GCR Oct 2012

September/October 2012

BRAZILIAN OUTLOOK After the rains

CONSUMPTION CALLING

World figures show no sign of slowing down

THE QUALITY EQUATION Guatemalan production efforts

CERTIFIED DEMAND

Market forces in sustainability

MICRO-STEPS

Is less finance more?

STARBUCKS’ EUROPEAN QUEST THE COFFEE CHAIN’S EMEA PRESIDENT ON REINTRODUCING THE ICONIC BRAND

www.globalcoffeereview.com 29.00

CONTENTS September/October 2012

COVER STORY THE COMEBACK KID

10

Why reintroducing the Starbucks brand to Europe is key to helping this coffee chain make its mark.

24

IN THIS ISSUE FEATURES

COFFEENOMICS

10 LEADING THE STARBUCKS RENAISSANCE

24 S HIFT & GROWTH IN CONSUMPTION

President EMEA Michelle Gass on her plans to reintroduce the brand to the region.

16 EASTERN PROMISES

Kenya’s plans to valueadd to their industry with foreign investments.

21 G UATEMALA’S QUALITY EQUATION

The coffee darling’s careful production innovations.

29 B RAZIL’S GUESSING GAME

Outlook following erratic weather in the world’s largest producer.

35 D RIVING DEMAND

What to do with an ample supply of sustainable coffee.

40 D UTCH COFFEE DREAMS

Domestic coffee shops are leading The Netherlands’ rising coffee scene.

“YOU HAVE TO TREAT EVERY STORE YOU OPEN LIKE IT’S THE ONE STORE YOU’RE EVER GOING TO OPEN – THAT IS MY LESSON.” Michelle Gass President, Starbucks Europe Middle East and Africa

16

What forces are driving growth and where.

ORIGIN 44 B REWING CHANGE

An abstract from Green Mountain Coffee Roaster’s Rick Peyser’s new book.

48 O NE MICRO-STEP AT A TIME

Microcredit and its impact in coffee growing communities.

RESEARCH & TECHNOLOGY

REGULARS

58 C OFFEE AND LONGEVITY

4 EDITOR’S NOTE

The link with a lessened risk of death.

7

NEWS DRIP BY DRIP

54 DIARY DASHBOARD 56 MARKETPLACE 58 LAST WORD

29 S E P TE M B E R /O C TO B E R 2012 | GCR

3

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

STOP, THINK, AND KEEP DRINKING

The fact that coffee consumption is on the rise won’t come as a surprise to many.

The latest International Coffee Organisation figures show that consumption has risen an average of 2.5 per cent a year for the last 12 years. This is a welcome increase following the coffee price crisis at the turn of the millennium, the result of too much supply meeting too little demand (among other factors).

What is particularly noteworthy is the fascinating shifting face of consumption (see page 24). Where some countries have experienced a drop, other are seeing a rapid raise. While rising incomes and healthy economies are factors, these aren’t enough to explain the whole story.

A qualitative look at countries where quantity is on the rise helps fill in the gaps.

The Netherlands, which has seen some of the sharpest increases in branded coffee shops, is a good example (see page 40). Having fallen under the radar of global chains until recently, independent coffee shops played a key role in promoting out-of-home consumption.

The result is now one of the highest average consumption rates in Europe.

As consumption rises, the world will continue to operate in a coffee deficit in the near future. This is good news for farmers, as prices will continue to rise, or at least remain stable. Brazil’s plan to invest billions in production over the next few years is evidence that more supply will follow.

Coffee growing, however, is no ‘green’ exercise. Although some producing countries

4

G C R | S E P T E M B E R / O C T O B E R 2012

can be applauded for leading the way in terms of environmental practices at the farm level, others have a long way to go, not for want of trying, but lack of basic resources.

Providing these countries with incentives to improve their sustainability efforts is important. Just as market forces have helped bring up prices, market forces now need to be used to promote sustainability efforts.

Sustainability initiatives, like the 4C Association, Utz and Rainforest Alliance, have put together the market mechanisms needed to give better market access to farmers who work sustainably. For these market mechanisms to work, however, they need stronger demand. They need consumers and roasters alike to demand nothing less than fully verified or certified coffee (see page 35).

Whether it’s through direct trade, in-house certification schemes or internationally-recognised labels, instilling these market mechanisms will be key to a sustainable industry moving forward. All the while continuing to drink more and better coffee.

Christine Grimard Editor

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 Jacqui Melville Didier Gentilhomme Max Gower Coffee Kids CONTRIBUTORS Maja Wallengren Daniel Howden 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

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.

We are engineers and love good coffee. We are manufacturers and enjoy perfect roasting.

We live tradition yet understand the necessity of progress.

WE LOVE THE TASTE OF GOOD COFFEE

PROBAT-WeRke vOn GimBORn mAschinenfABRik GmBh 46446 Emmerich am Rhein, Germany Tel. +49 2822 912-0 •

www.probat.com

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

NEWS In Brief

NEWS DRIPBYDRIP

The 4C Association’s Executive Director Melanie Rutten-Suelz says that the sustainability initiative will no longer actively recruit farmers, and focus on increasing demand.

The group’s 2011 report noted that the production capacity of 4C

Kenyan officials plan to build a ‘coffee park’ outside of Nairobi, to produce a range of coffee products for regional and international markets, such as soluble coffee.

The plans aim to bring more added value into the Kenyan coffee industry.

CEO of the Kenyan Coffee Board, Louise Njeru, says she doesn’t think “any nation can fully develop just as a producer of raw materials”. The country is currently looking for outside investment.

The strategy will see the park host packaging businesses, trading houses, roasting facilities, a soluble coffee plant and an academy to train the next generation of growers, traders and marketers.

Discussions are also underway to see Nairobi’s auction extended as a regional auction for growers in Rwanda, Uganda and Tanzania, that are currently direct selling. Thika, out of Nairobi is one location being considered for the auction, it already hosts a coffee research station. See page 16.

compliant farmers amounted to over 15 million bags of coffee, representing 12 per cent of total coffee supply.

Purchases, however, totalled just over 810,000 bags.

Rutten-Suelz says that demand is expected to increase sharply, with 4C members Nestlé, Kraft and Tchibo all making commitments to increase their purchases of 4C compliant coffee.

See page 35.

Europe saw its number of branded coffee shop outlets growth by 6.8 per cent in 2011. This figure represents faster growth than in 2010, which saw the number of outlets grow by 4.6 per cent, according to Allegra Strategies’ ProjectCafé11 Europe report.

Industry leaders will discuss and celebrate the European branded coffee shop market at the European Coffee Symposium, taking place from 20 to 22 November in Amsterdam, The Netherlands. See page 40.

The sixth TriestEspresso Expo is set to take place in Trieste, Italy, from 25 to 27 October 2012, organised

by Aries (Special Agency of the Trieste Chamber of Commerce) in collaboration with Assocaffè Trieste.

Over 200 exhibitors will take part to the biennial B2B event, covering all espresso coffee industry segments, including green and roasted coffee, coffee machines, roasting equipment, tools, coffee cups and packaging producers. The program will include opportunities for learning and training, cultural events, as well as the ‘all’aroma di caffè’ city café tour. For details visit www.triestespresso.it

ASIA

140

million

The International Coffee Organisation estimates world coffee consumption to be closing in on a record 140 million 60-kilogram bags in 2012.

See page 24.



The International Coffee Organisation continues to report buoyant world consumption. World coffee consumption is estimated to be closing in on a record 140 million 60-kilogram bags in 2012.

The figure represents impressive growth from 105 million bags a decade ago. From 2000 – 2010, world consumption grew at an average 2.5 per cent per year. Many industry officials say that demand could continue to grow at that rate for years to come. See page 24.



Starbucks announced its third quarter earnings report, including US$3.3 billion in net revenue and 19 per cent earnings per share growth.

Global consolidated sales grew by 6 per cent, including 7 per cent in the Americas segment and 12 per cent in the China Asia Pacific (CAP) Segment. Europe Middle East and Asia (EMEA) recorded 0 per cent growth in comparable store sales.

At the beginning of the financial year, Starbucks restructured the company into three global segments: Americas, CAP and EMEA. Michelle Gass, who has worked with Starbucks for 16 years, was appointed President of EMEA. She tells GCR of her plans to boost growth by reintroducing the Starbucks brand to Europe. See page 10.

AFRICA



EUROPE

Coffee exports in India fell 6.8 per cent in the first 10 months of the coffee year, the Coffee Board of India reported in early August.

Exports were said to have dropped 285,555 tonnes. However, in terms of value, exports rose 3 per cent to US$759.7 million. Indian coffee, which has continued to improve rapidly in quality since the liberalisation of the coffee industry, has brought in high earnings in recent years.

SEPTEMBER/OCTOBER 2012 | GCR

7

NEWS In Brief



AMERICAS The International Coffee Organisation’s indicator price rose for the first time in July, on the back of quality concerns over Brazil’s coffee crop.

The country saw massive rainfalls in June/July, leading some officials to drop their production forecasts for the world’s largest producer of Arabica coffee.

Marco Ruttimann, A Partner at Coffee-Link International, tells GCR that coffee has been seen falling off trees. He says that the damage is likely to lead to further increases in prices, with the impact of the weather more detrimental than many anticipate.

Some experts have predicted Brazil’s crop to reach a record of 55 to 56 million 60-kilogram bags this year, however conservative industry officials are questioning whether the country can surpass 50 million. See page 29.

687

million

Over the last 13 years the number of microcredit loans has grown from 7.6 million in 1997 to 137.5 million in 2010, helping more than 687 million families.

See page 48.

8

G C R | S E P T E M B E R / O C T O B E R 2012

Rick Peyser has released his book Brewing Change: Behind the Bean at Green Mountain Coffee Roasters (GMCR), which he co-authored with Bill Mares.

The book outlines Peyser’s experience working up the ranks at GMCR over 24 years. Peyser is currently the Director of Social Advocacy and Coffee Community Outreach for GMCR. For an extract of the book see page 44.

Scientists from the Division of Cancer Epidemiology and Genetics at the National Cancer Institute (NCI) in the United States have found that increased coffee consumption is associated to a reduced risk of death.

Microcredit loans are being used to assist coffee growing families. See page 48.

An observational study on more than 400,000 people was conducted over 14 years. Participants completed a questionnaire between 1995 to 1996 as part of the National Institute of Health (NIH) Aarp Diet and Health study.

Compared to people who did not drink coffee, participants who consumed three or more cups of coffee a day had approximately 10 per cent lower risk of death.

The study is considered the largest-ever analysis of coffee and mortality risk.

See page 58.

Coffee Kids introduced a microcredit program to coffee farmers in the province of San Ignacio in Northern Peru.

The Microcredit Education Program provides low-interest loans of US$750 a year to 20 university and technical school students aged 15 to 22 years. The loans cover

education related expenses such as food, transportation, clothing, fees, tuition and materials.

