Coffee is a critical crop for East Timor, for three reasons: it is East Timor's most important export (at least until gas production begins in the Timor Gap); it is the most important source of cash income for a significant portion of East Timor's impoverished rural population; and coffee processing is an important source of seasonal employment. This chapter outlines the role of coffee in the East Timorese economy; the main characteristics of the world coffee market and their implications for East Timor; features of coffee production in East Timor; and key short-term and longer-term issues that will need to be addressed by government and industry participants in order to obtain the maximum benefits the coffee industry can provide to the people of East Timor.

THE ROLE OF COFFEE IN EAST TIMOR'S ECONOMY

Coffee brings good news and bad news for East Timor in 2001. The good news is that the trees are holding a bumper crop, with an estimated 10,000 metric tons of green beans waiting to be picked, processed and exported. The bad news is that international coffee prices are at a historic low: the New York ‘C’ contract price (to which most East Timor coffee prices are linked) is expected to average only $0.60/lb compared with last year's already low $1.00/lb. In calculating the value of the crop (Table 8.1), we assume that 30 per cent of this year's crop is wet-processed and will sell for an average premium of 12 cents on the market, and that 70 per cent of the crop is dry-processed and will sell at a 25 cent discount. We also assume that the crop is sold at an estimated New York ‘C’ price of $0.60 per pound and that 100 per cent of the crop is exported. Under these assumptions, the international value of coffee exports from East Timor could surpass $10 million. However, not all of this value will be added in East Timor because the New York ‘C’ price is a cost, insurance and freight (c.i.f.) price, delivered into licensed warehouses in North America and Europe.