Indonesia Tea Smallholders

Bandung6 November 2014

Tea Plantations

West Java Province95,000 Ha

77%Other 10 Provinces

29,000 Ha23%

Location of the Indonesia Tea Plantation

With about 100,000 smallholders, the average land holding is only 0.6 ha per farmer.

Area and Ownership of Tea Plantations in Indonesia2010 - 2013

28,720 Ha

(22%)

37,250 Ha

(32%)

56,670 Ha

(46%)

Belongs to the Farmers

Privately owned

State-owned Enterprises

Deployment location of the tea garden owned by farmers (in ha)

Nearly half of Indonesian tea plantation owned by farmers (46%), but individual ownership is very low, averaging only 0.6 ha.

individually is difficult to be a profitable venture.

Tea estates owned by farmers, generally in bad condition, productivity is only 900 kg per hectare, while the border economical productivity is 2,500 kg/ha/year.

Production in Ton2010 - 2013

Tea estates owned by farmers, generally in bad condition, productivity is only 900 kg per hectare, while the border economical productivity is 2,500 kg/ha/year.

Smallholder sell its green leaf to the Bought Leaf Factories owned by individuals and partly to a processing plants owned by large estates.

Direct Sales only ± 8%

Smallholders : Linked to the Bought Leaf Factor

Generally, the transaction is not based contract, so farmers do not have certainty at any time in selling his green leaf, especially in season "plus" where abundant

green leaf that cause prices to go down.

In fact, a lot of bought leaf factories less attention to the quality of its products.

Unfortunately many farmers sell their green leaf to the factories like that, although the price is relatively low.

Smallholders: Connected to the value chain

Although the tea sector has a large number of small players, large companies, predominantly in the packing

part of the value chain, play a highly significant role.

The pricing structure

To establish fairer price for tea farmers Indonesia Tea Board is proposing:

Institutional strengthening to improve the bargaining position of farmers.

Issuance of formal regulations regarding the minimum quality of tea leaf.

The establishment of formula of tea leaf prices based on price at the Auction Center.

It is a fact situation, exporting its tea in bulk tea is priced for $2,-

and then the local consumers are paying equivalent of  $30 to $40

in value added forms.

While the smallholders, due to lack of capital, convert the land to vegetables, which

has no water holding capability.

Tea in Indonesia is not a prima-donna crop

It contributes less than 0.5% of foreign currency earning.

Having only 123,000 Ha nation wide, it’s negligible if compared to millions of Ha of palm oil or rubber.

At a steady rate of 3,000 Ha per year, conversion has taken place, shrinking the tea land area,

Tea plantations’ profitability is not attractive, unless somebody stands as a guarantor, Banks are generally reluctant to finance tea growers.

Considering the bullish market prediction due to a higher internal consumption in China and India fueled by higher buying power,

the smallholders problem in Indonesia may represent an opportunity since there is not much land area suitable for growing tea anymore.

we have started to draw the Government’s attention including the Province of the West Java Government where more than 75% of tea plantations is located in, to jointly remedy the tea situation.

With the idea of turning a threat into opportunity, with the above reasoning,

The low market price that happened during the last two decades had weakened the income of the tea growers, and the smallholder was hit hardest

Turning a threat into opportunity

We would like to invite ideas and draw experiences of the other producing countries based on their success in establishing strong smallholders’ organizations,

particularly the role and contribution of the Government and international institutions, to enrich our proposal; and vice versa, hopefully they can pick up something useful from ours.

Help from the CFC & Government

DTI received funding from CFC / FAO of USD.1.2 million for the rehabilitation and intensification for area of 787 hectares belonging to 1,000 farmers.

The results in the 2-year average farm productivity rose 21%, and the selling price of fresh leaf through quality improvement is also up 45%.

We are to position the CFC project mentioned as the seed for further smallholder development projects, to snowball to other areas. In 2014 the Government through the plantation Directorate General of

Plantation allocated funds for the improvement of farmers' tea gardens area of 3,200 ha of Rp. 50 billion in 8 regencies.

DTI will facilitate partnerships between farmers group beneficiaries, with the nearest plantation companies to conduct training and act as off-taker

2010 2011 2012 20130

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151,

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146,

591

145,

748

148,

671

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91

75,4

50

70,0

71

70,8

42

10,8

70

19,8

12

24,3

97

20,5

80

74,781

90,953100,073 98,409

Production Export ImportConsumption

Indonesian Tea Consumption

Consumption growth 10%/year

Tea consumption was up 10% per year Domestic demand is potential as per capita consumption is only 0.4 kg.

Loose Tea Package 50%

Tea Bags 35%

RTD Tea 15%

Black Tea69%

Green Tea31%

Indonesia Tea Consumption 98.409 Ton

To enhance bottom lines through the increase value-additions, the Indonesia Tea Board would open discussions and dialog to tap the

lucrative market of the said value addition tea in the international market jointly

Indonesia Downstream Tea Industry

Despite of the various reports say that tea is the most consumed liquid after water, the promotion budget for tea compared to soft-drink, is very small

The cost of promoting the brands should not be passed on and become an additional burden to the producers

Generic Promotion on Tea

Need to promote tea generically in an aggressive way, without depending to anybody is now more relevant than

ever

At the end of the day, this effort should improve the supply and demand equation and bring more compensating price level to the

tea farmers

National Agribusiness Rescue Movement( Gerakan Penyelamatan Agribisnis Teh Nasional /

GPATN )To address the current condition, the Indonesia Tea Board had launched a national movement to reverse it involving all stakeholders to improve quality and production and obtain compensating price, supported by regulatory improvements to establish a conducive business climate, and the smallholder group as the focal point.

