GCR Aug 2012

July/August 2012

FAIRTRADE STANDOFF

The outcome of fractured visions

HERE COME THE CHAINS

Foreign cafés tap into opportunity in Vietnam

COLOMBIA’S OUTLOOK

Mitaca crop trickles in

SOUTH SUDAN RESCUE MISSION Saving wild Arabica

THE COFFEE PRICE BLAME GAME Are funds the culprit?

FUELLING

INDIA’S GROWTH COFFEE BOARD OF INDIA CHAIRMAN ON UPSCALING CONSUMPTION AND PRODUCTION

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CONTENTS July/August 2012

COVER STORY INDIA’S CAFFEINEFUELLED GROWTH

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The Coffee Board of India’s role has shifted from one of centralised coffee buying, to supporting farmers coping with challenges, from changing demographics to climate change.

40

IN THIS ISSUE FEATURES

RESEARCH & TECHNOLOGY COFFEENOMICS

10 INDIA’S CAFFEINE-FUELLED GROWTH

40 THE GENETIC KEY TO A SUSTAINABLE INDUSTRY

Coffee Board of India Chairman Jawaid Akhtar on the rise of consumption and quality of Indian coffee.

14 SAME GOAL: DIFFERENT VISIONS

A look at Fair Trade USA’s decision to separate from Fairtrade International, and the businesses caught in the middle.

22 UPSCALING TASTES

The introduction of

Western coffee shops in Vietnam and its broadening coffee culture.

32 STRUGGLING TO RECOVER

Analysts predict Colombia’s 2011-12 harvest could be the lowest in half a century.

Experts on why wild coffee species are vital to the industry’s future.

50 DIAMONDS OF THE FUTURE

The new F1 Hybrid

variety from Nicaragua gains commercial interest from Starbucks.

32

funds in fluctuating coffee prices.

ORIGIN 45 I PADS AT ORIGIN

Sustainable Harvest’s educational plan to put iPads in the hands of farmers at origin.

22

REGULARS

PROFILE

4 EDITOR’S NOTE

36 INTERNATIONAL SYNERGIES

Monin’s Managing

7

Director Cedric Clouzeau on the advantages of a global presence.

Jawaid Akhtar Chairman, Coffee Board of India

26 VULNERABLE MARKETS:

PLAYING THE BLAME GAME A look at the role of

58 TAKING TECHNOLOGY

DOWN A SIZE

Switzerland’s Gotec

S.A. releases the world’s smallest capsule machine.

“WE’RE LOOKING TO HELP CONTINUE TO INCREASE PRODUCTION SO WE CAN MEET THE NEEDS OF THE DOMESTIC MARKET AND CONTINUE TO EXPORT.”

NEWS DRIP BY DRIP

54 DIARY DASHBOARD 56 MARKETPLACE 58 LAST WORD

J U LY /A U G U S T 2 0 1 2 | G C R

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EDITOR’S NOTE Global Coffee Review

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



JOURNALIST Sarah Baker sarah.baker@primecreative.com.au

SYNERGY ACCOUNTABILITY AND PROGRESS

The word ‘synergy’ is certainly no stranger to the dialogue of business speak.

From speeches to management books, wherever self-appointed experts look to simplify the complex nature of multistakeholder structures, the word emerges to describe these structures’ potential.

The modern landscape of the coffee industry is deploying its share of organisations making the most of synergetic forces. World Coffee Research (WCR), an organisation with which this publication recently partnered, is one example. Thanks to industry support – in mind and dollar terms – the organisation is positioning itself as a central group is linking global research efforts to help promote the sustainability of Arabica. The recent trip to South Sudan (see page 40) could be a massive step forward, however the success of WCR’s efforts will depend on groups working together by pooling their resources.

Our interview with Monin Asia’s Managing Director Cedric Clouzeau (see page 36), aptly headlined ‘International Synergies’, is further evidence of international advantages. The interview looks at the benefits that are unravelled when a company moves away from a top down approach, and instead takes inspiration from the countries in which it operates.

In writing these stories, we’ve focused on the positives that emerge out of synergies. Many people know, however, all too well that additional layers and input in an organisation are often accompanied

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by complications, politics, and the inevitable disagreements.

Our coverage of Fair Trade USA’s (FTUSA) decision to withdraw from Fairtrade International (FLO) membership is evidence of these splinters in the synergetic ideal. Synergy is only possible when fundamental points are agreed upon. In this instance, FLO and FTUSA have taken different stances on the benefits of certifying outside of smallholder farms. FTUSA sees the potential to increase the number of farmers and workers who benefit. FLO and other stakeholders see FTUSA’s move as threatening the future of smallholder farmers.

If those concerns prove viable, then the livelihoods of farmers the world over could be at risk. It will be up to companies purchasing certified coffee to work together, and hold FTUSA responsible for reporting on the outcomes of this ambitious initiative.

ART DIRECTOR Joel Parke DESIGN Blake Storey, Alice Ewen, Karen Sloane, Michelle Weston, Sarah Doyle BUSINESS DEVELOPMENT MANAGER Steve Roberts steve.roberts@primecreative.com.au GROUP SALES MANAGER Brad Buchanan brad.buchanan@primecreative.com.au PUBLICATION CO-ORDINATOR Hayley Blain hayley.blain@primecreative.com.au PHOTOGRAPHY Blake Storey Patrick Varney Manjiv Jayakumar, Q Trade Teas and Herbs CONTRIBUTORS Maja Wallengren Scott Harris 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 and published by John Murphy. All material in Global Coffee Review Magazine 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. The Editor welcomes contributions but reserves the right to accept or reject any material. 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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EUROPEAN COFFEE SYMPOSIUM AMSTERDAM 2012

The leading event for the European coffee shop and food-to-go market

20-22 November 2012 The Passenger Terminal Amsterdam, Amsterdam

“The European Coffee Symposium is a truly inspiring event that every serious professional in the coffee shop sector should be involved in.”

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NEWS In Brief

NEWS DRIPBYDRIP 

AMERICAS

Colombia could face their smallest crop in 50 years according to some industry estimates, following on from a survey of the mitaca mid-crop.

Colombian coffee producers have seen at least 4 million bags of their coffee replaced with Brazil and Central American origins, since their coffee production dropped from its peak levels of between 11 and 11.5 million 60-kilogram bags.

Some producers and analysts estimate the current 2011-12 coffee harvest will struggle to reach above 7 million bags.

Coffee production in the 12-month period ending 30 May was down 24 per cent at 7.1 million bags, compared to the 9.3 million bags in the same period a year ago.

For details see page 32.

In early 2012, Starbucks purchased in the new F1 hybrid variety from the Central American coffee institute, Ecom Coffee Group Agro. The coffee was branded a Starbucks Reserve product and merchandised ‘Nicaragua Diamond’.

Over a seven-year period, it was estimated that the new F1 varieties would generate a net present value of US$11,244 per hectare, compared to $5774 for traditional coffee varieties.

As the world’s eighth-largest producer of Arabica beans, coffee has been a key contributor for Nicaragua’s national economic development process, generating over US$430.5 million in coffee sales between October 2010 and August 2011 and providing more than 200,000 agricultural jobs. For details see page 50.

Together with joint-venture partner Corporación de Franquicias Americanas (CFA), Starbucks opened the doors of its first coffee shop location in Costa Rica on 20 June.

The company also took the occasion to announce it will be opening its first Farmer Support Center in South America, located in Manizales, Colombia. Agronomists and quality experts will work directly with Colombia’s coffee farmers to provide resources and expertise to promote responsible coffee-growing practices that improve quality and enhance the size of the yield.

Green Mountain Coffee Roasters (GMCR) announced it will be purchasing coffee from Fair Trade USA’s (FTUSA) piloted program Fair Trade For All, although it will hold off on labelling the coffee as Fair Trade.

FTUSA’s pilot program will explore certifying plantations and unorganised, independent farmers.

The decision followed on from its official resignation from Fairtrade International (FLO) membership at the end of 2011.

The decision to extend certification outside of smallholder farms has caused an uproar among vocal ‘purists’ in the Fair Trade movement. Equal Exchange took

out a full page ad in May 2012 asking GMCR to withdraw its support of FTUSA. For details see page 14.

The peak of fund participation in the coffee market saw those funds hold the equivalent of 30 million bags of coffee in long positions, according to US Commission of Traders (COT) data.

A look at the recent history of fund participation in the coffee market shows that funds and external market factors are increasingly affecting coffee prices, potentially more so than market fundamentals.

Although downward corrections have characterised Arabica prices since the beginning of the year, market fundamentals have supported a decrease in supply and increase in demand.

Five years of deficit in the world supply-demand balance have led to drawbacks of close to 35 million bags, with European stocks falling to 10 million bags currently from over 17 million bags in June 2009.

After touching a low of 1.25 million bags in September 2011, ICE certified stocks have gone from over 5 million bags in 2009 to between 1.5 – 1.6 million bags in the last six months, while total US green coffee stocks has come down to 4.5 million bags. For a historical look at fund participation in the market see page 26.

The Specialty Coffee Association of America (SCAA) held its 24th annual exposition in Portland, Oregon. The next event will take place from 12 – 14 April in Boston, Massachusetts.

Equal Exchange took out a full page ad in May asking GMCR to withdraw support from Fair Trade USA. See page 14.

JULY/AUGUST 2012 | GCR

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NEWS In Brief



World Coffee Events announced on 18 June that Melbourne, Australia was selected as the site of the 2013 World Barista Championships and World Brewers Cup. Both events will be hosted in May 2013 at the Melbourne International Coffee Expo (MICE), the largest dedicated coffee-event to take place on Australian soil. MICE made its debut in 2012, attracting over 7300 attendees.

Monin will partner with Stuart Alexander as its sole Australian distributor beginning 1 August.

Monin has worked with Stuart Alexander in New Zealand since October 2010. The two companies will now work together to bring the French company’s range of syrups, liqueurs, cocktail mixes, gourmet sauces and fruit purees to the Australian market.

Monin celebrates 100 years of business in 2012 and has a presence in 120 countries, including 22 countries in the Asia Pacific region. For details see page 36

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

Coffee consumption in India has more than doubled to 1.8 million bags for the 201112 crop year, compared with 833,000 60-kilogram bags in 1993, according to International Coffee Organisation (ICO) figures.

India’s increasing coffee consumption has attracted the attention of major corporations including Starbucks, who will set up stores in India following a deal with Tata Global Beverages. In a separate sourcing agreement, Tata Coffee will supply Indian-grown beans.

Coffee Board of India Chairman Jawaid Akhtar says the board will continue to support its growers, through research and technology initiatives, as well as financial assistance. See interview with the Chairman page 10.

AFRICA

Since 2010, Sustainable Harvest has helped introduce 18 iPads to Tanzania, Peru and Mexico origin sites to share agricultural information and training techniques with farmers and cooperative members.

Sustainable Harvest invests more than US$1.2 million per year into farmer training and management systems that aim to increase coffee quality and strengthen the supply chain.

In early 2012 Sustainable Harvest unveiled the RITS Ed app for coffee farmers in English and Spanish.

For details see page 45 A recent World Coffee Research (WCR) expedition to the Boma plateau in South Sudan, led by Timothy Schilling, Executive Director for WCR, aimed to locate wild Arabica populations. The results of the expedition show that these wild Arabica populations are at risk of extinction due to climate change and deforestation. WCR aims to coordinate and facilitate the collection of germplasm samples for further research and plant development.

WCR plans on preserving a targeted selection of genetic diversity by creating a “frozen gene bank” via cryopreservation of seed or somatic embryos, screen and catalogue current Arabica varieties, and establish agreements in collaboration with germplasm curators.

For details see page 40

EUROPE



ASIA PACIFIC

The Gotec S.A. capsule machine won the Best Coffee Related Product or Machine award at the Specialty Coffee Association Europe (SCAE) World of Coffee Event that took place in Vienna in June. The Swissbased manufacturer says the machine is the smallest espresso machine ever released on the market.

The machine uses a pump system to heat up the exact amount of water needed for a single extraction, using a very limited amount of energy and no water wastage. In using such limited energy, the company plans on making the machines battery operated in the future.

For details see page 58.

The Specialty Coffee Association Europe (SCAE) World of Coffee event took place in Vienna from 13 – 15 June.

Over 12,000 visitors from more than 50 countries were expected to attend Europe’s largest coffee industry event. The event highlighted the latest trends in the coffee sector and hosted the World Barista Championships, World Brewers Cup, World Cup Tasters Championship, and the Cezve/ Ibrik Championship.

Raul Rodas from Guatemala won the 2012 World Barista Championship.

World Coffee Research (WCR) and Global Coffee Review (GCR) formalised in early May a media partnership that will see the international business publication support the communication efforts of the coffee research initiative.

WCR is a leading global agricultural research and development program focused on the sustainable growth of the Arabica coffee supply chain. Through the partnership, GCR will support the initiative’s efforts by working closely with WCR to provide regular coverage of the group’s major developments through its web site, e-newsletter, and print mediums.

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COVER STORY India Coffee Board

INDIA’S

CAFFEINE-FUELLED

GROWTH

COFFEE CONSUMPTION IS UNDOUBTEDLY SPREADING IN THIS TRADITIONAL TEA-DRINKING NATION. COFFEE BOARD OF INDIA CHAIRMAN JAWAID AKHTAR TELLS GLOBAL COFFEE REVIEW OF THE COUNTRY’S PREPARATIONS FOR GROWTH AND THE BOARD’S ROLE IN SUPPORTING THIS PREDOMINANTLY PRODUCING NATION.

I

t used to be a rare thing to find an Indian sipping on a cup of coffee.

In 1993, when India’s population hovered around the 900 million mark, total coffee consumption was 833,000 60-kilogram bags, making average consumption less than 0.06 kilograms a person, and largely limited to the South. As such, it’s of little surprise that this tea-drinking nation was off the radar for coffee businesses seeking areas of growth.

Fast-forward almost a decade later, and see how times have changed. As the population has grown to 1.2 billion, coffee consumption has more than doubled to 1.8 million bags for the 2011/12 crop year, according to International Coffee Organisation figures. This growth has attracted the attention of major corporations the world over. Starbucks are the latest addition to the scene, following a historical deal with Tata Global Beverages announced earlier this year that will see the American coffee-chain giants set up shop under a shared name. In a separate sourcing agreement, Tata Coffee will supply the Indian-grown beans that will take on the Starbucks Tata label.

With an import tax on coffee at over 100 per cent, growth in consumption will mean a lot to the country’s producers as the majority of these new Indian coffee drinkers will most likely be sipping on domestically grown beans.

Throughout the country’s growth, the Coffee Board of India has remained a central pillar in supporting farmers. The board is a government organisation. It was first formed in 1942 under an act of parliament, and since the liberalisation of the nation’s coffee industry in 1996, the weight of the board’s activities has shifted heavily towards research and development, supporting the country’s farmers.