According to the 2012 State of the Microcredit Report, over the last 13 years the number of poor families with microcredit loans has grown more than 18-fold, from 7.6 million in 1997 to 137.5 million in 2010.

These loans have helped more than 687 million family members. See page 48.

Coffee production in Guatemala has dropped from around 5 million bags a decade ago, to around 3.5 bags in recent years.

As prices have stabilised, farmers are now looking to increase production. As much as 77 per cent of the country’s crop is sold as highgrade specialty coffee. The Gatemalan National Coffee Association (Anacafe) is keeping a focus on quality renovations of the nation’s crop.

See page 21.

The WMF 1200 S is a high quality professional coffee machine for small to medium use.

COVER STORY Starbucks EMEA

LEADING THE

STARBUCKS RENAISSANCE EUROPE’S ECONOMIC STRIFE ISN’T HOLDING BACK MICHELLE GASS, STARBUCKS PRESIDENT EUROPE MIDDLE EAST AND AFRICA. SHE TELLS GCR OF HER AMBITIOUS PLANS TO REINTRODUCE THE BRAND TO A REGION THAT SHOWS VAST POTENTIAL FOR GROWTH.

F

inancial journalists couldn’t help but note the slight overreaction of the market when Starbucks released its third quarter results this past July.

What would be good news for most companies during these less-than-prosperous times – US$3.3 billion in net revenue and nearly 20 per cent earnings growth – led to a 10 per cent drop in share price. The dramatic dive was attributed to Starbucks falling just 2 cents short of earnings expectations.

At the centre of Starbucks’ worst news was limited growth from the Europe, Middle East and Africa (EMEA) segment, a region that has historically not performed as well as its American homebase or booming Asia Pacific peers.

These figures may very soon change, however, if Michelle Gass, President Starbucks EMEA, has her way. Dubbed by Forbes as “Starbucks’ secret weapon” Gass is finding her footing in her newly acquired territory.

“EMEA has not been the biggest profit driver of the company. They struggled with it in terms of the economics of this region with high occupancy, high labour costs, and so on. But we don’t take that as an excuse,” she tells GCR in July, on her one year anniversary in the position. “We know there are opportunities… We’re setting out to make an absolutely beloved brand here in Europe. In pockets we have it – but we want to get a lot more.”

Reintroducing the brand to Europe is what Gass calls the “Starbucks Renaissance Plan”. She admits there was a time when the company believed the world was their oyster, that they could open the same kind of store whenever and wherever they pleased, to instant success. These days, Starbucks is taking an important influence from the cultures in which they’re setting up shop. All the while, staying true to the Frappucinos and Grande Lattes that have made them the shining success story

10

G C R | S E P T E M B E R / O C T O B E R 2012

that they are in so many parts of the world.

“It’s really understanding and appreciating all those fascinating cultures around coffee, but at the same time bringing what makes Starbucks so special,” she says.

When Gass first arrived to London to take up her new posting, she didn’t have long to settle in before getting back on the plane. She was keen to get to know the markets she was readying to lead, now responsible for more than 1800 stores in 36 countries. She figured the best way to get started was to visit as many as she could.

“Howard [Schultz] and the board recognised that to fully unleash the potential we needed leadership on the ground to make sure we really understood the market nuances,” she says.

During her whirlwind tour, Gass visited every Starbucks store possible, speaking with managers and staff, and holding focus groups with customers.

“I didn’t want to make any assumptions on what the issues or opportunities were,” she

S E P TE M B E R /O C TO B E R 2012 | GCR

11

COVER STORY Starbucks EMEA

says. “This is so critical, because that is where you get the insight to drive the strategy, inspire your people and evolve your strategy.”

It was a careful approach to what has become one of Gass’s biggest challenges to date. Having been with the company for 16 years, Gass previously helped redefine Seattle’s Best Coffee company, and playing a key role in the launch of the highly successful Via soluble coffee brand. As Head of Global Strategy, Gass co-authored the blueprint for the Starbucks turnaround alongside Starbucks President and CEO Howard Schultz.

Bringing her expertise to Europe, Gass has visited 20 markets multiple times since her arrival. These first few months were key to helping her develop a strategy, that would pull from local influence.

While staying true to the Starbucks offering, Gass has found room to cater to local cultures “around the edges” in food offerings and store design. Leading up to the London Olympics, Starbucks invested in renovating 70 stores, and 100 in the United Kingdom. Each store was individually designed, taking influence from the “local British flair”.

The first European Starbucks “concept”

12

G C R | S E P T E M B E R / O C T O B E R 2012

EMEAFACT Michelle Gass was ­appointed Starbucks ­President Europe Middle East and Africa in July 2011, and oversees 1800 stores in 36 countries.

store, which opened in Amsterdam in March, is an emblem of Gass’s vision for local inspiration in design. Built under the direction of Dutch-born Lix Mullier, 35 artists and craftsmen outfitted the 430 -square metre subterranean space, with everything from repurposed Dutch-oak floors to antique Delft blue tiles.

While store-design is one thing, a key part of what Gass calls Starbucks’ “re-introduction” to Europe, has been ensuring Starbucks sticks to two of its core values: great coffee, and being the best at espresso. In the UK, this meant a look at their coffee recipes.

Focus groups here revealed that Starbucks’ lattes were perceived as “too milky”. Gass notes this is interesting, because in many parts of the world, their coffee is perceived as strong and bold. Market research, however, revealed that in the UK, a two-shot latte had become the industry standard.

“While people weren’t thinking one shot versus two, what they were experiencing was that their coffee didn’t taste as strong,” she says. “We made a significant move to change the standard in the UK to make a tall latte two shots.”

To help improve their milk-based drinks, which make up the bulk of the Starbucks menu, the company developed a proprietary milk jug. Gass says there are 17 innovations on the new jug, in everything from the curve to the indent on the bottom, to ensure velvety and smooth steamed milk. The region’s baristas were all retrained with a new technique to use on the jugs. She says the results were so successful, some people who had ordered skinny lattes were returning their drinks thinking they had mistakenly

“IT’S REALLY UNDERSTANDING AND APPRECIATING ALL THOSE FASCINATING CULTURES AROUND COFFEE, BUT AT THE SAME TIME BRINGING WHAT MAKES STARBUCKS SO SPECIAL.” Michelle Gass

Starbucks President Europe ­Middle East and Africa

used whole milk.

One influence Gass is taking from home is the proliferation of Starbucks stores. America is known for having a Starbucks on every corner, recently characterised by international headlines that a Starbucks planned to open in a funeral home in South Carolina (it wasn’t actually a Starbucks store, but a café that planned to serve Starbucks coffee).

Gass says that this level of proliferation is important to success. Rather that canonising market potential, their experience has shown that the more locations they open, the more business each store gets. For Starbucks to be a part of a person’s daily ritual, it has to be convenient.

“If you’re in Manhattan, Starbucks is on every corner. It’s part of your daily habit: we want to create that same experience, that same role here in Europe,” she says. “A big part of getting more [customers] is getting more stores and operating in new channels. Above all else, the number one thing we heard [from our customers] was that we need more stores, they need to be more convenient.”

While Starbucks will continue to build upon

their main street stores, Gass says she’s most excited about expanding the Starbucks portfolio, largely taking advantage of Europe’s much used and loved public transportation system. When she arrived, there were no Starbucks’ in train stations in Paris. They’ve just opened their first two at the busy Saint Lazare train station to great success, with plans for more.

The city’s Charles de Gaulle Airport also saw its first Starbucks open this year, and the company plans to continue to open in airports around the continent. Gass says that interestingly, often an airport location will be the first store they open in a new territory. Two of Starbucks’ highest volume stores are in airports where they don’t even have stores in the rest of the country (Norway and Finland).

One development will soon see Starbucks stores on trains as part of the Swiss rail system. Two pilot operations are set to open in the next six to eight months, and their success could pave the way for a newer, more mobile, coffee experience. “It demonstrates the global power of the brand,” she says. “It’s as much an art as it is science in terms of opportunities.”

Hotels present another avenue for growth. While a few hotels in the UK have a Starbucks, the company just opened in its first hotel in continental Europe in Amsterdam in July. Gass says it’s been doing exceptionally well, and she points to the opportunity for growth in this area in the future: in hotel lobbies, rooms, restaurants, and so on.

“The potential is enormous and we’re just getting started,” she says.

In terms of retail sales, while a handful of countries offer Starbucks products such as Via, bottled Frappucino and roasted coffee, Gass says there is significant growth potential.

The decision to open in a new market, Gass says, is weighted more on the company’s perceptions of their ability to enter the market, rather than if the market is the right fit for Starbucks. To help them ingratiate the brand, Starbucks often chooses to work with a licensed or joint-venture partner.

“If it’s the case where we want to work with a local partner, the question of whether we’ve found the right partner is really important,” she says. “It’s not a business transaction, it’s a relationship.

If we’re creating the Starbucks Experience in a new market, we want to have tremendous trust that this partner is going to represent our brand really well.”

S E P TE M B E R /O C TO B E R 2012 | GCR

13

COVER STORY Starbucks EMEA

Gass says that Starbucks has a big advantage in that it is often sought out by partners, with many Europeans asking for the Starbucks brand.

Rewarding those loyal customers has been an important part of getting them into their shops regularly. Back in the United States in 2009, part of the transformation that Gass helped map out included a customer loyalty program.

“It was a phenomenal success. People really love it: the benefits, the recognition,” she says.

The program was introduced in the UK and France earlier this year, and will be rolled out in Germany later this year, with plans for the rest of the region.

Another core value Gass is taking from home is the continued focus on its people. With store environment such an important part of the Starbucks brand, Gass says this focus must continue throughout their growth.

“Starbucks is a company built on values.

We’ve always said we’re not in the coffee business serving people, we’re in the people business serving coffee. That relates to our customers and our people,” she says. She points out that historically, Starbucks has had a strong reputation in taking care of its employees. In 1988, the coffee chain offered full health benefits to eligible full-time and part-time employees in

14

G C R | S E P T E M B E R / O C T O B E R 2012

“STARBUCKS IS A COMPANY BUILT ON VALUES. WE’VE ALWAYS SAID WE’RE NOT IN THE COFFEE BUSINESS SERVING PEOPLE, WE’RE IN THE PEOPLE BUSINESS SERVING COFFEE. THAT RELATES TO OUR CUSTOMERS AND OUR PEOPLE.” Michelle Gass

Starbucks President Europe Middle East and Africa

the United States, and in 1991 is became the first privately-owned American company to offer a stock option program that included part-time employees.

“For us in Europe, the question is how can we evolve along these lines,” she says. One step she took was inviting all the district managers and leaders to Amsterdam, home to the only Starbucks roasting plant outside of the United States. She says that many of these people had never left their own country.

“The power of bringing these people together, to connect them with the culture, to connect them to the vision, and have them touch our coffee that we roast everyday [was phenomenal],” she says.

“When it comes to the work you do everyday, it’s important to be inspired [like this].”

