Indonesia Tea Smallholders - Plantations, Ownership, and Challenges

Indonesia Tea Smallholders Bandung 6 November 2014

Location of the Indonesia Tea Plantation Location of the Indonesia Tea Plantation https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcRk3cdPVwmpr6V5wAwptkzLn_5tz8HKpiOczxUr4BXoq34pnsPo Tea Plantations West Java Province 95,000 Ha 77% Other 10 Provinces 29,000 Ha 23% http://www.rumahplastik.co.id/rp/gallery/slides/peta-indonesia.png

Area and Ownership of Tea Plantations in Indonesia 2010 - 2013 With about 100,000 smallholders, the average land holding is only 0.6 ha per farmer.

Deployment location of the tea garden Deployment location of the tea garden owned owned by farmers (in ha by farmers (in ha) ) Privately owned Belongs to the Farmers 28,720 Ha (22%) (22%) 56,670 Ha (46%) (46%) 37,250 Ha (32%) (32%) State-owned Enterprises 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 Ton Production in Ton 2010 2010 - - 2013 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.

Smallholders : Linked to the Bought Leaf Factor 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% 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.

Smallholders: Smallholders: C Connected onnected to the value to the value chain chain 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. 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 The pricing structure pricing structure 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. To establish To establish fairer fairer price for tea farmers Indonesia price for tea farmers Indonesia Tea Tea Board Board is is proposing 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.

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. While the smallholders, due to lack of capital, convert the land to vegetables, which has no water holding capability.

T Turning urning a threat into opportunity a threat into opportunity 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 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. With the idea of turning a threat into opportunity, with the above reasoning, 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. 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.

H Help elp from the from the CFC CFC & Government & 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

Indonesian Tea Consumption Indonesian Tea Consumption Tea consumption was up 10% per year Domestic demand is potential as per capita consumption is only 0.4 kg. Production Import Export Consumption 160,000 120,000 Consumption growth 10%/year 140,000 100,073 98,409 100,000 90,953 120,000 80,000 74,781 100,000 80,000 60,000 60,000 40,000 151,012 146,591 145,748 148,671 40,000 87,191 10,870 75,450 19,812 70,071 24,397 70,842 20,580 20,000 20,000 0 0 2010 2011 2012 2013

Indonesia Downstream Tea Industry Loose Tea Package 50% Indonesia Tea Consumption 98.409 Ton Tea Bags 35% Black Tea 69% Green Tea 31% https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcT1118RObK2KMGY97mmuUw_xxecbIPQkTKdnqKiGhpMh84CMrGqdA RTD Tea 15% 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

Generic Promotion on Tea Generic Promotion on Tea 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 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 National Agribusiness Rescue Movement ( Gerakan ( Gerakan Penyelamatan Agribisnis Teh Penyelamatan Agribisnis Teh Nasional / GPATN ) 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 and the smallholder group as the focal point. Movement to improve the productivity and quality of 57,000 ha plantation owned by farmers. Better Welfare of Tea Producers, particularly the Small Tea Growers Indonesia Tea Board as Coordinator Movement for effective promotion and marketing activities Movement to improve the regulation to establish a conducive business climate The issues were mapped along the value chain. 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

Farmers Owned Companies Farmers Owned Companies Badan usaha Milik Petani (BUMP) Badan usaha Milik Petani (BUMP) To strenghen profitability of tea farmer, Indonesia Tea Bord is working to propose formation of Farmers Owned Companies in Cooperatives Partnerships with reputable Tea Processing Unit as off-takers Forming Forming Cooperatives as Farmers Owned Companies (BUMP) with an area of 300-500 ha Tea Tea Self Help Group SHG) with an area of 10-50 ha Farmers Farmers Forming a new company with potential investors SHG formation is highly recommended as a basis for the establishment of farmer-owned enterprises, Cooperative as its legal form Forming Indonesia 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.

Key Sustainability Issues Key Sustainability Issues As a basis for setting the strategy of sustainable development of tea industry 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. Two tier industry : Smallholders and Estates 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. Tea is a cheap beverage 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 Will tea drinking increase or decline ?

Terms of Reference Study 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. 1 Study and document the contribution of net income from tea to improvement in living standards of tea smallholders. 2 Collate information on profile of smallholders including extents under cultivation with size class categories, age profile of tea lands, yield levels etc. 3 Collate demographic data on smallholders in each country. 4 Identify and assess roles played by related stakeholders in the value chain. 5 Study and document available mechanisms for development of smallholders sector in each country. 6 Study and document existing challenges and issues in the smallholdings sector. 7 Develop recommendations on the future road map for the sustenance of the sector. 8 Who should be doing all these and its financing ? Who should be doing all these and its financing ?

Thank You

There is no doubt, we need to realize the so far only in slogan to establish : There is no doubt, we need to realize the so far only in slogan to establish : The Socially acceptable, Environmentally sustainable, The Socially acceptable, Environmentally sustainable, and Economically viable tea industry from field to cup. and Economically viable tea industry from field to cup. 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.

The WG meeting yesterday 5 November 2014 Was lively and we have come to a common platform of thoughts that to achieve the goal, T The smallholders should be able to sell their product direct to the consumers, he smallholders should be able to sell their product direct to the consumers, particularly in the countries whose consumers sincerely would like to see that particularly in the countries whose consumers sincerely would like to see that the small tea growers live better lives. the small tea growers live better lives. We therefore would propose the followings to the meeting Next page

We therefore would propose the followings to the meeting. We therefore would propose the followings to the meeting. Formimg a Confederation of International Small Tea Growers 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. 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 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. Establishing a road map 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