GCR May 2013

May/June 2013

BRAND POWER

Why GMCR isn’t afraid of expired patents

ETHIOPIA’S POTENTIAL

The birthplace of coffee advances

PRICE TRENDSETTERS How to make your own predictions

COLOMBIAN STAND-OFF

Are government subsidies a band-aid solution?

40 YEARS IN BUSINESS

Buencafé embraces a changing landscape

STRATEGY AROUND THE WORLD MARCO LAVAZZA ON THE ITALIAN ROASTER’S CAREFUL APPROACH TO EXPANDING THE FAMILY BUSINESS INTO A GLOBAL EMPIRE

www.globalcoffeereview.com 29.00

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CONTENTS May/June 2013

COVER STORY A CONSIDERED CONQUEST

10

Lavazza Vice President Marco Lavazza tells Global Coffee Review why developed markets are the company’s key areas for growth.

IN THIS ISSUE FEATURES 10 A CONSIDERED CONQUEST

Marco Lavazza on the company’s strategic approach to international expansion

17

IS IT TIME UP FOR K-CUP?

How GMCR’s brand has proved stronger than its patent

22 ETHIOPIA’S PRODUCTION POTENTIAL

The birthplace of coffee looks to expand its export figures

COFFEENOMICS

37 BUENCAFÉ: FOUR DECADES OF LEADERSHIP Buencafé celebrates 40 years in business

45 ON COLOMBIA’S STAND-OFF

The head of the FNC discusses the next steps from the coffee farmers’ strike

ORIGIN 41 IS THE HONDURAN COFFEE BOOM OVER?

Marco Lavazza

Lavazza Vice President

REGULARS

4 EDITOR’S NOTE 7

NEWS DRIP BY DRIP

52 GUEST COLUMNIST 54 DIARY DASHBOARD 56 MARKETPLACE 58 LAST WORD

48

How rust disease has hurt this Central American nation’s prospects

27 TRENDSETTERS FOR COFFEE PRICES

48 NORTHERN EXPOSURE

The top 10 factors to use in predicting coffee prices

China’s growing conditions are beginning to attract industry attention

INDUSTRY PROFILE

RESEARCH & TECHNOLOGY

33 SOUTHEAST ASIA – THE NEXT TARGET FOR GROWTH

58 THE SMELL-O-PHONE

Why suppliers are eyeing this emerging market

33

“WHEN A BRAND HAS A STRONG IMAGE AND REPUTATION, PEOPLE ARE HAPPY TO CONTINUE TO PAY MORE FOR THAT BRAND.”

The coffee industry has paired up with academia to create a smell transmitting device

41 MAY/JUNE 2013 | GCR

3

EDITOR’S NOTE Global Coffee Review

PUBLISHER John Murphy john.murphy@primecreative.com.au EDITOR Christine Grimard christine.grimard@primecreative.com.au



ACTING EDITOR Nick Sheridan nick.sheridan@primecreative.com.au ASSISTANT EDITOR Sarah Baker sarah.baker@primecreative.com.au

POWER OF THE BRAND

Since the advent of media and mass communications, branding has served as a powerful tool in the commercial realm.

Wherever two products or services compete, branding and advertising have been the leading tools in helping customers make purchasing decisions.

The modern media landscape has led to an overload of information available to the average consumer, arguably increasing the need for a strong brand presence to communicate in the market.

The coffee industry has not been spared.

With the origins of coffee still relatively unknown by the average consumer, the vast majority of customers continue to make both their retail and out-of-home coffee purchasing decisions by brand name.

The most savvy consumers will choose by country or recognised varietal; also the result of branding efforts by national coffee organisations, farming estates, and green bean traders.

For this edition’s cover story, Marco Lavazza discusses the importance of the brand that is his family’s name (see page 10).

In the company’s international expansion, Lavazza demonstrates that one brand should be communicated in different media, depending on the market. The company’s coffee chain strategy in the UK is a sharp contrast to its investment in single-serve machines in the US, and reflective of the trends dominant in each market.

Lavazza’s partner Green Mountain Coffee Roasters (GMCR) recently witnessed the biggest test of its Keurig brand. When

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G C R | M AY /J U N E 2 0 1 3

ART DIRECTOR Joel Parke DESIGN Blake Storey, Alice Ewen, Karen Sloane, Michelle Weston, Sarah Doyle

its patent expired last year, the market risked being flooded with competing coffee capsules for its single-serve system (see page 17). Fortunately, a strong brand proved a more powerful commercial tool than any patent could provide.

The potential of the brand doesn’t stop at the roaster. Chairman Dang Le Nguyen Vu of Trung Nguyen coffee points out that brands must be used at the origin level, to help lift the value of green coffee beans (see page 52).

The strategy has been successful among select countries with organised coffee boards, with Colombia an outstanding example. Vu echoes common industry sentiment that through strong branding, coffee can be thought of less as a commodity, and more as a valuable product, and no longer be prey to price fluctuations from market forces.

And so it is, that the power of the brand can work beyond the profit sheets of roasters in developed nations, and help alleviate the imbalance of poverty among coffee growing nations.

BUSINESS DEVELOPMENT MANAGER Steve Roberts steve.roberts@primecreative.com.au GROUP SALES MANAGER Brad Buchanan brad.buchanan@primecreative.com.au PRODUCTION COORDINATOR Michelle Weston michelle.weston@primecreative.com.au ADMINISTRATION MANAGER Hayley Richert hayley.richert@primecreative.com.au PHOTOGRAPHY Blake Storey Pham Thi Diep Giang Maja Wallengren CONTRIBUTORS Maja Wallengren Carla Wells ST Leng HEAD OFFICE Prime Creative Pty Ltd 11-15 Buckhurst Street South Melbourne VIC 3205 Australia p: +61 3 9690 8766 f: +61 3 9682 0044 enquiries@primecreative.com.au www.globalcoffeereview.com SUBSCRIPTIONS +61 3 9690 8766 subscriptions@primecreative.com.au

Global Coffee Review Magazine is available by subscription from the publisher. The rights of refusal are reserved by the publisher.

ARTICLES

All articles submitted for publication become the property of the publisher. The Editor reserves the right to adjust any article to conform with the magazine format.

COPYRIGHT

Christine Grimard Editor

Global Coffee Review is owned by Prime Creative Media. All material is copyright and no part may be reproduced or copied in any form or by any means (graphic, electronic or mechanical including information and retrieval systems) without written permission of the publisher. While every effort has been made to ensure the accuracy of information Prime Creative Media will not accept responsibility for errors or omissions or for any consequences arising from reliance on information published. The opinions expressed in Global Coffee Review are not necessarily the opinions of, or endorsed by the publisher unless otherwise stated.

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NEWS In Brief

NEWS DRIPBYDRIP 

Lavazza is looking to increase its share of foreign sales from 40 to 60 per cent of its total revenue.

In 2012, the Italian coffee roaster’s annual revenue hit around US$1.7 billion. Lavazza is looking to increase those figures through different strategies across markets. In the United Kingdom, Lavazza partnered with Catalyst Retail, who will be responsible for selecting venues, with five openings already planned, and 50 in the next two years. In the United States, Lavazza is working with single-serve giants Green Mountain Coffee Roasters (GMCR), launching an espresso single-serve machine for the US market. Lavazza currently owns 7.5 per cent of GMCR. See interview with Vice President Marco Lavazza page 10.

Bad economic news in the Eurozone and the United States can be partly attributed for pulling down world coffee prices.

The monthly average in March this year was 21.7 per cent lower than the same time last year, according to the International Coffee Organisation (ICO) composite price.

In a special report on coffee price trendsetters (see page 27) Global Coffee Review identifies the top 10 factors that should be considered when predicting the movement of coffee prices. Macroeconomic factors, such as poor global economic sentiment following on from the Eurozone crisis and the US fiscal downturn, weigh just as heavily if not more so than fundamentals of supply and demand.

The Ophone, a new device that

can break down the smell of coffee to be transmitted and reproduced, will be demonstrated at Le Laboratoire in Paris from 17 May to 15 September.

The device was developed by Harvard Professor and Founder of Le Laboratoire David Edwards in partnership with Master Perfumer Olivier Pescheux from Givaudan, Toby’s Estate Sensory and Quality Manager Ryan Spinoglio and artist Carsten Nicolai. The device will allow the transfer of smells across the globe, as the world’s first smell transmitting device. See page 58.

AMERICAS



EUROPE

Green Mountain Coffee Roasters (GMCR) witnessed the expiry of its primary patents for the Keurig K-Cup system in September 2012.

The company nevertheless sold 4.95 million Keurig branded brewers over 13 weeks leading up to the most recent Christmas period. The

company made another US$800 million from the sale of single-serve packs.

Suzanne DuLong, VP of IR & Corporate Communications, tells Global Coffee Review that brand appeal will help protect GMCR’s market share more than patents. See story page 17.

Leading producers of freeze-dried soluble coffee Buencafé celebrates its 40th anniversary this year.

The company was founded in Chinchiná, and today has grown more than 600 per cent, from producing 1800 tonnes of coffee in its first year to 11,000 tonnes today.

Buencafé Director Constanza Mejía tells Global Coffee Review that the industry has changed remarkably during its years of operation, with a 20 per cent growth of supply and just 4 – 5 per cent growth in demand. Buencafé has stayed ahead by changing from offering a single

50

The number of coffee shops Lavazza’s partner plans to open in the UK over the next two years.

See page 10.

MAY/JUNE 2013 | GCR

7

NEWS In Brief

Coffee production in Honduras is expected to drop by almost 1 million bags in the 2012-13 crop year, due to production losses from rust disease.

The Central American nation has seen production increase substantially in the last decade, thanks to government financing in annual replanting, increase in tree density, and new areas. While some analysts predicted the country could produce 6.5 million bags of coffee, rust disease has seen the end of that level of prediction. A handful of private companies, including Sustainable Harvest, Green Mountain Coffee Roasters, Café Moto, Café Mystique, Dillanos, and The Coffee Trust foundations have announced projects to help Honduras recover from the recent rust outbreak. See page 41.

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G C R | MAY/JUNE 2013

AFRICA

From 2007 – 2011, Southeast Asia’s total trade in coffee rose by 14.2 per cent annually, to US$6 billion.

Growing interest in the region was expressed at the recently launched International Coffee & Tea Industry Expo in Singapore on 14 March.

Industry experts say that Indonesia, Thailand, Singapore, Malaysia, the Philippines and Vietnam all present unique challenges and opportunity for equipment manufacturers and traders.

The inaugural expo attracted 95 exhibitors from 22 countries.

See story page 33.

China has doubled its coffee production in the last four years, with some estimating that it could hit 200,000 tonnes by 2019-20.

Although coffee grown in China is still relatively unknown on the world stage, some buyers are starting to pay attention. US-based coffee roasters Roasting Plant recently purchased a lot of China-grown coffee, and green bean traders MTC Group are showing interest in the country.

See story page 48.





product of Colombian freeze-dried coffee, to a producer of a large variety of premium soluble coffee products for the international market.

See story page 37.

ASIA

Coffee farmers in Colombia ended an 11-day strike in early March, following an offer of increased government subsidies.

Luis Munoz, Chief Executive of the Colombian Coffee Growers Association (FNC), tells Global Coffee Review that it’s hoped the US$450 million agreement will help see the country’s farmers through better days.

The farmers were striking in reaction to low coffee prices, as well as the devaluation of the US dollar, that has seen their income drop 40 per cent over the past year.

The new agreement will see coffee growers receive an increased subsidy of US$80 per 125 kilograms of parchment until at least December this year, and increase of around US$18. The FNC has also committed an additional US$116 million to research, technical assistance and the renovation of crops.

See story page 45.

Coffee production in Ethiopia has gained renewed government interest, thanks to its recent success in attracting all-time high foreign revenue dollars.

In the 2010-11 crop year, when Arabica prices peaked, coffee exports in Ethiopia helped bring in US$879 million in export earnings.

Coffee production was most recently recorded at 7.5 million bags, with government estimates putting future production as high as 9.5 million bags.

Because Ethiopia is also a coffee consuming nation, the country typically exports around 3 million bags. With increased local spending power, coffee is playing an important role in the development of this impoverished nation. See story page 22.



AMERICAS

1m

The number of bags produced in Honduras could drop by up to 1 million bags due to rust disease.

See page 41.

Demand for Indian coffee is growing in Australia, with a recent trade visit by the Indian Coffee Board producing some very promising results.

The Coffee Board of India will be exhibiting at Melbourne International Coffee Expo, taking place from 23 – 26 May 2013.

Australian roasters have shown interest in Indian washed Arabicas, washed Robustas and pulped sundried coffees.

Reports from recent cupping sessions suggest the washed Arabicas are mild in nature, with sweetish characters and low acidity.