Current Chairman of the Coffee Board of India, Jawaid Akhtar, says this new focus on India as a potential consuming nation is certainly warranted. He says they are preparing

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for further increased consumption with the advent of new coffee chains and a growing middle class.

“Coffee culture today is really starting to take off, even in Northern India,” he says, adding however, that Starbucks may not be the sole pioneer in this area. Indian-owned Café Coffee Day (CCD) has already set the groundwork, opening 1270 cafés in 185 cities in the last decade and a half. Akhtar says CCD now plans to double that number in the next three to four years.

He says that Starbucks’ entry into the market will likely do little to take away from CCD’s business, but rather will help fuel coffee consumption. “Starbucks has its own signifying flavour, I think it will operate in another market segment,” he says. “When it sets up cafés , I’m sure it will increase coffee consumer base in India.”

Cafés aside, Akhtar notes that the core coffee activity India is set to engage in over the next few years will continue to be as a

J U LY /A U G U S T 2 0 1 2 | GCR

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COVER STORY India Coffee Board

producing country. Producers currently enjoy a protected market in the form of a more than 100 per cent import tax on coffee. With that tax weakening in the years to come, they will have to continue to up their game against competition.

In 2009, India signed on to a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN), which will see the import tax on coffee drop by 5 per cent a year to 50 per cent in 2019-20.

Where the market isn’t protected by a tax, India already faces competition.

In its instant coffee market, where there is no tax on coffee that is imported and then re-exported, Akhtar says the country usually sees between 70,000 and 80,0000 metric tonnes of coffee brought in from Vietnam and Indonesia.

With the nation’s coffee industry for so long sold as a controlled commodity, Akhtar admits that the country’s coffee quality suffered when there was little incentive to differentiate.

“When all the coffee was surrendered to the coffee board for export… it just wasn’t possible to bring our coffee to that next level,” he says. “Now growers are under the increased realisation that they want to invest more in quality and they want to follow sound environmental practices.”

The growers’ recent efforts have come a long way, with some Indian Robustas receiving a 35 per cent premium over market price, and occasionally even selling higher than Arabicas. Akhtar says farmers are realising not just the power of quality, but of marketing as well. With the ability to go direct to market, farmers are selling their coffee under the name of their estate, much like wine, and seeing the benefits.

Indian farmers are, however, not without their share of challenges. With one of the fastest rates of urbanisation in the world, Akhtar says that farms are suffering from a net shortage of skilled labour. Over the next five years, Akhtar says the Coffee Board of India is looking to counteract this shortage by encouraging

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TAXFACT In 2009, India signed on to a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN) that will see the import tax on coffee drop by 5 per cent a year to 50 per cent in 2019-20.

farm work as a profitable employment. They have invested in skillbuilding programs to encourage training in agricultural practices.

Akhtar says that mechanical harvesting equipment is another option to help deal with labour shortages. Although the specialty market often shows a preference for hand-picked coffee, countries including Australia, Brazil and the United States (Hawaii) have adopted mechanical harvesting equipment, where labour costs are simply too high to pay pickers.

“Some mechanisation of farms will be inevitable,” Akhtar says.

“And we will support the growers in this process of mechanisation.”

In supporting its farmers, one of the board’s roles is to purchase and test out machinery like mechanical harvesters. With India’s hilly terrain, Akhtar says mechanical harvesting will be a challenge with current technological constraints. However, they have had some success with hand-held harvesters.

In addition to fighting demographics, Akhtar says that climate change continues to be one of the greatest challenges Indian coffee

growers face. The country’s climate swings between unpredictable monsoons to drought, which can increase the onslaught of white stem borer. In attacking the host plant, white stem borer can lead to significant capital losses on plantations.

“In India, it’s against the diversity of climate that we grow coffee,” says Akhtar.

In 2010, the government introduced a Coffee Debt Relief Package, to help farmers whose production had suffered from drought early on in the new millennium. In 2007, the coffee board released a new coffee variety, the Chandragiri, developed by the Central Coffee Research Institute (CCRI). The new variety offers high productivity and very large beans that produce over 80 per cent A-grade.

To distribute the new variety, the board grows seedlings in its farms and provides them to growers at reduced prices. When plants grow old, the board provides funding under a replantation scheme. “When we do

“NOW GROWERS ARE UNDER THE INCREASED REALISATION THAT THEY WANT TO INVEST MORE IN QUALITY AND THEY WANT TO FOLLOW SOUND ENVIRONMENTAL PRACTICES.” Jawaid Akhtar

Chairman of the Coffee Board of India

things like release a new variety, they are available to everyone,” Akhtar says. “It’s the intentions of the department to provide education and inform farmers of the best methods of production.”

With domestic consumption growing in such a highly populated country, the board is working to maintain coffee as an important part if its export basket. “We’re here to help with every stage of the process,” says Akhtar. “We’re looking to help continue to increase production so we can meet the needs of the domestic market and continue to export.” G C R

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FEATURE Fair Trade

SAME GOAL FAIR TRADE USA’S DECISION TO TEST THE WATERS IN CERTIFYING PLANTATIONS HAS CAUSED A BACKLASH AMONG THE VOCAL ‘PURISTS’ IN THE FAIR TRADE MOVEMENT. GLOBAL COFFEE REVIEW SPEAKS TO THE PARTIES INVOLVED, AND THE BUSINESSES FINDING THEMSELVES WITH SOME CHALLENGING DECISIONS AHEAD.

I

BY CHRISTINE GRIMARD

t was with expected caution that Sandy Yusen, Director of Public Relations for Green Mountain Coffee Roasters (GMCR) Specialty Coffee Unit, broached the subject of what can diplomatically be called the ‘changes’ taking place in the Fair Trade movement.

“We want to make sure consumers are not confused,” says Yusen. It’s a natural reaction coming from someone looking after communications for the largest buyer of Fair Trade certified coffee in the world. By 2010, GMCR had purchased over 11,800 tonnes of Fair Trade certified coffee, delivering more than US$9.8 million in community development funds to coffee farmers. Last year, the company made a US$300,000 grant to Fair Trade USA (FTUSA) to support Fair Trade Towns and Fair Trade University programs.

Yusen’s caution in speaking about Fair Trade follows the animated debate sparked from what has been dramatically dubbed the ‘Fair Trade break-up’: FTUSA’s official resignation from membership of Fairtrade International (FLO) as of 31 December 2011. The move was followed by the American entity’s decision to adapt existing Fair Trade standards for farm workers

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on plantations, as well as for small farmers who are not able to form, or take part, in cooperatives. FTUSA is proposing taking current standards being used in products like tea, bananas and flowers, and begin applying them to coffee. Since its inception, Fair Trade certification in coffee has been limited to small producer organisations. FTUSA’s decision would see the first coffee plantation certified under a pilot project in Brazil.

Under the initiative Fair Trade For All, FTUSA says it will implement 10 to 20 pilot projects on large coffee farms. With the

DIFFERENT VISIONS cooperative sector accounting for around 10 per cent of global agricultural supply, FTUSA says it expects that the initiative will help it double the impact of its efforts for producers by 2015.

It’s a move that GMCR is cautiously supporting. In a company statement, the Vermont-based business says it will support these pilot programs “designed to innovate and seek ways to expand the Fair Trade model to allow more farmers and workers to benefit, which is in line with our reasons for embracing the Fair Trade movement over the years.”

Nevertheless, the company says it will hold off on selling the piloted coffee as Fair Trade certified. “There is still much to learn from the pilots,” the company says. “Specifically, how the benefits of Fair Trade will be applied through an expanded model and how impact will be delivered, measured, monitored and evaluated.”

Testing the waters in certifying coffee plantations, however, is something FLO is staying away from. The organisation says that given the strong voice of producers in the international Fairtrade system, FLO is maintaining the principle that the roots of empowering farmers, the basis of the Fair Trade movement, should keep the small producer organisations as the central entity in coffee. FLO is currently signing up companies in the US who agree with this position and want to stay in the FLO system.

“I think everyone here is trying to do good things, but naturally there are different ways to go about it. We’re not seeing this as a

LABELFACT Fairtrade International (FLO) represents 19 ­labelling initiatives and the three Fairtrade producer networks. In 2010, 1.2 million ­producers from 905 producer ­organisations were certified in 63 ­countries.

break-up, it’s more like one of the kids taking off in a different direction,” says Kyle Freund, Interim Liaison Manager for FLO, a membership organisation of 19 different Fairtrade labelling initiatives and three regional producer networks.

“The plantations issue is a really tricky thing… we believe you can’t just take a standard and then apply it to every type of set-up.”

FLO’s certification of plantations in other agricultural products like flowers, tea and bananas works because of the structural nature of these farms, explains Freund. While cooperatives are not the dominant model in other agricultural set-ups, in coffee more than 70 per cent of the world’s production comes from 25 million smallholders who each own less than 10 hectares of land. Freund notes that FLO standards do not necessarily require that farmers join a cooperative, only that farmers organise and make decisions democratically. He says 75

J U LY /A U G U S T 2 0 1 2 | GCR

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FEATURE Fair Trade

per cent of coffee producer organisations in Fairtrade are cooperatives simply because this is the model that works best for them.

“With coffee, a lot of the workers are migrant labourers.

They may be only a couple months at one plantation so it’s extremely difficult to make sure the benefits of Fairtrade reach them,” says Freund.

One of the benefits of the Fairtrade system is based on the additional money farmers gain from premiums, which in coffee has only been given to small farmer organisations, to decide democratically how their members want to spend it. Freund says that because producers are organised democratically in coffee and are mostly settled in their community, FLO can ensure that money is being used to benefit that community.

This democratic principle in FLO, Freund points out, penetrates all the way through to the organisation’s core.

As a multi-stakeholder organisation, FLO is managed by the Fairtrade International General Assembly, where producers have 50 per cent representation. The idea of certifying plantations in coffee has been discussed in the international system before, but always rejected; which Kyle explains is a sign of a strong producer voice in the system. Despite the backlash, FTUSA has stuck to its reasoning behind certifying plantations – expand the criteria of who can participate in Fair Trade to increase the number of those who benefit.

“We firmly believe that we need to do everything in our power to find new and innovative ways to expand the reach of Fair Trade to help more impoverished farmers and workers around the world,” says CEO of FTUSA, Paul Rice. “We can no longer turn our backs on farm workers who do not own land or the millions of small family farmers who, for a variety of reasons, cannot or choose not to be part of a cooperative.”

At a recent media event in Portland, Oregon, FTUSA brought together a round table of stakeholders to discuss the issue, including representatives of coffee farm cooperatives and workers from a flower farm with FLO certification.

“We’re here to have a conversation among friends to begin the next stage in global Fair Trade,” Rice told the group. “Fair Trade began 50 years ago… based on the idea of providing a market tool for empowering the poor. Those in this room subscribe to this idea.”

During the event, two workers from flower farms, Maria Alexandra Macias and Maria Elvia Almachi, discussed their experiences in working on a Fair Trade certified farm.

“I’m so happy to be here. Thanks to Fair Trade, I’m a better person. We have better management skills from picking to post-harvest. Our children are learning English, and they have access to a computer,” Macias told the group.

“It’s incredibly symbolic, having the workers at the flower farm here talking about what they did,” says Rice. “From the producers, we’ve heard for many years that it doesn’t make sense to exclude coffee farmers on estates from receiving the benefits. From the industry perspective it doesn’t make sense

Kyle Freund, Interim Liaison Manager Fairtrade International

VISIONFACT Farmers from the world’s first FTUSA certified coffee estate, Fazenda Nossa Senhora de Fatima in Brazil, voted to invest their ­premiums in eye and dental care, with some receiving their first pair of glasses.

to exclude farms when there is a need for these beans.”

GMCR’s thousands of tonnes of Fair Trade coffee still only represents around one third of what the company buys annually. It says that opening a new supply of Fair Trade coffee could allow the company to expand its Fair Trade purchases and positive impact on farmers more rapidly.

GMCR has been careful to note that as the FTUSA model expands, it will continue to promote Fair Trade coffee to “stimulate demand and further increase [their] purchases from Fair Trade cooperatives”.

It’s careful wording to balance one of the strongest arguments that has been made against FTUSA’s decision – that certifying plantations threatens the cooperative model.

Outspoken advocates like Thanksgiving Coffee Company’s Paul Katzeff, a pastpresident of the Specialty Coffee Association of American (SCAA), says FTUSA’s decision to certify plantations goes against the basic principles of Fair Trade.

“I believe in Fair Trade, not just for the pricing, but because it develops democracy from the ground up,” says Katzeff. “But the decision to legitimise plantations, this is an

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Fair Trade Certified tea plantation workers

outrage for all of us who for years have been educating people on what Fair Trade is all about…

This is confusing the customer. Plantations are about enriching the elite, they are based on the power of one. Why would [FTUSA] make plantations politically correct?”

US-based Equal Exchange has mobilised the concerns that Katzeff and others have expressed, into a public media campaign. As a US$50 million dollar for-profit cooperative, Equal Exchange was one of the very first in the United States to import Fair Trade coffee and to obtain Fair Trade certification, having helped establish TransFair USA in the 1990s, which in October 2010 changed its name to the current FTUSA. While GMCR may be the world’s largest purchaser of Fair Trade certified coffee in volume, of companies who purchase 100 per cent of their coffee Fair Trade, Equal Exchange takes the title of America’s biggest. As one of the most outspoken advocates against FTUSA’s decision, Equal Exchange published a full-page colour ad in the Burlington Free Press, Vermont in May 2012, encouraging GMCR to withdraw its support from FTUSA, in an open business-to-business letter to the company’s CEO Larry Blanford.

Equal Exchange’s Rodney North says there is no need to expand the supply of Fair Trade coffee because there is already a glut on the market. He says certified cooperatives are currently only able to sell around one third of their coffee under Fair Trade terms. With this lack of demand, he says certifying plantations will take away one of the only market advantages cooperatives currently hold.

“If you add more supply, then you’ll inevitably eat into the sales of cooperatives,” says North. “In the terms of the Occupy Movement, plantations represent the ‘1 per cent’. They own the best land. They have the power and influence, and make the most profits. It’s the

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Manjiv Jayakumar, Q Trade Teas and Herbs

FEATURE Fair Trade

elite or foreign corporations who own the plantations. Fair Trade wasn’t created for them, it was created for the ‘99 per cent’.”

North points to Nicaragua as a prime example of how Fair Trade has helped advantage cooperatives. In the 1990s, he says that small farmers were only exporting around 1 per cent of the country’s coffee exports. He says that today, they represent around 20 per cent of coffee exports, thanks in part to the critical support and market opportunity provided by Fair Trade.

