Clove Production Indonesia Plunges, but Price Remains Stable
Not only looming higher excise taxes plague Indonesia's clove farmers but also bad weather is drastically curbing clove production in 2017. I Ketut Budiman, Secretary General of the Indonesian Clove Farmers Association (APCI), said clove production may only reach 11,000 tons this year. This would be a disastrous harvest. Under normal circumstances Indonesia produces more than 100,000 tons of clove in one year.
Moreover, the price of clove is not rising significantly. Currently, the price for one kilogram of clove is IDR 100,000 (approx. USD $7.5). Budiman said the clove price would, ideally, be at least the IDR 120,000 per kilogram level.
A drastic plunge in production while prices remain stable suggests that there is no shortage of cloves in Indonesia. This situation is explained by the fact that Indonesia's tobacco manufacturers have plenty of clove reserves at their disposal and therefore demand for clove remains low. Budiman says cigarette producers now have clove reserves that last for at least two years.
The reason why these companies now safeguard ample clove reserves is their negative experiences in 2011 when there also occurred a sharp decline in local clove production. Back then companies held limited clove reserves and therefore were plagued by surging clove prices (reaching as high as IDR 300,000 per kilogram).
At the start of 2018 the Indonesian government is expected to raise the excise tax for tobacco products. According to Budiman this move will lead to declining demand for clove and therefore Indonesian clove farmers will face more difficulties. Moreover, if clove production is back at normal levels in 2018 then there should occur a big oversupply, pushing prices down further.
Budiman is concerned that this situation will have long-term effects because local clove farmers may decide to switch to other, more lucrative, crops. A side-effect could be that in the future Indonesian cigarette companies will need to import clove from abroad for the production of tobacco products. Currently, there are 500,000 hectares of clove plantations in Indonesia.