COVER STORY Lavazza

A CONSIDERED

CONQUEST WITH A SLUGGISH ECONOMY ON THEIR HOME TURF, MARCO LAVAZZA TELLS GLOBAL COFFEE REVIEW HOW THE ITALIAN ROASTERS ARE BOOSTING BUSINESS ABROAD THROUGH A CAREFULLY CATERED APPROACH.

D

omestic success is no indicator of potential for triumph overseas.

Actors, brands, and businesses that are heralded at home can receive a crude shock when their formulas for national stardom are shunned abroad.

On the domestic front, Lavazza’s success in Italy is virtually unrivalled. At the close of 2012, the company enjoyed 43.4 per cent of the Italian coffee market by volume, and an even more impressive 48.4 per cent by value.

Fortunately for Lavazza, however, a strategic approach catered to each market has translated to success overseas. Of the company’s annual revenue, which hit around US$1.7 billion last year, around 40 per cent came from foreign sales. With the Italian market showing few signs of recovery, the company is now looking to increase its revenue through international operations, by upping its percentage of foreign sales to 60 per cent.

Marco Lavazza, a great grandson of company founder Luigi Lavazza and current Vice President of the group, tells Global

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G C R | M AY /J U N E 2 013

Coffee Review that developed markets are the company’s key areas for growth.

“Italy is still our main market, it will continue to be so, but we have to strengthen our presence in potential markets,” he says. He identifies France, Germany, the United Kingdom and the United States – all countries where Lavazza has a direct subsidiary presence – as the four main targets for growth. Marco also notes that Australia – where Lavazza is distributed through its partner Valcorp – has a booming coffee market, and is also a top priority area.

In the UK, this expansion will come also through the establishment of Lavazza branded coffee shops. This is the direction of development of a partnership with Catalyst Retail Limited, the retailer identified by Lavazza in the UK to develop the Espression brand. Catalyst Retail will be responsible for selecting the venues most appropriate to the opening of new points of sale in the coming months (five openings are already planned, in addition to another 50 in the next two years).

“We’re not doing this by ourselves, a key to this plan was to find a professional partner to establish a presence on a permanent basis,” says Marco.

With the UK offering a highly developed coffee chain culture, Marco says this strategy best suited the British market. He says the Lavazza chain will not only bring in a new revenue stream, but importantly will generate brand awareness among coffee consumers.

“We want to give the right idea, that when a customers comes in, they are coming into a real Italian store,” says Marco. “Everything links together, because at the end of the day, we only have one brand. We want to give customers a positive association with that brand. They have to find quality and consistency wherever he or she goes.”

In the US, the strategy has translated into an investment in the single-serve realm, through a partnering with Green Mountain Coffee Roasters (GMCR). The Vermont-based company’s singleserve system, Keurig, enjoys the lion’s share of American kitchen counter-tops. Although GMCR is a coffee roaster in its own right, in the single-serve segment Marco says the two companies were more complementary than competitive.

“The single-serve segment is booming in the US, and GMCR was a really a perfect marriage for our company,” he explains. “We have the same approach to high quality coffee, but the key was that

“WE WANT TO GIVE CUSTOMERS A POSITIVE ASSOCIATION WITH THAT BRAND. THEY HAVE TO FIND QUALITY AND CONSISTENCY WHEREVER HE OR SHE GOES.” Marco Lavazza

Lavazza Vice President M AY /J U N E 2013 | GCR

11

COVER STORY Lavazza

“WE HAVE THE SAME APPROACH TO HIGH QUALITY COFFEE, BUT THE KEY WAS THAT THEY WERE GOING WITH PURELY FILTER, WHILE WE ARE DEDICATED TO ESPRESSO. WHAT WE WERE LACKING ON THE ONE POINT, THEY WERE LACKING ON THE OTHER, SO REALLY IT WAS THE PERFECT MATCH.”

Marco Lavazza says his family’s company has a 20-year history of working with single-serve systems, which matches well with Green Mountain Coffee Roasters. Lavazza owns a 7.5 per cent stake in GMCR.

they were going with purely filter, while we are dedicated to espresso. What we were lacking on the one point, they were lacking on the other, so really it was the perfect match.”

Marco points out that both GMCR and Lavazza share a long history of working with singleserve machines. GMCR were early to introduce the Keurig system, while Lavazza were pioneers in working with single-serve systems in Europe 20 years ago.

Lavazza first introduced Espresso Point in 1989, the first single-serve system with the Lavazza name. This was later followed with the BLUE (Best Lavazza Ultimate Espresso), and the A Modo Mio, which continues to attract a strong following in the upper tier of single-serve systems.

Lavazza combined its technical expertise with GMCR to release the Keurig Rivo Cappuccino and Latte System last November. The Keurig-branded system offers single cup technology specifically designed for Lavazza espresso capsules, along with fresh milk frothing technology. This marks GMCR’s entrance into the espresso, cappuccino and latte brewer category.

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G C R | M AY /J U N E 2 013

As the two companies were developing this product partnership, they found themselves even further financially entwined. In 2010, GMCR was interested in acquiring Canadian company Van Houtte, which it eventually did for around US$905 million. As a result, it was looking for a cash injection.

“As they were in a position to buy Van Houtte, they asked us if we were interested in investing in GMCR,” says Marco. “This was the first time we made a big investment in an outside company.”

Lavazza purchased around 7 per cent of GMCR in August 2010 for a reported US$250 million, and later upped its stake to a current 7.5 per cent.

“We’ve been quite pleased with how it’s going,” says Marco. “We see this as a good commercial partnership. Single-serve systems are going very well in the United States.”

With the release of the Keurig Rivo, Lavazza and GMCR will be well placed if Americans’ love of the single-serve system is accompanied by a further embrace of espressobased beverages. Marco says he’s confident the trend is already taking off, both in the UK and

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COVER STORY Lavazza

Lavazza paired up with Green Mountain Coffee Roasters to launch the Keurig Rivo system, marking Keurig’s entry in the espresso singleserve market.

the US, and that Lavazza is positioned to take advantage of this boom.

“It was time to offer a solution of both coffee and milk,” he says. “We have a long tradition of espresso, and we’re confident we’re closest to the perfect recipe.”

Marco says espresso culture has grown exponentially around the world. The challenge has been the fact that coffee is “not a finished product”, and that espresso especially is highly dependant on the person making the coffee, and the equipment.

“Single-serve systems are a solution to this problem,” he says. “It’s difficult to convey what we drink in the lab to what our customers drink at home. We’ve been bridging this gap with the closed [single-serve] systems. They have to be convenient and simple.”

A common problem brought up among discussions of single-serve systems has been the issue of patents. GMCR not only profits from the sales of Keurig machines, but from the K-Cups (coffee capsules) used in those machines. Patents have helped protect the company from seeing

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G C R | M AY /J U N E 2 013

Lavazza plans to open nearly 400 shops across the UK over the next decade.

capsules compatible with their systems emerging on the market. The result was that consumers were essentially “locked-in” to purchasing all of their coffee from GMCR and its affiliates.

Over in Europe, Nespresso – a market leader in the single-serve segment – has battled court cases against companies offering Nespresso-compatible capsules.

On the legal front, those battles are coming to an end. The technology has been around long enough for those patents to expire. GMCR saw the expiration of its patents late last year, leaving the market open to competitive K-Cups (see Time’s Up K-Cups page 17).

Marco, however, is confident this expiry will do little to effect GMCR’s business. “Every patent has to expire. The only way to tackle this problem is to invest in the brand,” he says. “When a brand has a strong image and reputation, people are happy to continue to pay more for that brand. When that coffee has worked for them, when the taste is right, they will stay loyal.”

Another challenge this historical Italian company has faced in recent years is the change of the modern media landscape. Marco says that while Lavazza has stayed true to its core values, the nature of modern media has meant that communicating those values has changed dramatically over the years. “Social media and globalisation have changed the rules of the game,” says Marco.

With so much data being processed, Marco says Lavazza has taken a careful approach in using social media and internet platforms. He says the first step has been to try everything – and then understand how their efforts are shaping their brand.

“There is lots of data out there, if you don’t know how to read it properly, it can be very misleading,” he says. “You need experts who can read that data.”

From Facebook to Twitter, Lavazza has taken an active approach in the social media world.

One of its biggest moves into the digital realm, however, has been the release of the 2013 Lavazza calendar. Widely regarded for its photography genius, the annual larger-then-life Lavazza calendars pay tribute to the brand’s stylish appeal by working with the world’s top photographers. The company

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“WHEN A BRAND HAS A STRONG IMAGE AND REPUTATION, PEOPLE ARE HAPPY TO CONTINUE TO PAY MORE FOR THAT BRAND. WHEN THAT COFFEE HAS WORKED FOR THEM, WHEN THE TASTE IS RIGHT, THEY WILL STAY LOYAL.”

MODEL 1060 “SUPERNOVA” made the bold move this year to release the calendar digitally, without any printed version.

“This year, we only released it on the web,” he says. “It’s a big change, but so was moving from black and white photos to colour. That was a big breakthrough, but when the times are changing we need to move with them.”

Despite their billion dollar revenue figures, Marco points out that Lavazza is still a “small company among giants” and they need to be effective in their communications. “We need to find the best way to convey our values,” he says.

Marco says the company strives to ensure those values are not only communicated, but trickle down the entire value chain. Integrity, for instance, is a core Lavazza value – ensuring that every person they work with is treated in the right way.

“As long as we keep buying coffee from particular parts of the world, we need to ensure that our business is affecting people the right way,” says Marco. “That doesn’t just mean ensuring [coffee farmers] are getting a fair price, but also helping them improve their livelihoods.”

The iTierra project was Lavazza’s first independent corporate social responsibility project, launched in 2002. The project aims to improve the living conditions, social developments and economic growth of farming communities. The results have not only seen the lives of farmers improve, but also the quality of coffee.

In addition to looking at origin to improve its coffee, Lavazza has also invested heavily in research and development. The company signed a five-year agreement with the Turin Polytechnic Institute for research and development activities. In October 2010, it inaugurated an innovation centre in the historical Settimo Torinese plant.

All these efforts, Marco says, is about protecting the brand while building a company they can leave to the next generation.

“We have one brand, and it’s our surname, so it really has to be perfect,” he says. “There aren’t that many families that still run this level of operation. We are the fourth generation, and the fifth generation is already in place. I’ve learned that you don’t have to destroy what they give you.” G C R

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FEATURE GMCR

IS IT

TIME UP

FOR K-CUP?

ALTHOUGH MANY SAW THE EXPIRY OF THE KEURIG PATENTS AS GREEN MOUNTAIN COFFEE ROASTERS’ POTENTIAL DEMISE, PROFITABLE SALES FIGURES ARE PROOF THAT BRAND LOYALTY IS A POWERFUL TOOL.

F

ew could have predicted that when Keurig’s K-Cup singleserve system was first launched in 1998, it would succeed to the extent that it has today.

Keurig Founder John Sylvan’s dream of providing efficient and flavourful coffee to his co-workers has birthed a product that is now featured in millions of offices and households across North America. Last Christmas alone, a total of 4.95 million Keurig branded brewers were sold over 13 weeks, while the sale of single-serve packs brought in over US$800 million for Green Mountain Coffee Roasters, Inc. (GMCR) for the period.

“It would have been difficult for anyone to truly predict the incredible popularity that the Keurig system currently enjoys within homes and workplaces,” GMCR’s VP of IR

BY CARLA WELLS & Corporate Communications, Suzanne DuLong, tells Global Coffee Review. “Consumers seem to have an emotional connection to their brewers and many are extraordinarily passionate about the system.”

GMCR made its initial investment in Keurig in 1996, owning it in full by 2006. DuLong says that the Keurig brewer has revolutionised the way people drink coffee in private spaces. She attributes its popularity to the unique combination of the advanced brewing and dosing technology, coupled with GMCR’s specialty coffee portfolio, including partner brands.

According to the NPD Group, which specialise in consumer market research, Keurig single cup brewers were in the top four bestselling coffee makers and had five products in the top 10 during GMCR’s fiscal first quarter in 2013. The Keurig brewing system was named coffee maker “Brand of the Year” in the 2012 and 2013 Harris Poll EquiTrend Equity Studies – an annual brand health assessment that surveys thousands of US consumers online about their brand perception.

“The Keurig brand truly connects with consumers by offering choice, quality, convenience and simplicity in their everyday lives,” DuLong says. “The success of our single cup brewing system has been driven by offering a full range of high quality brand and beverage varieties for our Keurig branded single cup brewers that are at the cutting edge of technology – all designed to provide delicious beverages at the touch of a button.”