“That’s a real substantial change,” he says.

“That’s a transformation in the economy that’s changing society and having a real impact on the political landscape.”

North points to studies that have highlighted the negative impact of Fair Trade on plantations. In a working paper published by the London School of Economics in 2010, Lindsey Bornhofft Moore interviewed tea pluckers in five Fair Trade and four non-Fair

“I THINK EVERYONE HERE IS TRYING TO DO GOOD THINGS, BUT NATURALLY THERE ARE DIFFERENT WAYS TO GO ABOUT IT. WE’RE NOT SEEING THIS AS A BREAK-UP, IT’S MORE LIKE ONE OF THE KIDS TAKING OFF IN A DIFFERENT DIRECTION,” Kyle Freund

Interim Liaison Manager, Fairtrade International

TEAFACT One documentary has highlighted the challenges in certifying tea plantations, while another paper by Fair Trade’s UK labelling arm looked at the challenges and benefits of certifying banana plantations.

Trade certified tea plantations. In the paper, Reading Tea Leaves: The Impact of Mainstreaming Fair Trade, Moore argues that imposed Fair Trade structures are ineffective in empowering workers because they cannot move past traditional power structures.

“Rather than increasing pluckers’ freedoms and autonomy, mainstream [Fair Trade] has preserved pluckers’ existing range of possibilities and opportunities within the conventional market,” writes Moore. “Moreover, by framing the discourse around ethicality, [Fair Trade] has validated tea pluckers’ current position within plantation hierarchies without reforming it; such validation sufficiently soothes consumers’ conscience making potential for future reform increasingly difficult.”

A similarly-themed film entitled The Bitter Taste of Tea: A Journey into the World of Fair Trade, by Erling Borgen and Tom Heinemann, aims to expose the harsh working conditions of tea workers in Fair Trade certified plantations in Kenya, India, Bangladesh and Sri Lanka. The film highlights the challenges of large corporations to ensure good working and living conditions for workers, despite their public promises to do so via the Fair Trade label.

The resistance to Fair Trade tea, however, is by no means industry wide. Following on from FTUSA’s decision, Honest Tea Co-founder and ‘TeaEO’ Seth Goldman, came out in support of Fair Trade tea following visits to Fair Trade tea estates.

“We’ve been a longtime investor in the Fair Trade seal, and the values it represents,” says Goldman.

“We endorse FTUSA’s Fair Trade for All vision, with its commitment to expand the reach and impact of Fair Trade by broadening the kinds of growers who can be certified, while maintaining the rigorous standards for working conditions and community development premiums.”

A paper published in December 2011 by the Fair Trade Foundation, the United Kingdom’s Fair Trade labelling arm, looks at the impact of Fair Trade in banana plantations and cooperatives. The study was conducted by the Institute of Development Studies (IDS) and commissioned by the Fair Trade Foundation.

While the study highlights that smallholder farmers were “worried about stricter standards and competition from Fair Trade certified plantations acting against their interests”, the final recommendations highlight the benefits of certifying banana plantations to the industry as a whole.

“This does not mean that Fair Trade bananas is a cure-all for the gripping poverty facing small farmers and plantation workers, but it has made a difference,” the report notes. It concludes that the empowerment was stronger among small farmer organisations, and recommends giving preference to cooperative-like structures in the terms of the Fair Trade application process.

When it came to the decision to certify, however, the study disagrees with the recommendation to give preference to cooperatives over plantations: “While we acknowledge the fear of [small producer organisations] with regard to increased competition from plantations, workers in such plantations have a right to a share of the benefits of the Fair Trade systems just as much as small farmers. Fair Trade has a responsibility to respond to the needs of such workers.”

These are conclusions that Equal Exchange has historically disagreed with, and has been the source of its rift with FTUSA for a number of years. The group dropped FTUSA certification of its tea and chocolate in 2010 in favour of the Swiss-based Institute for Marketecology (IMO), and switched over banana certification from FTUSA in January 2012.

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FEATURE Fair Trade

“WE CAN NO LONGER TURN OUR BACKS ON FARM WORKERS WHO DO NOT OWN LAND OR THE MILLIONS OF SMALL FAMILY FARMERS WHO, FOR A VARIETY OF REASONS, CANNOT OR CHOOSE NOT TO BE PART OF A COOPERATIVE.” Paul Rice

CEO, Fair Trade USA

The decisions being taken by coffee businesses, like Equal Exchange, and labelling organisations, like FTUSA, to part ways is a sign of the increased fragmentation of the Fair Trade movement that has been taking place over the last few decades, according to Jeffrey Goldman, Executive Director of Fair Trade Resources Network. His not-for-profit group acts as an information wholesaler on the general Fair Trade movement for the public, while also facilitating discussions within the Fair Trade movement.

He explains that following on from the founding of Fair Trade in the 1950s, the 1960s saw the movement taken up by humanitarian organisations such as Oxfam and the United Nations. When official certification and labelling came out in the 1980s, and big businesses came on board, increasing power politics came into play.

“This was when we really started to see the biggest changes in certification,” he says. “Up until that point it had been advanced primarily by commitment-driven organisations like Equal Exchange. When is started expanding into the mainstream we saw some large corporations come on

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Fair Trade USA CEO Paul Rice

board… This was when people started to take sides and the politics of who should benefit started coming into play.”

While politics may seem to be reaching a high point with FTUSA’s decision to part ways with FLO and Equal Exchange’s public campaign, Goldman says that those outspoken critics do not represent the majority. “Within the Fair Trade movement, there is certainly a vocal minority,” he says. “But I think the majority is sitting back and taking a ‘wait-and-see’ approach.”

As for how these politics may affect consumers’ view of Fair Trade, Goldman says the movement has such a long way to go that only a fraction of the population will likely take notice.

“In North America, only a third of the population have heard of Fair Trade, and of that group probably 90 per cent know maybe a little sound bite about it, like: ‘Fair Trade is something that helps the poor.’” he says. “Of the 10 per cent who follow more closely, even with mainstream media outlets covering this issue they are probably not well informed.”

The main risk Goldman points to is not of informed consumers or buyers taking sides, but parts of the industry abandoning the movement altogether. Up until now, however, Goldman says he hasn’t heard of roasters or wholefoods suppliers stopping their purchase of certified products anytime soon.

While the outcome of the Fair Trade for All initiative will be told in the narratives of empowerment or disadvantage, sales figures will continue to attract business-minded attention.

In this respect, recent figures are promising. In 2010, FLO reported a 27 per cent increase in annual growth of Fair Trade sales worldwide – translating into US$65.6 million paid for community development.

“Although people are split – everyone here is trying to do the right thing,” says FLO’s Freund.

“We just need to continue to move forward. No one is ever going to be 100 per cent correct.” G C R

FEATURE Vietnam

UPSCALING TASTES

VIETNAM IS STARTING TO SEE A SPRINKLING OF WESTERN-STYLE COFFEE CHAINS, WITH THE YOUNGER GENERATION ENJOYING THE NEW ADDITIONS. A LOOK AT THE CHANGES TAKING PLACE IN ONE OF ASIA’S FEW ESTABLISHED COFFEE-DRINKING CULTURES.

BY SCOTT DUKE HARRIS

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G

iorgio Vergano doesn’t want to sound like a coffee snob – that much is clear. Different cultures, he says, develop different ways of roa s t i ng , different brewing techniques, different recipes, different tastes – and that’s OK. As the point man for Punto Italia Espresso in Southeast Asia, it is Vergano’s mission to bring “a true taste of Italy” to a part of the world that seems to be migrating from traditional Vietnamese ‘ca phe’, to a Western espresso culture.

Today in Vietnam, Punto Italia is served in numerous restaurants and hotels that cater to tourists, expats and wealthy Vietnamese.

Some Vietnamese, once accustomed to their harsh, domestic Robusta roasts, are now developing an appreciation for the nuance of Arabica-based espresso, Vergano says. Inside Punto Italia’s showroom in Hanoi, he points to one expensive espresso machine that has been reserved for a wealthy Vietnamese customer.

Vietnam’s coffee culture is going uptown.

And in this nation of nearly 90 million people, coffee is also going downtown, cross town and cross-country as well.

The upscaling is illustrated in the arrival and proliferation of franchise brands such as the Coffee Bean & Tea Leaf (CBTL) from California and Gloria Jean’s Coffees from Australia. CBTL, a Los Angeles-based company, already had a presence in Asia before the company’s General Manager Corinne Milagan, opened the first CBTL in Ho Chi Minh City (HCMC) in 2008.

Milegan now oversees nine stores in prime locations in HCMC and Hanoi, including five that opened in 2011.

CBTL offers competitive pricing and value for money, considering they use only specialty grade Arabica coffee beans from three distinct regions: Latin America, the Pacific, and East Africa, selecting only the top 1 per cent Arabica beans and finest hand plucked, whole leaf teas, all of which have been cultivated at high altitude – between 3500 and 6000 feet.

CBTL’s reputation for quality lends a certain glow to the clientele, who Milagan says are roughly equally divided between foreigners

“WITH A GROWING MIDDLE CLASS AND THE SECOND YOUNGEST POPULATION IN ASIA, VIETNAM WAS READY TO HOST INTERNATIONAL BRANDS, ESPECIALLY LIFESTYLE BRANDS SUCH AS GLORIA JEAN’S COFFEES, OUR STRATEGY [IN 2006 WAS] TO GAIN THE FIRST MOVER ADVANTAGE IN THIS POTENTIAL MARKET” Nicolas Tan

Gloria Jean’s Coffees Market Development Manager, Asia

and the increasingly trendy Vietnamese. Being seen at CBTL is considered a sign of status in cities where Bentleys and SUVs increasingly appear among the multitude of motorbikes.

Australian-owned specialist global coffee company Gloria Jean’s Coffees has also emerged as a trendy coffee-drinking hot spot since the franchise first set up shop in the emerging market in late 2006. Nicolas Tan, Gloria Jean’s Coffees Market Development Manager, Asia, says the company saw its not-toofar neighbour as one of the 10 emerging markets worldwide, as included on the recently coined CIVETS list (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).

“With a growing middle class and the second youngest population in Asia, Vietnam was ready to host international brands, especially lifestyle brands such as Gloria Jean’s Coffees,” says Tan. “Our strategy [in 2006 was] to gain the first mover advantage in this potential market” Gloria Jean’s Coffees currently has six coffee houses in the country, with plans to open another 20 in the next five years.

Interestingly, in addition to the logistical challenges that come with new operations, Tan points to the introduction of a foreign coffee culture as one of the biggest road blocks the company had to face. Different to other tea-drinking Asian nations, Vietnam already had coffee-drinking habits, and the introduction of Gloria Jean’s Coffees in Vietnam was less about introducing a new beverage and more about a new culture and taste profile.

GLORIAFACT Australian-owned specialist global coffee ­company ­Gloria Jean’s Coffees opened its first coffee house in Vietnam in 2006, and ­now has six in the country, with plans to open 20 in the next five years.

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FEATURE Vietnam

Punto Italia can be found in some restaurants and hotels.

Gloria Jean’s Coffees have six cafés in Vietnam.

“Ninety-seven per cent of Vietnam’s coffee production is Robusta and, as such, the locals have been used to the strong profile of Robusta beans,” says Tan. “With Gloria Jean’s Coffees introducing espresso-based beverages using 100 per cent Grade A Arabica beans, this certainly creates a challenge.”

To overcome these challenges, Tan says the company has largely targeted its marketing efforts on the younger middle class of Vietnam, “who are not loyal users of Robusta beans”, and thanks to overseas travels and mass communications channels are more open to new products and brands.

With a per capita annual income of only US$1300, Vietnam is just barely middle income – but it is a strikingly young country. Vietnam’s post-war baby boomers and their children represent more than 60 per cent of the population, a demographic much younger than China’s or Japan’s.

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It is Vietnam’s young urban professionals – ‘vuppies’, you might say – who are spending much more of their disposable income on coffee than their parents did.

The changing coffee culture hasn’t been limited to the introduction of espresso-serving chains. The broadening of Vietnam’s coffee culture has been exemplified by grocery shelves stocked with Trung Nguyen’s G7 instant coffee. Trung Nguyen boasts that G7, introduced in 2003, recently surpassed the ubiquitous Nescafé to become the nation’s most popular instant brew. G7 is gaining traction in China as well, home to 14 times Vietnam’s population. Coffee industry mavens in Vietnam, and elsewhere, envision instant coffee as a means to develop a devoted mass market that, over time, may move up to pricier coffee products.

For Vietnam, coffee has largely been a feelgood story for the past two decades, after the nation’s Communist leaders shelved its failing central planned economy to gradually move to what it calls “market-oriented socialism”.

With the help of World Bank loans, Vietnam has grown from a minor player, into the world’s second largest exporter after Brazil, and the top producer of Robusta in terms of volume.

Coffee is one reason why, before a recent slowdown, Vietnam’s economy had been growing at a 7 per cent annual clip in recent years. Without coffee, it’s hard to imagine Vietnam edging into ‘middle income’ status in 2011, as judged by the World Bank. Among coffee industry leaders such as Trung Nguyen founder Dang Le Nguyen Vu, there is talk of a future when Vietnam will join Brazil as both a leading producer and consumer of coffee.

In some respects, this new Western coffee shop trend may seem predictable and, frankly, a bit boring in a nation that has such a colourful, diverse ‘ca phe’ culture.

Vietnam has been described as “the world’s best producer of bad coffee,” one industry analyst sneered to the Financial Times. But many people adore traditional Vietnamese coffee and its variations, from the famous – or infamous – “weasel coffee” to the eggy brew served at a shop near Hanoi’s Hoan Kiem Lake that is said to taste like roasted marshmallows.

The Coffee Bean & Tea Leaf have nine stores in Vietnam.

“THIS IS PRE-CHAIN STORE CAPITALISM, WITH CAFÉS EVERYWHERE, EACH DIFFERENT IN MOOD AND DESIGN, OFFERING SOME OF THE BEST COFFEE IN THE WORLD, AND NO SIGN OF STARBUCKS.” Robert Kaplan

American military scholar

American military scholar Robert Kaplan, veering briefly from weighty geopolitical concerns in a recent article for The Atlantic, expressed his caffeinated enchantment with Hanoi: “This is pre-chain store capitalism, with cafés everywhere, each different in mood and design, offering some of the best coffee in the world, and no sign of Starbucks.” Not yet, anyway.

The French first introduced coffee to Vietnam in the late 1800s. Ever since, Vietnam has been at the heart of Asia’s coffee culture coffee: one reason, Vergano says, that Punto Italia established a beachhead here three and a half years ago. While cuppers and connoisseurs may frown on the harsh, strong Robusta, those qualities inspired the Vietnamese to be unusually creative in making what is considered traditional Vietnamese coffee. While Italian tradition prohibits any additives such as soy or sugar in the roasting process, Vergano explains, Vietnam’s Robusta would not be drinkable without such additives that are considered trade secrets. The coffee is typically served with sweet condensed milk to further mask the bitterness.

