Prominence, Trends, and Potential for Growth of Indonesia's Tea Industry

The Role of Tea in Indonesia's Economy: Production, Export, and Consumption Trends

Tea holds a significant position in Indonesia, ranking as the fifth largest commodity after palm oil, sugar, coffee, and rubber. Indonesia boasts the world's fifth-largest tea plantation area, covering 107.90 thousand hectares (ha), and ranks eighth globally in tea production, yielding 138.32 thousand tons in 2022. West Java dominates the national tea landscape, with the largest plantation area and production, accounting for substantial percentages nationally.

Tea in Indonesia is categorized based on ownership into State-Owned Large Plantation (PBN or PTPN), Private-Owned Large Plantation (PBS), and Community-Owned Plantation (PR).

Figure 1. Sector categories based on harvested owned-locations

Contrary to initial perceptions of declining tea exports and production, data from Statistics Indonesia (BPS) indicates an upswing in Indonesian tea exports. The government asserts that the country's tea export products align with global demand, particularly emphasizing black tea and green tea. Notably, black tea, excluding packaged leaves, dominated Indonesian tea exports in Jan-22, representing 83.69% of the total export value. In 2020, Indonesia held the position of the 13th largest tea exporter globally, with a value of USD 96.3 million. The country's tea exports contribute around 2% to the global tea trade, amounting to 129 thousand tons from a global total of 5.8 million tons.

Despite this, Indonesia has witnessed a decline in its tea industry, previously ranked in the Top 10 of international exporters. The 2020 Indonesian tea exports targeted 64 destination countries, with major recipients being Russia (17.78%) and Malaysia (16.38%). Other notable recipients included the United States (7.9%), Pakistan (5.79%), Taiwan, China (4.87%), China, Australia, Middle Eastern countries, and the European Union (EU). While BPS reports that domestic consumption absorbed 73% of national tea production in 2018, interviews suggest that despite Indonesia's significant tea production, it has not led to a proportional increase in domestic consumption or industry value.

Overview of Indonesia's Tea Plantation Trends During 2016 and 2020

From 2016 to 2020, Indonesia experienced a slight annual decrease of 0.19% in the planted area of tea. Notably, state enterprises saw an increase of about 4.31% annually, while private and smallholder farms faced declines of 5.22% and 0.58% per year, respectively. The geographical concentration of tea plantations in Indonesia is prominent in Java (87.47%) and Sumatra (12.53%), covering five provinces in each region. West Java holds the highest share of tea planted area at 77.65%, with Banten having the lowest share at 0.08%.

Figure 2. Distribution of Planting Tea Area in Indonesia

Indonesia boasts a substantial tea industry, with a total planted area reaching 112.60 thousand ha in 2020. This includes state-owned, private, and smallholder farms spread across various provinces such as West Sumatra, Banten, West Java, Central Java, Yogyakarta, and East Java. The cultivation of tea in Indonesia spans a diverse range of agricultural enterprises, contributing significantly to the country's agricultural landscape and economy.

The Economic Significance and Domestic Market Potential of Tea in Indonesia

Tea plays a significant role in Indonesia's economy, contributing to employment, farmers' income, and foreign exchange earnings while promoting agroindustry and environmental conservation. While a considerable portion of Indonesia's tea production is exported, there is also a growing domestic market, particularly in the beverage industry, where packaged and ready-to-serve tea drinks are gaining popularity, especially among young consumers. However, challenges such as uneven distribution of tea production and relatively high shipping costs from central producing areas have led to higher domestic tea prices compared to international averages. Despite this, domestic sales of processed tea products have shown promising growth, surpassing export revenues. There's potential for diversification and innovation in tea products to cater to evolving consumer preferences and increase domestic consumption.