It’s this “touch-of-a-button” technology that seems to have attracted converts from every coffee subculture. For many coffee connoisseurs, gone are the days of special ordering select beans,

M AY /J U N E 2013 | GCR

17

FEATURE GMCR

“WE WERE THOROUGH IN PLANNING FOR AND EXAMINING THE POTENTIAL IMPACT, ANTICIPATING FOR SOME TIME THAT UNLICENSED BRANDS AND/ OR MANUFACTURERS WOULD LOOK TO TAKE SOME SHARE OF SINGLE-SERVE PACK SALES FOR KEURIG BREWERS POST THE PATENT EXPIRY.” Suzanne DuLong

GMCR’s VP of IR & Corporate Communications

Suzanne DuLong, GMCR Vice President of IR & Corporate Communications

grinding them in a noisy grinder, fumbling with a machine and cleaning up afterwards. Flavour now comes in a small capsule that is swiftly placed in a single-serve brewer and disposed of effortlessly. It’s perhaps this convenience that has allowed consumers to abandon their sense of nostalgia when it comes to traditional tea and coffee brewing methods, resulting in the growing momentum of the single-serve pods worldwide.

In February 2012, GMCR released the premium Keurig Vue system, which is the only single cup brewing system in the marketplace with technology that allows users to customise the strength, size and temperature of each beverage.

Prior to 2012, many would say that GMCR had an undisputable advantage in the North American single-serve market. It seemed there was no stopping the K-Cup revolution – until the months leading up to 16 September 2012.

On this day, the patents for the ingenious little cup was set to expire, meaning that any company could design a capsule that could fit into the Keurig system. From a layman’s perspective, the collaborative efforts of Sylvan along with Peter Dragone and Dick Sweeney – who together came up with the prototypes and business plan for the Keurig brewers and K-Cup packs – were about to be challenged.

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G C R | M AY /J U N E 2 013

CASHCROP Last Christmas alone, a total of 4.95 million Keurig branded brewers were sold over 13 weeks, while the sale of single-serve packs brought in over US$800 million for Green Mountain Coffee Roasters (GMCR) for the period.

But from GMCR’s perspective, the success of the Keurig system was not reliant on any patent, but rather the quality of the product.

“We have long built the business to be successful without the benefit of patents – like any successful consumer product goods company,” she says.

Despite this, there was speculation around whether the hot beverage empire would survive amid the soon-to-emerge competition. With wavering share prices, at one point dropping by more than half the previous year’s value, and inconsistent forecasts by analysts, it was difficult to predict how strong they would come out after what some referred to as “GMCR’s doomsday”. But the dust settled shortly after this fateful day, revealing a largely unaffected GMCR – still leading in the single-serve market.

DuLong explains that there was certainly a need to prepare leading up to the patent expiration.

“We were thorough in planning for and examining the potential impact, anticipating for some time that unlicensed brands and/or manufacturers would look to take some share of single-serve pack sales for Keurig brewers post the patent expiry,” she says.

DuLong says they were confident, however, that they’d stand the test of competition.

“We believed and articulated that we would continue to be the leader in single-serve beverages for several reasons,” she says.

“Including our belief in the strength of our broad, licensed brand offering, our significant manufacturing expertise; our unique position to continue to expand consumer choice within the system, and our broad and growing intellectual property portfolio – all of which will continue to offer important protections against non-licensed single-serve packs.”

For a company that’s typified by ongoing innovation and a record of adding new, enviable patents to the mix, the patent expiration ultimately did not pose much of a threat. But this

needed to be communicated to the public. “We communicated with our stakeholders around why we were confident heading towards the patent expiration,” DuLong says. “We also continued to pursue opportunities that added strength to our leadership position, including introducing new brewer innovations, like our Vue and Rivo brewer models, and expanding options in our brand portfolio through new strategic partnerships.” These partnerships include Eight O’Clock Coffee, Snapple and Costco’s Kirkland Signature brand and included their own beverage varieties like Vitamin Burst and Lemonade by Green Mountain Naturals.

“It turns out that it wasn’t really the patent that was protecting the strength of the Keurig system. The patent just gave us a head start, which is exactly what patents are intended to do, ” DuLong says. She reinforces that the consumers’ love and passion for their product was a major factor in the post-patent success.

“The real protection has been in a number of areas. The passion consumers have about

Keurig and the brands in the system; offering a better product; our mass and scale, which gives us a better cost structure; the ability to partner successfully with strong brand partners; and a broad distribution system that took years to build,” she says.

So what threat does potential competition now pose? “We believe that achieving the scale, cost and quality advantages that we enjoy today is not easy for others to replicate,” DuLong says.

“As a trusted leader in the coffee-maker category, GMCR has earned the reputation for being customer-focused, smart and reliable. The Keurig brand has come to stand for excellence in every aspect of the coffee experience. Additionally, the Keurig Brewed seal of approval on our authorised K-Cup packs was developed to safeguard this reputation and help it grow.”

As a part of its strategy to lead the single-serve market among growing competitors using its patent, GMCR has partnered with companies who are technically their coffee competitors, such as Folgers and Dunkin’ Donuts. These partnerships have led to a choice of more than 30 brands and 250 varieties of coffee, cocoa, teas and other specialty beverages. “The ability to identify and build mutually beneficial relationships with partners with whom we also compete is simply part of GMCR’s DNA – and it’s a real advantage,” DuLong says.

GMCR’s success is confirmed by analysts all over the US, including Senior Analyst for Williams Capital Group, Marc Riddick. He says sales of the K-Cup packs have remained strong after the patent expiration, because customers have no reason to change.

“Customers are satisfied with the product; as a result GMCR’s sales were better than some people thought they would be,” Riddick says. “Now it’s just a matter of what brands they choose to embrace.”

He also says the appointment of new CEO Brian Kelley in December 2012 should help.

“GMCR also had a change of leadership taking them in a new direction which was positive,” he says. “Overall, they have a very high customer satisfaction.”

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FEATURE GMCR

“THE MARKET SHARE WILL CONTINUE TO FALL IN THE DIRECTION OF SINGLE-SERVE MAINLY BECAUSE THAT’S WHERE A LOT OF THE OFFERINGS ARE. AS LONG AS THAT CONTINUES TO BE THE CASE, THE MARKET SHARE WILL REMAIN STRONGER THAN TRADITIONAL COFFEE.” Marc Riddick

Senior Analyst for Williams Capital Group

The American economy’s woes similarly don’t seem to be having much of an effect on GMCR’s success. While the K-Cup packs certainly bring convenience, on average they cost twice as much as a traditional cup of coffee.

“Even though they cost more per serving, people don’t have to clean up any mess so it’s not a function of price but it’s a function of value to the consumer,” Riddick says. “The market share will continue to fall in the direction of single-serve mainly because that’s where a lot of the offerings are. As long as that continues to be the case, the market share will remain stronger than traditional coffee.”

The question arises that with the increasing conversion to the single-serve revolution, should traditional coffee traders should be worried or seeking out their own single-serve delivery?

“The single-serve delivery approach works very well for some people, but I don’t know if it’s something that everybody has to do,” Riddick says. “Even though it makes sense for lot of people, I don’t think it necessarily makes sense for everyone. You can still be competitive without embracing the K-Cup, so long as you’re true to whatever your brand is.”

Responding in this fashion, and merging the two worlds of traditional and single serve, is German company Melitta. While still offering an array of coffee beans, traditional coffee machines, and their own coffee pods in the US, Melitta also plans to release its own Keurig-compatible coffee pod, the UpShot. The company released the JavaJig earlier this year, a single-serve Melitta filter system, allowing users to fill the pod with fresh coffee and then reuse it – an economical and environmentally friendly option.

“We are extremely excited to offer consumers who own single-serve machines a Melitta product that we are very proud of and know they will enjoy, ” says Chris Hillman, Melitta’s Vice President of Marketing. “Our pod offerings are all about providing choices to our customers – the same great Melitta taste across the board.”

So what’s left for GMCR to accomplish? DuLong says that with the leadership of their new CEO, the company would like to dramatically improve their in-store presence, sharpen their marketing efforts and ultimately expand beyond the US and Canadian markets. The company recently appointed Gérard Geoffroin – former head of GMCR’s Canadian Division – as President International Business Development to help on this front.

“We know we have a significant opportunity to grow in current channels away-from-home, in new categories, with new brewers’ technologies, and in new geographies. But we must prioritise them and execute flawlessly the ones we choose,” DuLong says.

It sounds like they have their work cut out for them, and fortunately a good brew to keep them inspired along the way. G C R

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G C R | M AY /J U N E 2 013

Marc Riddick, Senior Analyst for Williams Capital Group

Chris Hillman, Melitta’s Vice President of Marketing

THIS YEAR, THE STATE OF COFFEE WILL RECEIVE THE WORLD OF COFFEE.

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Week Minas Gerais Brazil 2013

September 9th to 13th Expominas - Belo Horizonte – Minas Gerais In September, the greatest coffee producing State in Brazil, Minas Gerais, will promote the International Coffee Week. The event will host the 50 year anniversary meeting of the International Coffee Organization (ICO), with participation of over 70 countries, and the 8th Edition of the Espaço Café Brasil, the largest exhibit of the industry in Latin America.

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Ministério da Agricultura, Pecuária da eMinistério Abastecimento Agricultura, Pecuária e Abastecimento

FEATURE Ethiopia

ETHIOPIA’S PRODUCTION POTENTIAL GLOBAL COFFEE REVIEW LOOKS AT HOW THE BIRTHPLACE OF COFFEE IS MODERNISING ITS INDUSTRY, WITH RENEWED HOPES FOR THE CROP’S ROLE IN DEVELOPING THE IMPOVERISHED NATION.

Logistical problems still remain an obstacle to the development of Ethiopia’s coffee industry.

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I

t’s just past noon at the Ethiopia Commodity Exchange (ECX), and the floor is buzzing with the arrival of a few top-quality lots of washed Sidamos.

More than 30 traders are participating in the coffee session at the ECX, showing there is no shortage of interest in Ethiopian coffee. Beans from this producing nation are, after all, the only ones that can claim to be traced back to the earliest beginnings of coffee.

“It’s an open-outcry session, and today it’s a buyers’ market,” says Taika Fantaye, who looks after external affairs for the ECX. “The harvest flow has just started to pick up and we are starting to get a lot of coffee coming in now as we get close to peak season.” Coffee sold to the local market is traded in the morning, with afternoons reserved for international buyers.

The Sidamo lot ends up selling for US$1.59 cents per pound, $0.18 above that day’s ICE Arabica price in New York. Now four years in operation, supporters of the ECX say prices paid to producers have increased significantly, by making trade more transparent than the former coffee auctions that took place in the remote region of Jimma.

“Every year volume has been doubling or tripling, our membership is expanding and we are breaking records every year,” says Fantaye.

While the long-term results of the ECX won’t be ready for evaluation for some time yet, there is no denying that Ethiopia’s coffee industry is growing. And the growth is everywhere, from production to consumption and from quality to trade. That is even though logistical issues remain and challenges from outdated marketing and export laws continue to cause headaches for foreign buyers.

In the 2010-11 crop, export earnings from coffee reached an all-time high of US$879 million. This was in part thanks to 14-year-high Arabica prices, as well as increased production.

While coffee has always been important to the struggling Ethiopian economy, record foreign exchange earnings from this crop have attracted a new level of political interest.

Throughout the 1990s, annual coffee production in Ethiopia rarely surpassed 3 million bags. As Ethiopians are coffee drinkers – uncommon in Africa and indeed any producing country – exports rarely surpassed 1.5 million bags. At the turn of the millennium, Ethiopia produced a record 3.5 million bags, and the

PROFITABLE In the 2010-11 crop, export earnings from coffee reached an all-time high of US$879 million. The government has since taken a renewed interest.

number has been climbing ever since. In 2001-02 production hit 4 million bags, growing over the years to an all-time high of 7.5 million bags in the 2010-11 crop cycle.

“Coffee production in Ethiopia has increased and is definitively increasing, that is unquestionable,” says Yilma Gebrekidane, General Manager of the Ethiopian Coffee Growers Association. “It’s a new phenomenon for Ethiopia that has started in the past few years due to new agricultural policies that have led to us to having private investment in the coffee industry for the first time.”

According to estimates from the growers association, Ethiopia’s production capacity – based on land in production – currently stands at a maximum 7.5 million bags. This would fall short of the government’s target to produce 9.5 million bags.

“Of course we can get there, but not now, perhaps in the next five to 10 years if the programmed plantings continue and if we start improving the use of modern inputs to increase yields,” says Gebrekidane. “The land is there and the investment is there but the yields are still very low.”

When the 9.5 million figure was released a year ago, in a market report from the International Coffee Organisation, this led to a stir of industry debate. With exports still trailing 3 million bags, the only way to explain the explosion in production figures was through higher local consumption, but nobody could get these numbers to match exports or any other figure.

The importance of coffee exports earnings, which during the 1980s and 1990s could account for up to 70 per cent of the African country’s entire foreign exchange revenues, has taken on a new significance. Since the launch of the ECX, the Ethiopian government

Private investors like Addisu Beyene Tifferi are today developing new coffee estates in the Kaffa region.

M AY /J U N E 2013 | GCR

23

FEATURE Ethiopia

has been supporting aggressive policies to promote production.