At the 2011 Coffee Festival in the Central Highlands city of Buon Ma Thuot, the hub of

Vietnam’s coffee industry, a Western scholar addressing an assembly of industry professionals, drew laughter by calling attention to the fact that attendees had a choice of coffee or tea during breaks. But the either-or dichotomy may be a Western attitude that doesn’t necessarily translate in the yin and yang duality of Eastern sensibilities. At Trung Nguyen’s handsome flagship café near the Ho Chi Minh Mausoleum, customers are offered a small, free glass of mild iced tea with a menu that features food and a rich – and not cheap – variety of coffee drinks. To a Westerner, this comes as a surprise and charmingly Vietnamese: Why not sip tea while you order coffee?

This doesn’t happen at CBTL or Highlands, where the style is decidedly more Western.

Speaking of Western influences, when is Starbucks – already a striking presence in China – coming to Vietnam, anyway? The question is raised with some frequency in business circles of HCMC and Hanoi. One oft-told tale is that complications prompted Starbucks to back out of private negotiations to acquire Highlands, a chain that was founded in 1998 by a Vietnamese American from Seattle named David Thai. Highlands, with scores of locations in some of Vietnam’s priciest commercial real estate, is so derivative of Starbucks that there is speculation that the business model has always been to create a company that makes an ideal acquisition for Starbucks.

Highlands has moved on to other deals, acquiring the restaurant chain Pho 24 and later selling a near 50 per cent stake of the company to the Philippines food giant Jollibee. What this means for Starbucks’ prospects in Vietnam is unclear. G C R

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COFFEENOMICS Vulnerable Markets

VULNERABLE MARKETS:

PLAYING THE BLAME GAME

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THE LAST DECADE HAS SEEN NEW YORK ARABICA PRICES TAKE THE ROLLER COASTER RIDE OF A LIFETIME, WITH MANY BLAMING FUNDS FOR EXCESSIVE VULNERABILITY. MAJA WALLENGREN INVESTIGATES THE FACTORS THAT ARE DIRECTING THE RIDE, AND THE BEST WAY TO BUCKLE IN AND NOT GET HURT.

A

t the height of the coffee crisis in 2001 and 2002, when Arabica futures had crashed to historic lows of just 38 US cents per pound, investment funds made a collective exodus from what was clearly becoming an unattractive market. Some traders joined in the departure, along with many investment banks that gave up on coffee analysis all together.

Coffee producers, roasters and other industry participants found themselves stuck to deal with a market that, day by day, was to grow more complicated and confusing. A decade later, many still struggle to explain what’s going on.

“We have had days where the market moved 15 cents and that’s crazy,” says Carl Leonard, Vice President of Green Coffee at New Orleans-based roasters Community Coffee. Leonard’s comments sum up much of the general sentiment about the modern-day coffee futures market.

“Not only do you have to watch the fundamentals but you have to watch news on what’s going on in the world, because today world investment sentiment will tell you more about which way the market is going to fly,” Leonard tells GCR .

While it’s understandable that factors like fluctuations in oil prices make coffee prices vulnerable – due to the significant energy-dependent share of the cost of coffee production – recent activity in low per-capita coffee consumers like Greece or China are unexpectedly affecting the market.

Much of the heated debate has focused on who and what is to blame, and to what degree speculative fund trading and investment bankers are the culprits. Some traders and brokers reject that argument, saying the element of speculation has always been a driving force in the futures market.

“Any time the funds have pushed their liquidation either up or down we have seen an impact, but I don’t think you can blame the funds for the vulnerability we are seeing in the market today,” says Hernando de la Roche, Senior Vice President of Miami-based financial brokerage firm INTL Hencorp Futures, LLC.

“NOT ONLY DO YOU HAVE TO WATCH THE FUNDAMENTALS BUT YOU HAVE TO WATCH NEWS ON WHAT’S GOING ON IN THE WORLD, BECAUSE TODAY WORLD INVESTMENT SENTIMENT WILL TELL YOU MORE ABOUT WHICH WAY THE MARKET IS GOING TO FLY.” Carl Leonard

Vice President Green Coffee New Orleans-based roasters Community Coffee.

Today’s coffee market is being increasingly described as “the new market”, as it’s been opened up to an almost unlimited number of factors that are impacting current price movements. These factors extend from the US dollar’s impact on currency fluctuations in producing countries, growth forecasts for China’s giant emerging market, the Euro debt crisis in Greece and Spain, and even the nuclear disaster in Japan.

Starbucks CEO Howard Schultz spoke out last year as a vocal critic of larger funds on the market. When coffee prices hit record highs in May 2011, he told The Telegraph that: “Through financial speculation – hedge funds, index funds and other ways to manipulate the market – the commodities market is in a very unfortunate position.” Schultz was not alone in blaming larger funds positions for the erratic swings in the market.

However, as with any market dominated by futures and options trading – which by their core definition are based on, and driven by, speculation – the story is far more complicated. A look at the changing roles funds have played in the coffee trade over the past decade goes a long way in explaining some of these changes.

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COFFEENOMICS Vulnerable Markets

Following on from the coffee crisis in the early 2000s, by 2005 producing countries were slowly starting to recover. Many growers focused on improving quality in order to boost then sluggish coffee consumption figures.

Coffee prices had recovered to between US$1.05 and $1.20 per pound. The recovery in coffee prices, however, also saw the return of funds into the coffee and other commodity markets. International investment banks and financial companies such as Morgan Stanley rushed back to covering coffee through a newly re-established commodity analysis divisions. The commodity boom was on the up, it would seem, no one wanted to lose out on.

“Everybody wanted to get in, they couldn’t wait to get in, and we had never before seen that type of involvement,” says Jack Scoville, Vice President of futures brokers The Price Group in Chicago.

The next three years saw a period of massive buying, with fund positions growing bigger and bigger. At the peak of fund participation in the Arabica market, coffee hedge funds held a net long position of 56,000 positions – the equivalent of around 14 million bags of coffee, according to data from the U.S. Commission of Traders Report (COT).

Index funds at the time were almost exclusively trading long positions. COT figures show that at the same peak, index funds were 63,000 positions long – the equivalent of 15.8 million bags. This means that total fund-held long positions accounted for 30 million bags of the coffee moving around the market, the equivalent of the combined annual production from Colombia, Peru, Mexico and all of Central America.

“By 2008 it just got crazy because everybody was so long that the massive commodity bubble popped,” says one senior physicals trader in the New York market.

When the US economic crisis hit in September 2008, global money markets started crashing and even the most basic fundamentals such as supply and demand seemed to have become oblivious to any market direction.

Although the funds were holding such large positions, Scoville says: “That really didn’t drive prices higher because there was a lot of selling going on.” He adds that this supported that volume of trading, although the way the money involved was handled changed.

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Jack Scoville, Vice President The Price Group

FUNDFACT At the height of fund ­investment in the market, those funds’ long position ­a ccounted for 30 million bags of coffee – the equivalent of production in Colombia, Peru, Mexico and all of Central America.

“What the funds have been able to do, and what the industry was never able to do before, is to bring more people to the table and take out a lot of the smaller guys.

What happens is that the swings get bigger and the swings get more wild,” says Scoville. “As the market grew more risky, smaller players like farmers and retail customers, who before 2008 would purchase as little as one or two contracts, today have chosen to turn the money over to the professionals, which has given the funds much more money to control.”

For most of the past 20 years, coffee has been the world’s second most traded commodity after oil. It is considered one of the top five commodities in the world, not because of the overall value of the market, but because of the volume of contracts traded.

Community Coffee’s Leonard says that much of these additional contracts have come from the shift in the U.S. money markets, following a highly expansionary monetary policy implemented across both industrialised and developing countries since the American sub-prime mortgage crisis first broke in 2008.

“Speculative investors are not following fundamentals.

With the Euro situation, investors started to move the

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dollar to places of safety, and commodities were still looking as a safe bet, so money was moved out of stocks and into commodities,” says Leonard. “What you see now are these same investors moving their money back to the US money markets and treasury bills, which look to be the best bet in an unsafe world, and so as the dollar leaves the market, the market falls.”

In addition to larger hedge funds, coffee markets have also seen smaller investments coming back from rapidly growing Index funds and “while oil is a major part of the Index funds and coffee is a lot less, coffee is a little bit of a part of that too,” says Leonard.

Another issue that sparked significant changes to the market was the start of the US sub-prime crisis coinciding with a rise in the premium for Colombian beans.

Six months into the crisis, that premium would reach historic highs, peaking at US$1.10 per pound.

These price fluctuations were also accompanied by a shift in supply sources.

When production problems first started in Colombia, expensive premiums forced many roasters to reduce their dependency on coffee from the South American nation, and turned to an alternative supply from Central America.

“But then the Central American premiums soared to over 30 cents and the roasters went to Brazil instead. When the Brazilian premiums also got expensive, roasters started to look into Robustas. That move is what really changed the entire supply chain, because at the end of the day, the market will be driven by what is available,” says the New York physicals trader.

Robusta prices have benefitted from the increased demand in that market, with

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“AS THE MARKET GREW MORE RISKY, SMALLER PLAYERS LIKE FARMERS AND RETAIL 2010 2011 2007 2008 2009 CUSTOMERS WHO BEFORE 2008 WOULD PURCHASE AS LITTLE AS ONE OR TWO CONTRACTS, TODAY HAVE CHOSEN TO TURN THE MONEY OVER TO THE PROFESSIONALS WHICH HAS GIVEN THE FUNDS MUCH MORE MONEY TO CONTROL.”

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Jack Scoville,

Vice President The Price Group

the differential against Arabica narrowing significantly in recent months. Arabica prices have been under pressure since the beginning of the year, following the expectations of a new big 2012-13 crop from the world’s largest grower Brazil. Some traders and analysts say, however, that pressure on Arabica prices will depend to a large extend on how soon and how aggressively the Brazilians start selling their new crop.

“On the fundamentals side, everyone was waiting to sell and waiting for better prices,” says de la Roche, adding: “Then the Real [Brazilian currency] started

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increasing the pressure on selling, as it went from about 1.65 against the [US] dollar at the beginning of the year 2012 2010 2008 2009 to above 2.0. That was a good price for 2011 the Brazilians, so they started selling.”

After scaling down their participation in coffee markets in April and May this year, overall fund activity was, by early June, back to near-record short positions of 21,398 lots, or the equivalent of some 5.35 million bags, according to COT data.

This position has many believing a rally could happen at any time, because of the significant short positions up against a market depleted by stocks, which has increased the transparency of core fundamentals.

“At the end of the day you just can’t roast contracts.

The funds are perfectly well aware of this and sooner rather than later they are going to have to start covering their positions,” says veteran analyst Luiz Suplicy Hafers, the current Director of the Coffee Department for the Brazilian Rural Society (SRB).

Five years of deficit in the world supply-demand balance have led to drawbacks of close to 35 million bags, with European stocks falling to 10 million bags in June this year from over 17 million bags in June 2009.

After touching a low of 1.25 million bags in September last year, just before the Central American 2011-12 harvest started, ICE certified stocks, meanwhile, have gone from over 5 million bags in 2009 to between 1.5 – 1.6 million bags in the last six months, while total US green coffee stocks has come down to 4.5 million bags.

“We have seen the stocks go extremely low, which is the biggest indicator of where the market is going to go now,” says Community Coffee’s Leonard.

The disturbing news for many is that there is no reason to expect current levels of market vulnerability to ease. Rather, the effects of globalisation and big emerging

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0

–20 2007

2008

2009

2010

2011

2012

Source: INTL Hencorp Futures

$$$ STOCKFACT Five years of coffee production deficit have seen European stocks fall by 7 million bags in three years, while ICE certified stocks have dropped by around 3. 5 million bags in the same period.

markets like BRIC nations Brazil, Russia, India and China are expected to continue to increase their influence on world markets. Coffee prices are most likely see only increasing fluctuations.

“It’s a very difficult market, but it’s a normal market rather than last year where we saw an inverted market. That means that at the moment the first position (contract month) is the lowest priced, and then the longer you go back the higher the price goes,” says de la Roche.

“Producers can take advantage of the back months and try to sell the 2012-13 crop against March or May, or even against the next crop for March/May 2014,” he says, adding that roasters “should be thinking about buying into harvest structures” where they benefit from the current low prices and can fix long-term contracts directly with producers.

For the time being, however, the market can expect to see some basic fundamentals transparency restored. Moving forward, continuing lower stocks are likely to see at least part of that new transparent balance persist. But, like it or not, the funds are here to stay.

“Funds are going to be there anyways, they are the speculators of today, that’s their nature and that’s just what we have to deal with,” says Scoville. G C R

FEATURE Colombia’s crop

STRUGGLING TO RECOVER

AS COLOMBIA’S MID-CROP IS COMING TO AN END PRODUCERS CONTINUE TO COPE WITH THE DAMAGING EFFECTS OF CLIMATE CHANGE AND THE 2011-12 HARVEST SHOWS THE POTENTIAL TO BECOME THE LOWEST CROP IN 50 YEARS.

Colombian producer and veteran Analyst Pedro Echavarria 32

G C R | J U LY / A U G U S T 2 0 1 2

T

he latest reports from the world’s largest producer of mild washed Arabica coffee bring little good news to fans of Colombia’s highly priced beans.

With the harvest failing to recover to previous average levels of 11 – 11.5 million 60-kilogram bags, Colombian coffee producers have seen at least 4 million bags of their coffee replaced with Brazil and Central American origins.

Private traders and producers are now saying that the current 2011-12 coffee harvest will struggle to reach much above 7 million 60-kilogram bags, even in a best-case scenario.

The result could be Colombia’s smallest crop in 50 years of registered coffee statistics.

In a report released in June, leading German coffee analysts F.O. Licht said that total production for the 2011-12 crop cycle could reach between 7 – 7.2 million bags. Volcafe, the coffee division of trading firm ED&F Man, however, reported that the poor outcome of the mitaca, Colombia’s mid-year harvest, will make it difficult for the country to reach the 7 million mark.

“We project that total 2011-12 Colombian production will struggle to reach 7 million bags,” said Volcafe in its monthly report. It said that due to the “structural nature of the production trends in the country, at this point even with good weather we expect that supply will not exceed 7.5 million bags in the 201213 season.”

F.O. Licht’s projections echoed the potential negative outcome from poor weather.

“Continuing rains triggered by the La Nina weather phenomenon are seen impacting the 2012 mitaca,” it said in its report. “This would point towards 2012 output falling short of the 7.8 million bags that the Colombian Coffee Growers Federation (FNC) expects.”

