Indonesia cocoa output seen flat at 600,000 T in 2011

JAKARTA, March 26, 2011 - Cocoa output in Indonesia, the world's third-largest cocoa producer, will be flat this year as increased output from new planting offsets the impact of heavy rains, the Indonesian Cocoa Association said on Friday.

Indonesia produced around 600,000 tonnes of cocoa last year, as extreme weather caused by La Nina hit the archipelago, and the association had forecast in January that heavy rains would cause output to be 5 percent lower in 2011.

"This year it will be about the same," Zulhefi Sikumbang, chairman of an association known as Askindo, told Reuters. "Because of the rainy season...about a 10 percent production drop, but we still have new planting coming."

Indonesia currently has 1.5 million hectares of cocoa plantations, mostly in Sulawesi island in eastern Indonesia, with an extra 10,000-20,000 hectares of additional production due this year, Sikumbang said.

The latest Askindo forecast is more positive than the London-based International Cocoa Organization's (ICCO) recent forecast that Indonesia's cocoa output may fall by an estimated 6.5 percent to 500,000 tonnes due to a pest attack and disease. 

Indonesian cocoa farmers have been battling the pod borer, worm-like creatures which eat cocoa beans, as well as the spread of fungal disease Vascular Streak Dieback.

Sikumbang said Indonesian producers need to invest in new farming techniques and to improve output, but said they have little access to capital and interest rates for loans were too high. Around 90 percent of the cocoa farmers are smallholders.

Becoming a member of the ICCO, which Indonesia will officially join in October 2012, would benefit the country with access to training for farmers, to help them take advantage of cocoa prices that hit a 32-year peak this month. 
 

Sikumbang sees average prices in 2011 at $3,000 a tonne, versus $3,203 per tonne in New York on Thursday.
 

However, Indonesian cocoa beans are known for their poor quality -- they are small and have a lot of waste, partly because they are not fermented, so need to be blended with other beans to produce cocoa powder. The main export markets are Malaysia, the United States and Brazil.
 

"We need support from the ICCO for the Indonesian product to enter the European market," Sikumbang said. "We hope the ICCO can help reduce the (EU) import levy for Indonesian product."

AXE TO GRIND
Southeast Asia's biggest economy introduced an export tax on cocoa beans last April, because it wanted to encourage domestic processing to produce higher value goods, though analysts have this is effectively a subsidy for the local grinder industry paid for by farmers.

The government hoped to give domestic grinders access to cheaper beans than international competitors, with the local beans' poor quality meaning they sell at a discount of about $420 a tonne to New York futures prices.
Local farmers get the same price if selling to grinders as for exports, Sikumbang said.
 

"This export tax is not a good idea," he said, adding it was taking away money that could be reinvested in plantations while the scheme had not significantly boosted local grinding.
 

Sikumbang said there are currently nine cocoa grinders in Indonesia with the capacity to grind about 250,000 tonnes, and despite the export tax, are currently processing just 170,000 tonnes. This figure is up from 125,000 tonnes before the export tax was introduced, he said.
 

Sikumbang said procedures used to calculate the export tax, due to rise to 15 percent in April from 10 percent this month, needed greater clarity and transparency, while the time between announcing changes in the tax and implementation was too short.
 

"The system of export tax -- how they calculate 15, 10 or 5 percent ... this is easy to manipulate," he said. 

"They should have invited us to the discussions on how to calculate the tax." ----