Subject: FEER/Dili: Coffee Smugglers Threaten E. Timor's Future

Far Eastern Economic Review

Issue cover-dated March 11, 2004

COFFEE

Bean-Counting

It's not traffickers of arms or gems, but coffee smugglers who threaten East Timor's future

By Mark Dodd/DILI

TWO OF EAST TIMOR'S biggest coffee buyers and processors say the quality of this year's harvest has shown a big improvement on past crops but widespread smuggling is jeopardizing the industry.

Since the country gained independence in 2001, its most important export earner remains beset with problems ranging from ageing trees and crumbling roads to rampant smuggling of semi-processed coffee to Indonesia. Kenny Lay, managing director of Timorcorp, reckons that as much as 40% of this year's coffee crop, which he estimates at 11,000 tonnes, has ended up in Indonesia for processing.

"The government has to stop this coffee from going across the border. They should have someone on guard to stop this," says Lay. He says he has raised the issue with the East Timor government, proposing that only traders with established factories in Dili be allowed to buy coffee directly from farmers.

Even if only a minnow in international coffee markets, East Timor depends on coffee: it is the country's most important agricultural export and provides income and work for an estimated 40,000 families. "We've lost, by my estimate this year, close to 40% of the total crop; last year it was about 30%," Lay says.

In the first 10 months of 2003, Timorcorp exported about 108 containers of coffee from Dili totalling around 2,000 tonnes of green bean. Lay's estimate of an 11,000-tonne total production figure is challenged by East Timor's other major coffee company, Café Cooperative Timor, or CCT, which says the figure is closer to 5,000-6,000 tonnes of green bean.

However, there is no dispute on the root cause of the smuggling racket facing East Timor's fledgling processing industry--high labour costs. The United Nations gave East Timor a dollarized economy to provide fiscal stability at a time when the Australian dollar and Indonesian rupiah were competing for supremacy and the only winners were blackmarket money traders.

According to Lay, the differential in processing costs has created a mini-industry with unscrupulous traders buying the semi-processed coffee direct from East Timorese farmers and then smuggling it across the border. He says much of the illicit coffee is ending up in the West Timor border town of Atambua where it is then shipped to Surabaya or Bali for processing as "Java Coffee."

A senior diplomatic source in Canberra agreed that smuggling was a major problem in East Timor and would only get worse once United Nations peacekeepers were pulled out. The REVIEW contacted the East Timorese government official responsible for coffee but he declined to comment.

Meanwhile there is some good news. Café Cooperative Timor, the country's biggest purchaser of unprocessed cherry, which is the common term for the fruit of the coffee tree, says it exported around 1,700 tonnes of green bean as of the first 10 months of 2003, half of which left Dili with a value-added organic certification.

"This year we're getting about double New York 'C' (coffee) for our organic," says CCT's senior-agricultural adviser, Alistair Laird. The average price is about 75 cents per pound.

"Next year we hope to be exporting 85% of our total as high-quality, organic-certified coffee," he adds. While smuggling and high labour costs were a problem, Laird added crumbling infrastructure to his list of woes.

"Roads are falling apart and there is no repair work going on," he says. "This is affecting the farmers because it makes it very difficult for us to get to them and bring the beans to market in Dili."

He says CCT has worked hard to improve coffee quality and was finally seeing a dividend due to investment in new processing equipment. Proof: "This year we bought 12,000 tonnes of cherry and we're looking at 18,000 tonnes next year because we've improved the capacity of our factories," says Laird.

But if the smuggling continues, so will the uphill struggle.


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