Gass will work not only to better integrate their own staff to the Starbucks brand, but also better introduce the brand to the region by telling their story. “We’ve just been a bit quiet in this part in the world. People are curious, they want to know about us,” she says.

Having seen Starbucks grow over a decade and a half, Gass is in a good position to tell the story, and also to pull from the lessons learned in times gone by. It wasn’t too long ago that instead of prospects for Starbucks growth, company statements were evolving around store shutdowns. After consecutive years of mushrooming, between 2009 and 2008, the company recorded its first net drop in the number of stores by 45. Gass was still in the United States at the time, and from a company perspective she remembers that having seen over 4200 stores open in two years, much of their trouble came down to growing too fast. While taking ownership of their own shortfalls, Gass says the economic meltdown that followed the Global Financial Crisis should be taken into consideration.

“The world, a bit, came crashing down,” she says. With Europe’s economy showing more than one sign of weakness, Gass is taking these lessons in tow.

“You have to treat every store you open like it’s the one store you’re ever going to open – that is my lesson,” she says. “The thoughtfulness of the real estate location, ensuring you can support that store from an operations perspective and supply chain, and making sure you have the right design to fulfil the needs of the customers and the community desires.”

Giving back to the community will close off Starbucks’ European strategy. At a time of high unemployment figures in Europe, Starbucks will look to target youth employment and internship programs. “We’re going to be making a significant investment in the community,” she says. “We have an opportunity to tell those stories more broadly, and to do more. We’ll look to really create all those locally relevant programs, then to evolve into a bigger commitment that we will make for youth. We will spend millions of dollars in the coming years doing just that.”

Promises like these give reason for more than just stockholders to hope that this secret weapon proves successful in her latest endeavour. G C R

FEATURE Kenya coffee park

EASTERN

PROMISES KENYA’S COFFEE INDUSTRY IS LOOKING TO ASIAN COUNTERPARTS FOR INVESTMENT, TO INCREASE THE PROFITABILITY OF THE INDUSTRY VIA DOMESTIC OFF-THE-SHELF PRODUCTS.

BY DANIEL HOWDEN

16

G C R | S E P T E M B E R / O C T O B E R 2012

A

mong the few seeming certainties as the Olympics got underway in London in July was that the Kenyan national anthem would be among the most frequently played once the action began on the running track.

The formidable strength of Kenya’s athletics team also prompted a large government delegation to follow them to the UK’s capital in an effort to capitalise on their anticipated success by pushing commercial opportunities in East Africa’s biggest economy.

Pride of place at the “Kenya House” pavilion in east London’s Olympic park was being given to coffee – one of the country’s most important export earners.

On show were plans for a “coffee park” outside the Kenyan capital, Nairobi, where authorities hope to lure foreign investors with the chance of turning the country’s high quality beans into a range of coffee products for the regional and international markets. The park envisages a soluble coffee plant alongside roasting and packaging facilities within easy reach of Nairobi’s international airport. The same roadshow has already made two visits to China – stopping in Beijing and Shanghai – as the Kenyan coffee board steps up its “look east” bid for Asian investment.

Sitting at her desk back in Nairobi, the CEO of the coffee board, Louise Njeru, says that industrial facilities that will allow the producer nation to export value-added products rather than just raw Arabica beans will be key to stabilising what has historically been a volatile sector.

“Despite a lot of government input into the industry we’re not seeing any significant growth in production,” says Njeru. “The farmers are disgruntled and they believe the real money is being made elsewhere.”

In pride of place on the wall behind her the CEO keeps a framed graph that tells the troubled story of Kenyan coffee over the past 40

KENYAFACT Kenya saw a poor harvest in 2011 at 36,260 tonnes.

It’s expected to rise to 45,00 tonnes this year and bring in US$285 million.

years. A jagged green line shows epic rises and falls both in production and the price of coffee on the global market. It’s a reminder, she says, that the overriding priority is to bring stability and growth to a sector where farmers have been burned too often in the past. The biggest dips on the graph come in 1991 and 2000 when coffee prices collapsed, bankrupting many of Kenya’s 700,000 small producers and making a generation of growers wary of the sector. “I don’t think any nation can fully develop just as a producer of raw materials,” says Njeru. “The producer nations like us are always the most affected by price volatility.”

Last year saw the best prices in 34 years at Nairobi’s coffee auction but even those rates have done little to stimulate production. Historically production of Arabica has peaked at around 50,000 tonnes per year. Last year’s relatively poor harvest – 36,260 tonnes – pushed prices to record levels earning US$261 million, but the area under cultivation has remained rooted at 160,000 hectares, 10,000 less than in 2006. Production this year is expected to rise to 45,000 tonnes

S E P TE M B E R /O C TO B E R 2012 | GCR

17

FEATURE Kenya coffee park

Louise Njeru, CEO of the Kenyan Coffee Board

“HAVING VALUE-ADDITION DONE LOCALLY WOULD BE VERY BENEFICIAL TO US BECAUSE WE WOULD BE ABLE TO PLACE A TRUE VALUE TO OUR PRODUCE.” James Gichangi

Nairobi Coffee Farmer

and income is projected to rise to US$285 million, up from $115 million seven years ago.

The record prices and high quality of much of the Kenyan crop prompted a number of investors – particularly from China – to look at buying coffee estates in the country. But they found themselves facing the same constraints that have stymied existing growers: powerful competition from surging real estate sectors in growing areas, urbanisation and the dominance of small-scale growers.

“Unfortunately most of the suitable growing areas are already in the hands of smallholders,” says Njeru. “Coffee cannot compete with the mushrooming real estate prices in and around Nairobi which used to be the best estates.”

Despite the limiting factors, the Kenyan CEO has set herself the target of growing coffee from 5 per cent of the country’s export earnings to 10 per cent. It’s clear, she says, that Kenya is not going

18

G C R | S E P T E M B E R / O C T O B E R 2012

to be able to expand the area under cultivation sufficiently to achieve its goals. The strategy for getting there is laid out in what she admits is for now a “shopping document” showcasing plans that would make Kenya the hub for coffee in the region. The coffee park would host packaging businesses, trading houses, roasting facilities, a soluble coffee plant and an academy to train the next generation of growers, traders and marketers. There are also discussions underway that could see Nairobi’s successful coffee auction augmented to become a regional auction for growers in Rwanda, Uganda and Tanzania that are currently direct selling.

Land has been set aside at two locations, one site on the Athi River outside of the capital and the other at Thika, an hour’s drive out of Nairobi towards the central province and the main growing areas. It already hosts a coffee research station where work is underway on developing higher yielding and more drought resistant varieties as well as the largest cluster of existing coffee mills. Provisional estimates for the coffee hub put the cost at more than US$100 million and means that private investors will have to be found to work with the Kenyan government agencies. New legislation before the Kenyan parliament will establish a legal framework for the kind of “public-private partnership” needed to make the coffee park a reality. Both sites have been earmarked for Export Promotion Zones (EPZs), where businesses will be offered tax breaks to encourage foreign currency earners.

Among coffee farmers – who are estimated to support as many as 5 million Kenyans – there is already widespread support for further industrialisation.

“Having value-addition done locally would be very beneficial to us because we would be able to place a true value to our produce,” says James Gichangi, a farmer with two acres of coffee trees in Kiambu, near Nairobi. “Presently our coffee is flown out in its raw form and we lose out in terms of low prices offered to us, yet blenders and processors out their make a fortune from the refined end products.”

Peter Kamau, one of the so-called middlemen who helps source coffee for some of Kenya’s larger trading firms, says that processing incountry would be the only way the country can get more out of the sector: “The gains of value addition are immense even if we as a coffeeproducing country may not witness the fruits

VARIETYFACT Some are calling for Kenya to boost its ­production of Robusta coffee, which historically counted for 5 per cent of national production.

immediately. Efficiency in terms of technology use and affordable input is vital in setting prices that will ensure our processed and value-added products remain competitive in the market.”

Not everyone is prepared to start cheerleading for the coffee park though. Dick Sickmuller, owner one of Nairobi’s biggest trading houses, remains sceptical. He points to neighbouring Uganda where Robusta production alone is four times the size of Kenya’s entire crop but industrial investment has proven elusive.

The additional capacity plans by Indian industrial giants Tata to build the region’s first soluble coffee plant collapsed two years ago after it became clear that the facility would struggle to be profitable.

“There has been talk about value addition for years but there’s not enough production to warrant a soluble plant,” says Sickmuller.

“It would be ludicrous for Kenya to go down the route of low quality production for soluble coffee, when Kenyan Arabica is so highly prized.”

Others remain convinced that a production boost is possible and are looking to the lower grade Robusta to supplement Arabica and supply the planned processing plants. They argue that the way forward for Kenyan coffee, given the constraints on farmland in suitable highland areas, is to relaunch Robusta production at the lower altitude of Western Kenya towards the shores of Lake Victoria. With climate change already being blamed for events like last year’s epic drought, which lowered the Arabica harvest in the highlands, there is increased interest in new drought resistant varieties – including Robustas – which can do well in the hotter and more humid lowlands near the border with Uganda.

Isaac Muchomba, head of the Kenyan coffee traders’ association, says there were already signs that production which was decimated in Western Kenya during the last price shock 12 years ago was starting to return. The Lake Victoria Basin Development Authority, based in Nairobi, has put together a finance plan for rebooting Kenya’s Robusta sector which historically counted for 5 per cent of the country’s production.

“Historically there has been Robusta production in these areas,” says Muchomba. “It’s already happening. We’re seeing more planting there and around the Rift Valley.”

He also sees scope for the import and repackaging of beans from neighbouring producers if Kenya can get the investment needed to build the infrastructure for a soluble plant and more advanced roasting and packaging facilities.

At her Kahawa (Swahili for coffee) House headquarters in the city centre, Njeru sums up her approach as looking both West and East for growth. Look West for new planting grounds inside Kenya and a boost in Robusta production and look East to China and India for new investment to turn that into consumer products.

“In China the expansion in coffee consumption is astronomical,” says the CEO, who has been in Shanghai and Beijing in recent months to meet potential investors. “The European markets have matured and the real growth is going to come in the East so that’s where we’re looking for investment.”

A South Korean delegation was expected in the Kenyan capital in August to look at the coffee park plans.

For now, the gap between the plans and the reality of the East Africa nation’s coffee sector remains significant. The coffee board HQ is largely unchanged from when it opened in the 1960s and the technological picture in the rest of the sector is the same, she admits.

“In terms of processing technology we’re still stuck in the 1960s. Our mills and processing plants need a lot of water.”

Njeru sees the development of a domestic demand as the key to stabilising prices and production, but believes that is more likely to happen through instant coffee rather than the small batches of high quality roasted beans, 70 per cent of which currently find their way to the European market.

