Global Business Guide Indonesia

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Agriculture | Teatime in Indonesia

Tea in Indonesia is not just a popular drink widely enjoyed both hot and cold, but it is also one of the country’s main agricultural products and an important export commodity. The cultivation of tea in Indonesia dates back to the Dutch colonial era. The sector suffered from a lack of investment in the decades following independence, but by the mid-1980s exports had been revived. Despite falling back in recent years, Indonesia still ranks among the world’s top ten growers and exporters of tea. Rising costs are putting pressure on local producers, and some tea plantations have been converted for alternative use. Nevertheless the sector offers intriguing business opportunities, particularly with a view to selling on the home market.

Teatime in Indonesia
Despite falling back in recent years, Indonesia still ranks among the world’s top ten growers and exporters of tea

Overview of the industry

West Java, the traditional heartland of tea cultivation in Indonesia, still accounts for more than two thirds of national output. Central Java and various provinces in Sumatra contribute most of the remainder. Highland territories offer the best conditions for growing tea in Indonesia’s tropical climate, with fertile volcanic soil providing a natural advantage in many areas. The main product is black tea, followed by green tea. Indonesian oolong is less common, even though some brands fetch high prices abroad. High-grade tea is mostly exported, leaving what is generally inferior produce to be sold domestically at much lower rates. This could be about to change, however, as Indonesian consumers become more demanding and their incomes rise (See Overview of the Food & Beverage Sector).

Most of Indonesia’s large tea plantations are run by state-owned enterprises, which are the main suppliers to tea auctions in Jakarta and account for the bulk of exports. Major private growers include Kabepe Chakra and Gunung Slamat, part of the Rekso Group that manufactures various tea products. Some private firms excel at exporting premium teas and have developed renowned brands. While state-owned companies source most of their green leafs from their own plantations, private tea makers tend to buy a greater portion of their raw material from smallholder farmers, who generally have no processing facilities of their own. Consumer goods maker Unilever Indonesia acquires tea from state-owned and private plantations to produce a range of teas in Indonesia, including its Lipton brand.

National tea production has fallen over the past years in line with reduced cultivation. According to estimates from the Indonesian Tea Association, 2012 output amounted to 119,651 tonnes. Exports also declined, while imports reportedly surged by more than 400% over past 15 years, albeit at a low level. Local tea farmers and manufacturers view shipments from Vietnam and other low-cost countries as a threat to their sales and margins.

Tea production and Trade 


Planting area: The decline in national tea output over the past decade can be partly blamed on the shrinking overall planting area, as other crops and sprawling industrial and residential estates compete with tea for space. The Indonesian Tea Association has been quoted as saying that that the total land for plantation had decreased to 123,500 hectares in 2011 from 124,400 hectares in 2010, continuing a longer-term downward trend. While territorial constraints may limit the industry’s options for expansion in some regions, they alone cannot explain the entire decline in output.

Productivity and quality: The widespread use of old technology and poor farming methods means overall national tea productivity is not as good as it could be. Per-hectare yields in Indonesia are lower than in other major tea exporting countries, not least because many Indonesian smallholder growers lack the capital and expertise to optimize their operations. A large proportion of Indonesian tea plants are grown from seeds rather than from clones, resulting in lower yields or inferior quality. International organizations and tea producers have undertaken some measures to boost productivity by small-scale farmers, including through the provision of training and fertilizer, but more could be done. As Indonesian consumers become more demanding with regards to the quality of tea they consume, local growers and producers will need to raise the bar to defend their home turf against imports.

Labour costs: The tea business is very labour intensive, mainly due to an intricate harvesting process. Labour is by far the biggest cost factor in Indonesia’s tea industry, and it puts a strain on the country’s competitiveness. Rapidly increasing minimum wages in Indonesia are a concern particularly for exporters in the medium quality segment. Apart from labour costs, infrastructure inadequacies in many regions of the country pose a challenge, as they drive up the cost of getting tea from fields and processing facilities to retail outlets and auctions.

Coffee culture: Last but not least, the tea industry needs to adapt to changing consumer preferences, including the threat from coffee as a competing beverage. Urbanization and office employment are shaping the lifestyles particularly of middle and upper class consumers. While coffee has been around in Indonesia for centuries, just like tea, the many coffee chain outlets spreading in major cities stand testament to a new burgeoning coffee culture. The fad sees connoisseurs spending significant amounts of money on their coffee brand of choice, while tea is but an afterthought for many customers.


Coffee may actually point the way for tea producers, both foreign and local, to boost sales to Indonesia’s expanding middle class. The growing domestic market should prompt a gradual shift in the industry away from the heavy reliance on exports. Comprehensive branding and marketing strategies, dedicated outlets and campaigns that stress the health benefits of tea could all help tea producers carve out a greater share of Indonesia’s beverage market. Better branding and marketing as well as appealing packaging can also boost the competitiveness of Indonesian premium tea vis-à-vis products from India, Sri Lanka and Kenya. Upping the game on export markets and in the nascent domestic premium market reduces the burden of rising wages and other costs.

Experienced foreign investors could utilize their know-how to develop strong Indonesian brands and marketing. Partnering with local tea producers should ease market access. Supporting smallholder farmers and processors with equipment, seeds or training could enhance the quality of local produce and secure reliable supplies at predictable prices. In conjunction with green, organic or ethical trade certification, social media campaigns or even special tourism programmes, such partnerships could go a long way to boosting the image of Indonesian brands abroad.

While the UN’s Food and Agriculture Organization (FAO) expects total world tea consumption to rise by an annual 1.8% until 2021, green tea is forecast to grow at a much faster rate of 7.2%, making this a particularly attractive segment. In Indonesia, the upper end of the market appears to harbour much potential. Premium teas, ready-to-drink tea-based beverages and flavoured teas could be attractive starting points to reinvigorate Indonesians’ taste for tea.

Global Business Guide Indonesia - 2014

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Indonesia Agriculture Snapshot

Contribution to GDP: 13.70% (2016 including Fisheries & Livestock)
Number Employed in the Sector: 46 million (2016)
Main Products: Palm Oil, Palm Kernel, Rubber, Cocoa, Coffee, Tea, Tobacco, Rice, Sugarcane, Maize, Cassava, Tropical Fruits, Spices, Poultry, Fisheries.
Main Export Markets: China, USA, Japan, India, Singapore, Malaysia, Pakistan, South Korea, Italy, Netherlands, Bangladesh, Egypt.
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List imposes varying degrees of foreign ownership limitations in plantations depending on the crop type, and Government Regulation No. 98 of 2013 limits private plantations to 100,000 hectares.