The Domestic Spirit of Innovation

KOMPAS/HENDRA A SETYAWAN

A coffee-processing machine is seen at the Indonesia Coffee and Cacao Research Center (Puslitkoka) workshop in Jember, East Java, on Thursday (11/1/2018). The machine was produced based on an order from coffee business players.

A million tales have been told about Nusantara’s coffee tradition. Now, those tales must be perfected with the use of technology. The third wave of coffee has arrived. Now is the time to galvanize domestic products through technology and innovation.

The third wave has led not only to the blossoming of a coffee-drinking culture everywhere. Various innovations have also emerged, including locally made coffee machines. The quality of the nation’s coffee is competitive, yet market penetration remains far below imported brands.

At first, Johny Rahadi could not have expected that the coffee roaster he created would someday attract the attention of a coffee shop owner based in Florida. At the time, Johny had just completed his latest coffee roaster, after three years of trial and error. He had made his first coffee roaster out of milk cans. He continued to perfect his design until he finally produced his latest coffee roaster.

After brewing the roasted coffee, the coffee shop owner was amazed by the result. The taste was so special: its sweetness and acidity were in perfect balance. This surely was the perfect roasting method.

At the time, the Floridian coffee shop owner offered to buy Johny’s coffee roaster for Rp 100 million (US$7,100). “I was shocked. The next day, a container came to transport the coffee roaster to Florida,” he said on Monday, May 14, reminiscing about the memory from a dozen or so years ago.

Visually, the roaster did not look as pretty as imported ones. Its façade was not smooth. “In terms of looks, it was not that good. I admit that I was beaten in that aspect, as ornaments are lacking in Indonesia,” he said. However, in terms functionality and durability, Johny said that his machine was comparable to even the most expensive, German-produced ones.

Johny said that he had difficulties in obtaining components on the local market. His best option is importing components from Taiwan. However, this increased production costs, as import duties have gotten higher.

As business owners in Singapore, Malaysia, the Philippines, Thailand and Europe became interested in his coffee roasters, regulations also obstructed exports. These regulations include domestic licensing, export permits and protectionist laws in importing countries.

Lack of funds

In South Pagar Alam, South Sumatra, a local coffee huller industry has grown over the course of the last century. However, don’t think you can find a stable economy in the region, as a lack of business funding remains a huge problem.

Limited funding makes it hard for coffee machine makers to purchase raw materials, despite the huge number of orders. Relying on banks is also not effective as loans are also limited. “Meanwhile, the regional government’s revolving fund is also minimal,” he said.

Arpani, owner of Utama Karya coffee huller factory, said he was always frustrated every time a big order came in. Production costs make up 60 percent of a machine’s selling price. For instance, a five-horsepower coffee huller is sold at Rp 4.2 million. The budget to purchase the engine, components and to pay workers is almost Rp 3 million per unit. If an order for 10 units comes in, he needs to prepare Rp 30 million.

Once Arpani received an order to produce 100 coffee hullers to be supplied to West Java and Central Java. The order was tempting but he did not have enough money. He filed for a bank loan but the process was not easy and the interest rate was too burdening.

Limited funding often forces coffee machine makers to be creative. Some try to find cheaper raw materials, even if this may lead to the final products being of a lower quality. Oftentimes, plates or other machine parts will break after only one or two years of usage.

Another problem is that buyers often slap their own brands onto the coffee machines. Local handymen produce the machines but buyers use their personal brands. “So, it’s as if [the buyers] claim that they make the machines when in fact we made them,” Arpani said.

Suing buyers would be out of the question. Apart from limited funds, Arpani has yet to patent his creation. Processing patent rights was not easy, he said.

Besemah Serasan sub-district head Verizal said that his administration could do little to help local businesspeople develop their businesses. Despite the evident economic impacts the coffee huller factories have brought to the region, development is difficult. A number of initiatives have emerged, including by involving big companies to hand out loans with no interest in a “foster company” scheme. However, this has yet to be implemented.

CV Karya Pagar Alam coffee huller factory owner Muladto said that a number of local craftspeople had a poor understanding of the market. They are too focused on Bengkulu, South Sumatra and Lampung. This is despite potential markets in northern Sumatra and Java.

Wings of innovation

Innovation has begun to emerge in the domestic coffee machine market. The Indonesian Coffee and Cacao Research Center (Puslitkoka) has around 300 types of machines, most of which are cheap coffee roasters.

A digital coffee roaster with a one-kilogram capacity is sold at Rp 21 million. This is far cheaper than a German-produced machine, which can go for up to Rp 100 million. “Even with cheaper price, rest assured that the machine itself is not of a lesser quality. We involve researchers to produce the machines,” Puslitkoka machine guarantor Kaswanto said.

The cheap prices of Puslitkoka machines have led to them being widely used by local farmers, some of whom have received training on how to use them. Obtaining spare parts is also easy. If the machines have problems, a team from Puslitkoka will repair it.

Kaswanto assured that all products had gone through tests. “Including physical and taste tests,” Kaswanto said. Machines will only be sold once they have passed every test. Machines that do not pass the tests will be repaired.

Innovation has continued as the coffee market has grown. The Office of the Coordinating Economic Minister’s book Arah Kebijakan Kopi Indonesia Menghadapi Tantangan Kompetisi, Perubahan Iklim dan Kondisi Kopi Dunia (Directions of Indonesia’s Coffee Policy Face the Challenges of Competition, Climate Change and the Global Coffee Condition) shows that Indonesia’s coffee consumption per capita was 1.05 kg in 2017. Coffee consumption continues to grow as the population grows and the coffee-drinking culture blossoms. Coffee consumption per capita is expected to reach 1.48 kg in 2023.

Indonesia currently has 5,338 coffee shops and is predicted to have 6,491 coffee shops in 2019 and 11,671 coffee shops – or even more – by 2025. This growth will have a huge domino effect for the coffee industry, as coffee consumption will also grow.

On the back of the huge potential of the coffee consumption market, the hope is that coffee machine use will also rise. However, several problems persist.

Indonesia is not the only country that produces cheap coffee machines. China is a strong competitor. Machines produced in China have penetrated the Indonesian markets at highly competitive prices.

On one prominent online marketplace, a Chinese manual espresso machine is priced at less than Rp 5 million. “With a price that cheap, we can make espresso beverages without having to pay too much,” Angkring coffee shop owner Dirman said in Malang.

The Office of the Coordinating Economic Minister has proposed fundraising as a funding solution to aid the development and innovation of processing technology. Funders and those in need of funding can be connected online. Such tech-based loan services are regulated by Financial Service Authority (OJK) regulation No. 77/2016. The regulation serves as a legal basis for healthy businesses that protect consumers and businesspeople alike. However, some training will also be necessary. This way, small businesspeople can hopefully grow faster.

It is the right time for the third wave of coffee to rise. It is time to stretch out our wings of innovation. Domestic products must be kings in their own land.

(COK/GER/NIT/RAM/ITA)