Commodity Watch Indonesia: Can Tea Exports Increase?
Business players believe that Indonesia's tea exports will rise at least 10 percent year-on-year (y/y) in the first half of 2017 on the back of rising global demand, although there have been obstacles in terms of tea exports to the European Union (EU). However, Indonesia Tea Council Treasurer Teguh Kustiono is optimistic that there are plenty of other countries - outside the EU - where demand for Indonesian tea grows.
Since 2015 Indonesian tea exports to the EU are obstructed by the EU's tough import regulations where the amount of anthraquinone content (within tea) is limited to 0.02 percent. Tests showed Indonesian tea has an anthraquinone content that exceeds this limit.
Problematically, Indonesian tea producers are confused why their tea contains a high amount of anthraquinone. This chemical may occur due to the bleaching of pulp during the paper production process. Previously it was suspected that the use of insecticides could explain the high level of anthraquinone but the Indonesia Tea Council says this assumption is incorrect.
This anthraquinone cap is only applied by the EU and therefore there remains plenty of opportunities for export growth to other (non-EU) nations. Besides the EU, Kustiono said the key tea export markets for Indonesia are Malaysia and the western part of Asia. However, currently the Middle East and the United States (USA) are also becoming attractive markets.
Still there is a tea oversupply on the world market and therefore prices have difficulty to rise. Kustiono added various domestic tea farmers are actually turning their tea plantations into plantations for other commodities due to the unattractive prices. This would imply Indonesia's tea production is set to decline further (a trend that is visible in the last decade).
Indonesia is expected to produce about 140,000 tons of tea this year, about half of which is shipped abroad. Global demand for black tea remains highest. However, the significance of green tea is rising.
Indonesian tea exports to the United States (USA) rose 33 percent (y/y) to USD $9 million in full-year 2016. About 78 percent of these shipments involve black tea and 19 percent green tea. The Indonesian Trade Promotion Center in Los Angeles added that US demand for Indonesian specialty tea is also on the rise.
Meanwhile, Indonesian tea exports to Pakistan fell from USD $12.4 million in 2015 to USD $4.9 million in 2016, a whopping 60.5 percent drop.
Declining tea production in Indonesia, the oversupply situation on the global market (causing weak tea prices), and the difficulty of importing tea into the EU are key reasons that caused weakening tea exports over the past couple of years. But, to end on a positive note, we may see a rebound this year.
Tea Export Indonesia:
| 2014 | 2015 | 2016 | |
| Tea Export (in US million) |
134 | 126 | 113 |
Source: Statistics Agency (BPS)