For now many of her compatriots simply assume that the imported soluble products they are buying like Nescafe or AfriCoffee are actually Kenyan. She is determined that in the future there will be a genuinely Kenyan alternative: “We’re really excited about the emerging middle class in Africa and Kenya and we think they are going to drink more coffee, but they are likely to start with instant.” G C R

S E P TE M B E R /O C TO B E R 2012 | GCR

19

FEATURE Guatemala

GUATEMALA THE QUALITY

&EQUATION

COFFEE FARMERS IN GUATEMALA ARE FOCUSING ON QUALITY IN THEIR EFFORTS TO INCREASE PRODUCTION LEVELS.

I

t takes several hours, driving along narrow windy mountainous roads, to reach Guatemalan coffee farms. They only start to emerge when the altitude gradually climbs to 1400 metres above sea level.

The entrance to one such farm, Finca Bella Vista, is covered by a typical thick greybluish mist. Geographical conditions have given this particular coffee region its name ‘Rainforest Coban’, which attracts high market prices for its recognisable full-bodied crop.

In addition to the established trees growing these rich cherries, the farm is trickled with multiple rows of tiny new plants. The farm’s 33 hectares of coffee holds 5100 trees per hectare, and Farm Manager Noe Tello explains they also have around 50,000 seedlings in their nursery for ongoing renovation.

“Right now we have about 5.5 hectares under renovation and after the next harvest we will be doing a lot of pruning,” says Tello.

“And then we have another 5 hectares that haven’t been cultivated yet, but we will be planting new coffee there next year to expand production.”

Reports like this one from Finca Bella Vista are good news to roasters and coffee lovers worried about the increasing share of

S E P TE M B E R /O C TO B E R 2012 | GCR

21

FEATURE Guatemala

“YOU HAVE TO INVEST IN RENOVATION JUST TO MAINTAIN THE CURRENT PRODUCTION, BUT THE PROBLEM IS THAT ABOUT 65 PER CENT OF ALL THE COFFEE IN GUATEMALA TODAY IS BETWEEN 15 AND 25 YEARS OLD AND IN URGENT NEED OF RENOVATION.” Ricardo Villanueva

Anacafe President

low grade Robusta varieties in blends. When Arabica prices surged to 14-year-highs in May 2011, many roasters increased their use of Robusta. But price hasn’t been the only contributing factor to the increasing use of Robusta. Some analysts and industry officials say the dwindling availability of Arabica beans in the last decade have forced roasters to add Robusta to their blends to feed rapidly growing demand.

In Guatemala, export statistics show that as much as 77 per cent of national output is sold as high-grade specialty coffee. This makes the nation increasingly important for roasters looking to keep the quality in their blends.

“In the last 10 years we have seen the production of Robusta coffee increase by between 10 and 20 million bags, while the production of washed Arabica coffee of export quality has not increased in the last 10 years,” says Ric Rhinehart, Executive Director of the Specialty Coffee Association of America (SCAA). “On the contrary, the availability of Arabica has been reduced by 10 million bags, and it’s a real concern for

22

G C R | S E P T E M B E R / O C T O B E R 2012

Noe Tello, Farm Manager of Finca Bella Vista

the specialty industry because obviously we are dependent on these washed Arabicas.

“Guatemala is increasingly important for the production of quality washed Arabica, particularly as Colombia has lost so much output over the last few years,” Rhinehart tells GCR . He says that efforts such as those seen in Coban, however small they may seem to the outside observer, are greatly welcomed by the specialty industry.

While demand has continued to increase, Rhinehart says fewer producer countries have been engaged in production activities and renovation efforts. This leads experts like Rhinehart to question not only where the volume of new coffee is going to come from, but importantly how the market will maintain a good share of quality coffee.

“We didn’t see any significant new plantings even when prices were at US$3. It’s a frightening scenario and my great fear today is that as farmers lose incentives to renovate because of current prices, the quality incentives are lost and we are at risk of seeing a disaster spiralling out of control,” he says.

Rhinehart is not alone in his fears. At the headquarters of the Guatemalan National Coffee Association (Anacafe), Anacafe President Ricardo Villanueva says that producing countries like Guatemala are particularly concerned that the quality of coffee sold in importing countries is falling. He warns that falling quality could impact consumption, a trend that has already happened in recent history.

“Guatemala lost almost 30 per cent of the production it had prior to the coffee crisis,” Villanueva tells GCR during a visit to Guatamala in late July. “We still haven’t been able to recover that production and if it weren’t for the expansion of new areas and the renovation

that has been done, our production today wouldn’t even be much above 3 million bags.

We wouldn’t have been able to maintain production at 3.5 million bags, where we have seen our production stabilise in the last few years.”

Following devastating coffee price drops at the turn of the millennium, the lower altitude areas were taken out of production.

However, new areas have emerged in higher altitude regions such as Guatemala’s northern Huehuetenango region, which has recently produced some of the world’s most expensive beans. Anacafe has been actively involved with small and large producers to ensure that basic renovation efforts stay on track.

“Guatemala used to have 350,000 hectares of coffee before the crisis started in 2000-2001 and today we have 280,000 hectares,” says Villanueva. “You have to invest in renovation just to maintain the current production, but the problem is that about 65 per cent of all coffee trees in Guatemala today is between 15 and 25 years old and in urgent need of renovation.”

Since January, following the official start of the administration of Guatemala’s new President Otto Perez Molina, Anacafe has stepped up talks with the country’s Agriculture Ministry.

Under the new government, the government has voiced interest in developing new political support for renovation efforts as a measure to help the country’s producers raise yields and boost incomes as part of poverty alleviation efforts.

“There is nothing preventing us getting average yields closer to 20 bags [per hectare], but in order to raise yields you need to fertilise at least two to three times [per year]. With current prices, producers can only afford to fertilise once a year, so we are not going to be able to get higher yields than the average 12 to 13 bags per hectare we have now,” says Anacafe’s Villanueva.

Back in Copan, a visit to the Chicoj Cooperative shows how the renovation efforts have paid off. The cooperative’s 120 members produce an average 16 to 17 bags per hectare, over 30 per cent higher than the national average.

“Between 75 and 80 per cent of our members today actively participate in regular renovation efforts,” says Cooperative President Domingo Cu. “It has taken many years of education programs to get so many [farmers] to see the benefits, but today the results are making it clear. This year, even if we have a smaller overall crop, the yields for many producers are actually higher.”

At the neighbouring Finca Cappuccino, Anacafe’s long term market analyst, and a producer, Esther Eskenasy says there is no doubt Guatemala will be capable of recovering some of the production lost since the crisis, as long as prices continue to be supportive.

Few countries have the institutional capacity in place to support an active renovation program such as Anacafe. Even fewer have producers and land so uniquely qualified for producing some of the world’s highest cupped coffees. But prices will continue to remain key.

“Last year I broke even with the crop, but with prices where they are now, it’s going to be very difficult to see much renovation,” says Eskenasy. G C R

at See us in COTECA . rg Hambu , Hall A4 .

20 booth 6

ROASTING SOLUTIONS – FOR EVERY REQUIREMENT ROASTING. PERFECT. COFFEE.

www.neuhaus-neotec.de

COFFEENOMICS Consumption Outlook

SHIFT W

hen the US economic crisis hit in late 2008, many were quick to predict that coffee consumption would suffer.

Four years later, those predictions have mostly proven untrue. While economies have struggled, coffee consumption has hit record levels, expecting to close in at 140 million 60-kilogram bags at the end of the year. While the way coffee is consumed and distributed has seen a shift, coffee demand is as resilient as ever, with some expecting that the next decade will bring about a similar level of growth.

“If you look at coffee consumption over the longer term, it is very easy to come to the conclusion that it reflects world population growth – because in part it does,” Mick Wheeler, former Executive Director for the Specialty Coffee Association of Europe (SCAE), tells GCR . “But the story is far more complex than that because consumption growth is not exactly linear. It follows various cycles, which reflect world income

24

G C R | S E P T E M B E R / O C T O B E R 2012

GROWTH THE FIRST DECADE OF THE MILLENNIUM SAW COFFEE CONSUMPTION GROW AN IMPRESSIVE 2.5 PER CENT A YEAR. MAJA WALLENGREN TAKES A LOOK AT WHAT’S DRIVING CONSUMPTION AND WHERE. growth, technical innovation and that nebulous concept: fashion. Consumption will continue to grow for the foreseeable future providing supply continues to expand at roughly the same rate. Everything goes in cycles. The more interesting question is: is there a chance that consumption will grow at a rate of more than 2.5 per cent in future? To that my answer would definite be yes.”

A common mantra heard among coffee officials, including producing and importing countries alike, is that the two key ingredients driving coffee popularity are better quality and rising incomes. This has encouraged many emerging coffee nations to start drinking coffee, and existing consumers to drink more. At a time of economic woes, coffee is considered an affordable luxury.

“Usually people cut back on big ticket items in slower growth times. Coffee is not one of

IN CONSUMPTION those [items],” says Jack Scoville, Vice President of The Price Group in Chicago. “I don’t see [continued] 2.5 per cent growth as unrealistic. Maybe as hard, but certainly very possible.

“As for the world, I don’t see consumption dropping off at all right now. Coffee shops look to be doing good business here and coffee is still not so expensive that people will stop drinking it. Plus, sugar-based soft drinks won’t be getting any cheaper. Growth might slow – just because it has been so strong – but I do not view that as negative, just cyclical.”

Emerging markets remain the strongest drivers in increasing consumption figures. This includes the more hotly discussed markets of Russia, China and South Korea, where an eye to Western habits seen in movies and magazines has helped the boom of coffee chain brands like Starbucks and Coffee Bean & Tea Leaf. Increasingly, however, the strongest force driving the world’s thirst for coffee has come from producing countries themselves. For instance, Mexico, Ethiopia and Indonesia have seen annual growth of between 3 and 7 per cent in the last 10 years. These countries have watched the world’s largest producer, Brazil, move closer to becoming the largest consumer as well.

“Global consumption was growing while all this was happening in Brazil. Other economies in Central and South America – not to mention Asia – were prospering as well, while the US system was undergoing a dramatic change because of the financial situation,” says Marco Ruttimann, Partner at Miami-based brokerage Coffee-Link International. “The US economy was in a downward spiral and the crisis impacted coffee consumption outside of the home.

The Starbucks’s of the world saw a significant contraction in their numbers, while home

consumption was on the rise again.”

The trend of consumption by producing countries is particularly interesting in looking at the cash-crop nature of coffee. Historically, only one producing country in the world also had a culture of coffee drinking: Ethiopia.

Known as the ‘birthplace’ of Arabica, it is generally believed coffee trees were first found growing in the wild somewhere between the 10th and 12th century.