While coffee in many developing countries is no longer seen as a cash crop that can benefit development, in Ethiopia living conditions are still so basic that coffee is considered a viable way out of poverty. With the government benefitting from increased foreign exchange earnings, coffee production has become a pillar in the official “Growth and Transformation Plan”. And this is where the misleading figure first appeared, as part of a political goal rather than based on actual production figures.

“The government is targeting the exchange earnings very aggressively and their target for coffee is very ambitious,” says Alemseged Assefa, General Manager of the Ethiopian Coffee Exporters Association. “I think the 9.5 million bag figure is probably too high, but now the government is starting to understand the importance of coffee here and this is good for Ethiopia.”

Travelling to the origins of coffee in Ethiopia’s Kaffa province is an adventure. The region is around 500 kilometres southwest from the Ethiopian capital of Addis Ababa, just across the border from South Sudan.

The trip takes visitors through the northern part of the Rift Valley. The arid beauty of Acacia trees dots the wide plains surrounding the Addis plateau. Past Jimma, the landscape starts changing into lush green forests. This part of Ethiopia, formerly known as Southern Abyssinia, is where coffee was first ‘discovered’ sometime

“THE HARVEST BEGINS IN OCTOBER, BUT THE PEAK STARTS IN JANUARY AND WE ARE STILL IN THE MIDDLE OF THAT NOW.” Nigussie Senbet

One of four Q-graders at an ECX-certified warehouse

WILDCOFFEE A high proportion of coffee from Ethiopia is known as “forest” or “semi-forest” coffee and is still grown and cultivated in the wild.

It’s thanks to Ethiopians’ love for coffee as a beverage that commercial coffee production first was launched, and even today most of Ethiopia’s coffee is consumed at home.

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between the 9th and 12th centuries. Legend has it that a goat herder named Kaldi discovered that his goats would become surprisingly energetic after eating the red berries off nearby bushes.

The story of Kaldi is now known the world over, depicted everywhere from cartoons to coffee bags. The coffee in Kaffa still grows wild, thriving at altitudes between 1700 and 2200 metres.

In the once wild landscape, private estates developed by investors interested in the coffee trade have started emerge for the first time in the region’s over 1000-year-old coffee growing history.

“I wanted to do something that was permanent both for me and for the people here. As the government had started opening up the coffee sector to private investment I decided to go into coffee,” says Addisu Beyene Tifferi, a businessman who was one of the first to set up a private-run coffee estate in Kaffa in 1998 following government reforms.

“The government was eager to attract investors to the coffee sector and most of the land available was in the Kaffa zone,” says Addissu. “At the time I just wanted to get away from Addis and the idea of quick money, and I knew that you have to be patient growing coffee. Other than this, I didn’t know anything about coffee except for drinking it.”

Addisu’s estate stretches out over 250 hectares of which 220 hectares have been planted with different Arabica varieties on the lands through his LemKeffa Coffee and Spices Agro Company. And as everywhere else in Kaffa, the new coffee production is picking up.

In addition to cultivated farms, Kaffa coffee still grows wild in many parts of the region. Known as “forest coffee”, wild coffee trees grow up to 15 metres tall, have long thin leaves, and look nothing like most commercially developed Arabica varieties.

In the nearby town of Bonga, more than 50 trucks have lined up to have their coffee graded at the local ECX delivery warehouse. As one of 17 warehouses certified by the ECX, staff here has worked overtime since the new harvest picked up this past February.

“The harvest begins in October, but the peak starts in January and we are still in the middle of that now,” says Nigussie Senbet, one of four Q-graders at the warehouse. “The harvest is smaller this year, but the quality is better. We have seen a constant improvement

Since the Ethiopian Commodities Exchange was launched four years ago trading volumes have exploded

in quality during the past four years since the warehouse started operating; especially the drying techniques have improved and the volume of washed coffee is bigger than ever before.”

With vast areas of undeveloped agricultural land, Kaffa province is leading the country’s production boom. Some renovation efforts have also been reported out of the betterknown Sidamo, Harrar and Yirgacheffe regions.

However, with higher population densities, these latter areas have limited new development potential.

Local authorities in Kaffa say they plan to keep up the momentum.

“In the next three years, the project will have a total 260,346 hectares of land cultivated with coffee,” says Kassahun Taye, Manager of the Kaffa Regional Agriculture Office. This would see the land cultivated with coffee expand by over 45 per cent from 2012.

Of the total area, 61,920 hectares are designated as “garden coffee”, cultivated by smallholder farmers. Another 13,154 hectares are cultivated by private estate owners. The balance is a mix of forest or semi-forest coffee. Semi-forest coffee is picked by local communities, on public

property and in the wild. Yields from either type of forest coffee are quite low, however make up a large share production. In the 2011-12 harvest, around 255,000 bags of the Kaffa Zone’s 580,000 bags were from forest or semi-forest coffee, according to official data from the agriculture office.

Increases in production have mainly come from cultivated coffee, which have seen improved yields in recent years thanks to better practices.

“In 2008, production in the Kaffa Zone was only around 400,000 bags,” Taye explains. “But five years ago, a political decision was taken to turn this area into a market centre. The government has been providing training to farmers on how to implement new technology, in addition to providing extension services on farming practices and providing seeds.”

A few kilometres north of Bonga, local farmer Gerawa Yesuf tends to a new field of young coffee seedlings. The government, she says, gave local producers 4 kilograms of seeds. When carefully nursed, 1 kilogram of seeds can produce 4000 seedlings.

“This was all forest coffee,” says Yesuf, pointing to the farm, still bordered by forest. “I have been here almost 25 years and I have 4.5 hectares, of which 1.5 hectares is forest coffee and these 2 hectares we have planted with new coffee during the past two years.”

The wild, still relatively undeveloped, countryside is a sharp contrast to the built-up Ethiopian capital of Addis Ababa. Here, talk of coffee is not about growing, but rather consuming. Visible social development and economic progress is a welcome sign in a country that was ranked the second poorest country in the world a decade ago.

Today, however, spending power has arrived. Modern coffee shops and café culture competes with traditional street coffee booths. Local consumption is estimated at 4 – 4.5 million bags a year.

While many producing countries are undergoing massive efforts to boost local consumption, Ethiopia has the advantage of an established coffee drinking culture. Villagers in Ethiopia say the act of drinking coffee “is transformational as each cup changes the inner persona of the one who drinks it”.

Combined with increased local production, coffee should prove a bright light in Ethiopia’s path to development. GCR

M AY /J U N E 2013 | GCR

25

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COFFEENOMICS Price Trendsetters

TRENDSETTERS FOR

COFFEE PRICES A LOOK AT THE TOP 10 FACTORS TO USE IN PREDICTING THE FUTURE OF COFFEE PRICES, AT A TIME WHEN FEW ANALYSTS SEEM TO AGREE ON WHAT DIRECTION THOSE FIGURES WILL TAKE.

T

here was a time when a few key indicators controlled the direction of commodity prices.

News agencies could regularly refer to fundamentals, major weather patterns and the like when discussing the daily movements of coffee prices.

Those days, however, are long gone. Since pension and investment funds moved into commodity markets in the wake of the 9/11 terrorist attacks in the United States and the

2008 global financial crisis, coffee prices today seem far removed from these core fundamentals.

Recent experience has shown that even core fundamentals – such as crop prospects in the world’s two largest producers Brazil and Vietnam – exert little influence on coffee prices.

So the question then arises, what does affect prices? In today’s complex financial landscape, Global Coffee Review offers these top 10 trendsetters to consider when predicting the future of coffee prices.

1. THE GLOBAL ECONOMY Above almost any other indicator, the sentiment of the global economy seems to have the greatest influence on the coffee market. Recent events have seen prices stay low, despite strong consumer demand across both consuming and producing countries. Traders and fund managers need to feel optimistic about the world economy, in order to buy enough coffee to boost prices.

M AY /J U N E 2 0 1 3 | GCR

27

COFFEENOMICS Price Trendsetters

The global economy is seen as an “external factor” in affecting the direction of price movements. Other related factors include economic indicators like job figures, general consumer spending – and these days the debt crisis in the Euro-zone is a factor unto itself.

As the world’s top coffee producing nation, with some of the highest yield levels, production trends in Brazil continue to be have significant impact on prices.

2. BRAZIL As the world’s largest coffee producer, Brazil is – after the global economy – still the number one core fundamental indicator for coffee prices. As the 2013-14 coffee harvest gets underway, speculation about the crop’s impact on prices has grown. Industry officials in the South American giant say that the new crop is set to produce the biggest harvest Brazil has ever seen in an off-cycle. Forecasts vary from 47 to 53 million 60-kilogram bags, however that level of variance still leaves a lot to be determined.

Prior to 2009, any predictions of Brazil’s harvest would immediately be able to move

“THE RATE OF PRODUCTION FROM COLOMBIA STILL LAGS BEHIND HISTORICAL LEVELS…” LATEST PRODUCTION NUMBERS FROM COLOMBIA “CONTINUE TO SHOW THAT THE EXPECTED RECOVERY THIS YEAR IS LIKELY TOO OPTIMISTIC.” Christopher Narayanan Societe Generale

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G C R | M AY /J U N E 2 0 1 3

the market, but that effect has been reduced since funds have stepped up their participation. Other smaller producing nations have also stepped up production, helping make up a greater share of the pie. Coffee prices may rise on news of a Brazilian crop falling short of expectations. This, however, would need to be accompanied by other news seen as bullish to coffee.

3. VIETNAM

SHORTFALL The current coffee crop cycle is projected to see a surplus of coffee for the first time in years, however the 2013-14 crop cycle is currently sitting at a coffee deficit of around 1 million bags. This could lead to an increase in prices, if the outlook is supported by factors such as an improving global economy

In the past decade, Vietnam has consolidated its position as the world’s second largest coffee producing nation, and speculators and market players are today actively debating the size of Vietnam’s crop. Although some segments of the market remain confident that Vietnam will produce another bumper crop in the 2012-13 harvest, local evidence has been less convincing.

The Vietnam Coffee and Cocoa Association (Vicofa) has pegged the 2012-13 harvest to fall below last year’s record output of 24 – 25 million bags. Some private exporters say that the current harvest will end between 10 – 15 per cent lower.

Although a significant drop, these figures may not be enough to lead to a fall in prices. The negative outlook for Vietnam’s next 2013-14 harvest, however, is where prices could find some support. A two-month drought in February and March has been reported to already cause significant damage to flowering.

4. COFFEE LEAF RUST OUTBREAK IN CENTRAL AMERICA Production losses in Central America’s 2012-13 harvest are estimated to reach at least 2.5 million bags. However, with

fundamentals having less of an impact on coffee prices in the modern market, the ensuing effect is less straight forward.

Rodolfo Mora, a Coffee Trader in Central America, says that these loss figures are tricky, with the region still harvesting coffee as the market wants to see evidence of the losses and it wasn’t until February that reports on export figures started to show some decline.

Guatemalan coffee exports in March, for instance, were down 17 per cent, while El Salvadoran coffee exports in the same month were down 15 per cent.

Commodity Analyst Keith Flury, of the Dutch financial group Rabobank International, says that the region’s overall output is expected to drop 14 per cent in the next harvest, or the equivalent of 3.3 million bags because of “the worst case of roya [coffee leaf rust] in Central America and Mexico since 1976”.

Other analysts agree, and say that coffee prices will eventually be affected. Christopher Narayanan, of the French financial services company Societe Generale, says the threat of rust fungus, if accompanied “by disappointment in one of the top producing countries” could provide a severe upset to prices. If the global coffee surplus turns out smaller than expected, producers will likely see a rebound in prices. Narayanan predicts that Arabica prices will hit average US$1.60 a pound in the last quarter of 2013. Arabica prices traded between US$1.32 – $1.40 a pound for most of March.

Although coffee production in March was up, overall Colombian production in the past 12 months continues to linger at just above 8.2 million bags.

As exports for the 2012-13 cycle will move into the last quarter starting in July, markets will be watching Colombia more closely. Many commodity analysts, including Societe Generale, still have their doubts. “The rate of production from Colombia still lags behind historical levels,” the group says, adding that the latest production numbers from Colombia “continue to show that the expected recovery this year is likely too optimistic”.

6. US FINANCIAL NEWS

5. COLOMBIA After four years of bad weather complicating recovery efforts in Colombia, the Andean country has lost influence on global prices.

In March this year, the International Coffee Organisation lowered the weighing of Colombian Milds in its Composite Indicator Price.

Nevertheless, Colombia still has some influence. The downward trend in prices seen last year was in part supported by the belief that Colombia would see its 2012-13 harvest recover to double digits: 10 million bags. This, however, is becoming increasingly unlikely.

COLOMBIA Prices dropped this year, partly on the belief that Colombia would see its 2012-13 harvest recover to double digits: 10 million bags. Some say that this, however, is becoming increasingly unlikely.