The FNC has maintained its latest forecast for the current crop to reach 7.8 million bags, although coffee production in the 12-month period ending 30 May was down 24 per cent at 7.1 million bags, compared to the 9.3 million bags in the same period a year ago.

Some positive signs, however, are apparent.

After a poor start to the country’s mid-year crop, where harvesting traditionally peaks in June, coffee production in May was up 2.4 per cent to reach 689,000 bags, from an output of 673,000 bags in the same month a year ago, the FNC’s most recent data showed.

“THE HARVEST FOR THE 2011-12 COFFEE YEAR IS NOT GOING TO GET TO 7 MILLION BAGS AND IT’S GOING TO BE DIFFICULT EVEN REACHING 6.5 MILLION BAGS AFTER THE POOR MAIN CROP, WHICH ENDED DOWN BETWEEN 30 TO 40 PER CENT.” Mauricio Bernal

Partner A. Laumeyer and Cia Coffee Exporters Studies of rust disease at the FNC’s Cenicafe research centre.

Many producers and exporters in Colombia are more pessimistic, having seen monthly production trailing last March’s figures, and production in the first four months of the year was down 24 per cent at 2.26 million bags, according to FNC figures. Many say there is little hope that the mitaca, the second and smaller of Colombia’s two annual crops, will close above the output seen in the 2010-11 harvest cycle, which produced the smallest mitaca in history.

The results from the first three months of the mid-year crop, which is concentrated in the southern Huila, Narino and Cauca provinces, have already led to new concerns among local producers and exporters. Many say that total output in the 2011-12 crop cycle ending 30 September could be between 6.8 and 7.1 million bags, although some exporters and traders believe the output may be as low as 6.5 million.

“The harvest for the 2011-12 coffee year is not going to get to 7 million bags and it’s going to be difficult even reaching 6.5 million bags after the poor main crop, which ended down between 30 to 40 per cent,” says Mauricio Bernal, a partner in the Medellin-based A. Laumeyer and Cia Coffee Exporters. Bernal is also the former President of the board of directors of Colombia’s National Coffee Exporters Association (AsoExport).

J U LY /A U G U S T 2 0 1 2 | GCR

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FEATURE Colombia’s crop

The first Mitaca pickings in Narino.

“The mitaca is terrible. In the best case it might turn out that we’ll get as much as we did last year, but you have to remember that last year was the worst mitaca on record and this year it may actually be even worse,” says one official at the local FNC committee branch in southern Narino.

A recent trip through Narino’s main coffee producing region of La Union, on the border of the coffee lands of Huila, shows evidence of the continuing weather problems. Many trees were baring little or no crop ahead of the onset of picking after being weakened by rust disease. The fungus, which attacks the leaf, causes trees to drop their foliage and leaves the trunk and branches with no biological defense to support the development of flowering. Rust disease caused severe damage to at least 25 per cent of all the coffee areas in Narino and Huila in 2010. The FNC has invested heavily to fight the disease, mainly through tree renewal. It’s aspiring to have 90 per cent of all trees rust resistant in three to four years, through loans direct to smallholder farms.

For many farms, however, problems still persist. “The harvest is not good, we continue to have many problems and in the best case we hope we may get as much as last year,” Hernan Castillo, a producer in La Union, tells GCR. The southern region, which is home to the main share of the mitaca crop and dominated by production from Huila, Narino and Cauca, accounted for around 35 per cent of Colombia’s total annual production in the 2008-09 crop cycle, according to official FNC figures.

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MITACAFACT Although the main ­Colombian harvest takes place from October to February, the mitaca is the second and smaller mid-crop. It can contribute as much as 45 per cent of total annual production.

From the south to the north, producers in Colombia’s largest producing province of Antioquia, which is home to around 18 per cent of the country’s total production according to official figures, local producers and exporters say there has been no mitaca at all.

In a normal crop season around 30 per cent of Antioquia’s coffee comes from the mitaca harvest, while the mitaca nation-wide in traditional crop cycles has accounted for between 40 to 45 per cent of total annual output, according to industry estimates.

“There is not going to be any mitaca from Antioquia this year, and most indicators still point to maximum production in the coffee year of between 6.7 – 6.8 million bags,” says local producer and veteran Analyst Pedro Echavarria.

Echvarria adds that if the flowering and cherry development for the next harvest escape the damage seen in the past four years, then the main crop could benefit from extra supply in September. This could help push the final figure towards 7.1 million bags.

The outlook for the next 2012-13 cycle is so far on track, with no major weather problems

RUST DISEASE CAUSED SEVERE DAMAGE TO AT LEAST 25 PER CENT OF ALL THE COFFEE AREAS IN NARINO AND HUILA IN 2010. THE ONLY EFFICIENT WAY TO DEAL WITH THE FUNGUS IS THROUGH REPLANTING OR HEAVY PRUNING.

Studies of rust disease at the FNC’s Cenicafe research centre.

reported at time of print. Echavarria says, however, that the outlook for the next 2012-13 crop cycle to a large extent will depend on good prices. He notes that the recent price drop will make it more difficult for Colombia’s high-cost producers to make the necessary investment in farms for renovation and inputs such as fertiliser.

“With the prices where they are, for most of the smaller producers, there is simply not enough money to spend on sufficient inputs and fertilizer. It’s going to be very difficult,” he says. “As far as the calendar year is concerned, there is no way that Colombia will be able to get production back to over 8 million bags.” G C R

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PROFILE Monin

INTERNATIONAL

SYNERGIES WITH A PRESENCE IN 120 COUNTRIES AROUND THE WORLD, MONIN ASIA’S MANAGING DIRECTOR, CEDRIC CLOUZEAU, SPEAKS ABOUT THE EXPONENTIAL ADVANTAGES OF A WIDE GLOBAL PRESENCE.

W

hile some companies may adapt and mould their product offerings to different markets, Cedric Clouzeau, Managing Director Asia for Monin, says the French syrup company has purposefully taken the opposite approach.

When introducing a new flavoured syrup – which Monin does four to eight times a year – the company makes a point of promoting the new product across the 120 countries in which it has a presence worldwide. While the inspiration for the flavour may have been local, Clouzeau says Monin goes out of its way not to limit specific flavours to certain markets.

“The flavours’ potential is not defined by a market, it’s defined by its applications…

We launch flavours all over the world, we make no distinction between markets. But, we make sure that applications, such as smoothies, frappes, teas and so on, are in total accordance with what local consumers like to order,” he tells GCR. “While it’s important to find the right application, in the end we are creating our own potential.”

The inspiration and creative process behind the makings of such a diverse and creative range of products, Clouzeau says, is the result of being so broadly spread around the world, with every market benefitting from the company’s globalisation. Every year, Monin does a survey speaking with local baristas and bartenders, asking them what flavours they would like to see introduced. They bring ideas to one of Monin’s development offices spread around the world for product development.

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“THE FLAVOURS’ POTENTIAL IS NOT DEFINED BY A MARKET, IT’S DEFINED BY ITS APPLICATION… WE LAUNCH FLAVOURS ALL OVER THE WORLD, WE MAKE NO DISTINCTION BETWEEN MARKETS.” Cedric Clouzeau

Monin Asia Managing Director

The choice of office depends on the flavours in question, Clouzeau explains. As the company continues to maintain a strong focus on natural ingredients, the product development phase of the flavour will take place where the best local ingredients are available. For instance, if Monin is working on a vanilla-based flavour, it may develop the product with suppliers from Madagascar. Or, if Monin is looking for red berries, it may turn to its Italian counterparts.

In increasing its global presence, Monin has been able to not only use local contacts for inspiration and market reach, but right back through to the research and development phases.

“Naturally the more countries we work with, the more demand we receive,” says Clouzeau. “But also there is a lot more synergy in the company.”

Compared to the century-old history of Monin, the role of syrups in the coffee industry is relatively new. Following the company’s founding in Bourges, France in 1912 by George Monin, it wasn’t until the 1970s that some clever baristas in the United States started adding syrups into the mix to launch the flavoured coffee phenomenon.

“It’s a very American trend at its origins,” says Clouzeau.

“And it’s one we saw catapult forward thanks to Starbucks. I can say that Monin clearly benefitted from this development, as the demand for syrups skyrocketed following this new trend.”

In the past 15 years, he says flavoured coffees have spread in popularity in more established coffee drinking markets of the United Kingdom and Australia. As new coffee drinking countries have emerged on the market, every one, says Clouzeau, has taken a liking to the flavoured coffee trend.

“I don’t think there’s a country in the world where you can’t find a caramel latte,” he says.

To support its global presence, Monin has gradually grown its international operations over the years, with that expansion speeding up in the past three decades. The start of

MONINFACT Monin currently ­operates four international ­plants: one in the United States, one in Malaysia, and two in France, and also has two branch offices in Dubai and Shanghai. Exports represent 80 per cent of sales.

J U LY /A U G U S T 2 0 1 2 | GCR

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PROFILE Monin

“WE BELIEVE THAT THE KEY TO SUCCESS IS IN STARTING WITH THE RIGHT FLAVOURS AND APPLICATIONS, FINDING THE RIGHT AND MOTIVATED PARTNER, AND WORKING IN THE RIGHT MARKET.” Cedric Clouzeau

Monin Asia Managing Director

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its major international expansion was marked when the third and most recent generation of Monins, Olivier Monin, took control of the company in 1992. The following year, the company opened its Americas division, and in 1996 opened its first international manufacturing plant in the United States.

In 2005, Monin opened an Asia office in Singapore, and in 2007 Monin MEI in Dubai.

The year 2009 saw its fourth international plant open up in Kuala Lumpur, where Clouzeau is currently based. Today, export sales represent an impressive 80 per cent of the company’s total sales.

Monin’s most recent partnership will see the company make a strong move into the Australian market, teaming up with Stuart Alexander as soon as 1 August. The two companies have worked together since 2010 in New Zealand.

Clouzeau says the choice of where and when to set up an international office is all about supporting its distributors. Throughout its expansion, he says Monin has maintained its own focus on marketing and product development, and turned to partners to manage better distribution.

Monin has maintained an international policy that in every market, they work only with partners who are granted exclusive distribution rights for their respective country. In seeking local businesses its can trust with good distribution networks, Clouzeau says that employing exclusivity arrangements helps the company concentrate on representing its branding.

With the brand the ultimate key to success, Clouzeau says that limiting the number of distributors helps to concentrate its efforts in individual countries, which is important for a company spread so broadly around the world.

This way, Monin can focus on product development to maintain the premium quality and creativity of its product.

“Our expertise is not in distribution,” he says. “We only look to support our distributors. We believe that the key to success is in starting with the right flavours and applications, finding the right and motivated partner, and working in the right market.” G C R

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RESEARCH Wild arabica

TO A SUSTAINABLE INDUSTRY A RECENT WORLD COFFEE RESEARCH EXPEDITION TO SOUTH SUDAN TURNED INTO A RESCUE MISSION FOR THE WILD ARABICA THAT OCCURS THERE, WITH EVIDENCE THAT CLIMATE CHANGE MAY SEE THESE FORESTS DISAPPEAR IN OUR LIFETIME. EXPERTS EXPLAIN WHY WILD ARABICA COULD BE VITAL FOR THE FUTURE OF THE COFFEE INDUSTRY. 40

G C R | J U LY / A U G U S T 2 0 12

A

.S. Thomas’s 1942 entry into the Empire Journal of Experimental Agriculture is a reminder of times gone by.

In an account of his exploration of the Boma Plateau, Sudan, to search for wild Arabica (Coffea arabica), Thomas refers to neighbouring “Abyssinia”, the historical name that included Ethiopia, as well as the then colonial “Anglo-Egyptian Sudan”.

Sadly, dated political references are not the only sign of the article’s age. Written at a time before climate change had taken its toll on the planet, Thomas wrote of Arabica trees 5.5 metres high and trunks over 17 centimetres in circumference. A recent visit to the region by a World Coffee Research (WCR) delegation, the first since Thomas’s 1941 visit, found that the healthy wild Arabica plants the researcher had encountered were also now a thing of the past.

“It’s a bleak situation at the centre of origin,” says Timothy Schilling, Executive Director for WCR, who led the South Sudan expedition in April this year. The goal of the expedition was to follow in Thomas’s footsteps, locate the wild Arabica and later collect germplasm – a collection of genetic resources for an organism – for further research and plant development.

South Sudan, and neighbouring Ethiopia, is the epicentre of wild Arabica, Schilling explains, and the collection of this wild species from the former locality is extremely rare. This most recent trip was hosted by staff members from the USAID-funded project JGMUST: A Consortium for Development, based at the John Garang Memorial University for Science and Technology in Bor, South Sudan, led by the Norman Borlaug Institute for International Agriculture of the Texas A&M University System.

Doctor Aaron Davis, from the Royal Botanic Gardens, Kew, United Kingdom, joined Schilling on the trip, for what was not his first expedition to find a wild coffee species. Since 1997, Davis has travelled the world and discovered more than 20 wild coffee species, encountering everything from winged coffee that floats on water to the world’s largest coffee beans.

The purpose of these expeditions has been about exploring the diverse gene pool that exists for coffee in the wild. Davis explains that as his research progresses, he’s finding increasing links with the commercial coffee industry. He says it’s been alarming to discover that the coffee industry – which represents the livelihoods of around 100 million people around the world – is dependent on limited fundamental scientific information.

Dr. Aaron Davis with students from JGMUST

ARABICAFACT Arabica production is dependant upon a very ­narrow gene pool, compared to the diversity available in the wild. Traits from wild coffee species could be used to deal with the damaging effects of climate change.

“We know that the industry relies on a narrow gene pool,” says Davis. “Compare that to the situation in the wild – where there are huge amounts of genetic variation, associated with a vast spectrum of different traits. There is certainly huge potential here for the long-term sustainability of the industry.”

Davis says that research into wild Arabica in Ethiopia has already helped combat certain diseases of coffee.

Moving forward, however, the limits to how much the industry can benefit from wild Arabica will be defined by the extent of existing germplasm collections.

“You can store a certain amount of genetic information in a collection, however you can’t think you have everything,” he says. Davis notes that even from one year to the next, sampling can be done in the same general area and each expedition will turn up different information. “Of 1000 plants, say you collect 100, there is a good chance that you haven’t captured the genetic variation you require, unless you evaluate the genetic diversity of the population beforehand,” he says.

J U LY /A U G U S T 2 0 1 2 | GCR

41

RESEARCH Wild arabica

Timothy Schilling in South Sudan

Wild plants remaining in situ (their natural habitat) are still dynamic and evolving, Davis explains. Once they are taken out of this environment, the potential for adaptation is reduced. As such, Davis points to the importance not only of collecting samples to be kept ex situ, that is in artificial environments in frozen germplasm or living plant collections, but of also protecting these plant populations in situ – in places where they naturally occur.

