Timor-Leste’s Transition towards Specialty Coffee
Coffee is Timor-Leste’s biggest non-oil export, earning USD15-25 million (AUD21-35 million) annually and contributing to the livelihoods of approximately 35 per cent of the population. Timor-Leste is only a tiny player in the multibillion-dollar coffee industry, producing less than 0.1 per cent of global production.
The Timorese coffee industry is dynamic but faces productivity and quality challenges. Farm yields are among the lowest in the world, at less than 200kg of green bean per hectare (compared to the global average of 880kg1), a consequence of aging coffee trees and inadequate farm management.
Climate change is affecting yields and the consistency of production, as rainfall becomes more erratic and temperatures rise. The quality of coffee produced is generally low and historically has been sold as a low-value, low-price commodity. Farmers typically harvest unripe coffee cherries and processors use rudimentary methods that do not create sought-after flavour profiles. This limits returns to farmers and firms and provides no incentives for them to invest in improved farm management or processing.
Encouragingly, in recent years some champions have emerged that are producing and processing higher quality coffee.
The opportunity in specialty coffee
The global market for specialty coffee2 is growing at 12 per cent per year, outstripping the far larger commodity-grade coffee market. Consumers are willing to pay a premium for differentiated and high-quality coffee. Europe currently accounts for the largest share of the specialty coffee market at around 46.2 per cent, with an estimated market growth of 9 per cent by 2026. According to the United States National Coffee Association, in 2022 consumption of specialty coffee in the US was the highest on record and it is estimated that the Asia-Pacific region is the fastest-growing specialty coffee market.
Although Timor-Leste has traditionally exported commodity-grade coffee, it has the potential to transition to become a niche player in the specialty industry and turn its small size to its advantage. Timorese coffee has a unique flavour profile and compelling history, as the birthplace of the Timor Hybrid, a renowned species. Transition to specialty coffee could bring benefits to the economy of Timor-Leste. Cultivating specialty coffee generates higher incomes for farmers – a premium of up to 40 per cent. Higher returns for farmers and firms allows more investment in better practices, extension services, processing and storage, which increases productivity. Increased production, processing and exports of speciality coffee will create jobs and generate much-needed non-oil revenue. Over the longer term, as a small producer, Timor-Leste has better prospects of remaining competitive in speciality coffee than it does in commodity-grade coffee.
