Indonesia Transforming Trade

Indonesia's Tea Board Chairman Rachmat Badruddin.

Indonesia’s Tea Board Chairman Rachmat Badruddin.

Neighboring Malaysia is Indonesia’s largest tea trading partner and growing while exports to the United States have declined in recent years.

The country is struggling in a weak global market to shift its offering from low-priced raw teas to more valuable processed and certified teas for export. In 2008, nearly 100% of Indonesian tea was sent overseas. Currently about 61% of the 130,000 metric tons produced there is shipped overseas. During the past decade US imports from Indonesia have fallen from 9,389 metric tons in 1995 to 3,734 metric tons in 2015.

Meanwhile, domestic demand is rising quickly at a time when fewer gardens are producing tea, making Indonesia a tea importer. Total farmland under tea has declined from 370,000 acres to 295,000 acres (150,000 hectares to 120,000 ha). Tea imports were less than 500 metric tons in 1999. Today the world’s seventh largest tea producer imports 25,000 metric tons annually to meet domestic demand.

“It’s ironic that the rising trend of premium tea consumption is not supported by the tea-processing industry here,” laments Tea Board Chairman Rachmat Badruddin. “Alas, most of our raw tea is still exported [only] to be processed abroad and imported back here again,” he told The Jakarta Post in November at Export Forum 2016.

International brands such as Sri Lanka-based Dilmah and Singapore-based TWG along with Chinese suppliers are what consumers see when shopping. Major export destinations include Russia, Australia, Germany, the U.S., U.K., Pakistan, Taiwan, and China.

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Workers at Indonesia’s Dewata Tea Estate.

Badruddin told the newspaper that only 39% of the 130,000 metric tons of tea produced in 2015 was processed in Indonesia, mainly for the mass market. Growers get better prices selling certified and specially processed teas to North America. Sales from exports declined to $128 million on falling volume compared to $171 million in 2009. Badruddin advised against importing tea types produced in abundance.

In 2015, only 6% of the 62,700 metric tons of tea sold overseas was processed to add value. Indonesia should consider increasing its 20% tariff on tea imported from non-ASEAN (Association of Southeast Asian Nations) countries, according to Badruddin. The ASEAN free trade agreement has encouraged imports by eliminating a 5% import duty on tea, he said.

Raw and minimally processed leaves are sold cheaply to Twinings, Dilmah, and Unilever by state-owned PTPN VIII, Indonesia’s largest tea planter. Last year, 90% of the 45,000 metric tons PTPN produced was exported, with only 10% bagged for sale by local brands including Walini. The government hopes to increase the garden’s value-added production to 40% by 2025.

Source: Indonesian Tea Board, The Jarkata Post