The recent South Sudan expedition, however, indicated that climate change, in conjunction with other compounding factors (i.e. land-use change) is now seriously threatening the future of wild Arabica in situ. “It was a big shock for us to see the state of the South Sudan wild Arabica populations compared to that reported by Thomas in 1942,” says Davis.

The Boma plateau is lower than many of the Ethiopian Arabica forests, with the highest peak in the South Sudan Arabica region not exceeding 1600 metres.

In Ethiopia, which has many highland forests above 2000 metres, Davis explains that climate change is likely to see the forests move up the mountainside to cooler region areas. “But in South Sudan, it has nowhere to go,” he says.

Davis and his team have been undertaking research in climate change modelling, not only taking into consideration a changing temperature, but also technology that looks at all the environmental factors influencing production and survival. The full results of this research are soon to be released, and Davis believes his conclusions will be a cause for alarm among the coffee industry as a whole. This latest South Sudan expedition, in the descriptors used by Thomas versus what he and the WCR team have seen, provides a strong indication that the modelling has validity.

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“In 20 years, wild Arabica populations in South Sudan might not be there at all. And those traits that could be useful for the coffee industry to maintain the sustainability of Arabica production, could be lost forever,” says Davis. “Wild Arabica occurs in Ethiopia and South Sudan, and that’s it.”

The result of these findings means that the trip to South Sudan could be seen a “rescue mission” for those wild Arabica populations as much as anything else. Davis says that damage from deforestation also constitutes a serious threat to wild Arabica.

“In some places, climate change won’t even have a chance to influence the fate of Arabica – there will be no forest, and no forest means no Arabica,” says Davis, pointing to the knock-on effects of civil war and the encroachment of fire into evergreen forests, diminishing the health and viability of natural Arabica populations.

Boma Plateau, South Sudan

“WE NEED TO REVITALISE AND PRESERVE THE AVAILABLE POPULATIONS BEFORE CLIMATE CHANGE AND OTHER FACTORS DEGRADE THESE FORESTS ANY FURTHER.” Timothy Schilling,

Executive Director World Coffee Research

WCR will be setting up three subprograms for the collecting, screening and cataloguing of the Arabica germplasm base, to help sustain coffee biodiversity and genetic variability, according to WCR’s Statement Regarding Coffee Biodiversity. The organisation plans on working with the Ethiopian and South Sudanese governments to collaboratively collect wild germplasm, with the genetic material remaining the biological property of the respective country.

WCR plans on preserving a targeted selection of genetic diversity by creating a “frozen gene bank” by cryopreservation of seed or somatic embryos. Another of WCR’s objectives is to screen and catalogue current Arabica varieties and establish agreements in collaboration with their germplasm curators.

Moving forward, they will create and coordinate a worldwide database for Arabica germplasm, in an attempt to unite diffuse core collections in order to develop pre-breeding populations in selected target countries.

“We’re putting a greater emphasis at WCR to tackle the germplasm issue head on and be a coordinating and facilitating unit,” says Schilling. “We’re proposing a comprehensive plan to put existing germplasm collections in deep freeze.”

This most recent trip has added a new sense of urgency to this part of the WCR mandate, with the fear that the wild genetic material found in South Sudan may soon disappear. This initial expedition was mainly to locate the plants, and WCR will work with the South Sudanese government to return to the region in November/December to collect samples once the trees have fruits. The Borlang Institute will then manage the collection with the Sudanese university.

“This is really important, we could be losing huge treasures,” says Schilling.

“We need to revitalise and preserve the available populations before climate change and other factors degrade these forests any further.” GCR

J U LY /A U G U S T 2 0 1 2 | GCR

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GlobalCoffeeReview

The intelligent magazine for the global coffee industry

May/June 2012

FORECOURT COFFEE

March/Apri

SUSTAINABLE CONVENIENCE?

l 2012

COVER STORY

10

IN THIS ISSU E THE FRONT QUIETLY LEADIN G nal

DS AFRICA N GROUNtic market

Africa’s domesopportunity presents clear a handful and for growth, are working of companies to entrench to get in early potential themselves in markets.

38

aren’t just Coffee prices and demand. about supply rising prices A look at how necessities of oil and otherincreased are leading to costs of coffee. production

B

rand loyalty and identification manifests itself in many ways, from what we choose to consume, to the logos displayed on the front of t-shirts. Recently, company logos have found their way onto the human body in the form of tattoos, as perhaps the ultimate sign of brand identification.

La Marzocco has been manufacturing artisan espresso machines in its hometown of Florence, Italy, since 1927. Today, on the other side of the globe, American baristas and coffee industry workers are tattooing the iconic brand on their bodies.

Anthropologists note that historically tattoos signified membership in a clan or community. The images used within these communities belonged to a shared mythology of cultural iconography.

The human desire for community and belonging is just as strong today as it was back then, but the cultural landscape has changed. The village is now global; cultural iconography is no longer dominated by religious symbols, but images of pop culture, Hollywood stars, advertising, and of course, brand names. It is little wonder then, that modern forms of tattooing incorporate iconic brand images.

Community Not every brand, however, finds its way onto the human body, so what is it about the likes of La Marzocco that foster such strong examples of brand loyalty? Academic literature demonstrates the role of the tattoo as a signifier of social membership and suggests contemporary tattoos act as symbolic markers of sub-cultural membership.

Terry Ziniewicz of Espresso Parts is one example of how tattoos can represent modern signifiers of social membership. In discussing the La Marzocco logo tattooed on his calf, Ziniewicz speaks of this idea of community that first attracted him to the coffee industry.

“La Marzocco is family to me and my tattoo connects me to the coffee community at large,” he says, noting how his introduction to La Marzocco coincided with his introduction into this community. In the early 1990s Ziniewicz met CEO of La Marzocco International, Kent Bakke, to discuss using his machines in his burgeoning coffee chain. “We spent three days playing around with coffee and when it was all said and done I bought a whole bunch of machines from him and we have been great friends ever since.”

Lizz Hudson of Seattle’s iconic Stumptown Coffee has the La Marzocco logo tattooed across her chest. For her, it is also this notion of familial ties that she finds appealing about the brand. “La Marzocco is family,” she says. “They look out for one another. They listen to, and involve, their customers and other coffee professionals in the design of their products.”

HistoRy Historical brands tend to denote quality, tradition, craftsmanship and reliability. The sense of history is embodied in La Marzocco’s logo, taking its iconography from the classic Marzocco statue, a seated lion sculpted by Donatello. Synonymous with victory and triumph, it is the emblem of the La Marzocco’s founding city of Florence.

Hudson credits the beauty of this image for some of her motivation in acquiring a La Marzocco tattoo. Even before the offer of a free machine, Hudson notes that she’s wanted to get the tattoo for a while because she “loves the company that designed it” and brand aside “the design of the logo really is beautiful.”

Espresso machine technician, Peter Droste, who has an image of the logo tattooed down his bicep, was similarly attracted to the aesthetic beauty of the logo, as well as its historical roots. He says he wanted his La Marzocco tattoo shortly after seeing Donatello’s sculpture in a Florentine museum.

“I’m really proud of it, it’s a bad-ass lion holding a shield,” he laughs. But, his motivations weren’t entirely aesthetic. “If it wasn’t for La Marzocco I certainly wouldn’t have picked the symbol. It’s the fact that I’ve worked at their factory in Florence and the fact that I work with their machines every single day.”

The tattoo comes in handy, as Droste notes that occasionally when repairing or servicing

G C R | j u ly /a u g u s t 2 011

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 “La Marzocco is faMiLy L Ly to Me and My tattoo connects Me to the coffee coMMunity at Large.”

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Story by Sarah Baker

Terry Ziniewicz

Espresso Parts

espresso machines he’s questioned by his clients on his knowledge of La Marzocco. “Now I just pull up my sleeve and [the tattoo] displays an interesting bit of a credibility.”

Connection with place was a similar motivation for Espresso Parts’ Ziniewicz. He notes that it was a family trip to the La Marzocco factory in Florence that cemented his idea to get his tattoo. What struck Ziniewicz was that La Marzocco Hon. President Piero Bambi, whose father and uncle established the company, took time out of his day to meet with them on their visit.

“That sense of family really showed itself and the tattoo idea came in through this dedication to family,” he says.

Much like a historical tattoo’s traditional role in demarcating community, it seems this sense of the La Marzocco family is a common thread among those sporting this brand. La Marzocco’s Marketing Director, Chris Salierno, says he’s proud of the company’s family traditions.

“We’re a small company, but we don’t want to grow so much that we lose connection with our customer,” he says. “We’re small enough that when people come to Florence our doors are always open to our customers.

I think that makes us unique.”

Salierno explains that knowing your product and being able to have a dialogue with your customers across all facets of the industry is paramount. He says the company invests quite a bit internally in technical training for all employees.

Salierno further attributes La Marzocco’s success, in part, to the culture within the company that encompasses a genuine passion for what they do.

“We pride ourselves on our ability to communicate with our customers. There are a lot of companies out there whose employees don’t even know how to use the espresso machines they manufacture,” Salierno says.

FUELLING INDIA’S G R

OLAM’S MANAGING DIRECTOR ON INCREASED CONTROL OVER THE MEANS OF PRODUCTION

2012

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Coffee capsules and the environment

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Thailand’s unlikely success story

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G C R | j u ly/ au g u s t 2011

n 1801 botanist, Robert Brown, joined Commander Matthew Flinders on the HMS Investigator for the first circumnavigation of Australia. On 2 November, 1802 the Investigator weighed anchor at Goods Island (Palilug Island) in the Torres Strait, allowing Brown to collect a rather insignificant and unknown plant belonging to the coffee family (Rubiaceae).

This same plant was collected again in 1821 by botanist and explorer, Allan Cunningham, from Sunday Island. It was not seen again on Australian soil for 150 years until 1971 on the island of Dauan in the Torres Strait.

Three years later, rainforest botanists, Len Webb and Geoff Tracey, found the same plant growing on a remote headland on the east coast of the Cape York Peninsula, near the mouth of the Pascoe River. In the meantime, this unknown plant was finally named as a new species, Paracoffea brassii, which later changed to Psilanthus brassii.

Nearly four decades later, this plant would find itself the subject of discussion among the coffee industry at large, after taxonomic research undertaken earlier this year – led by Dr Aaron Davis at the Royal Botanic Gardens, Kew, in the United Kingdom - confirmed a close relationship between the coffee genus, Coffea and the genus Psilanthus. As it turns out, what Brown had discovered 209 years ago, was Australia’s first and only known indigenous coffee species.

Scientists can now confirm that Psilanthus, which includes 20 or so species, is now accepted as part of the natural variation of coffee. Subsequently, to reflect the latest findings, this wild Australian coffee has been reclassified as Coffea brassii. Genetic analysis of C. brassii shows that it is closely related to the Asian coffee species, which in turn, are related to the all-important cultivated species, Robusta (C. canephora) and Arabica (C. arabica).

Records show that Coffea brassii was collected in 1933 in the Central Province of Papua New Guinea. However, it is possible that the plant was collected earlier and that specimens have languished in piles of unidentified specimens in herbaria.

According to Professor Darren Crayn, Director of the Cairns-based Australian Tropical Herbarium at James Cook University and who is heading the Australian side of the research on C. brassii, the genetics of the Coffea genus and Psilanthus are very similar and the one thing they both have in common is that they possess coffee beans.

Since the discovery, Crayn has spent four days on the Cape York Peninsula collecting fresh samples of the native species for further testing. Between 50 and 100 plants were found in a localised area. “The plants themselves don’t look anything like commercial coffee plants,” Crayn says. “They were found to be much smaller and they don’t produce as much fruit. We now know what the species is related to, but we don’t know what the beans contain or how the plant behaves ecologically or in cultivation.”

It is thought the plant could be known to Indigenous tribes that inhabit the Cape York region, as Indigenous people elsewhere in the world use a number of wild coffee species as a stimulant. Quite a few wild coffees are cultivated on a small scale and consumed locally, such as the Kafé kely species from Madagascar.

Translated as “small coffee,” this plant contains tiny beans that are more or less caffeine free. Davis says this coffee is collected from the wild and consumed directly by the collectors or sometimes sold in local markets and roasted by the Indigenous community who seem to favour Kafé kely over Robusta.

Roasters eager to sip this new bean, however, should hold off on warming their machines just yet. Scientists are yet to determine if the latest find even contains caffeine, but the new discovery is an exciting feat for the coffee industry and scientists alike. The scientific community has historically found that wild

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ORIGIN iPads

IPADS AT ORIGIN

TECHNOLOGY IS SHAPING THE DIRECTION OF COMMUNICATION ONE APP AT A TIME, TRANSFORMING THE WAY COFFEE FARMERS SOURCE AND ENGAGE IN AGRICULTURAL INFORMATION.

D

ebra Rosenthal, Director of Technology Development for Sustainable Harvest, says we are often quick to judge what is appropriate technology for a community. “iPads are thought of as something for jet-setting CEOs, not for people working on farms,” she says. “In the same way a CEO in New York can find a use for a tool that’s innovative and versatile, the CEO of a coffee cooperative in northern Tanzania can have the same uses.”

Sustainable Harvest, a specialty coffee importer, sees the value in this interactive form of technology and is using it to take agricultural education at origin to a new level.

“We’ve started introducing the second generation iPad as a resourceful training device for coffee farmers. It’s a way to get rich training materials into regions that might not otherwise have technological infrastructure,” says Rosenthal.

“These farmers can’t search YouTube for information about farming techniques the way we can, it’s not a reality in these communities with less infrastructure. We thought what better way to make use of all the training videos we had available, than to make them accessible on the iPad and

introduce them directly to the people who would most benefit from this type of information.”

Sustainable Harvest invests more than US$1.2 million per year into farmer training and management systems that aim to increase coffee quality, strengthen the supply chain and help producers thrive in the specialty coffee market.

Rosenthal says Sustainable Harvest’s CEO David Griswold is an avid supporter of technology, and that when he finds something

Apple iPad

J U LY /A U G U S T 2 0 1 2 | GCR

45

ORIGIN iPads

“GENERALLY, MOST COFFEE COOPERATIVES DON’T HAVE THE TOOLS TO COLLECT AND ORGANISE INFORMATION ABOUT THEIR COFFEE, WHICH IS VITAL TO QUALITY IMPROVEMENT. Debra Rosenthal

Director of Technology Development for Sustainable Harvest

that’s useful, he wants to share it as broadly as possible.

“Investing in technology and mobile solutions for Sustainable Harvest suppliers has been one of the top priorities among the company’s efforts in the past four years,” says Rosenthal.

