The Dark Tunnel of the Tea Industry
The waning trend of the Indonesian tea industry is inseparable from the declining national tea production. National tea production has decreased and stagnated at around 150,000 tons since 2007.
The Indonesian tea industry is in a dark tunnel. Synergy and strategic policies for upstream and downstream improvements to resolve all prevalent issues are needed. Unless serious efforts are undertaken, the Indonesian tea industry is likely to become mere history.
It was indicated by Rohayanti, a tea expert from the estate research company PT Riset Perkebunan Nusantara (RPN) early this year. The waning trend of the Indonesian tea industry is inseparable from the declining national tea production. After reaching its peak in 2003 with a record of 169,821 tons, national tea production has decreased and stagnated at around 150,000 tons since 2007.
Even in 2012, national tea production only totaled about 143,000 tons. In 2015, the tea output was less than 140,000 tons, listing only 132,616 tons. However, the Agriculture Ministry was optimistic that Indonesian tea production could rise above 140,000 tons in the future. This optimism was realized in 2017 when national tea production exceeded 140,000 tons. But the amount again declined in 2018 with only 138,285 tons produced.
Obstacles
The tea industry has weakened due to several problems, ranging from the upstream to the downstream. The very significant upstream issue is the high extent of tea estate land conversion for other purposes. An example of this functional change is shown by the Jakarta-Bandung express train project. The infrastructure project built during the tenure of the Joko Widodo’s government has covered 1,270 hectares of tea plantations in the Mandalawangi Maswati tea estate zone in West Bandung regency.
Besides, tea estate land conversion has also resulted from the temptation of other more lucrative estate commodities. For instance, this happened to PTPN IV state estate company’s tea plantations in Bah Birung Ulu, Simalungun regency, North Sumatra. In 2004, 1,335 hectares of around 1,500 ha of tea plantations in Bah Birung Ulu were converted into oil palm estates. Only 13 percent or about 187 ha have been retained for tea. With this conversion trend, tea plantation areas continued to shrink during the period of 2001-2018 by 2.30 percent annually.
Apart from the increasingly reduced tea plantations through land conversion, the productivity of tea estates in Indonesia has also become less optimal due to a lack of rejuvenation of tea plants. In 2013, for example, 60 percent of tea estate areas were still covered with old and even damaged plants.
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This condition is worsened by the fact that most smallholder tea plantations have tea plant populations that fall short of the technical standard of at least 10,000 tea plants per hectare. In 2013, the majority of smallholder plantations only reached the density of around 6,500 tea plants per hectare.
The next problem in the tea industry involves tax. In 2014, the government applied a value added tax (PPN) on estates at a rate of 10 percent. The policy introduced along with the Decision of the Supreme Court No.70P/2013, which canceled Government Regulation No.31/2007 originally exempting strategic products from the PPN, imposes the tax on 4 estate commodities, which are coffee, tea, rubber and cacao.
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With the PPN, the prices offered are raised. While other countries’ commodity prices are unchanged, commodity prices in Indonesia will tend to be higher due to the PPN. At higher prices, commodity exports will decrease. The same also happens to coffee. Consequently, the price of Indonesian tea is even more uncompetitive. It implies that the taxation scheme doesn’t support the development of the Indonesian tea industry.
Still there’s a problem that constitutes a stumbling block to the growth of the Indonesian tea industry, just originating in society. With the Indonesian population totaling hundreds of millions, the tea market potential in Indonesia is in fact big.
Yet the vast market potential is not directly proportional to the Indonesian public’s tea consumption. Based on data from Statistics Indonesia, tea consumption in Indonesia in 2010 was 0.69 kilogram per capita a year. This rate later dropped to 0.18 kilogram/capita/year in 2015. Fortunately the figures improved in 2018, when tea consumption in Indonesia rose to 0.35 kilogram/capita/year.
The low public interest in tea products is also worsened by the erosive potential of other ready-to-serve drink variants. As monitored by the Association of Soft Drink Industries (ASRIM) in 2013, the market of these drinks in Indonesia was still controlled by the category of mineral water products in bulk water and packaged water forms, to the extents of 50 percent and 30.9 percent respectively.