Coffee was slowly turned into a commodity by Dutch colonial powers in Indonesia, the French in the Caribbean and the English in India. With crops reserved for export, people in the countries never acquired coffee drinking habits. When the 2000 to 2004 coffee price crisis hit due to an oversupply, increasing consumption was seen as necessary to boost prices. In addition to increasing quality to promote

S E P TE M B E R /O C TO B E R 2012 | GCR

25

COFFEENOMICS Consumption Outlook

MARKET CONSUMPTION FIGURES

8

TOTAL WORLD CONSUMPTION FIGURES

150

7 6 5

120

4 3 2 1

90

2000

2008 EMERGING MARKETS

2009

2010 TRADITIONAL MARKETS

2011

2000

2008

2009

2010

2011

WORLD MARKET GROWTH

Source: International Coffee Organisation. Emerging Markets based on median of total annual comsumption in Brazil, Mexico, Ethiopia, India, Indonesia, Russia and South Korea. Traditional markets based on median of total annual comsumption in United States, Germany, Spain, France, United Kingdom, Japan and Italy.

more consumption, producing countries looked inward for a new market. Brazil, who invested heavily in marketing campaigns to increase domestic consumption, is perhaps the most successful example. As income levels continue to rise along with consumption, many expect Brazil will soon surpass the US as the largest consumers in the world.

“With the increase in purchasing power, people have choice and the product has gone from a necessity to something enjoyable,” says Bernardo Wolfson, Vice President of Brazil’s Coffee Industry Association (ABIC) and also a top executive at Melitta, a large manufacturer of coffee makers.

“Brazil continues to consume more and more of its own coffee, and this is not expected to change. I don’t know if the market should be shocked at this – it has always been a thing for Brazil and there was a lot of promotion involved. They keep more of the good stuff too, and this just adds to demand as people will drink more, and we are starting to see the same things in Central America,” says The Price Group’s Scoville.

Recent economic troubles, however, have made a slight dent. Traditional consumer markets in North America and Europe have

26

G C R | S E P T E M B E R / O C T O B E R 2012

seen demand slowing down in the last few years. A close look of some markets show clear signs of a negative impact from the Euro crisis.

Coffee consumption in Spain, one of the countries most severely hit by the debt crisis, has clearly suffered. According to the International Coffee Organisation (ICO), consumption in Spain fell 9.6 per cent in the last four years to around 3.1 million bags in 2011, dropping from around 3.5 million bags in 2008. This translated into per capita consumption by around 0.5 kilograms over three years to around 4.2 kilograms in 2011. This is still considerably above the 3.8 kilogram per capita figure seen in 2004.

This drop in Spain, however, won’t have too big of an effect on overall figures in Europe.

Key traditional European markets, such as Germany and France, have been stable and seen continuing solid growth in line with what can be expected for mature markets.

“Consumption is growing in Europe and yes, some markets seem to be doing better than others. But virtually every Western European market is saturated and variations from year to year do not only reflect changes in consumption habits but also, in fact, reflect many other things such as, believe it or not, weather patterns and the calendar,” says the SCAE’s Wheeler.

“In some years the calendar provides longer holiday periods than others and consumption is affected by whether a person is at work or at home, as well as overall economic activity.”

He notes that many industry officials “assume that the markets in Europe are very similar and they are not”. Wheeler says they are often going through highly different stages of rapid transformations.

“The UK is a prime example. Consumption is rising overall, and in particular out of home where espresso-based drinks dominate. But overall, you should never forget that instant coffee is still king there,” says Wheeler. Consumption in the UK fell 4.6 per cent in the 2008 – 2011 period to around 2.9 million bags by 2011, according to the ICO. Although Britons represent a good portion of the European population, their tea-drinking inclination means that the drop represents a relatively small 141,000 bags in volume.

The drop was more than made up for in neighbouring France, which grew by 811,000 bags – almost 16 per cent increase – to around 6 million bags in 2011. German consumption

“WHEN YOU CONSIDER THESE COUNTRIES, YOU MUST ACKNOWLEDGE THAT A LARGER PERCENTAGE OF THE AVERAGE PERSON’S INCOME IS SPENT JUST FOR FOOD.” Carl Leonard,

Vice President of Green Coffee, Community Coffee

has remained largely flat at 9.5 million bags.

Most importantly, the world’s largest coffee drinker, the US, has risen by 391,000 bags in the last four years, accounting for around 22 million bags. This equates to around 16 per cent of world production.

The ICO said in its June monthly market report that despite rising retail prices, there was no denying that consumption is still growing. The report highlights that from 1990 to 2011, world consumption jumped an impressive 53.5 per cent. The most significant changes were in emerging markets and exporting countries, which grouped together rose by around 118 per cent in the same period.

“However, as is to be expected from markets that are already mature, consumption in traditional markets increased by only 17.7 per cent,” the ICO’s Executive Director Robério Oliveira Silva commented. He added that this rise nevertheless resulted in new demand of close to 12 million bags of coffee.

While retail prices have risen along with consumption, roasters have most likely noticed the largest change in the distribution of consumption, especially in rich industrialised countries like the Euro region, the US, Australia and Japan.

In the US, the onset of the world financial crisis and economic recession in late 2008 fell just in time for the 14-year-high prices in the New York Arabica futures market. These prices remained above US$2 per pound for most of 2010 and 2011. The resulting record high retail prices led to the increasing desirability of drinking coffee at home – especially as consumers discovered the wonders of single-serve.

And such, short-on-cash consumers were actually able to increase their coffee consumption.

When the financial crisis first hit in 2009, consumption was mostly flat. At the height of the crisis in 2010, consumption rose by 2.6 per cent, up by a whopping 3.4 million bags in a single year. This suggests that coffee may have benefited from drawbacks in other more expensive beverage products. This rise coincided with reports of dwindling sales at retailers such as Starbucks and Seattle’s Best, which struggled with a drastic cutback in expensive per-cup servings in coffee shops.

“If we look back at consumption patterns in the US shortly after the 2008 economic downturn we seen a shift in consumption from ‘out-of-home’ to ‘in-home’, but overall there was no real drop in consumption,” says Carl Leonard, Vice President of Green Coffee at American-roasters Community Coffee. “This meant consumers may have not gone out to drink coffee at restaurants to lower their spending, but they continued to brew at home and enjoy coffee at a more affordable cost.”

Much of the debate now centres on how much longer emerging markets can continue to provide such strong levels of growth to compensate for lower growth in traditional markets.

Starting from such a small per capita level should translate into sustained growth for years to come. Some question to what extent the impact of emerging markets can continue to add to

Carl Leonard, Vice President of Green Coffee

global figures. Lower incomes in producing countries such as Mexico, India and Brazil will continue to see coffee compete with basic food requirements, until incomes start to rise.

“When you consider these countries, you must acknowledge that a larger percentage of the average person’s income is spent just for food,” says Leonard. “As the world continues to feel the global economic slowdown, it seems that coffee – which is more likely to be looked at as a luxury item – may very well suffer a slowdown in consumption.”

It remains to be seen whether the bulls or the bears in the consumption debate will prove right. However, even if consumption grows at just 1 per cent a year, this translates into 2 million bags a year. With the world currently operating in a coffee deficit, those extra few million bags will quickly add up. GCR

S E P TE M B E R /O C TO B E R 2012 | GCR

27

tr ad e s h ow • s e m i nar s • wo r ks h o ps • sate llite eve nts

@ a u str a l i a’s b i g g e st e v e r c o f f e e e xh i b iti o n f o r m o r e i n f o r m ati o n a n d d e ta i l s c o nta c t K ate o n +6 1 3 9 6 9 0 876 6 o r e m a i l K ate.w i l Ki n s o n@p r i m e c r e ati v e.c o m.a u

internationalcoffeeexpo.com

FEATURE Brazil

BRAZIL’S

GUESSING GAME

GCR SPEAKS TO EXPERTS ON THE GROUND TO SEE HOW ERRATIC WEATHER HAS AFFECTED THE WORLD’S LARGEST COFFEE PRODUCER.

S

ince coffee futures first started trading on the New York market in 1882, the size of Brazil’s harvest has been the key instigator of speculation.

It’s no real mystery, considering that in any given crop cycle Brazil accounts for at least a third of world production, and in some years close to 40 per cent of total output. In the last year, many have expressed expectations that Brazil’s 2012-13 harvest could hit a new record. Early signs, however, are showing that this speculation appears to be just that – pure estimation.

An evaluation of crop conditions in the preflowering period has brought those speculations in line. A dry spell affected vast parts of the growing regions, including the key Southern Minas region from mid-December to midFebruary, already cut into the initial forecasts.

And as the harvest got underway, this was followed by four cold fronts in June and July.

“Brazil has suffered untimely rains and that

“QUALITIES HAVE BEEN AFFECTED AND THE QUALITY ISSUE IS FAR MORE SERIOUS THAN WHAT PEOPLE ARE WILLING TO ACCEPT.” Marco Ruttimann

Brazilian coffee trader

has delayed the crop tremendously. One more time, the specs and funds have turned their heads towards Brazil. Qualities have been affected and the quality issue is far more serious than what people are willing to accept,” Brazilian coffee trader Marco Ruttimann, a Partner in the Miami-based brokerage Coffee-Link International, tells GCR. “Coffee has been falling of the trees and with the continuing rains some of the fallen coffees in certain areas have been washed away. Many of today’s participants are in denial about the actual impact the Brazilian situation could have on the market.”

Ruttimann adds that this will force buyers and roasters to look for replacements elsewhere, which will in turn drive premiums higher.

The range for just how much coffee will be available from the new Brazilian harvest remains wide

S E P TE M B E R /O C TO B E R 2012 | GCR

29

FEATURE Brazil

The damage on coffee cherries from a dry-spell can be seen in the black spots emerging on the cherries in the final stage of maturation

RAINFACT A two-week period of heavy rain in Brazil in June was 481 per cent above average in the Cerrado region, and 414 per cent in the Southern Minas region of Varginha.

30

G C R | S E P T E M B E R / O C T O B E R 2012

open. The most conservative industry officials are questioning whether Brazil will surpass 50 million 60-kilogram bags. Others remain confident the final crop figure could reach a record of between 55 and 56 million bags.

Most seem to agree that the final figure will come down due to massive rainfalls that recently hit the region in June and July. According to Brazilian meteorology group Somar, the two-week period of heavy rain in June alone were 481 per cent above average in the Cerrado region and 414 per cent in the Southern Minas region of Varginha. These reports already had an effect on the market, when Arabica prices launched into a short rally on the initial reports of quality damage.

Luiz Carlos Fazuoli, an Agronomist with the Agronomic Institute of Campinas (IAC), says the rainfall was the highest in 30 years, according to registered coffee data. “Obviously this kind of excess water, coinciding with the late maturation and harvesting of the coffee, could lead to an important drop in mostly quality but also production, and it could mean it will be difficult for the harvest to even surpass 50 million bags,” he says.

The drop in Arabica prices over last year’s 14-year highs has been welcome by roasters, however, these low production figures will likely add an upward pressue to prices.

“IT COULD BE THAT ALL THE RAIN WILL IMPACT THE VOLUME. I DID SEE A LOT OF COFFEE LYING ON THE GROUND.” John Wolthers

Coffee Trader with exporter Comexim, in Santos

Coffee producer Fabio Doris Scatolin inspecting the first lots of new 2012-13 harvest coffee in the southern state of Parana

“Brazil coffee has suffered, with up to 20 per cent now classified as poor quality,” says commodity analyst Jack Scoville, Vice President of The Price Group in Chicago. Scoville adds that while it’s still too early to give any figures as to how much coffee has been lost, there is little doubt that the final crop number will have to come down. Echoing the IAC, he says market talk is increasingly centered on the possibility of a crop under 50 million bags.