Indonesia Tea Board as Coordinator

Movement to improve the productivity and quality of 57,000 ha plantation owned by farmers.Movement for effective promotion and marketing activities

Movement to improve the regulation to establish a conducive business climate

Better Welfare of Tea Producers, particularly the Small Tea Growers

The issues were mapped along the value chain.- Input price rises - Relatively lower productivity - Business

climate -- Finance mechanisms - Lack of opportunities for value added

activities – - Lack of market information - Various standards confusing for

producers -- Lack of farmer organisation - Lack of land title deeds

SHG formation is highly recommended as a basis for the establishment of farmer-owned enterprises, Cooperative as its legal form

Tea Farmer

s

FormingSelf Help Group

SHG)with an area of 10-50

ha

FormingCooperatives as Farmers Owned

Companies (BUMP)with an area of 300-500

ha

Partnerships with reputable Tea

Processing Unit as off-takers

Forming a new company with

potential investors

Alt.1

Alt.2

Farmers Owned CompaniesBadan usaha Milik Petani (BUMP)

To strenghen profitability of tea farmer, Indonesia Tea Bord is working to propose formation of Farmers Owned Companies in Cooperatives

FormingIndonesia Tea Incorporated

(PT. ITI)As Holding Company

Indonesia Tea Board would propose an exchange of comparative study with other countries to achieve the objective in improving the welfare of tea farmers.

Two tier industry :

Smallholders and Estates

Tea is a cheap

beverage

Will tea drinking

increase or decline ?

• Tea is a cheap beverage - average consumer not discerning, input price increasing.

• Value added not covered in country of origin.• Impact of climate change of the future supply of tea• Risks at producer end of chain, opportunities and power at other

end.• Opening up of new markets – worldwide tea consumption up 2% pa• Future of certification• Confusion of standards for both producers and consumers• Health benefits/dis-benefits: low calorie drink, caffeine product• Demand for traceability• Competition from food crops/biofuels

• Productivity of smallholders, including access to information• Institutional barriers: lack of civil society, land deeds, farmer

organization, infrastructure• Workforce issues: transient labor; labor shortages; living wage;

unions• Energy for tea processing – deforestation and reliance on eucalyptus• Pesticide use – which chemicals and how used• Monocroping – soil erosion, biodiversity loss• Role of government – willingness to act on issues such as water,

carbon, deforestation.

As a basis for setting the strategy of sustainable development of tea industry

Key Sustainability Issues

Terms of ReferenceStudy and document contribution of tea smallholder sub sector to the economy of each country viz.a.viz. tea industry as a whole over the last twenty years.Study and document the contribution of net income from tea to improvement in living standards of tea smallholders.

Collate information on profile of smallholders including extents under cultivation with size class categories, age profile of tea lands, yield levels etc.Collate demographic data on smallholders in each country.

Identify and assess roles played by related stakeholders in the value chain.Study and document available mechanisms for development of smallholders sector in each country.

Study and document existing challenges and issues in the smallholdings sector.Develop recommendations on the future road map for the sustenance of the sector.

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Who should be doing all these and its financing ?

Thank You

The ‘business as usual’ way of doing it will be bring the small tea growers toward the cliff, and is disastrous the economy of the tea producing in the developing countries categories.

The value chain distribution of margin has for so long been disadvantageous to the producers, it now has brought to a situation that if we fail to remedy the problem it may ruin the tea industry as a whole.

There is a strong positive efforts to remedy the situation involving not less than the FAO through the IGG on Tea to create harmony within the global tea industry to achieve a more acceptable margin distribution to enable the small tea growers particularly toward better prosperity.

There is no doubt, we need to realize the so far only in slogan to establish :

“The Socially acceptable, Environmentally sustainable, and Economically viable tea industry from field to cup.”

Was lively and we have come to a common platform of thoughts that to achieve the goal,

The smallholders should be able to sell their product direct to the consumers, particularly in the countries whose consumers sincerely would like to see that the small tea growers live better lives.

The WG meeting yesterday5 November 2014

We therefore would propose the followings to the meeting

Next page

The small tea growers in producing countries need to establish a forum to facilitate active communication. Proposed by the President of Indian Tea Confederation of Small Tea Growers (CISTA) to form a Confederation of International Small Tea Growers (Organization) initially as a platform of communication.

Formimg a Confederation

of International

Small Tea Growers

We therefore would propose the followings to the meeting.

To work with the established brands in the consuming countries to market showing a strong and visible logo of small tea growers in the producing countries. Alternatively, independently enter the market working together with the various Certification Bodies, Supermarket, Hotels, Restaurants, Communities, Social Clubs etc.

Establishing brands in the consuming countries

Establishing a road map

To work or appoint a strong international business consultant to establish a road map toward its achievement, involving institutions such as the World Bank, and media to promote it.

The Organization is open to big producers participation, and can chip in fund which later can be treated as equity. The same is also applicable to local packers or international.

The organization is

open to participation

Present: Sri Lanka, Kenya, Tanzania, Indonesia