Page 201 - Contributed Paper Session (CPS) - Volume 7

CPS2058 Dewati W. et al.
In other coffee-producing countries such as Vietnam, there is a mitigation
of tax rules for home businesses and plantation commodities. Some tax
incentives that support the development of coffee exports are: 1) Exemption
from income tax for home businesses in agriculture, 2) Exemption of 5% VAT
for several plantation commodities, 3)2% subsidies of the increase in annual
export value to exporters, 4) Reduction of land tax for agricultural and
plantation companies up to 50%, 5) Irrigation costs are waived for farmers,
and 6) Reduction of purchase tax for input factors by 5% (fertilizers, pesticides,
plant medicines, etc.). Similar case with Brazil as it provides incentives in the
form of tax mitigation for coffee and guaranteed prices. Some of the incentives
provided are: 1) The final export tax of coffee is 2% to fund Funcafe - the
Coffee Economic Defense/development Fund in Brazil (3 cent/lbs), 2) It is
guaranteed to get a price of 85% from FOB, 3) Exemption of income tax and
VAT from coffee exports, 4) the reduction of import taxes on raw goods and
components is used for export products.
iii.Factors of Conditions, Rejuvenation and Replanting of Coffee
Increasing productivity of coffee can be realized through two things,
replanting and rejuvenation. Replanting coffee plantation land is intended to
replace old/unproductive plants aged over 20 years old with new plants.
Meanwhile, rejuvenation is a partial pruning of stems from coffee plants aged
10-20 years old to increase the productivity of existing trees. Rejuvenating
coffee plantations can increase productivity twice while replanting can
increase productivity three times the current productivity.
Replanting coffee plantations takes 2.5-3 years until the trees produce
optimally. Therefore, adequate funding is needed and crop diversification is
needed to maintain farmers’ income during replanting. Unlike palm oil,
currently there is no national program related to replanting coffee. Funding
that help replanting coffee is Special KUR (loans given by bank to businesses
that are feasible but not bankable yet) funds that provide grace period.
Simulations conducted on replanting coffee for both Robusta and Arabica
coffee showed results with a reasonable Internal Rate of Return (IRR). The
simulation results for replanting 1 hectare Robusta coffee land require funds
of Rp43 million to be financed through Special KUR. The IRR obtained by
15.7% is above the Sumatran investment interest in September 2018 which is
11.98%. Meanwhile, replanting Arabica coffee plantations yielded a much
higher IRR of 38.9%.
Furthermore, rejuvenation of coffee plantations has the potential to
increase land productivity up to 1.8 tons/ha from the current conditions of
only 0.7-0.8 tons/ha. The area of land that can be rejuvenated with coffee is
estimated to be 200 thousand ha. If this rejuvenation goes well, then farmers'
income is expected to increase by 12.8%/year for Arabica farmers and 13.5%
per year for Robusta farmers.

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