“There has been some cherry drop as well, although at this point no one knows how much production was actually lost. It will be important to know this as with a crop moving below 50 million bags would support a bullish approach to prices,” says Scoville, adding that the fact alone of “a lot of fermentation in the beans” should keep up pressure on prices.

Brazilian crop forecasting agency Conab has put the new harvest at 50.4 million bags, up 16 per cent from the low-cycle harvest in the 2011-12 cycle, which was reported at 43.5

million bags. Conab reported considerable damage to the initial flowering and cherry development because of the prolonged drought from mid-December to mid-February. As such, the latest figure is at the lower end of its initial forecast. At the other end of the scale the US Department of Agriculture has pegged the new crop to reach 55.9 million bags, although this figure was released prior to the onset of the rains.

Early trips to watch the harvest process in Southern Minas and Parana showed some evidence of drought damage. Some of the new crop showed more than double the normal volumes of black and hollow beans, up to 10 per cent. Normally these defected beans account for a maximum of 5 per cent. This kind of damage occurs from when the cherries start taking shape until around three months before harvesting, when the crucial bean formation takes place. Too much rain can reduce the size of the beans while too much rain will dry the beans prematurely inside the cherry.

Coffee Trader John Wolthers, from Santos-based exporters Comexim, says that while he hopes the new crop can yield between 55 and 56 million bags, he recognises that this looks increasingly difficult.

“It could be that all the rain will impact the volume. I did see a lot of coffee lying on the ground, and a lot of coffee fermenting in

CROPFACT The new Brazilian harvest is forecast to produce 50.4 million bags, up 16 per cent from the low-cycle harvest in the 2011-12 cycle, which was reported at 43.5 million bags, according to Conab.

S E P TE M B E R /O C TO B E R 2012 | GCR

31

FEATURE Brazil

“EXCESS WATER, COINCIDING WITH THE LATE MATURATION AND HARVESTING OF THE COFFEE, COULD LEAD TO AN IMPORTANT DROP IN MOSTLY QUALITY, BUT ALSO PRODUCTION.” Luiz Carlos Fazuoli

Agronomist with the Agronomic Institute of Campinas

the drying fields due to the excessive rain that we experienced,” Wolthers told GCR in early August.

Brazil exports should enter their peak period of shipment in the coming months so the market will soon have a clearer idea as to how much coffee will be available from the new harvest. But even if volume expecations are met, more problems could be ahead as the unseasonal rains have provoked a series of erratic flowerings.

In producing countries, the saying goes that an early flower is equal to lost crop as the tree won’t be able to flower at the same spot again. Should the flower develop into a new cherry, it won’t be picked, as it will mature outside the harvest season. And any reductions in the next 2013-14 Brazil crop could have much larger consequences in an already tight market. G C R

INDUSTRY UPDATE Industry Update offers breaking news and exclusive insights on the developments shaping the coffee industry, delivered free to your inbox weekly.

SIGN UP NOW FOR FREE AT: GLOBALCOFFEEREVIEW.COM

John Wolthers, coffee trader from Comexim

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

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

Guido Bernardinelli.

Managing Director, La Marzocco

20-22 November 2012 The Passenger Terminal Amsterdam, Amsterdam. www.europeancoffeesymposium.com

FEATURE Sustainable Demand

DRIVING DEMAND

SUSTAINABILITY INITIATIVES ARE SHIFTING THEIR APPROACH TO TAKE ADVANTAGE OF MARKET FORCES IN THEIR ENVIRONMENTAL, SOCIAL AND EFFICIENCY EFFORTS.

I

n a market where only the supply/demand balance dictates price, the most recent report by the 4C Association would have been cause for alarm.

On the supply side, more than 455,000 farmers and workers in 16 countries were independently verified as 4C compliant by the end of 2011. The total production capacity of these units amounted to more than 15 million bags of coffee – representing nearly 12 per cent of total coffee supply.

On the demand side of the equation, although purchases doubled during the coffee year 2010-11, the total was just over 810,000 bags, a mere 5 per cent of potential supply.

The story behind this gap is naturally quite complex. Melanie Rutten-Suelz, Executive Director of the 4C Association, tells GCR that the nature of the coffee chain would never provide for producers to sell all their coffee under a single scheme, or for buyers to purchase all their coffee from one. Far from using the nature of the supply chain as an excuse, however, Rutten-Suelz says that 4C is taking a close look at how to close this gap.

While recent demand figures may pale in comparison to supply, she points out that these are huge achievements in recent history of the sustainability and certification movement. A report by the International Trade Centre found that in 2009, certified coffees accounted for 8 per cent per cent of the global market. At recent growth rates, market penetration is expected to reach 20 to 25

per cent of global coffee trade by 2015.

“As a sustainability standards movement, we’ve come a long way in the last 10 years,” she says. “Over the last five years, we have seen an important and significant increase in demand for verified and certified sustainable coffees.”

Getting big industry players on board has played a key role in increasing this demand. 4C members Nestlé, Kraft and Tchibo have all made major commitments to purchase 4C compliant coffee, but also work with other sustainability standards.

Rutten-Suelz says that demand will increase significantly in the next few years, as many of these commitments are forwardbooked to 2015. “This is a signal that sustainable coffees are moving from an initial niche towards

S E P TE M B E R /O C TO B E R 2012 | GCR

35

FEATURE Sustainable Demand

Melanie Rutten-Suelz, Executive Director 4C Association

Mercedes Tallo, Director Rainforest Alliance Sustainable Value Chains

“WE SHOULD BE EMPOWERING FARMERS TO BE BUSINESS PEOPLE AND TO BE ENTREPRENEURIAL. WE WANT THEM TO BE EQUIPPED TO SELL WHATEVER THEY CAN. THEY SHOULD BE EMPOWERED TO PLAY THE MARKET, JUST AS ANY ROASTER DOES.” Mercedes Tallo

Director, Rainforest Alliance Sustainable Value Chains

the mainstream,” she says. “I’m sure we’ll see even faster and steeper increases in years to come.”

To help move demand along, the 4C Association took an important decision just last year to shift from a supply-driven approach to one focused on demand. With 115 production entities verified, encompassing over 150,000 farmers and 550,000 workers, Rutten-Suelz says they recognise that the best way to keep farmers on the “sustainability map” is to ensure that farming of sustainable coffees is a business case. The association is no longer actively recruiting new producers, relying on market forces of demand to do so.

“This was an important element for working on a better matching of supply and demand in the future,” she says. “It’s important for us to have this shift to a demand driven-approach.”

The approach won’t be just about promoting 4C Compliant Coffee, but sustainable coffee as a whole. In addition to offering its own 4C baseline standard and verification system, the association works in complement with other systems to help increase both supply and demand of certified coffees.

As global platform for sustainable coffee, 4C Association works to promote supply and demand for verified and certified coffee, and both Utz Certified and Rainforest Alliance are members of the 4C Association.

36

G C R | S E P T E M B E R / O C T O B E R 2012

Moreover, Rutten-Suelz says 4C Association does not only focus on different standards, such as collaboration on training approaches, benchmarking and recognition of other standards by 4C Association. She says the organisation also has an important role to address overarching sustainability challenges, such as climate change and access to finance as a platform for sustainable coffee.

“This will bring together the actors along the supply chain from farmers to retailers, non-government organiations, implementers, researchers, and other standards to stimulate the sector moving towards mainstream sustainability,” Rutten-Suelz says.

Mercedes Tallo, Director of Rainforest Alliance’s Sustainable Value Chains, says that the increasing number of sustainability schemes available has, however, been a positive advancement in terms of the movement as a whole.

“It don’t think it’s a bad thing. It just means that people are looking at sustainability and taking it seriously,” she says. As Rainforest Alliance has 25 years of history, Tallo says the organisation benefits from a certain level of “pedigree” on both its demand and supply front.

Echoing Rutten-Suelz sentiments, Tallo says that while she’s impressed with the growth in the number of participating farmers, a big focus for the group is on increasing demand. With a wellrecognised named, the group is also reaching out to consumers, to ensure they are pushing the big players towards more sustainability.

“As our growth continues, we’re all about educating consumers and making them more aware,” she says.

Tallo says that businesses are not only looking at the most evident motivation of increased sales – giving customers what they want – but are well aware that the long-term sustainability of the industry is dependent on improved farming practices.

“Companies want farmers to focus on their practices,” she says. “A focus on sustainability helps improve yield and quality.”

While certification systems may compete on the market shelves, Tallo notes there is little competition at the ground level. Many farmers hold two to three certification systems, which allows them better access to the market.

“We should be empowering farmers to be business people and to be entrepreneurial,” she says. “We want them to be equipped to sell

Photo: Didier Gentilhomme

S E P TE M B E R /O C TO B E R 2012 | GCR

37

Photo: Didier Gentilhomme

FEATURE Sustainable Demand

whatever they can. They should be empowered to play the market, just as any roaster does.”

Since the inception of Utz Certified in 2002, Executive Director Han de Groot, says he has seen a gradual and sometimes steep increase of sustainable coffee demand. “I think we are now in a period of time where the industry is really looking for ways to achieve substantial percentages of sustainable coffee,” de Groot says. “The industry is the driver for change in getting out of the niche and into the mainstream coffee market. By working together with the large volume industry, sustainable farming should become the norm rather than an exception.”

The supply of Utz Certified coffee grew by more than 20 per cent in 2011 compared to the year prior, according to the 2011 Utz Certified Annual Report. By the end of 2011, 161,306 coffee producers were certified and farming in accordance with the Utz Certified code of conduct for coffee.

While de Groot says Europe remains at the forefront of sustainability with strong movement from non-government organisations pushing sustainability and certification schemes, coffee producing countries won’t be far behind.

“We used to look at countries such as Vietnam, Indonesia and India as coffee suppliers, but we also need to start looking at these countries of origin as coffee consumers, and how we can ensure sustainable consumption in those parts of the world,” de Groot says. “This year or next year, the coffee consumption in Brazil will surpass the coffee consumption in the [United States]. Sooner or later coffee consumers in countries like Brazil and India will demand a sustainable product. I think it’s time the interest of coffee growers in the so-called emerging markets is triggered.”

De Groot estimates that 10 per cent of world coffee production is grown in sustainable circumstances and is certified. He says to maintain the industry’s future growth and quality in the next 10 to 20 years, strong attention must be focused on a sustainable supply chain.

“Now is the time the sector itself should take responsibility in making supply chains more sustainable. Only then can sustainable farming become the norm,” de Groot says.

With an ample supply of sustainable coffee, the question naturally comes up as to why roasters aren’t yet purchasing more of their coffee under a sustainability scheme.