As the world’s largest economy and top coffee importer, American fiscal health sits on its own as an indicator of coffee prices. Job creation and unemployment figures in the US affect the global economy, and are thus taken into account in predicting coffee prices.

Positive news should be good for coffee prices, according to Jack Scoville, Senior Commodity Analyst at The Price Futures Group in Chicago. “The world economy continues to improve and we are definitively seeing it here in the US, so that is very positive to coffee,” he says. His predictions are that, in the short term, coffee prices are likely to remain between US$1.30 – $1.50 per pound. However, towards the third or fourth quarter, prices could find enough support to lift to US$1.70 per pound.

7. EUROZONE DEBT NEWS This is another sensitive indicator to look out for. So far, bad news has not been very encouraging for coffee.

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COFFEENOMICS Price Trendsetters

“ALTHOUGH COFFEE PRICES COULD RISE EVEN IF THE EURO CRISIS DOES NOT IMPROVE, ANY WORSENING OF THE ECONOMIC OUTLOOK COULD SEND PRICES THE OTHER WAY.” Albert Scalla

Senior Vice President INTL Hencorp Futures

Erratic weather due to climate change can affect production.

Recent European economic troubles started out with ballooning debts in Greece, Ireland and Spain. Every time the European Union works out a new bailout package, it seems another country is in need of help. With Cyprus and Slovenia most recently joining the list of prospects, some analysts fear the worst is yet to come.

Online financial service provider MarketWatch commented in mid-April that the recent crisis shows no sign of abating.

“The Euro crisis has long since gone from being a currency and debt crisis to becoming a full-fledged economic crisis,” it said. “Now it is poised to become a political crisis as it destabilises governments throughout Europe.”

Although coffee prices could rise even if

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G C R | M AY /J U N E 2 0 1 3

the Euro crisis does not improve, any worsening of the economic outlook could send prices the other way. Albert Scalla, Senior Vice President of Miami-based INTL Hencorp Futures, predicted at a recent coffee conference in Central America that if the macroeconomic outlook worsens, the market could drop to US$1.10 – $1.20 per pound.

8. CHINA As the world’s most populous country, high demand and consumption figures in China are good for almost every industry.

Coffee is certainly no exception. China’s thirst for minerals and metals, grains, food items and electronics, helps global financial sentiment as a whole.

9. STOCKS OF GREEN COFFEE In addition to production and consumption, keeping an eye out on stocks of green coffee held by importing countries is a good idea. In mid-March, total stocks at ICE certified warehouses stood near two-year-highs at 2.7 million bags, but total US green stocks were near two-year-lows at just over 4.9 million bags. European green coffee stocks were at 9.76 million bags at the end of 2012, down 2.7 per cent on the year prior.

Although much has been said about Brazil’s record crop, keeping an eye on stocks will be a good indicator on how much of a surplus this amounts to in the market. If certified stocks start coming down, this could trigger higher prices.

Brian D. Wright, a professor at the University of California, Berkeley who has written extensively on volatility in agriculture and commodity markets, says that price spikes occur only when “stocks or use ratios are minimal” and the market is fragile.

He argues that prices will only respond to fundamentals and move higher when both stock and production are low.

10. THE WEATHER Increasingly erratic weather due to climate change in producing countries remains a wildcard for coffee. Many analysts and exporters have expressed concern that although production figures remain high, that could change dramatically, especially if those changes hit Brazil.

With limited stockpiles, the market is particularly vulnerable to major weather problems in any of the top 10 producing countries.

Rabobank’s Flury says that the 2013-14 Arabica supply and demand outlook points to tighter fundamentals, due to lower off season yields and higher demand. With the world looking currently at a coffee deficit of around 1 million bags in the 201314 crop cycle, he says this could bring prices back to US$1.65 per pound in the last quarter of the year. G C R

STOCKPILE Stocks of green coffee should be considered a fundamental, in addition to production and consumption.

In mid-March, total US green stocks were near two-year-lows at just over 4.9 million bags.

MARKET REPORT Southeast Asia

SOUTHEAST ASIA — THE NEXT

TARGET FOR GROWTH AT THE INAUGURAL CAFÉ ASIA AND INTERNATIONAL COFFEE & TEA INDUSTRY EXPO, COFFEE EQUIPMENT MANUFACTURERS AND SUPPLIERS SAY THE REGION IS ONE GROWTH AREA THEY CANNOT AFFORD TO IGNORE.

BY ST LENG

A

lthough Korea and China have made headlines for the phenomenal growth of their coffee industries in the past few years, industry observers are betting on Southeast Asia as the next hot spot.

From 2007 – 2011, the region’s total trade in coffee has risen at a compounded annual growth rate of 14.2 per cent to reach US$6 billion, according to Singapore’s Minister of State for Trade and Industry Teo Ser Luck who opened the CaféAsia/International Coffee & Tea Industry Expo (ICT) in Singapore on 14 March 2013.

Overall, coffee markets in Southeast Asian nations are a varied lot. Some are both producing and consuming nations like Vietnam and Indonesia (the world’s number two and three producers in crop year 2011-12), while others are purely consuming ones, like Singapore. Each of the major markets – Indonesia, Thailand, Singapore, Malaysia, the Philippines and Vietnam – present unique challenges and opportunities for equipment manufacturers and traders alike, who say the region’s sustained economic growth and increasing consumption mean they need to raise their game now.

At ICT, international exhibitors were certainly walking the talk. A total of 95 exhibitors from 22 countries attended the event, as much to promote their businesses as to survey the market. Many say that the launch of this new trade show, and the interest it generated, is itself evidence of the region’s potential.

Germany’s Neuhaus Neotec is no stranger to Southeast Asia. Stefan Graack, the company’s Area Sales Manager, says that Europe’s stagnating economy makes it an even more attractive market.

“Southeast Asia has grown significantly for us. In Europe, new plants are not being built. Refurbishment, yes, but there has been no new capacities added,” he tells Global Coffee Review. “The coffee industry is growing in Asia due to strong consumer demand, and that makes it one of the best places to sell our equipment. Southeast Asia started slow

CEMS’ Edward Liu: The time was right to launch a trade show for Southeast Asia’s coffee trade.

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MARKET REPORT Southeast Asia

Probat Werke’s Rainer van der Beek: All forms of coffee are on the rise in Southeast Asia.

“IN INDONESIA WHERE THE ‘TWO-IN-ONE’ AND ‘THREE-IN-ONE’ SINGLE-SERVES ARE VERY POPULAR, THERE IS GREAT DEMAND FOR ALL MODELS OF OUR ROASTERS. THIS ONE COUNTRY CONTRIBUTED STRONGLY TO OUR BOTTOM LINE AND PROSPECTS CONTINUE TO BE GOOD.” Rainer van der Beek

Executive Director for Sales, Probat Werke

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G C R | M AY /J U N E 2 013

Neuhaus Neotec’s Stefan Graack: Asia is one of the best places to sell equipment.

Bunn’s Ho Chee Wu: Asia’s home-grown chains are expanding in Southeast Asia alongside their betterknown American counterparts.

but the coffee industry in countries like Thailand, Indonesia and Vietnam is picking up. There is opportunity for us here.”

Southeast Asia is equally a target market for leading coffee roasting manufacturers Probat Werke.

“We sell a lot of products in Southeast Asia,” says Rainer van der Beek, Executive Director for Sales, Probat Werke. “In terms of turnover, Indonesia is our top market. But all forms of coffee are on the rise in this part of the world – specialty coffee, soluble or instant coffee and Nespresso-type single-serves. In Indonesia where the ‘two-in-one’ and ‘three-in-one’ single-serves are very popular, there is great demand for all models of our roasters, especially for tangential roasters of the Jupiter series. This one country contributed strongly to our bottom line and prospects continue to be good.”

Van der Beek says that enquiries continue to come in from other Southeast Asian countries.

“In Vietnam, industrialisation of coffee roasting has taken off in a big way in the past five to seven years,” he says. “We sell more large roasters there than small ones. This is in contrast to Singapore, where shop roasters are the norm. In Malaysia, we see more interest in torrefacto roasting, which is a well-entrenched local practice.”

Countries with larger populations such as Indonesia, Malaysia and Thailand are important markets for large-scale industrial roasters made by Italy’s Brambati.

“The demand for large coffee plant equipment like ours is rising in Southeast Asia,” says Giuseppe Giacobone, Brambati’s Area Manager. “Our business here has grown in the past 10 years, and the region is still growing. Some countries, like Indonesia, are more coffee-oriented and are wellestablished markets, but there are still a lot of opportunities. The Brambati brand is well known and we are working hard to get it even more known, so it is important for us to maintain contact with Southeast Asia’s coffee trade.”

Manufacturers of brewer, grinder and dispensers also tell of Southeast Asia’s promising prospects.

According to Ho Chee Wu, Vice President, Sales and Marketing, Asia Pacific for Bunn, the region’s economic vitality and the expansion of food and beverage chains are behind this company’s 30 per cent year-on-year increase in turnover in 2012.

“Asia’s home-grown chains such as Malaysia’s Old Town White Coffee and Taiwan’s Sharetea are expanding in Southeast Asia alongside their better-known American counterparts such as McDonald’s, Starbucks and Burger King,” says Ho, who’s based in Singapore. “They are all strong,

fast expanding brands. Singapore, Malaysia and the Philippines are our leading markets in Southeast Asia last year.”

Ho says that chains like McDonald’s, Starbucks and Dunkin Donuts – all Bunn clients – continue to expand in this part of the world because there is little growth in the Eurozone or the US. “Because equipment purchases are often approved at the headquarters level, their franchisees are automatically our customers,” he says. “We follow the big boys when they make their forays into emerging markets like Southeast Asia.”

For Pentair/Everpure, the presence of many regional headquarters of multinational corporations such as Starbucks and McDonald’s in Singapore means it needs to be there too.

“Singapore is where purchasing and servicing contracts with equipment manufacturers are signed,” says Pentair/Everpure Sales Director KL Wong. “Being in Singapore gives us the chance to work with global clients through their supply chain and quality control managers, technicians and baristas. Singapore may be a relatively small

market for us, but it influences our business in the rest of Southeast Asia.”

Brands which do not have a direct presence in Southeast Asia are rethinking their modus operandi.

Michael Paquin, CEO of Diedrich Roasters (US) says the Diedrich brand is working towards having better representation in Southeast Asia. “We sell direct to customers now, but hope to grow our service and maintenance capability in Asia,” says Paquin. “To that end, we have just established a partnership in China which will be able to serve customers in Southeast Asia. We think specialty coffee markets in Malaysia and Singapore are likely to follow that of South Korea, which has exploded over the past six or seven years. We are also seeing rapid growth in other Southeast Asia countries.

The market is opening up, and people are discovering our machines.”

Paquin says that existing customers are today thinking about the next size roaster to acquire.

“We have done well in South Korea, Japan, Taiwan and Australia, and we are seeing China taking off,” he says. “The missing part for us is Southeast Asia. We have not been as serious about this region but I want to grow our distributor network around the world, wherever the action is. And we are committing ourselves to this part of the world.”

Southeast Asia’s interest in coffee is behind the conceptualisation of the co-located trade show CaféAsia and ICT. The events are organised by Singapore-based Conference & Exhibition Services (CEMS), and its Korean partner Exporum, who is behind the successful Seoul International Café Show.

CEMS Managing Director Edward Liu says he hopes the magic will rub off on the Singapore show. “While the idea for CaféAsia first germinated about five years ago, it was not until I saw the phenomenal growth of the Seoul café show – it doubled in size in a year – that I thought the time was right for a similar event to serve the coffee trade in Southeast Asia,” he says. “While Singapore is not a coffee producer, we are a strategic hub and this exhibition can be a gateway to other Southeast Asian markets for those looking to find a foothold in the region.”

Liu says that in Singapore, the standard of living is rising and consumers now have a better appreciation of “the finer things in life and quality coffee has become a part of that”. G C R

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FEATURE Buencafe

BUENCAFÉ: FOUR DECADES OF

LEADERSHIP MARKING ITS 40TH YEAR IN OPERATION, BUENCAFÉ ’ IS NOW ONE OF THE WORLD’S TOP PREMIUM SOLUBLE COFFEE PRODUCERS. BUT ACCORDING TO ITS DIRECTOR, CONSTANZA MEJÍA, THERE IS STILL MUCH MORE TO BE ACHIEVED FOR THE BRAND.

M AY /J U N E 2013 | GCR

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FEATURE Buencafe

“OUR EXPERIENCE AND EXPERTISE IS WHAT OUR CUSTOMERS VALUE MOST AND IS BASICALLY THE REASON WE ARE LEADERS IN THE PREMIUM SEGMENT. WE ARE CONFIDENT THAT OUR INNOVATION PROCESSES HAVE IMPROVED IN THE LAST COUPLE OF YEARS AND THAT’S HOW WE WILL CONTINUE TO SUPPORT OUR BUSINESS PARTNERS.”