Ready-to-Drink (RTD) Tea in packaged form ranked second at the rate of 6.8 percent. RTD Tea was followed by packaged RTD Juice and packaged RTD Carbonated, respectively scoring 3.7 percent and 3 percent.
A study from Hong Kong (2017) on the behavior of RTD product consumers in China showed that although in general all RTD products registered consumption increases, the battering from non-tea RTD products was predicted to erode the growth of tea consumption. So unless tea drink producers are on full alert, the same pattern is likely to affect Indonesian consumers.
The tea industry also faces a constraint from the international market, especially the European Union. In 2014, through the European Commission (EC) Regulation No.1146/2014 the European Union ruled that the tea imported to the region should have an anthraquinone (AQ) content of less than 0.02 percent.
This maximum residue level (MRL) requirement poses difficulty to Indonesian tea industrialists because nearly all Indonesian tea products have AQ grades of more than 0.02 percent. Only the tea products from PTPN VIII state estates can meet the condition set by the EC. With the application of the regulation, Indonesian tea certainly finds it harder to enter the European market.
Government attempt
The government attempt to rescue the national tea industry has been crystallized in Law No.18/2004 on plantations. Although it does not specifically deal with the tea industry, this law stipulates the course of the tea industry from the phase of estate planning to the stage of tea processing industry that turns out products with value added.
In specific terms, the law was formulated into technical guidelines for the development of tea plants at the end of 2013. Realizing that the national tea industry was waning year after year, the Indonesian government noticed that the process engaged in by planters, particularly smallholders, still had many drawbacks. Therefore, through the guidelines the Agriculture Ministry tried to stipulate technical standards to be followed by tea growers in Indonesia.
One of the technical standards fixed by the government is the total of 10,000 tea plants on a plot of one hectare. In order to fulfill the standard, the Agriculture Ministry has drawn up a smallholder tea rehabilitation program, in which smallholder estate owners are provided with tea seedlings, fertilizer, drugs and agents of biological control. In addition, the government also makes available wage payment aid to estate farmers following this program worth Rp754,000 per hectare.
The Indonesian government also has strived to penetrate the export market.
Lately, farmers as program participants have been included in training organized by provincial/regency offices. The training is conducted in two phases, the first lasting for 3 days for group dynamism and the second for 4 days for farmers’ institutional enhancement, covering cultivation techniques, post-harvest handling and marketing.
Not only fostering production, the Indonesian government also has strived to penetrate the export market. Through the Trade Ministry, the government negotiated with the European Union on the MRL policy. Sadly, the advocacy deputation under the title “Indonesia Tea Trade Mission” was still countered by the decision of the Directorate General for Health and Food Safety of the European Union.
The reason was that the AQ limit policy was applied to all countries or non-discriminatory in nature and laid down on the basis of scientific research by the European Food Safety Authority. According to this institution, AQ is a pesticide residue with a health hazard potential due to its carcinogenic property.
Nonetheless, the government still needs to make greater endeavors and issue strategic policies to save the national tea industry. The government should also seriously regard tea as a commodity. At least, tea has to be seen as a prized estate commodity complete with its road map and clear development framework.
According to a study by Liming and Wenling (2015) on the competitiveness of the tea industry in Fujian province, China, for the development of the tea industry the government should directly contribute to the industry by issuing a taxation policy that imposes no heavy burden on companies.
Besides, according to Shah (2016), the government should also carry out other interventions that can reduce the production costs of companies, among others by providing incentives to finance energy needs. Further, the government should create a mechanism of tea quality control so as to meet world market demand and qualifications.
In view of the above studies as a guide coupled with the situation in which the Indonesian tea industry remains stagnant, government efforts apparently are not yet optimal to awaken the tea industry. The presence of the tax is still deemed burdensome for business players in developing the tea industry.
Moreover, land expansion and intensification cannot yet resist the erosion by estate land conversion either. Even PTPNs as state-owned tea estate enterprises remain tempted to convert their plantations for other more profitable commodities.
KOMPAS RESEARCH & DEVELOPMENT DIVISION