38

G C R | S E P T E M B E R / O C T O B E R 2012

Guaxupé 4C Unit in Brazil

In this context, the geo-political landscape and nature of the coffee industry both present their challenges. Latin America, where Rainforest Alliance has its roots, is traditionally one of the more organised and well-resourced coffee-growing regions. As such, the region currently accounts for around 75 per cent of certified/verified sustainable coffee.

In terms of global coffee demand, however, the region represents less than 60 per cent. 4C Association’s Rutten-Suelz says this difference – in addition to other challenges in an efficient supply chain – represent the biggest challenge in closing the supply/demand gap.

“Roasters need access to the right coffee at the right time,” she says. “There are a large number of smallholder farmers with limited access to the market and with limited knowlegde of good agricultural and management practices.”

Robusta, for instance, often plays an important part in a roasters blend. Vietnam is currently the world’s largest producer of Robusta, followed by Indonesia. While strides are being made in these countries, Rutten-Suelz says that they still have a long way to go in terms of sector-wide sustainability efforts. Companies

Han de Groot, Executive Director, Utz Certified

with the best intentions often have little choice but to purchase unverified or uncertified coffees.

“You’re looking at companies that have a huge turnover in volume,” says Rutten-Suelz. “Their most important goal is to maintain the quality of their brand.”

To help improve access to certifications, Rainforest Alliance, Utz and 4C Association are working together on a pilot project that will offer a “stepping up manual” for farmers. Through the program, the farmers will become more efficient in their production and become empowered to implement more sustainable practices. Rutten-Suelz says this will also positively benefit the environment, their families and workers. She adds that standards play an important role to create awareness and provide guidance. “[Certification] is already quite confusing for farmers,” says RuttenSuelz. “That is an angle we’re working on, streamlining messages and looking into joint training material to make it easier.”

Working together across standards will become increasingly important, as Rutten-Suelz says the industry is probably going to see more national sustainable systems on the market. These standards will likely be linked to either 4C baseline standards or a mix of existing standards.

While taking a step away from recruiting farmers, the association will maintain this focus on making it simpler and more achievable to gain certification. Tack this onto increasing demand, and the outlook for a more sustainable coffee industry looks positive – which should be good news for everyone involved.

“Good sustainability practices overall have very positive effects,” says Rutten-Suelz. “When the farmers become more efficient, they will see quality improvements. Applying good agricultural practises also contributes to the protection of the natural environment and the farmers’ health. It’s absolutely crucial for farmers to apply these practices and build a more sustainable coffee sector in the future.” G C R

DISCOVER MILK ALL OVER AGAIN

Spectra Foam maSter With its hi-tech components in Swiss quality and high levels of hygiene, the Spectra Foam Master produces excellent milk foam, both hot and cold. Now it is no different to manually frothed milk. The milk foam consistency and temperature can even be programmed individually for each product.

– A professional coffee machine for higest standards of taste, esthetics and performance! www.franke.com

FEATURE European trends

DUTCH COFFEE

Photo: Max Gower

DREAMS

40

G C R | S E P T E M B E R / O C T O B E R 2012

AHEAD OF THE AMSTERDAM EDITION OF THE EUROPEAN COFFEE SYMPOSIUM, GCR TAKES A LOOK AT HOW MODERN TRENDS ARE FITTING INTO THE NETHERLANDS’ COFFEE HISTORY, AND WHY THE MARKET SHOWS SUCH AMPLE OPPORTUNITY.

T

he coffee trade is nothing new to the Dutch.

Dating back to the 17th century, the Netherlands has a long history in the coffee trade, with the Dutch West India Company playing a central role in bringing beans grown in exotic locations to Europeans.

In terms of the country’s specialty coffee scene, however, only in the last decade has the Netherlands seen a trickling of third wave cafés arrive on the scene. Jonathan Tao, from the Dutch-based coffee chain Doppio Espresso, says that recent years have seen that trickling turn into a wave, with an onslaught of domestic coffee chains on the market. Although still behind their British European peers, Tao says the market shows vast potential for growth.

“If you look at Holland 10 years ago, there was no third wave scene at all, the cafés just didn’t exist,” Tao says. “People would drink coffee either at home or at the workplace.”

Tao explains that this sudden taste for quality coffee followed the release of singleserve systems on the market. He says this changed people’s perspective, opening their eyes to quality coffee.

“With the single serve systems, I think it really opened the market to a broader variety of coffee, paving the way for specialty coffee,” Tao says. “People started to experiment with their coffee, with different qualities, origins and blends. This was driven into the café by a few early independent espresso bars. And those early places did their jobs very well.”

With domestic brands leading the way, Tao

“IF YOU LOOK AT HOLLAND 10 YEARS AGO, THERE WAS NO THIRD WAVE SCENE AT ALL, THE CAFÉS JUST DIDN’T EXIST. PEOPLE WOULD DRINK COFFEE EITHER AT HOME OR AT THE WORKPLACE.” Jonathan Tao

Doppio Espresso

says the country has largely stayed off the radar for foreign coffee chains, except for Starbucks’ recently renewed interest in the country. As such, domestic coffee brands have had time to claim their stake. Doppio Espresso plans to have 20 stores open by the end of the year. Douwe Egberts, which purchased fellow Dutch-owned coffee chain Coffee Company in December 2011, counts a network of 60 cafés in the Netherlands.

The majority of these cafés, however, are concentrated in the capital, and Tao says the market shows plenty of opportunity for growth around the country. “Amsterdam is the only place that is starting to reach the saturation point, the market is still very open,” Tao says.

Tao’s comments are confirmed by figures released by Allegra Strategies last year. The Londonbased strategic research consultancy found that the branded coffee shop market in the Netherlands increased by 37 units in the 12 months to October 2011 – an outstanding growth of 27 per cent.

“This reflects strong growth potential and a burgeoning market,” the report noted, and forecast a 12.7 per cent per annum growth over the next three years.

Allegra Strategies Managing Director Jeffrey Young says that experience in the Netherlands is characteristic of what he’s seeing all around Europe, with the artisan-inspired third wave coffee scene spreading, and bringing with it increased opportunities for branded coffee chains.

“We can see the trends that have happened in the United Kingdom, and can follow how they are spreading in other European markets,” Young tells GCR . “The pattern moves from poor quality coffee, to the growth of chains, the growth of artisian independants and quality spreads through to coffee chains.”

S E P TE M B E R /O C TO B E R 2012 | GCR

41

FEATURE European Trends

Young says the Netherlands is a prime example of a country embracing trends in artisan coffee that have proven popular in the UK. With Douwe Egberts leading the Dutch field, Starbucks is now following, and as such, continued growth in the Netherlands can certainly be expected, especially as their coffee quality continues to improve.

“When you start to drink [better coffee] you simply can’t go back,” Young says. “These branded coffee shops are taking up these artisanal trends. They’re delivering something that tastes better than before, and they’ll succeed as a result.”

The Netherlands isn’t alone in showing a resilient branded coffee shop market. Allegra’s Project Café11 Europe report found that in the 12 months to October 2011, the number of outlets in Europe increased by 6.8 per cent, representing faster growth than the 4.6 per cent found the year prior. The 2011 report predicts that the European branded coffee shop market will grow at a compound annual rate of 5.4 per cent in the next three years to exceed 13,700 outlets by 2014.

Young says today’s modern culture is ideally set to continue to fuel this growth, with the public aching for increased mediums for social gathering.

“If you look at what a coffee shop is, it’s not just about the coffee,” he says. “It’s an environment of engagement and social interaction. It’s a place where people meet up. That’s an incredibly compelling force at a time when people are so involved with social media they spend most of their time staring at computer screens and their phones.”

In their 2011 survey, the Allegra report found that this out-of-home consumption was increasingly popular among middleaged professionals, as well as younger, trendconscious consumers. Dutch coffee leaders surveyed said that a more mobile lifestyle and the continued growth of specialty coffee were the most important trends in 2011.

European coffee leaders will be experiencing the Netherlands’ growing coffee culture first hand at the European Coffee Symposium, organised by Allegra Events.

The symposium is taking place from 20 to 22 November at The Passenger Terminal in Amsterdam.

The symposium will explore these themes of quality and experience, looking at how they lend themselves to customer loyalty. The program will cover brand differentiation; regional success and opportunities aboard; cross-cultural challenges; the role of coffee shops in community; and more, including the launch of Allegra’s Project Café12 Europe report.

Young says Amsterdam was a fitting choice for the fifth European Coffee Symposium. His vision for the European Coffee Symposium

MARKETFACT Allegra’s 2011 Café11 Europe Report predicts that the European branded coffee shop market will grow at a compound annual rate of 5.4 per cent over the next three years.

Nwe Doelenstraat Coffee Company, Amsterdam

42

G C R | S E P T E M B E R / O C T O B E R 2012

Barista restaurant, Amsterdam

Hofje van wijs coffee house, Amsterdam

is to “take people on a journey through coffee over a long period of time”. As an educational process, the symposiums have followed both modern trends of coffee and its historical evolution, starting in London, following by Vienna, Rome and Berlin. Young says Amsterdam’s historical links to coffee, coupled with emerging trends, makes it an ideal choice.

“It’s an international city, and has an incredible heritage of coffee,” Young says. “It made good business sense coming to Amsterdam. We do believe Amsterdam is a place that people need to see.” G C R

GALILEO Have your own Italian Espresso Affair

Available 2-3-4 groups , 14-21-27 liters boiler, coffee brewing groups to thermosiphonic system "NO LIMITS".

The TCI is a PID controlled multi boiler machine, having a separate PID controlled boiler for each group.

The new GALILEO delivers accurate digital control to the temperature of the water flowing from the brew boilers. There is also an independent steam boiler. Such digital control permits accurate micro regulation of temperature in steps of one degree, allowing baristas to find the optimum brew temperature for there favourite beans. Also available in HX specifications.

BFC srl , Conegliano ITALY , www.galileo11.it, www.bfcsrl.it Distributors : ACT@bfcsrl.it , NSW@bfcsrl.it , Victoria@bfcsrl.it , Western@bfcsrl.it , Queensland@bfcsrl.it .

Espressofabriek westergas, Amsterdam

European Coffee Symposium 20 – 22 November The Passenger Terminal Amsterdam, The Netherlands www.europeancoffeesymposium.com

FEATURE Brewing Change

MEXICO: FLAVOUR AND FINANCE

IN AN EXCERPT FROM HIS NEW BOOK BREWING CHANGE RICK PEYSER, DIRECTOR OF SOCIAL ADVOCACY AT GREEN MOUNTAIN COFFEE ROASTERS, DESCRIBES HIS EARLY DAYS WITH THE COMPANY THAT WOULD SOON LEAD THE AMERICAN MARKET.

W

e got to the town of Huatusco in mid-afternoon and immediately went to the beneficio, or coffee processing plant. Our tour guide was the manager Francisco Mora Miranda. He had worked at the beneficio for 36 years.