Buencafé’s Director, Constanza Mejía

O

ne of the world’s foremost producers of freeze-dried soluble coffee, Buencafé’s story is inextricably entwined with that of the product

it produces.

Since it was established as part of the Colombian Coffee Growers Federation (FNC) in Chinchiná 40 years ago, Buencafé’s output has grown more than 600 per cent, from 1800 tonnes of coffee in its first year to 11,500 tonnes today.

Over this time the company’s business has changed significantly. It has gone from a single product manufacturer of Colombian freeze-dried coffee to a producer of a large

Constanza Mejía

Director, Buencafé - 100% Colombian Freeze Dried Coffee

variety of premium soluble coffee products for the international market.

The past decade has seen a massive increase in the competitiveness of the industry, with a 20 per cent growth in supply, but just a 4 – 5 per cent growth in demand.

“Our operation has evolved as the market has,” says Buencafé’s Director, Constanza Mejía.

“In the 1970s, when the freeze-dried coffee industry was just starting to take a space in the market, the FNC/Freeze Dried Coffee factory [today Buencafé] used all its capacity understanding the international markets and the high standards we had to reach if we wanted to be leaders in this segment.”

Mejía says these lessons have forced the company to grow in line with the needs of customers around the world. In the process they have learned how to do business worldwide, improved industrially, and developed new products to bring them closer to their final customers.

“Fortunately we have done a very structured and rigorous job, in which we have grown with very demanding customers,” she says.

Buencafé has benefited from the global rise of house brands and private labels, particularly those with a focus on premium lines.

“Global brands have their own production facilities, therefore private labels/house brands is where our focus is,” says Mejía. “Our experience and expertise is what our customers value

When the Buencafé factory first opened in 1973, it produced just 1800 tonnes of coffee.

Buencafé today, a state-of-the-art facility producing 11,500 tonnes per year.

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G C R | M AY /J U N E 2 013

most and is basically the reason we are leaders in the premium segment. We are confident that our innovation processes have improved in the past couple of years and that’s how we will continue to support our business partners.”

Constanza Mejía has been working with the Colombian Coffee Growers Federation for 26 years. She has held management positions in Buencafé in the areas of Human Resource Development, Information Technologies and Administration. In September 2009 she took over as General Director of Buencafé. She is an Industrial Engineer from Universidad Nacional de Colombia and has completed postgraduate studies in Information Systems Management (Universidad Nacional de Colombia) and in Senior Management (Universidad de los Andes).

Since she became Buencafé´s General Director, she’s been committed to the company’s commercial and social objectives, with the high levels of both human and product quality and with the cultural change

processes that are required to face the new challenges.

Now Mejia sees the fortunes of the industry being driven by two clear, and paradoxically convergent, trends.

“First, due to the world economic situation, value products are being launched, these products stand only on their price level,” she says. “Second, the trend towards premium products is holding. Soluble coffee consumers are looking for differentiated products, all of them with better coffee values. We are confident as that’s our core.”

Buencafé has also benefited strongly from the recent consumer focus on the origin of the products they are buying. This is an area where Buencafé had a headstart.

Buencafé’s Fairtrade and Certified Organic lines speak to this market tendency, as does its long-running contribution to community improvement programs through the FNC. In recent years, the FNC has worked with the Colombian government and a range of other partners to help build roads, hospitals and classrooms that have benefited millions of Colombians.

With more than two thirds of the company’s personnel hailing from the local area, Buencafé is also responsible for the livelihoods of more than 400 families.

“Throughout its history, Buencafé has been firm in its commitment to local and regional providers, with community mindedness emphasizing children, seniors, culture, education and the environment,” says Mejía.

Along with this hard work at community level, Buencafé is still looking to get closer to its customers through the development of a growing range of differentiated premium products.

“The understanding of the final customer, their needs, their expectations, the environment in which they move, will enable us to develop more tailored products,” Mejía says. “In line with this, we have been working in the past couple of years in order to strengthen our research and development and marketing teams to be an added value partner.” G C R

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ORIGIN Honduras

IS THE HONDURAN COFFEE OVER?

BOOM

A FORMER POSTER CHILD FOR RENOVATION EFFORTS, HONDURAS SAW ITS COFFEE PRODUCTION JUMP 2.5 MILLION 60-KILOGRAM BAGS IN A DECADE. RUST DISEASE, HOWEVER, HAS HIT THE COUNTRY HARD, AND THE DAYS OF GOOD NEWS MAY SOON BE OVER.

I

t was all going so well for the Honduran coffee industry. After the last record harvest, which surpassed even the most conservative forecasts, some analysts had started suggesting the country could hit 6 or even 6.5 million bags in the 2012-13 crop year, up from 5.5 million in 2011-12.

Although a little too optimistic, considering the fact that many new planted areas weren’t set to start production, it shows the hope seen in this Central American nation.

Then came rust leaf disease, which hit Central America this year with an estimated half a billion dollars in revenue loss, and around 441,000 direct job losses. Honduras, sadly, has not been spared. The country has been hit just as hard as Guatemala, El Salvador and Nicaragua, which have borne the brunt of the onslaught.

“We don’t believe that exports in the 201213 harvest will reach more than 4.2 – 4.4 million bags because of rust, so we are talking about a significant impact on our production,” Victor

A decade ago coffee production in Honduras was almost exclusively managed by small holder growers. Large drying patios like this were nowhere to be found.

M AY /J U N E 2013 | GCR

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ORIGIN Honduras

Honduras is one of only a handful of countries that has increased its coffee production in the past five years

Molina, General Manager of the official Honduran Coffee Institute (Ihcafe) tells Global Coffee Review.

Ihcafe had initially forecast another bumper crop of 5 – 5.5 million bags, with the potential for up to 5.7 million bags. These latest figures, therefor, are by all counts disappointing. Production plans of 6 – 7 million bags by the 2014-15 harvest are today nothing but a faint dream.

Reports from across Central America confirm the dire outlook will likely persist for at least two, perhaps four, years. Both established and new producers in Honduras’ coffee sector are counting their losses.

“It’s not just the old areas that have been hard hit, but a lot of the new areas have also been hit, even if not as severely,” says Juan Jose Osorto. A former Manager of Ihcafe, Osorto worked with the government’s research institute back in the 1960s when Honduras first started to study rust disease and how to control it.

“Of course the farms which have new coffee are generally better maintained, and if the plant is in a better state and with adequate levels of nutrition, it will also do better against rust,” he says. “But many of the people who got into coffee planted the old varieties like Catuai and Caturra. They have a better cupping profile but are not resistant to rust.”

Honduras currently has around 308,000 hectares of coffee for the 2012-13 crop year, of which 275,000 hectares are in production, according to data from the US Department of Agriculture (USDA). This was up from 285,000 hectares in 2011-12, when 255,000 hectares were in production. Overall, this represents an increase of 37,000 hectares of new coffee in the past five years.

Ihcafe puts the production area a little lower, at 272,000 hectares. This includes 15,000 hectares of traditional land cultivated by small coffee growers that has been fully renovated and replanted thanks to a government-financed renovation program. The project was launched in 2010, and is looking to renovate 50,000 hectares by 2020. The Honduran government has been financing annual

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replanting of 5000 hectares, boosting tree density to at least 5000 trees per hectare from an average of 1500 in areas not renovated, according to Ihcafe.

A decade ago, Honduras already had around 240,000 hectares of land cultivated with coffee, according to Ihcafe, which attributes the main rise in production to improved yields. Honduran coffee growers have gradually brought productivity up to an average 19 – 20 bags per hectare in the 2011-12 cycle, up from 8 – 9 bags in 2005-06, according to Mario Ordonez, Technical Manager at Ihcafe.

“AS WITH MANY CRISES, THERE IS LOTS OF INFORMATION AVAILABLE ABOUT ROYA [COFFEE LEAF RUST DISEASE], BUT IT’S DIFFICULT FOR FARMERS TO DISCERN WHAT IS REALLY USEFUL.” David Griswold

CEO of Portland-based coffee importers Sustainable Harvest

Analysts say the growing importance of Honduras as a reliable producer of larger volumes of coffee means International buyers and roasters are lining up to help growers deal with the rust crisis.

Visible industry interest is helping the country’s producers stay on track. For 10 years, the country has had an intensive focus on specialty coffee and Honduras has established itself as a reliable source of mild washed Arabica in the wake of the Colombia production crisis.

In the face of the rust attack, this has led to many private companies now coming to Honduras’ rescue.

“As with many crises, there is lots of information available about Roya [coffee leaf rust disease], but it’s difficult for farmers to discern what is really useful,” says David Griswold, CEO of Portland-based coffee importers Sustainable Harvest.

Last month, the company launched a disaster relief effort to help organic coffee farmers in Latin America, with a major part of the program concentrated in Honduras.

Other companies like Green Mountain Coffee Roasters, Cafe Moto, Cafe Mystique, Dillanos and the Coffee Trust foundation have also announced projects in Honduras.

“Our goal with the Roya Recovery Project is to work with the industry to help farmers make well-informed decisions so they recover as quickly as possible from the devastation,” says Griswold. The Rust Recovery Project is

Coffee growers in Honduras have worked hard on improving quality to open up for sales to the specialty markets

launching a series of tools and training manuals on best practices for certified organic farmers. These farmers are posed with a special challenge, as they can’t use chemicals and have been the most exposed to the infestation and spread of coffee leaf rust.

Industry officials like Osorto agree that organic farmers have by far been the hardest hit.

“All the coffee farmers here are very concerned, but the organic farmers really don’t know what to do,” says Osorto, who is a coffee producer himself. “They have mostly old coffee and old varieties that should have been replanted a long time ago which have no resistance level to rust.”

With the 2012-13 coffee crop in Honduras already down at least 1 million bags, and the impact of rust expected to continue to worsen in the next harvest, farmers and authorities are working on bringing the outbreak under control. The outlook for Honduran growers, however, may be a little better than for most Central American growers.

Honduran coffee growers can retain some hope for a more speedy recovery process than in the rest of Central America thanks to the government’s proactive role in the country’s coffee industry in the past five years. As a result, coffee losses may be brought under control in Honduras more quickly than in other countries.

“People are getting desperate. Some are trying to sell their farms both because of the rust issue as well as the low prices that don’t show any signs of improving,” says Osorto. “We still do have some areas left that will start to enter production in the next few years. In my opinion we should still be able to get a harvest of about 4.6 million bags next year.” G C R

DIRETIMES A combination of production cuts from coffee leaf rust and low prices have left many farmers desperate, and even looking to sell their farms. Central America is estimated to have lost half a billion US dollars in revenue.

M AY /J U N E 2013 | GCR

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FEATURE Colombia Strike

ON COLOMBIA’S STAND-OFF

CHIEF EXECUTIVE OF THE COLOMBIAN COFFEE GROWERS ASSOCIATION DISCUSSES HOW THE COUNTRY WILL MOVE PAST THE COFFEE FARMERS’ STRIKE.

I

f the adverse conditions leading to the Colombian coffee growers’ strike were a perfect storm affecting the industry, it is not yet clear whether the relief package that ended the strike can ever be anything more than an umbrella.

The Chief Executive of the Colombian Coffee Growers Federation (FNC), Luis Munoz, tells the Global Coffee Review that it is hoped that the US$450 million agreement will see the country’s 560,000 farmers through to better times.

“This commitment shows that coffee is an industry in which Colombia believes as a business with opportunities for our rural society,” he says.

The agreement was reached between the FNC, the growers themselves and the Colombian Government in early March, ending an 11-day strike that brought the world’s fourth largest coffee producer to a standstill. But given the problem was caused by a confluence of external factors – falling international coffee prices, an appreciating local currency and still recovering harvests – there is no guarantee this current agreement will be the definitive solution to the problem.

However, with the coffee industry holding such an integral place in the Colombian economy, it is more than just the growers who are hoping for an end to this challenge.

“The local rural economies, not only coffee growers, are directly or indirectly affected when coffee income comes down, so many supported this movement,” Munoz says. “The authorities estimate that on average 40,000 people were protesting.”

The new agreement will see coffee growers receive an increased subsidy of US$80 per 125 kilograms of parchment until at least December this year, and increase of around US$18. The FNC has also committed an additional US$116 million to research, technical

assistance and the renovation of crops.

At least part of this money will help the farmers in their continuing efforts against roya, or leaf rust. The FNC has already invested in a US$1.4 billion replanting program that has been running since 2008. In that time, some 574,000 hectares have been renovated, with 2.1 billion new trees planted. Munoz is confident that the bulk of the problem is now behind them, and farmers can expect increased yields beginning this year.

While the nadir of the rust crisis has passed – the 2010-11 crop year saw total production of just 7.5 million bags – at 10 million bags, the projected output for this year is still short of the country’s historical 11 million bag yields.

