Coffee is backbone of devastated East Timor's economy By DANIEL COONEY The Associated Press 7/9/00 12:31 PM

ERMERA, East Timor (AP) -- High in East Timor's hills, hundreds of poor farmers lead donkeys laden with sacks of freshly picked red coffee cherries down muddy tracks to a local factory.

On the ground, piles of green coffee beans dry in the tropical sun, as farmers squat in the dirt and haggle over the value of their harvest.

This pastoral scene in Southeast Asia may seem from a bygone era, but for the East Timorese, it's their best shot at economic self-sufficiency.

Soon after the independence ballot that led to East Timor's violent break from Indonesia last August, many observers had predicted the new nation might never sustain its own economy and remain reliant upon foreign aid.

Nearly a year later, East Timor's U.N. administrators are optimistic that the tiny half-island state may eventually have a chance at economic viability through its one cash crop: high quality, organically grown coffee.

After centuries of colonial misrule by Portugal and 25 years of corrupt and repressive Indonesian occupation, East Timor is one of the poorest parts of Southeast Asia.

Much of its infrastructure lies in ruins, destroyed by angry, pro-Indonesian militia gangs after last year's referendum supported independence.

Outside the capital, Dili, electricity and water supplies are sporadic at best. In the cities and towns, unemployment runs at about 80 percent. Gangs of youths roam the streets looking for ways to make money. Little foreign investment is coming in due to an uncertain political future and messy land disputes.

Yet the outlook for coffee is bright.

East Timor's coffee factories and crops weren't destroyed in the violence. Starbucks Corp., the U.S.-based coffee giant, already is one of East Timor's best clients, and there is hope the territory's beans will end up in many of the world's cappuccinos, lattes and espressos.

More broadly, the United Nations is drawing up an economic blueprint aimed at providing East Timor with a strong, albeit small, economy -- centered on coffee -- before pulling out in about two years.

Offshore oil and gas reserves, still relatively undeveloped, bring in about $5 million a year. That figure should multiply several times when new fields are tapped by 2003. East Timor is negotiating with its neighbor, Australia, to increase its share of royalties from oil projects.

U.N. economist Fermada Borges said the world body also is looking into a possibly lucrative fishing industry and has started to replant valuable sandalwood trees that once quilted the island's mountains and hills.

But the biggest cash crop should be coffee. The Portuguese established plantations in East Timor's highlands several centuries ago. With cheap labor and a thirsty coffee market, the industry thrived.

When Indonesia invaded in 1975, the military took control of the lucrative trade, but prices, processing standards and exports slumped.

The monopoly continued until 1994, when New York-born trader Sam Filiachi arrived. With a little political help from Washington and some seed capital from the U.S. Agency for International Development, he set up an export cooperative that loosened the Indonesia government's tight grip on the coffee business.

The price paid to farmers increased as the world snapped up East Timor's organically grown Arabica and Robusta beans. The smooth flavor and low acidity was an instant hit with coffee lovers and roasting companies seeking to soften their blends.

Seattle-based Starbucks buys much of East Timor's coffee exports, which increased with every harvest until last year's violence. Cooperative workers were beaten up, trucks hijacked, processing factories were forced to close and coffee stockpiles were looted.

This year also looks to be a tough one -- not due to a threat of violence, but a seven-year slump in world coffee prices stemming from a supply glut.

Filiachi said the slump will hit East Timor's farmers hard, but he is confident demand for the territory's high-quality beans will remain.

Starbucks, for its part, said through a spokesman that its commitment to high-quality coffee imports remains steadfast, though declining to specifically comment on East Timor.

"Coffee is going to be the backbone of East Timor's economy," Filiachi said. "There's a lot of potential for it to grow and it already employs about a quarter of the population."

Borges said East Timor's coffee, among the best in the world, may eventually bring in up to $50 million a year -- not bad considering the territory's gross domestic product was $113 million in 1999.

In East Timor's hills, farmer Jose dos Santos said he was proud to bring in the territory's first coffee harvest since independence.

"We will become strong with coffee," he said while holding up a handful of coffee cherries. "It's our coffee now, not the Portuguese or the Indonesians."

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