In 2009, Sustainable Harvest began rebuilding its database and tracking all of its coffee transactions in a full supply-chain traceability system called the Relationship Information Tracking System (RITS). A producer-focused version of this system was piloted in the Kilicafé cooperative in Tanzania, as well as several cooperatives in Peru. The software tracks coffee from farm to port and keeps records of farm locations, coffee volumes, coffee quality and pricing data.

“Through this rebuilding process, we started thinking creatively about how we can share the tools that we have in our database more broadly. We thought about our audiences that need the information and how we can bring our peer-to-peer trainers together and provide hands-on training for farmers,” Rosenthal says. “Generally, most coffee cooperatives don’t have the tools to collect and organise information about their coffee, which is vital to quality improvement.”

After careful planning, Sustainable Harvest began focusing on an interactive training realm and invested in the Apple iPad. “Its easy navigation and intuitive design has allowed farmers to learn the system quickly and become proficient users with just two days of training, compared to seven days of training for farmers to become proficient laptop users,” says Laura Tilghman, Communications Director at Sustainable Harvest.

The iPad allows farmers to access information about weather patterns, record production and harvest data, and take and share photos with other regional farmers to identify plant diseases.

Since 2010, 18 iPads have been distributed to coffee farms and cooperatives in Tanzania and Peru, and a number of iPads have been supplied to farms in Mexico.

Sustainable Harvest staff members at origin conduct training with cooperative managers on how to use the iPad. In turn, the staff can then reach out to individual farmers with peer-to-peer training.

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IPADFACT Apple sold 15.43 million iPads in the first quarter of its fiscal year 2012, a 111 per cent unit increase over the same quarter a year previous.

“We’re not attempting to put an iPad into the hands of every farmer in Tanzania, we’re creating a network of trainers and surveyors that then have a much more significant reach than we can with our small staff,” Rosenthal says.

A peer trainer in a Tanzanian cooperative, known as Mamma Grace, was taught how to use the iPad in just two training sessions. In that same week, Rosenthal says Grace learned on her own how to operate the iPad’s video camera and created her own training video on her method for caring for her coffee trees.

“We know that teaching six to seven or even eight people can impact thousands of farmers,” Rosenthal says. “We can reach a pretty significant number of people, but if we can equip the people who are closer to those farmers, who are from that region, who are also coffee farmers, who know their neighbours, cohorts and cooperatives – if we can equip them with the tools to make their training even more effective, then we can significantly scale the reach of these materials.”

Since 2011, Boss Farijallah has been training farmers, washing station managers and workers at the Association of Kilimanjaro Specialty Coffee growers (Kilicafe) in Tanzania on how to use the iPad. Farijallah says he’s trained about 342 farmers thus far.

“I feel like we have transformed how the training can be done at the field level and empowered groups with technology that transform their situation,” Farijallah says.

Before the introduction of the iPad, Farijallah says common problems at cooperatives included poor cherry quality delivered at washing stations and the improper use of coffee byproduct, like pulps. Now, thanks to the program, Farijallah says there’s been a great improvement and farmers have a tool to change their own situation for the better.

“We have put this tool into the hands of farmers, and trained farmers can go around and train other farmers, including women, who in most cases have very low participation,” Farijallah says. “Farmers will be able to improve the production and quality of the products and will benefit from increased income generated from the sale of quality products.”

Tilghman says the iPad has not only become an educational tool for origin farmers, but a valuable means of data collection for

Boss Farijallah trains farmers in Moshi, Tanzania

Sustainable Harvest. The group assess where the need is for people in the supply chain based on scientific data and can see how it can best support farmers to produce quality crops.

A portion of the iPads are funded by Sustainable Harvest, with strong support from supplychain partners and third-party funded grants from companies such as Mars Drinks and Ben & Jerry’s, who are helping introduce this cost-heavy device to cooperatives and farmers in countries including Mexico, Peru, Colombia and Tanzania. Tilghman says by introducing cooperative leaders and farmers to this advanced form of technology, they are hoping to see the long-term value, and fund the device themselves.

Andrew Barker, Social Mission Specialist at Ben & Jerry’s, says after seeing Sustainable Harvest’s Griswold present the company’s use of iPads with cooperatives in Tanzania and Peru at the Sustainable Food Lab conference in 2011, he saw the potential for Ben & Jerry’s to support the cause.

“When we saw that Sustainable Harvest was using iPads to help some of its other cooperatives understand the needs of their membership better, we asked if we could work with them to bring this technology to Huatusco (Mexico),” says Barker. “It’s an opportunity to be on the leading edge of efforts to use mobile technology to understand smallholder supply chains better. It’s an opportunity to fully live out our ideals with respect to Fair Trade and it’s a way that we can start to measure the actual social impacts of our social mission efforts.”

Ben & Jerry’s has worked with Sustainable Harvest since 1994, importing Fair Trade coffee from the region near Huatusco in Mexico for its coffee-flavoured ice-creams. “We both share the attitude that partners in the supply chain should be working together to create social and environmental benefits – especially for small farmers,” Barker says.

Ben & Jerry’s has funded eight iPads at the Huatusco Union and have seen the new technology become a valuable tool that connects farmers to educational information. “They (the iPads) will help the cooperatives complete a large number of face-to-face interviews with farmers and therefore understand the needs of its members in a more comprehensive and quantitative way than they have before,” Barker says.

J U LY /A U G U S T 2 0 1 2 | GCR

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ORIGIN iPads

“PART OF THIS INITIATIVE WAS ABOUT FINDING WAYS THAT ARE SIMPLE, INEXPENSIVE AND FUNCTIONAL TO SHARE INFORMATION AND TO GIVE THE KINDS OF RESOURCES FARMERS OR COOPERATIVES DON’T OFTEN HAVE ACCESS TO.” Laura Tilghman

Communications Director at Sustainable Harvest

Clemente Santiago Paz of Sustainable Harvest surveys a farmer from the Huatusco Union in Veracruz, Mexico.

Currently, the iTunes app store has more than 20,000 educational apps available for all kinds of learning segments on an iPad, from maths to mechanics. In early 2012, Sustainable Harvest added its own app to the educational pool, unveiling the free RITS Ed app for coffee farmers, available in English and Spanish.

With a focus on cupping education, the RITS Ed app allows farmers to take advantage of the iPad’s multi-touch screen for an interactive learning experience. The app features more than two hours of instructional footage in specialty coffee processing and quality control from Sustainable Harvest’s Q Grader-certified staff. The app contains information about cupping rules and protocols, how to deploy a fully equipped quality control lab, how to perform a cupping session and prepare green coffee for shipment, with grading and defect evaluation information.

Tilghman says the app aims to increase the impact and reach of Sustainable Harvest training in origin communities. Once the app is downloaded onto the iPad, the training material can be accessed offline in regions without internet connection.

“It’s about helping the farmers improve their coffee livelihood,” Tilghman says. “Traditionally, farmers are people who have had the least information of anybody operating in terms of the global coffee market, so part of this initiative was about finding ways that are simple, inexpensive and

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functional to share information and to give the kinds of resources farmers or cooperatives don’t often have access to.”

Tilghman says Sustainable Harvest maintains the motto that iPads are a ‘tool and not a toy’ and are aware the device is just one level in a larger education mission.

“We understand technology alone isn’t going to solve everybody’s problems, it has to be in context with other training and other kinds of resources farmers need in order to maximise output from farms and produce really high quality coffee,” Tilghman says.

However, with the new tool in-hand, Rosenthal says the device will aim to ensure cooperative staff are better prepared to enter and compete in higher-paying specialty coffee markets.

“We want the farmers to be empowered in the supply chain, and that can only happen by providing them with information,” Rosenthal says. “We’re seeing a renewed appreciation that the leaders of these communities are being recognised as consumers of technology.

People who should be using this form of technology, are finally using it, and it’s making a real difference.” G C R

ORIGIN Nicaragua Diamond

DIAMONDS

OF THE

FUTURE

THE BIRTH OF THE F1 HYBRID VARIETY IS GIVING NICARAGUAN COFFEE GROWERS A REASON TO BE CONFIDENT ABOUT THE FUTURE OF PRODUCTION. STRONG COMMERCIAL INTEREST IS NOW PROVING THIS DIAMOND IN THE ROUGH A LUCRATIVE INVESTMENT.

F

or the first time in the history of Starbucks, Nicaragua has its name prominently featured on one of its coffee bags. “This is a big deal for us as a coffee producing country,” says Henry Hueck, President of Ramacafe and 50 per cent owner of San Francisco Estate in Jinotega, Nicaragua.

In early 2012, Starbucks, one of the world’s largest coffee chain retailers, purchased the new F1 hybrid variety from the Central American coffee institute, Ecom Coffee Group Agro. The coffee was branded a Starbucks Reserve product and merchandised ‘Nicaragua Diamond’.

“We were intrigued when we tasted the coffee,” says Leslie Wolford, Green Coffee Specialist at Starbucks Coffee Company. “Nicaragua Diamond fits all of the Starbucks Reserve descriptors: it’s exotic, rare, and exquisite. It’s one of those gems that we came across and knew immediately that we had to have it in the Reserve program.”

Wolford says Starbucks specialists spend a lot of time in origin countries searching for the finest coffees – ones with distinct flavours that “enchant, amaze and captivate”. Of the thousands of coffees encountered, Wolford says there are few deemed exceptional enough to become Starbucks Reserve coffees.

“With all of our coffees, it comes down to taste,” she says. “Starbucks Reserve gives our customers an opportunity to try a unique and exquisite coffee that they might not otherwise have an opportunity to try – even if availability is limited.”

From the first 2010-11 harvest of the F1 hybrid at the San Francisco Estate, 27,000 pounds were collected. From this crop, 270 45-kilogram bags of the hybrid were bought by Starbucks, of which 70 per cent comes direct from Hueck’s San Francisco Estate.

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In 2004, the Ecom Coffee Group signed a contract with the Centre de Coopération Internationale en Recherche pour le Développement (CIRAD) to develop a new generation coffee variety. Using somatic embryogenesis technology, scientists crossed Latin American dwarf and adaption varieties with Ethiopian resistant coffee varieties. The end result was the F1 hybrid of Moka and Caturra varietals with high yield, disease resistance and the ability to be mass-produced by farmers.

Fast track eight years after the first seedlings were planted, and those plants have flourished into crops many are seeing as a golden – or rather a ‘diamond’ – investment opportunity.

Hueck is currently the owner of San Martin Estate, La Virgen, Las Marias and San Francisco Estate in Nicaragua. His business partner is Eric Poncon of Cafetalera los Compadres S.A. The two are also the owners of Ramacafe. They first heard about the development of the new

Starbucks Reserve Nicaragua Diamond

F1 hybrid in 2008 when it was introduced to a lab in Sebaco, Nicaragua.

Demo plots for the F1 hybrid were planted in El Salvador, Costa Rica and Mexico, then taken to 70 different sites in Nicaragua where researchers planted 1000 trees to determine how the plants would adapt.

While other top producing regions had tried to grow this hybrid, Hueck says the F1 variety has only been able to thrive within the terrain of North and Central Nicaragua because of its rich volcanic soil and abundant rainfall.

Hueck and Poncon bought the San Francisco Estate in 2008, an abandoned farm 1000 metres above sea level. They reforested it with 40,000 trees to provide the necessary shade for the F1 hybrids.

Hueck proceeded to plant 0.7 hectares of the hybrid in each of his four coffee estates to test its suitability and optimum growing conditions. Pleased with its progress, he took a leap of faith as the first Nicaraguan producer to install the F1 hybrid variety on his farms “You always take a risk with a new variety.

It’s a risk because it can determine our future

THE END RESULT WAS THE F1 VARIETY, A HYBRID OF MOKA AND CATURRA VARIETALS WITH HIGH YIELD, DISEASE RESISTANCE AND THE ABILITY TO BE MASS‑PRODUCED BY FARMERS.

– but somebody always has to be first, and this time it was us,” Hueck says. “Now we are the biggest F1 hybrid coffee producers in Latin America.”

Hueck planted 14 hectares of the hybrid in shade in 2008 at the San Francisco Estate, followed by 52 hectares in 2009 and 34 hectares in 2010.

“It was a fresh start as a producer and for our customers,” he says. The new F1 hybrid however, doesn’t come cheap, with seedlings costing twice the price of regular coffee varieties. “If you’re going to invest $2500 on 0.7 hectares of coffee, you have to spend $5000 per hectare when you plant the hybrid,” Hueck says.

To accommodate the new hybrid, Hueck invested in quality nutrition and fertilisation products to ensure production levels were achieved. He also installed new Penagos machinery and a stainless steel wet mill. “You cannot make diamonds with an old wet mill,” Hueck says.

“Everything has to be top of the line with the hybrid, you cannot cut corners because we’re putting a huge investment into this variety.”

J U LY /A U G U S T 2 0 1 2 | GCR

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ORIGIN Nicaragu Diamond

Henry Hueck with the F1 hybrids

“YOU ALWAYS TAKE A RISK WITH A NEW VARIETY. IT’S A RISK BECAUSE IT CAN DETERMINE OUR FUTURE – BUT SOMEBODY ALWAYS HAS TO BE FIRST, AND THIS TIME IT WAS US. NOW WE ARE THE BIGGEST F1 HYBRID COFFEE PRODUCERS IN LATIN AMERICA.” Henry Hueck

President of Ramacafe, Fifty per cent Owner of San Francisco ­Estate in Jinotega, Nicaragua.

Already, it seems Hueck’s investment is paying off. “To have gone from zero production to harvesting 30,000 pounds in the first harvest year, then 230,000 pounds in the past harvest (2010-11), is impressive,” Hueck says.

An independent economic study on production levels in 2011 found that the new F1 variety had 130 per cent higher productivity after four years and 75 per cent greater productivity after seven years, Dr Christophe Montagnon wrote in the March 2011 edition of GCR .

Over a seven-year period, it was estimated that the new F1 varieties would generate a net present value of US$11,244 per hectare, compared to $5774 for traditional coffee varieties.

A costly, yet necessary investment to ensure the future of quality coffee production in Nicaragua, Hueck says he’s expecting to harvest about 500,000 pounds in the 201112 harvest at the San Francisco Estate and 800,000 pounds by 2014.

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An optimistic start to future production, Hueck says he’s “struck gold” with the quality of production and the recent investment by Starbucks.

“Starbucks finds this coffee exquisite so our investment is paying off – thankfully we’ve landed on the right foot,” he says. “Anything that promotes Nicaragua helps Nicaraguan producers, so having a company like Starbucks purchase this coffee does a lot for our country. It’s like winning a beauty pageant and getting global recognition.”

