Subject: FEER: Ending military monopoly has revitalized E. Timor's coffee industry
Date: Sat, 20 Feb 1999 08:56:17 -0500
From: "John M. Miller" <>

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Far Eastern Economic Review February 18, 1999

*Ending military monopoly has revitalized E. Timor's coffee industry

East Timor might soon realize its dream of independence from Indonesia. But is it ready?

How ending a military monopoly has revitalized the key coffee industry, which has plenty of room to grow.

By Dan Murphy in Aifu, East Timor

Next time you grumble about paying too much for a cup of Starbucks' premium Java, consider this: The aromatic Arabica coffee beans that round off the flavour of your favourite brew probably had to be transported 40 kilometres over pitted, winding roads from the strife-torn Ermera highlands of East Timor to the provincial capital of Dili. On the heights of the Indonesian island, with just the right mixture of soil and climate, grows some of the best Arabica in the world.

Coffee is the former Portuguese colony's main crop and its biggest money-maker and employer. One-fifth of East Timor's population of 830,000 relies directly on coffee for its livelihood. This year, the coffee harvest is likely to yield 13,000 tons, nearly double the province's production in l998. Revenue from coffee could increase threefold to as much as $30 million -- not bad, considering the province's total GDP was $113 million last year. Industry officials further say production could easily triple within a decade.

That will help East Timor function as an independent economy, although relying on the coffee industry alone won't be enough. The boost in coffee income has pulled thousands of East Timorese above the poverty line, but people on the island (shared with West Timor) mostly still eke out a living. Indeed, however much coffee revenue might have perked up, East Timor's per-capita GDP -- $138 in 1997 -- remains low, dwarfed even by Indonesia's modest per-capita GDP of $335.

East Timor's coffee business began truly percolating only four years ago, when local farmers joined hands to form a processing and sales cooperative with the National Cooperative Business Association of the United States. The cooperative is managed in Indonesia by New York-born Sam Filiaci, and is bankrolled with a $7 million grant by the U.S. Agency for International Development.

Before 1995, coffee production had been in the tight grip of Denok, a company controlled by the Indonesian military and closely linked to former armed- forces chief Benny Murdani. All coffee-growers were forced to sell at low prices to Denok, which was granted a monopoly by the government. The company, which also was the largest coffee producer, was created with the seizure of a number of East Timor's largest Portuguese-era plantations following Indonesia's 1975 invasion.

Denok's monopoly started to unravel when the Dili massacre of 1991 brought the troubled territory under an international spotlight. American senators became aware of the coffee monopoly, and Washington used its clout with Jakarta to break Denok. The military then stepped back from the coffee industry and hasn't interfered in it since. Farmers were freed to sell their beans at the best price; most smallholders have opted to join the new cooperative, in some cases increasing their income fivefold. Given East Timor's uncertain political status, Starbucks, the main corporate buyer of the cooperative's coffee, doesn't like to publicize its involvement for fear of becoming embroiled in controversy with human-rights activists.

Denok's monopoly didn't do much for quality, since farmers often neglected their trees, neither pruning them nor treating them with chemicals. The post- harvest process was also ignored, which was catastrophic for the industry: Mishandling in the first 12 hours after harvesting leads to fermentation, which renders beans useless for any but the cheapest coffee blends. Exports flagged.

But the farmers' neglect had an unintended benefit. Because the trees had never been treated with pesticides or chemicals, the farmers were able to win "one of the fastest organic certifications in history," says Filiaci. That certification, plus the low-acid flavour of the bean, has translated into big dollars. Coffee roasters use East Timor's beans to smooth the acidic sharpness of their blends. As a result, the local coffee is 40% more expensive than the benchmark Arabica sold in New York.

East Timor's coffee industry could be further boosted by a big cut: One of the best ways to stimulate production is to prune the trees, which also makes them easier to harvest. That's a technique local farmers are only now beginning to learn. Mario Viegas Carrascalao, a former governor of East Timor whose family owns a 350-hectare coffee plantation -- the largest after Denok's -- estimates that better care of the trees could triple production. Some industry officials also believe up to 40,000 hectares could be turned into coffee plantations in addition to the 55,000 hectares already in production.

The biggest winners are the farmers. Manual Ximines, 32, can't believe his good fortune. The father of six moved out of a rickety hut last year into his own white concrete house. Once barely able to feed his family, he now can splurge on a jaunty red trim for his home. "It looks like it's going to be another good year," he says, casting an eye over his trees.

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