee beans. First he pours boiling water on fresh coffee grounds. Sniffing the steamy aroma, he takes a dessert spoon of the dark brew and slurps it noisily, rolling the liquid onto the back of his tongue to enhance the flavour before spitting the contents into a bucket.

"This is an A-grade Estadu, a blend from Ermera and Aifu sub-districts," he pronounces with satisfaction, adding: "I'm looking for good body and flavour and it has to be very, very consistent, no sour beans, no overfermentation."

Competition is keen and price a closely guarded secret among local traders. But Laird estimates the value of this consignment of 10 containers, holding some 200 tonnes of green bean, to be around $50,000 a container, and it has just been sold to a major United States trader, Royal Coffee. "We're still completing last year's coffee. We'll finish this month and we'll probably do 2,000 tonnes of premium grade organic certified arabica," he said.

But a dramatic fall in coffee prices, thanks in part to efficient new producers such as Vietnam, has seen local farmers chopping down coffee trees to sell as firewood. It also highlights another big problem in East Timor. Take a drive into the coffee heartland of Ermera and one can see acres of coffee trees growing on the side of the road, on the hilly slopes and steep gullies. But who owns them? The absence of land-ownership laws has left many of the old Portuguese estates abandoned. Land tenure among the thousands of smallholders is ill-defined, and that is hardly the kind of incentive needed to boost production and quality to benefit from a potentially lucrative market premium.

With annual sales forecast at around 2,000 tonnes, CCT is East Timor's biggest exporter of organic certified coffee. Consistent quality is the key to premium prices, Laird says. For A-grade mild-washed arabica, it's a certification that can attract as much as an 80% premium on top of the current New York "C" price-- a common coffee-industry benchmark--of 63 U.S. cents per pound.

In terms of global output, East Timor is a micro-midget whose share of world coffee production is about 0.00006% compared to 35% from Brazil, the world's biggest producer. But what East Timor does produce is a unique arabica variety that has secured high praise, not to mention a premium value in the niche- speciality coffee market. Although it shuns publicity, U.S. multinational Starbucks is a regular customer for organic certified East Timor arabica.

Coffee remains East Timor's most important export earner, worth on average $10 million per year, with approximately a quarter of the population or 200,000 people relying on the humble bean for a significant proportion of their annual income. But it is a fickle average. East Timor's output is particularly vulnerable to El Ni-o weather patterns, fluctuating from 4,500 tonnes in 1997 to 10,000 tonnes in 2001.

Until revenue from Timor Sea oil and gas begin to flow in 2004, coffee remains the most important source of income for the world's newest country that, with an annual per-capita GDP of less than $500, also happens to be Southeast Asia's poorest.

The coffee figures can be deceptive because not all the value is added in East Timor. The $10 million average annual value is based on the New York "C" price and is a cost, insurance and freight price delivered to warehouses in North America and Europe. That means the actual value of coffee purchased from East Timorese farmers is about half or $5.1 million for the 2001 crop, according to an industry report compiled by World Bank coffee consultant Jacqueline Pomeroy.

She estimates local transport and processing could add another $1.1 million to give a domestic free-on-board value of approximately $6.2 million, thus generating $155 for each of East Timor's 40,000 coffee-dependent families.

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