According to Hueck, it’s not only Starbucks who have their sights set on the Nicaraguan grown hybrid. He says they’re receiving commercial attention from across the globe, including producer and distributor Arvid Nordquist in Sweden and roaster El Dorado Coffee & Tea Co in California. “Many producers from different parts of the world are coming to see our farm and see how the hybrids are developing and conducting in the environment,” Hueck says. “They want to

F1 hybrid plantation at the San Francisco Estate

EXPORTFACT The value of coffee exports from Nicaragua reached US$430.5 million between October 2010 and August 2011.

come when the plants are two-years-old, three-years, four-years… just like watching our children grow up.”

Seven hundred people from 23 countries travelled to Nicaragua for the 2011 Ramacafe conference. Following the conference, 450 people attended a field trip to the San Francisco Estate to see firsthand the production of the hybrid. “A lot of people are betting on the hybrid to succeed, even roasters,” Hueck says. “Everybody thinks that in 10 years, 70 per cent of coffee consumption will be Robusta, but a lot of people are betting on quality and sustainable coffees, and the hybrid might be that solution. There has to be a market for a product to work, and thankfully, the buyers are there, they’re just waiting for us to produce.”

Timothy Schilling, Executive Director of the Global Coffee Quality Research Initiative (GCQRI) along with representatives of the Specialty Coffee Association of America (SCAA), were one of the first few people to see the hybrid crops in their developmental stage at the San Francisco Estate in 2010. “We were thinking these hybrids looked good in the field, but surely they’re not going to hold up in the cup,” Schilling says. “But to everyone’s surprise, some of the hybrids cupped very well indeed. It’s true the hybrids do seem very promising.”

The SCAA board members gave the hybrid an 87 cupping grading. Schilling says the cupping experience highlighted the importance of investigating the potential of hybrids, with its only downfall being its lack of experience. “We just don’t know how they (the hybrids) will perform in 15 to 20 years out,” Schilling says. “All we have is information about their first five to six years of life, which has been very good, and it should continue to be the same, but we just don’t know.”

While the future may be one of high expectations and uncertainty, Hueck says his focus is on offering 30 per cent more production of the F1 hybrid without increasing land area.

“Currently the cost of production is very high in Nicaragua, but there comes a point when the only way to reduce the cost level is to be more productive,” he says.

The growing coffee industry in Nicaragua has faced periods of natural disasters, civil war and the coffee price crisis from 1999 to 2003, forcing many Nicaraguan coffee growers to leave their plantations or change their agricultural practices.

As the world’s eighth-largest producer of Arabica beans, according to the Center for Export Procedures (CETREX), coffee has been a key contributor for Nicaragua’s national economic development process, generating US$430.5 million in coffee sales between October 2010 and August 2011 and providing more than 200,000 agricultural jobs.

Today, Hueck says it’s not coffee prices that remain the problem for Nicaraguan coffee farmers – its supply. “Other producers here in Nicaragua don’t have enough plants to cater for supply and demand,” he says. “At this moment, they can’t keep up. They (the farmers) really need to act now.”

Obstacles aside, Hueck says the F1 hybrid is a step forward in increasing the productivity of Nicaraguan coffee and sustaining quality coffee for a long period of time.

“The new variety is a win-win on all levels through the supply chain; at the production level because it increases productivity; for the industry, because it reduces concern about the decreasing levels of Arabica and shortage of quality; and the consumer will get quality coffee in the cup,” Hueck says. “The biggest challenge for us right now is the scepticism of buyers.”

Hueck says this Nicaraguan F1 hybrid can at least overcome doubt by proving its taste.

He remains positive that the future of the Nicaraguan coffee producing community is regrouping and to an extent, thanks to this new coffee variety.

“Like anything, we don’t know what’s going to happen in 20 years with the plantation,” Hueck says. “But we think we can make enough money with the quality and productivity in the years ahead to make a decent living for not only the Hueck and Poncon families, but most importantly for our team of 200 people who work on the farms and their families .” G C R

J U LY /A U G U S T 2 0 1 2 | GCR

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DIARY Dashboard COFFEE AROUND THE GLOBE

WORLD COFFEE EVENTS THE CANADIAN COFFEE & TEA SHOW

THE INTERNATIONAL CENTRE

TORONTO, CANADA

9 - 10 SEPTEMBER The Canadian Coffee & Tea Show is a two-day trade show designed to meet the needs of independent coffee and tea retailers, restaurateurs, food-service operators, chain operators, and buyers.

The show will highlight the latest in coffee and tea trends, featuring equipment, services and products from leading regional, national and global suppliers. It is the country’s largest industry trade show, also showcasing the Canadian Barista Championship and the second annual Canadian Cup Taster Championship. www.coffeeteashow.ca

COTECA TEA COFFEE COCOA

GLOBAL INDUSTRY EXPO

HAMBURG, GERMANY

20 – 22 SEPTEMBER The Tea Coffee Cocoa Global Industry Expo (COTECA) is a unique trade show set to become the major meeting point for the industry in Europe. An ideal platform to cultivate existing business contacts and make new ones, backed by a high-calibre conference, which analyses the future of the market and discusses current trends in all issues related to coffee. www.coteca-hamburg.com

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7 ESPACO CAFÉ BRASIL

EXPO CENTER NORTE,

SAO PAULO, BRAZIL

4 - 6 OCTOBER The Espaco Cafe Brazil brings together professionals from all over the coffee production chain, from producer to consumer. The event will celebrate its seventh edition in 2012. The event is focused on the development of the Brazilian coffee market and also offers technical workshops. The event will feature lectures and will also host professional brewing competitions. www.espacocafebrasil.com.br

CHINA XIAMEN INTERNATIONAL COFFEE FAIR XIAMEN, FUJIAN CHINA

19 – 22 OCTOBER The last China Xiamen International Coffee Fair welcomed 273 exhibiting companies in total, including 96 overseas companies from Taiwan, Singapore, Indonesia, Malaysia, Poland, USA, Mexico, and Portugal. This year, the fair will be held alongside the Third China Xiamen International Tea Fair with a total exhibition area of 22,000 square metres accommodating 1000 standard booths. www.coffeefair.cn

EXPO CAFE PERU 2012 EXPOSITION CENTRE EL VIVERO

JOCKEY CLUB OF PERÚ

LIMA, PERÚ

18 - 20 OCTOBER Expo Café Perú 2012 is an international event to promote Peruvian coffee consumption and the exchange of information and networking contacts. The Expo will include the VIII Final National Competition Quality Coffee, the Peru National Barista Championships, exhibition space, and specialised conferences. www.expocafeperu.com

MELBOURNE INTERNATIONAL COFFEE EXPO

MELBOURNE, AUSTRALIA

MAY 2013

KEEP A LOOK-OUT 3rd Moscow International Coffee Forum 17 September Moscow, Russia www.coffeetea.ru Expoalimentaria 2012 19 – 21 September Lima, Peru www.expoalimentariaperu.com TriestEspresso Expo 25 – 27 October 2012 Fiera Trieste, Italy www.triestespresso.it The 24th International Conference on Coffee Science 11 – 16 November Ramada Plaza Herradura Golf Resort and Conference Centre www.asic2012costarica.org Coffee Tea & Water 2012 13 – 15 November Hyatt Regency Hotel, New Orleans, United States www.vending.org/education/ coffeeevent.php

World Coffee Events has announced that the Melbourne International Coffee Expo (MICE) will host the 2013 World Barista Championships and World Brewer’s Cup. In hosting the world’s leading international coffee competition, MICE 2013 is shaping up as the must-attend event on the international coffee calendar. The show will continue its commercial success in 2012, having attracted an unprecedented level of top quality visitors, welcoming over 7300 attendees to the largest dedicated coffee event to take place on Australian soil. www.internationalcoffeeexpo.com

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PRODUCTS Marketplace

WEGACONCEPT The Wegaconcept represents the highest level of Wega technology in terms of environmental sustainability. This machine features a night-time standby function, combined with multi-boiler and self-learning software technology which can save 47.6 per cent more energy when not in use and 30 per cent while operating. The Wega Concept offers five separate safety features on the service boilers and four separate safety features on the individual brewing boilers. The multi-boiler technology also increases thermal heat stability of the coffee brewing boilers to give a perfect espresso.

For more information visit www.wega.it

HUHTAMAKI’S CALLISTO HOT CUPS Huhtamaki continues to expand its Australian manufacture of foodservice packaging products and the new Callisto range of paper hot cups is its latest innovation. The paper cup encompasses Huhtamaki’s insulated air gap double-wall paper structure yet features a new embossed outer wall. The first of its kind to be launched in Australia, the embossing creates a new realm of design possibilities for the foodservice and coffee industry. The embossed cups can be customised to feature a company’s own design, and are also available in a standard range of vibrantly coloured designs in the popular cup sizes – 285 millilitres, 400 millilitres, and 500 millilitres. For more information visit www.foodservice.huhtamaki.com.au

ELECTROLUX Lavazza has partnered with Electrolux Small Appliances to unveil a new home capsule machine collection, the Lavazza A Modo Mio. The new partnership combines 115 years of coffee expertise with Scandinavian design heritage. The Lavazza A Modo Mio by Electrolux delivers the taste of real Italian coffee at the touch of a button, creating an espresso or espresso lungo. Modern in design and slender in dimension, this machine is a stylish and compact addition to any kitchen. The new machine works with the existing Lavazza capsules and comes with a standalone milk frother and an integrated steam wand for extra control on the texture and temperature of the froth. The new machine is available in both Classic and Premium models. For more information visit www.lavazzamodomio.com

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RENEKA/MACCHIAVALLEY LIFE The Reneka/Macchiavalley-Group is producing and selling the new “Life” espresso machine, which aims to deliver a superior extraction every time. The Aroma Perfect brewing setting automatically adjusts the amount of ground coffee to ensure perfect tamping pressure. The Sensitive Brewing and Multi Coffee System technology customise temperature settings for each brewing unit simplifies operating and setting controls.

Reneka’s Life espresso machine ensures maximum flexibility and highest quality in coffee making with the selection of fresh beans, capsules, pads or pods, thanks to the patented triangle portafilter technology. For details see www.mv-t.com

THE JUGGLER New from Six Simple Machines, The Juggler is a breakthrough milk on tap system for cafés, designed to improve efficiencies in filling milk jugs and to eliminate plastic bottles from the café waste stream. The Juggler draws milk from refrigerated bulk bladders into its taps for dispensing. Its Jug-Size Sensor provides hands free, on demand, jug-accurate dosing. Gone are the menial secondary tasks of opening, pouring from and crushing milk bottles, giving baristas more time to focus on the coffee and the customer. For more information, visit www.thejuggler.com.au or contact info@sixsimplemachines.com.au

FRANKE’S EVOLUTION BASIC CF2 Franke Coffee System’s Evolution Basic CF2 with KE225 fridge is versatility made easy.

The ultimate elegance combined in this modestly-sized coffee system is ideally suited for restaurants, hotels, convenience and corporate offices. The machine has an intelligent brewing system with precision porcelain grinder blades, and an HACCP Certified milk and coffee cleaning system. The Evolution Basic CF2’s functionality is focused on what’s essential – high coffee quality dispensed from a surprisingly compact coffee system with a big heart. www.franke.com

JULY/AUGUST 2012 | GCR

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LAST WORD Gotec

TAKING TECHNOLOGY DOWN A SIZE AT 215 MILLIMETRES HIGH and just 160 millimetres in diameter, the Gotec S.A. capsule machine comes across more as a table top accessory than a kitchen appliance.

The device, which Swiss-based manufacturers Gotec say is the smallest capsule machine ever released on the market, was innovative enough to take home the Best Coffee Related Product or Machine Award at the Specialty Coffee Association of Europe (SCAE) World of Coffee event that took place in Vienna in June.

As it turns out, much of the thinking that went into this machine was, in fact, all about taking the coffee machine out of the kitchen, according to Gotec’s Frédéric Dayer.

“Our entire vision for the team that worked on this machine was to take a coffee machine and use it anywhere you like,” says Dayer.

“Imagine you could put a coffee machine in a guest’s bedroom so they could make their own morning coffee, or anywhere in the house you would want an espresso hit.”

The team’s vision is the kind of out-of-the-box thinking that occurs when a non-coffee company comes up with a coffee appliance. Gotec is a 50-year-old company that began developing and producing solenoid pumps. Today, its pumps are used in everything from printers to medical devices, air conditioning units to heating systems, and, naturally, coffee machines.

In 2008, Gotec started developing pumps that are smaller, more silent, and with added functionalities. The results was the AIO (All in one) concept, which merged three components – the pump, heater, and flow control – all into one. With this new pump in hand, Gotec was able to launch its first, and potentially revolutionary, coffee machine.

Dayer says that the feedback received at the SCAE World of Coffee Event was fantastic. Visitors were impressed with the compact nature of the machine, and the potential to personalise the machines as well.

The machines can be “clothed” in different coloured coverings. The glass etching on the machine can also be personalised, and Dayer says the company will launch its website at the end of the year so clients can log on and have personal messages etched onto the machine.

Dayer explains that because of the nature of the pump, which only heats up exactly the amount of water needed for a single extraction, the machine uses a very limited amount of energy and virtually no water wastage. “The ecology of the machine is a huge advantage,” he says. “If you’re making a 30-millilitre espresso, you’re only heating up those 30 millilitres of water or exactly what you need.”

The breakthrough is a step away from traditional espresso machines, and some capsule systems, that rely on keeping a large amount of water

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hot in a boiler system, using high levels of energy. Other capsule systems limit energy usage by only heating up the water used for the extraction, but nevertheless rely on warming up a large amount of aluminium to heat the water ahead of the extraction.

By using the pump system to heat the water, the Gotec system doesn’t even require a standby function, using very little energy to generate 20 bars of pressure.

The limited energy usage means that Gotec will be able to reach the next phase in its vision for mobility – a wireless coffee capsule machine.

Initial prototypes have proven that the Gotec system can operate on battery power just as well as it can on 230 volts.

“In using just enough energy you need for a single coffee, you’ll be able to make 10 coffees on just one set of batteries,” says Dayer.

“Making a coffee with 20 bars of pressure anywhere you want – that’s the future.” GCR

TINYFACT The Gotec S.A. capsule machine weighs just 2.5 kilograms, and at 215 ­millimetres high and 160 millimetres in diametre, ­Gotec says it has released the world’s smallest espresso capsule machine.

LEAVE THE ENERGY TO THE COFFEE. WEGA CONCEPT GREEN LINE ESPRESSO MACHINE

It Knows What You Want and much more

Self Learning Software

Brewing Accuracy Software

Multi-Boiler

Huge Energy Savings

memorizes your peak production hours and auto adjusts to stand-by mode during down time

senses when your brew is not your best and will tell you how to correct it

lets you operate each brewing group at different temperatures

with 47.6% certified energy savings during its rest period & 30% when operational

www.wega.it

The new dimension of espresso quality

www.nuovasimonelli.com