Boosting the impact of this recovery will be

40% The decline of the US dollar and appreciation of the Colombian peso has driven Colombian producers’ earnings down by 40 per cent

M AY /J U N E 2013 | GCR

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FEATURE Colombia Strike

Chief Executive of the FNC, Luis Munoz

Colombian farmers have been caught in a perfect storm

the work the FNC has put into improving the technical skills and capabilities of Colombia’s coffee farmers. Part of the program has been to introduce new technologies such as tablet computers to improve communications and information delivery to farmers. They have also increased monitoring of climatic conditions in growing areas to make the industry as a whole more responsive to new weather patterns caused by climate change.

However, with the international coffee price being set in US dollars, the struggles of the American economy continue to be bad news for coffee growers the world over. Add to that the fact that the Colombian peso has fared well over the same period, and the grim backdrop for this recent drama was cast. These two circumstances alone have combined to reduce Colombian growers’ incomes by more than 40 per cent over the past four years. More significant, however, is the fact that these underlying circumstances have not yet improved.

Now the FNC is turning its attention to longer-term strategies for improving the prospects of its farmers.

“We believe that quality and differentiation, compounded with higher productivity and adaptation strategies for climate change, are our best strategy,” Munoz says. “Mild Arabica producers in general may be in different conditions to pursue these strategies all at once, but thanks to the FNC, Colombia can work on all of these at the same time.”

The FNC is also enabling farmers to hedge their prices against the risk of future volatility. The Price Protection Contract (CPP) was introduced last year and will combine with the government’s support to provide the farmers with more certainty when selling their produce. The CPP allows the country’s coffee growers to set a load price for the second, third and fourth month after the date they enter into the contract.

None of this, however, can alter the reality of low market coffee prices, which will continue to put pressure not just on Colombian farmers, but coffee producers the world over. This is a problem that Munoz says must be addressed by the industry as a whole.

“Growers are actors in the global industry that need to be recognised and appreciated,” he says.

“If the industry wants quality coffee, it cannot ignore what goes on in producing countries and the role institutions play in these countries.” G C R

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“THE LOCAL RURAL ECONOMIES, NOT ONLY COFFEE GROWERS, ARE DIRECTLY OR INDIRECTLY AFFECTED WHEN COFFEE INCOME COMES DOWN, SO MANY SUPPORTED THIS MOVEMENT. THE AUTHORITIES ESTIMATE THAT ON AVERAGE 40,000 PEOPLE WERE PROTESTING.” Luis Munoz

Chief Executive, Colombian Coffee Growers Association (FNC)

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ORIGIN China

NORTHERN

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EXPOSURE

CHINA’S UNIQUE GROWING CONDITIONS HAVE DRAWN THE ATTENTION OF THE GLOBAL COFFEE INDUSTRY, BUT THERE IS A LOT TO BE DONE BEFORE ITS PRODUCE EARNS WIDE-SCALE RESPECT.

BY NICK SHERIDAN

W

hen China signals its intention to become a world player in a new industry, it pays to take notice.

Now it is the turn of the international coffee trade to focus its attention on the emerging superpower – not as the ripening consumer market that we have seen coming for some years now, but as a significant coffee producer in its own right.

While coffee cultivation in China goes back to the late 19th century, little of its coffee is consumed outside of Asia.

With reliable information on coffee production out of China very hard to come by, estimates on output vary from 30,000 to 60,000 tonnes in the 2012-13 coffee year. There is a general consensus, that it could rise to as much as 200,000 tonnes by 2019-20. Despite this, Chinese coffee is still a relative unknown on the world stage.

The first coffee trees in China were planted on Hainan Island, where the country’s tiny output of Robusta still comes from today. But it is the Arabica grown in Yunnan province that is drawing international attention.

Arabica is grown mainly in the Baoshan and Pu’er regions of Yunnan, which is in Southern China, bordering Burma, Vietnam and Laos. Pu’er is of course famous for its production of another hot beverage – the tea from the region is one of the most precious varieties in the world.

While exporters are just now starting to take notice of China as a serious producer of coffee, Jesse Ping Zhang, Managing Director of the Shanghai Fuda Industrial Company, an agent for Probat, anticipates the most fruitful market being much closer to home.

“AT PRESENT, MOST GREEN COFFEE IN YUNNAN IS FOR EXPORT. HOWEVER CHINESE DIETARY CULTURE IS CHANGING AND COFFEE IS A BIG GROWTH AREA.” Jesse Ping Zhang

Managing Director of the Shanghai Fuda Industrial Company

200,000 It is estimated that China will produce 200,000 tonnes of coffee by 2020, but it will be consuming that much by 2015.

“The greatest potential for the development of Yunnan coffee lies in the 1.3 billion population of China,” she says.

“At present, most green coffee in Yunnan is for export. However Chinese dietary culture is changing and coffee is a big growth area.”

Rising to meet this demand is another question, one that Zhang says will need to be addressed by the development of processing capabilities, with a shift from hand to

M AY /J U N E 2013 | GCR

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ORIGIN China

“I THINK THAT OVER THE NEXT FEW YEARS WE’LL CONTINUE TO FIND AGENTS AND REPRESENTATIVES WHO WANT TO PUSH FOR QUALITY AND IF WE’RE THERE WORKING CLOSELY WITH THEM, THE OPPORTUNITIES WILL PRESENT MORE AND MORE.” Andrew Ford MTC Group

machine-driven processes.

Independent consultant in coffee quality and sourcing Genevieve Kappler was recently in Yunnan. While she was excited by some of the flavours she discovered, she also has some misgivings about the rapid growth of China’s coffee production.

“After driving through plantation after plantation in Pu’er for over three hours, I began to get concerned,” she says. “In five to 10 years, China will inundate the world with a huge amount of coffee, and I worry what effect this will have on the world coffee price.”

Being a true coffee lover, however, Kappler’s concern is overwhelmed by the excitement at discovering the unique flavours of Yunnan coffee. Vivacious, clean, citrusy, delicate, floral and substantial are just some of the words she uses to describe the coffees she tasted there, some of which she sourced in a custom-processed lot for what is now being sold as the US-based Roasting Plant’s first Chinese blend.

Kappler also sees environmental sustainability being a major challenge for the future of the Chinese industry. With the main growers another year away from full production, she is hopeful there will be time to implement appropriate processes to manage the disposal of waste materials.

“I can see water will be a tremendous issue in many many places there as there is no planning whatsoever to handle the highly polluting waste water that will come out from the wet processing,” she says.

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The green hills of Yunnan are where the future of China’s fledgling coffee industry lies

PU’ER The Pu’er region is already famous for its tea, but farmers in the region are now also focusing on coffee.

“There are always solutions, but protecting the environment is a must for this new chinese coffee venture to be sustainable. Any way around would be short sighted and leading to serious expenses to correct mistakes down the road.”

Andrew Ford, President of green bean traders MTC Group, has recently started to pay attention to Yunnan, attracted in large part by the region’s unique geography. Ford is less concerned than Kappler about the potential for distortion on the world market.

“As I understand it, the forecast consumption is going to be about 200,000 tonnes by 2015, and it’s currently about 30,000 – 40,000 tonnes. So it would seem that whatever is being produced is going to easily be swallowed up internally,” he says.

Ford anticipates the real challenge will be in developing the capacity for moving this new mountain of coffee to the growing number of consumers.

However he is also concerned that with such an ample supply of new coffee to meet the rising demand, there will be a limited focus on quality. This, he fears, could do

A bright future - Chinese coffee beans

The terraced mountainsides of Yunnan

serious, long-term damage to the Yunnan brand on the international market. In fact, Ford says, this is already a problem.

“Within our networks – our buyers globally and our relationships inside China – all see Yunnan as low quality coffee, however with suitable intrigue about the potential,” he says, adding that this does not mean the reputation of Yunnan coffee is irretrievable, but it will take some work.

Ford signals the involvement of global giant Starbucks in the region as signs that, in the future, there will be at least some drivers for quality in the region.

In December last year, Starbucks opened up its first Asia-based Starbucks Farmer

Support Center in Pu’er. Starbucks is working directly with the farmers there to help reduce the environmental impact of the region’s coffee-growing activities. They are also trialling four locally grown varietals, which they intend to plant commercially in 2015.

He also still sees some potential for specialty coffee traders such as himself to foster a culture of quality production in the region.

“I’m very pro Yunnan as a coffee region,” he says. “Geographically it’s unique – it’s a long way north of the tropics, so it’s outside of the typical growing areas.”

While the strong history of tea farming in the region bodes well for the cultivation side of the process, Ford says the real challenge is ensuring the post-harvest handling of the coffee is good enough to realise its full potential.

However, so long as the demand meets, or exceeds, supply, it will be hard to encourage change. But Ford is undeterred, and feels sure there will always be at least some people there who are willing to do that.

“I think that over the next few years we’ll continue to find agents and representatives who want to push for quality and if we’re there working closely with them, the opportunities will present more and more,” he says. G C R

M AY /J U N E 2013 | GCR

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///////////// GUEST COLUMNIST



Photo: Pham Thi Diep Giang

INCREASING VALUE IN THE COFFEE INDUSTRY Đặng Lê Nguyên Vũ

Chairman of Trung Nguyen Group

VIETNAM REACHED a milestone in 2012, as the world’s leading coffee exporter for the calendar year. The country exported an astounding 1.7 million tonnes of coffee, generating revenue of around US$3.6 billion for the country’s coffee industry.

Although impressive, I believe that these sales figures represent only a fraction of our potential. By adding value, Vietnam could soon be looking at a US$20 billion coffee industry. This level of income could achieve astounding success in improving the lives of coffee farmers, and the development of the Vietnamese economy as a whole.

To do so, I propose the following six goals. These goals were first presented at the Coffee Outlook 2013 conference, that took place during the 4th Coffee Festival 2013 in Buon Ma Thuot, Vietnam’s coffee capital, where 50 per cent of the country’s coffee is grown.

1. FIVE PILLARS – ONE GOAL To add value to the coffee industry, the first goal should be the cooperation of every pillar of society. These five pillars – the state, farmers, research and technology institutions, the media, and industry – must all act with the same intention. That intention must be to increase the value of Vietnam’s coffee industry.

2. IMPROVE CULTIVATION The second goal is to improve the agricultural practices of coffee farmers. This must be the foundation for developing the nation’s coffee industry. This goal must be achieved with sustainability at the forefront, to ensure that our practices leave future generations with a solid foundation.

Improved farming practices must strive to increase not just yields, but also the quality of coffee. Vietnam’s coffee cannot simply be traded on the market, but needs to be celebrated and recognised by region among specialty coffee circles. Marketing efforts should aim to single out Vietnamese coffee for its quality offerings, with specific communication strategies for dedicated coffee-growing regions.

The main objective in improving cultivation must be prosperity

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and environmental sustainability, within a context of preserving local identities. Advanced cultivating technologies are key in this regard. Trung Nguyen has been working with Israeli drip-irrigation technology, which helps save water while delivering fertilisers and nutrients direct to the roots of coffee trees. This helps increase yields by 50 – 100 per cent, while preserving natural resources. Advances in coffee agriculture must also look at varietal development, to increase the quality of coffee plants and attract higher-than-market prices.

The standards used in producing and importing countries must be better aligned, to help exporters increase the value of their coffee beans.

Vietnam needs to implement better management and quality control procedures, to lift the quality of coffee to international standards.

3. COFFEE TOURISM Trung Nguyen proposes that Buon Ma Thuot to be named a ‘Global Coffee Capital’ to attract coffee tourism. This would be an opportunity to market the quality coffee available here, and help build a Buon Ma Thuot brand.

“THESE FIVE PILLARS – THE STATE, FARMERS, RESEARCH & TECHNOLOGY INSTITUTIONS, AND THE MEDIA – MUST ALL ACT WITH THE SAME INTENTION. THAT INTENTION MUST BE TO INCREASE THE VALUE OF VIETNAM’S COFFEE INDUSTRY.”

“THE COFFEE INDUSTRY MUST HAVE A CLEAR STRATEGY, TO DIVERSIFY ITS COFFEE CULTURE WITH PROGRAMS THAT IMPROVE THE QUALITY OF COFFEE. THIS IN TURN SHOULD HELP INCREASE COFFEE CONSUMPTION PER CAPITA IN VIETNAM.”

The coffee industry must develop a global communications program that helps bring coffee out of the commodities market and instead recognised by terroir. Diplomacy, education, and digital communications platforms should be used to help develop this geographical recognition. Festivals, such as the one held in Buon Ma Thuot, should be used to promote the image and brand of Vietnamese coffee.

Visiting coffee growing regions should be an eco-tourism activity.

By adding tourism revenue to coffee growing regions, this will help lift local economies as a whole. This increased income must be reflected in the improvement of healthcare and education facilities, ensuring that farmers can enjoy this added value.

