The origins of civet coffee is closely connected with the history of coffee production in Indonesia. In the early 18th century the Dutch established coffee plantations cash - plants in their colonies in the East Indies islands of Java and Sumatra, including Arabica coffee introduced from Yemen.
During Cultuurstelsel era (1830-1870), the Netherlands banned the native farmers and plantation workers from picking coffee fruit for their own use. However, indigenous farmers want to have a taste of the famous coffee drinks. Soon, the natives learned that certain species of civet or luwak (Asian Palm Civet) consumed coffee fruits, yet they left the coffee seeds undigested in their droppings.
The natives who collected the dirt luwaks' coffee beans, then cleaned, roasted and ground them to make their own coffee drinks.The fame of aromatic civet coffee spread from locals to Dutch plantation owners and soon become their favorites, yet because of its rarity and unusual process, the civet coffee was expensive even during the colonial era.
source : http://en.wikipedia.org/wiki/Kopi_Luwak