4. NATIONAL COFFEE CLUSTER The next initiative we propose is to build a National Coffee Cluster in Vietnam. This cluster would bring together every segment of the coffee chain, with the combined goal of improving the quality and efficiency of coffee production. This would enable technology to be shared all along and across the production chain.

The cluster would be built to maximise the value of every segment of not only the coffee chain, but also develop an infrastructure for supplementary industries (sugar, dairy, etc.) and coffee-related industries (food, cosmetic, etc.). By increasing cooperation in technology sharing, production, finance, and so on, this would increase the value of the coffee chain.

Trung Nguyen believes that multilateral partnerships are key to developing the industry. The key principals of these partnerships must include: balancing revenue across the global coffee value chain, sustainably developing natural resources, standardising products for export, and implementing corporate social responsibility practices.

5. NATIONAL COFFEE BRAND Trung Nguyen proposes that Vietnam establishes a state-supported coffee corporation. Countries such as Colombia have been highly successful in pooling their resources in a national coffee brand and corporate structure. This helps ensure the country’s coffee industry has a competitive advantage, one that every farmer can benefit from. In Vietnam, the establishment of a statesupported coffee corporation could be used to develop appropriate macroeconomic and industrial policies.

The corporation should seek to promote Vietnamese culture as a whole. It should be ambitious, offer special strategies, high-quality products, and be supported by the whole community. Such a corporation could be a major force in adding value to coffee output, affirming its position as a powerful global corporation.

6. POWERFUL COFFEE NATION The end goal of these initiatives must be to ensure that Vietnam is a powerful coffee nation. The coffee industry must have a clear strategy, to diversify its coffee culture with programs that improve the quality of coffee. This, in turn, should help increase coffee consumption per capita in Vietnam, which is quite important in adding value to the industry.

We at Trung Nguyen hope that Vietnam will have an opportunity to realise its potential. Not only will this help improve the lives of Vietnamese farmers, but hopefully inspire other coffee growing countries around the world. G C R

M AY /J U N E 2 013 | GCR

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DIARY Dashboard COFFEE AROUND THE GLOBE

WORLD COFFEE EVENTS SCAE WORLD OF COFFEE

ACROPOLIS EXHIBITION CENTRE/PALAIS

DES EXPOSITIONS, NICE, FRANCE GLOBAL COFFEE REVIEW LEADERS SYMPOSIUM ZINC FEDERATION SQUARE MELBOURNE, AUSTRALIA

22 MAY 2013 The GCR Leaders Symposium will welcome the industry’s influential voices to discuss pressing issues, with vivid presentations and panel discussions aimed to help grow and inform the coffee industry. The event will be launched in Melbourne, Australia, in conjunction with the Melbourne International Coffee Expo and the World Barista Championships 2013. With its strategic geographical location, Melbourne serves as the ideal venue for an event catering to the needs of the blossoming Asia Pacific coffee industry. The GCR Leaders Symposium will be held at Zinc Federation Square. www.globalcoffeereview.com/gcr-leaders-symposium/about

The Specialty Coffee Association of America (SCAE) is hosting SCAE World of Coffee in the stunning city of Nice, located on the French Riviera, from 26 – 28 June at the Acropolis Exhibition Centre/Palais des Expositions.

Europe’s premier specialty coffee event is tailor-made for coffee professionals, growers, exporters/importers, roasters, and manufacturers/distributors of equipment and other coffee-related supplies (including bakeries and more). With an expected attendance of up to 5000 visitors and representation from more than 40 countries, the event is set to be an attractive event for baristas, coffee houses, hotels, restaurants, café/snack bars/take aways, canteens, bakeries, pubs and more. www.worldofcoffee-nice.com

MELBOURNE INTERNATIONAL COFFEE EXPO

CAFE SHOW CHINA, CHINA INTERNATIONAL

MELBOURNE, AUSTRALIA

9 – 11 AUGUST

MELBOURNE SHOWGROUNDS,

23 – 26 MAY

The Melbourne International Coffee Expo (MICE) will bring together the World Barista Championships, World Brewers Cup, the inaugural Global Coffee Review Leaders Symposium and Australia’s largest dedicated coffee trade show, for a once in a lifetime event. MICE2013 will demonstrate the culmination of hard work that has seen the Australasian industry develop into what is now being recognised as one of the strongest specialty coffee scenes in the world. www.internationalcoffeeexpo.com

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26 – 28 JUNE

G C R | M AY /J U N E 2 013

EXHIBITION CENTRE, BEIJING, CHINA

Asia’s largest exhibition, Seoul Cafe Show, is coming to China.

China is currently seen as one of the strongest potential markets for coffee in the world. Cafe Show China will be a platform for food and beverage industry professionals from all over the world. It will be a place to learn and share about new trends in Chinese coffee culture. The event will be held at the China International Exhibition Centre, a strategic hub for a global gathering of this magnitude.

The event is being coorganised with the Chinese government organisation, CIEC Exhibition Company Limited. www.facebook.com/chinacafeshow

UNITED COFFEE & TEA INDUSTRY SHOW RUSSIA

EXPOCENTRE, MOSCOW, RUSSIA

12 – 14 SEPT The United Coffee & Tea Industry Show Russia (UCTIS) is an international combined coffee and tea conference and industrial exhibition. Its three-day schedule includes the established Moscow International Coffee Forum (MICF) and Moscow International Tea Symposium (MITS). Major exhibitors taking part in the show include coffee and tea raw material suppliers, coffee and tea producers, exporters, importers, distributors, manufacturers of all types of equipment, packaging, various ingredients, and accessories for industries. The UCTIS Organising Committee expects more than 2500 visitors to attend – representatives of all the segments of the coffee and tea markets in Russia, Common Wealth of Independent States (CIS) and other countries. www.unitedcoffeetea.ru

KEEP A LOOK-OUT Coffee Fest 7 – 9 June Chicago, United States www.coffeefest.com Restaurant Leader Summit 18 – 19 June London, United Kingdom www.restaurantleadersummit.com Nordic Barista Cup 5 – 7 September Oslo, Norway www.nordicbaristacup.com Seoul International Café Show 21 – 24 November Seoul, Korea

HOST FIERA MILANO

MILAN, ITALY

COTECA Coffee Tea Cocoa Global Industry Expo 24 – 26 September 2014 www.coteca-hamburg.com

18 – 22 OCTOBER HOST is the international exhibition of the hospitality industry. It is a leading marketplace for the sector, and a trendsetter for the HORECA industry. Around 1600 exhibitors take part in the event, coming from 40 countries, from all four corners of the globe. The 2013 event will see a 10 per cent increase in exhibitors over the year prior. Around 125,000 professional operators visit the event, including 33,000 international guests from 153 countries. HOST offers specialised areas, including a dedicated coffee and tea segment. www.host.fieramilano.it/en

M AY /J U N E 2 013 | GCR

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PRODUCTS Marketplace

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CALLISTO HOT CUPS For the ultimate in brand expression, the Huhtamaki range of Callisto double-wall paper hot cups can now be fully customised with a brand’s own unique embossed design around the entire cup. This offers a new, exciting and innovative way brand owners can further enhance and differentiate their coffee or café brand. The Callisto hot cup range is proudly made to the highest quality standards at Huhtamaki’s Australian manufacturing plant and is available in all popular cup sizes. For more information visit www.huhtamaki.com

JUNIOR EXTRA TCI Junior Extra TCI offers quality and technology together in one design, ideal for domestic use. The result can be seen in the cup, with fantastic looking coffee and even better taste.

The TCI offers individual temperature control, with electronic coffee temperature control devices that offer a separate boiler for the group head, and a boiler for the steam and hot water. The boiler temperatures can be controlled separately. For years, BFC has been recognised for its prominence among professional espresso machines. The Junior Extra TCI offers the same technology for use at home or among smaller operators. It is available in the Junior collection, and the new Junior Elite, which is a mix of elegance and technology that brings espresso machines to the next level. With a copper boiler and thermo-siphonic circuit, the unit is entirely made of steel AISI 304. The combination of superior materials enables the creation of extraordinary quality. New features of note in the Junior Elite include a tank with a capacity of 3 litres, including an easy access tank for easy filling. The machine also offers an integrated professional motor pump, allowing the user the option to use water in the tank, or tap water, by simply pressing a switch. For more information visit www.bfcsrl.it

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LORING SMART ROAST Loring Smart Roast, based in Santa Rosa, CA, is now shipping the new Peregrine 70-kilogram full bag coffee roaster. This roaster joins the product line alongside the Kestrel 35-kilogram and Merlin 15-kilogram roasters, and offers the same patented Flavour-Lock Roast Process Technology that allows Roastmasters to bring out the best flavour in every bean. All Loring Roasters are designed as smokeless roasters and use up to 80 per cent less of the fuel required by conventional roasters of comparable size with an afterburner. The Peregrine features the same touch screen computer controls, programmable roast profiles, and high-speed cooling system but has specifications to handle three full bags per hour. Now high volume artisan coffee roasters can have the same features pioneered with Loring’s smaller roasters, scaled to meet their processing needs. For more details on the Peregrine S70, Kestrel S35 or Merlin A15, go to www.smartroaster.com or email info@smartroaster.com

WEGA SPHERA The ROK hand-powered coffee maker makes superb espresso because it functions so simply. The user just pours in hot water, lifts the handles, pushes down gently and watches as rich, pure espresso with crema pours into the cup. The ROK requires no power and has no cords or internal parts. It makes no stove or bench top mess and is easy to clean. The ROK is portable and recyclable. It uses just 1.2 watts or the energy required to boil a cup of water. To learn more about cordless coffee making, visit www.wega.it

WMF 8000 S The WMF 8000 S is WMF‘s new premium model. This coffee machine combines quality, perfection and innovation with great tasting coffee. Its design has won the coveted iF Design Award. The Man Machine Interface guarantees that all functions are simple to understand and ready to use in an instant. Press your selection on the display screen to create the perfect coffee. The timing of numerous processes has been hugely improved. When it comes to equipment for milk and steamed drinks, the WMF 8000 S is a trendsetter. The Active Milk version even allows the fully automated preparation of hot and cold milk and foamed milk drinks.

For more information visit www.wmf.com

M AY /J U N E 2 013 | GCR

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LASTWORD The O-phone

THE OPHONE:

THE SWEET SMELL OF PROGRESS IN THE HOLLYWOOD MOVIE adaptation of Cyrano de Bergerac, the prolifically nosy Steve Martin muses on what it is like to be able to wake up in the US and smell the coffee… in Brazil.

Now that really is possible, and you don’t need Cyrano’s oversized nose to do it.

Introducing the Ophone, the world’s first electronic aroma transmitting device that has been developed by Le Laboratoire in Paris.

The possible applications for the Ophone are many and varied – imagine watching a 3D film set in a jungle where you can smell the humid air, the foliage and the animals all around you. The project came to life thanks in part to the involvement of Australian coffee roasters Toby’s Estate.

Ryan Spinoglio is the Quality Assurance and Training Manager with the Sydney-based company. He has been working with Harvard professor, David Edwards, and his team of scientists and engineers at Le Laboratoire to accurately recreate the aroma of coffee for the project.

Spinoglio and Edwards were able to break down the smell of coffee into four base scents, which can then be combined to accurately recreate the aroma of different coffees. The result is a machine that can send the particular scent of any different coffee across the globe in much the same way as one would send an email.

According to Spinoglio, this new technology is more than just a novelty.

“When you look at where specialty coffee is today, there are a number of very exciting innovations taking place,” he says. “It’s great to see projects like this that are pushing innovation in a whole new direction.”

Spinoglio points to other work that Edwards has done, transforming food and beverages into aerodynamic powders using the Aeroshot and drinkable clouds using Le Whaf, as a sign of where the coffee industry could go next.

“A lot of people think about the flavour and maybe what’s on the top of the coffee, but there is so much more to it than that,” Spinoglio says.

These technologies will be demonstrated at an exhibition at Le Laboratoire in May. Visitors will be able to inhale a coffee through the Aeroshot and Le Whaf, and also taste it as a siphon and espresso.

Then they will have the chance to sample a coffee via the Ophone, and even send their own coffee-coded ‘smell-o-gram’ across the globe.

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Toby’s Estate’s Ryan Spinoglio breathes in a coffee using Le Whaf

THE OPHONE Developed in Paris, the aroma transmitting device will soon be available commercially

The Ophone is set to be commercially available soon after the exhibition, with backing from telecommunications company, Orange, and flavour and fragrance manufacturers Givaudin.

Spinoglio says the Ophone could change the way people think about coffee.

“The nose is so essential to culinary experiences,” he says. “This experiment will make people realise that there is so much more to coffee than just taste.”

Who knows – if the technology really takes off, geography may no longer be a barrier to catching up with friends for coffee. G C R

TRAINING IS THE “HOW” EDUCATION IS THE “WHAT” Brewed Behavior and Nuova Simonelli have a solid education program that not only explains what to do, but more importantly why it is done.

[ Tracy Allen ] CEO Brewed Behavior

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