This plant employed 25 people for five months each year, and only five full-time employees the remaining seven months. The beneficio took the coffee from “cherry to oro” in 60 hours – that is, from being freshly picked cherries with coffee beans at their centres to “green” dry beans ready for export and roasting. This was the first time that I ever saw the wet and dry processes together in the field. The Huatusco beneficio processes an average of 62,000 bags annually. Each bag weighs 132 pounds and 250 bags fills one sea-bound shipping container. That’s almost 33,000 pounds of green coffee. To fill six containers for Green Mountain, the co-op needs 1500 bags of green coffee. This year’s production was down 30 to 50 per cent, depending on the zone. Some of this was weatherrelated; however, much of it was cyclical and due to the heavy harvest last year. This is the historic curse of the coffee industry: booms and busts in production.

We had a meeting with Josafat Hernandez Gonzalez, the plant’s general manager. At this meeting we discussed the co-op’s structure and function, the year’s crop, the co-op’s short-term financing, pricing, and what we were looking for from Huatusco. At the time, the Huatusco co-op had over 1800 members with an additional 1200 farmers known as libres, who were trying to become members. The average sized farm in the co-op was 2.2 hectares (5.4 acres)

44

G C R | S E P T E M B E R / O C T O B E R 2012

and generally produced just over a tonne of green coffee.

The farmers did not get paid completely until their coffee was sold. The co-op members did not have access to credit unions; however, the co-op pre-paid farmers a portion of what was due. This was done to help keep coyotes at bay. Coyotes are individuals who offer to purchase coffee from farmers during lean times, when they are in a vulnerable position, sometimes 30 to 40 per cent below the market price; reluctantly, the farmers often have to sell their coffee to survive.

At the time, the co-op had short-term financing – three to four months – at a 20 per cent interest rate. In US dollars, they could obtain an interest rate of 11 per cent, bringing their average interest rate to 17 per cent. While the interest rate in US dollars was significantly lower, it was also riskier

Rick Peyser (left)

according to Jorge, due to the potential of devaluation. Jorge and other co-op members said that the government announced that it was planning a 50 per cent devaluation by January 1997. In order for Green Mountain to obtain a second six containers of coffee this year, financing had to be arranged by February. Josafat looked for the partnership of Green Mountain, a Mexican bank, and Sustainable Harvest to find a solution to the financing.

At the conclusion of our meeting, Josafat said that this was the first time in the history of the co-op that the costs and pricing of all parties was made transparent. The co-op liked this open and honest approach. A farmer on the co-op’s board commented, “It gives us more confidence in whom we are dealing with.”

After a tour of the beneficio, Dave, Deb, Jorge and I joined the co-operative’s quality control team for a full day of cupping coffees.

We first narrowed down the characteristics of the coffee Deb was seeking to use for our flavoured coffees: low acidity and consistency.

Then we went through more than 20 samples until we found a coffee Deb liked. At the end, someone broke out a bottle of tequila to celebrate. Identifying this coffee would pay significant dividends over the years to both the co-operative in Huatusco, to Dave Griswold

AUTHORFACT For the book, Rick Peyser teamed up with long-time friend and writer Bill Mares. The book is part travelogue, part inspiring social ­commentary and part motivating business model.

and his burgeoning new Sustainable Harvest Coffee Company, and to Green Mountain Coffee Roasters.

That evening, we walked downtown to visit the relatively bustling coffee town of Huatusco. It was the Fiesta of the Virgin of Guadeloupe, a religious holiday for Mexicans celebrated both in the church and in the streets with food, music, and dancing. The streets were lined with food vendors, bands, dancing, and decorations. Every home and business had a beautiful shrine to the Virgin on display. Coincidentally, the main ceremonial church in Huatusco was named after the Virgin of Guadeloupe, so the festival had a bit more meaning here.

To reach it, we walked up a difficult dirt path in the dark, steep at times, with many other people going up and down. As we neared the top of the hill, the crowd was larger. The white church with blue trim was festooned with colorful streamers coming from all around the top of its steeple. The interior was beautifully decorated with bright colors and many flowers.

Thousands of people surrounded the exterior of the church in celebration.

Above us, shooting stars crisscrossed the sky. When we finally got to our hotel at about 2am, fireworks still sounded in the distance. It had been a glorious day.

Two days later we flew to the coast of the Mexican state of Oaxaca.

Jorge Cuevas and his boss at the time, Paco Zavaleta, met us there. From the coast, we drove high in the Sierra Madre del Sur mountains to a village whose members belonged to the La Trinidad Cooperative. The village was Lagunilla, a Zapotec community. It was very primitive in its coffee production and processing, but it was a great opportunity to see coffee growing and processing from the ground up.

It was also a growing source of coffee for Green Mountain, and a source that also produced certified organic coffee.

While we were in the mountains, we received a better understanding of the

S E P TE M B E R /O C TO B E R 2012 | GCR

45

FEATURE Brewing Change

Peyser’s travels inspired his future work with GMCR

Bill Mares (left) and Rick Peyser

“THIS WOMAN WHO HAD SO LITTLE WAS GRACIOUSLY OFFERING US WHAT SHE DID HAVE. THOSE WHO HAVE THE LEAST ALWAYS SEEM TO GIVE THE MOST.” Rick Peyser

Director of Social Advocacy Green Mountain Coffee Roasters

basic yet effective wet milling process at the farm level, including watching a farmer wash his de-pulped beans by hand to remove the remaining mucilage. Next to the bunkhouse where we were to spend the night was a basketball court used during the harvest season as a drying patio.

On the way to see some wet milling, we passed a small mud hut where a slender woman wearing a white gown stood in the doorway. A two-year-old boy stood clutching her leg.

She waved but the boy was too serious for that. I looked past her into the single room home.

Not a stick of furniture was evident on the dirt floor. After watching the washing and drying of coffee at the wet mill, we walked back and the woman was standing in almost the same place. In one arm she held her young son, and in the other was a bunch of bananas. As we passed her, she extended her arm with the bananas, and offered one to each of us. I was so moved that I could barely say “gracias”. This woman who had so little was graciously offering us what she did have. Those who have the least always seem to give the most. She both humbled and inspired me.

As we were flying back to the States the next day, I was ready to spring from the blocks. I was excited by what I had learned about co-operatives and small-scale coffee processing. I was

46

G C R | S E P T E M B E R / O C T O B E R 2012

moved further by seeing more of the faces of coffee. I wasn’t back in Waterbury long before I learned that the coffee we ordered from Peru months ago was still sitting in a yard trailer.

A few of us had been excited about this new product and its organic certification; however, clearly not everyone was.

This was frustrating on several levels.

First, I was concerned about the quality of the coffee, which now had been exposed to large swings in temperature and humidity. I also couldn’t understand why we would let this coffee just sit in a trailer when we should have been roasting and selling it. I felt antsy and disappointed. I was fired up to help promote organic coffees but I was stuck in an office writing press releases about new flavoured coffees and other events that just didn’t seem as important to me. G C R

Brewing Change, Behind the Bean at Green Mountain Coffee Roasters will be available through bookstores in September and is distributed by University Press of New England (UPNE).

For more information contact Wind Ridge Publishing www.windridgepublishing.com

The Uk’s Largest Coffee and Artisan Food Event www.londoncoffeefestival.com STANDS AVAILABLE NOW!

FEATURE Microcredit

ONE

MICRO

I

n 2001, Cinthia Maribel Larreatigue Herrera was living in the province of San Ignacio in northern Peru, surrounded by poverty. For coffee farming families like hers, and the rest of the world, the coffee crisis proved a desperate time, when prices were less than half what they are today.

Larreatigue’s family, who had grown coffee for 30 years, relied on a dwindling harvest income to pay for her schooling. “My dad had to save some money from the crop to pay for my school supplies and repaid the debt by exchanging coffee to a broker,” she says. Eventually, when the debts became unbearable, Larreatigue’s education came to an end.

“I had to leave school for two years. We all had to economise, we bought only what was really necessary or urgent,” she says. “We tried to save money to last us all season when there was no income. It was a very difficult time.”

48

G C R | S E P T E M B E R / O C T O B E R 2012

While coffee prices may have risen since then, more than 60 per cent of Peru’s population still lives below the poverty line, according to United States-based not-for-profit Coffee Kids.

In the Aprocassi (Asociación Provincial de Cafetaleros Solidarios San Ignacio) cooperative, in which the Larreatigue family is a member, the average farming income is still just US$1450 per year. While Larreatigue was able to finish high school, this limited income, along with a fluctuating economy, made it difficult to further

STEP TIME AT A

MICROCREDIT HAS BECOME A BUZZWORD IN THE MOVE TO ALLEVIATE POVERTY. INDUSTRY EXPERTS DISCUSS THE PROS AND CONS OF THIS FINANCIAL INSTRUMENT.

BY SARAH BAKER

her education. The opportunity only came when Coffee Kids introduced the Microcredit Education Program to her cooperative.

“We were told us it would be the best opportunity we would have to study, so we did our best to apply,” she says. “If it wasn’t for this credit, I wouldn’t have the opportunity for a career.”

The Coffee Kids microcredit program provides low-interest loans of US$750 a year to 20 university and technical school

students aged 15 to 22 years. The loans cover educationrelated expenses such as food, transportation, clothing, fees, tuition and materials. The recipients must be children of cooperative members with low incomes and no history of debt. The individual farmers then have a one-year period to repay the loan in cash to Approcredi, a specific credit arm of the cooperative.

Microcredits are officially defined as extensions of small loans and other financial services to the very poor, according to the Microcredit Summit campaign, a network linking different actors in the microfinance sector. Just as the Coffee Kids programs targets education, microcredit loans can be used to pursue any entrepreneurial projects that generate extra income and improve living conditions.

Models of microcredit differ according to country and organisation. One of the most popular forms of microcredit, similar to what Coffee Kids has adopted, is known as the Grameen Bank model. The important differentiation with commercial loans is that the Grameen Bank model requires no collateral. The loans are usually repaid within six months to a year, and are recycled as other loans. Just as APROCASSI manages the funds though a credit arm, the Grameen Bank model keeps the money in the hands of borrowers.

The concept of microfinance and access to savings and credit groups has operated for centuries, according to Consultative Group to Assist the Poor (CGAP), an independent policy and research center. Such models include the Susus of Ghana, Chit funds in India, Arisan in Indonesia and Pasanaku in Bolivia.

MICROFACT In the past 13 years, the number of poor families with a microcredit loan has grown from 7.6 million in 1997 to 137.5 million in 2010.

S E P TE M B E R /O C TO B E R 2012 | GCR

49

FEATURE Microcredit

Photo: Coffee Kids

A grade three school-girl whose parents would have to sell their coffee at half its value if it weren’t for microcredit

One of the early forms of microcredit was the Irish Loan Fund system. In the early 1700s, founder Jonathan Swift provided small loans for short periods to rural poor with no collateral.

By the 1840s, Swift’s microcredit model became a widespread institution of around 300 funds in Ireland.

Throughout the 1800s, larger and more formal savings and credit institutions emerged in Europe. Experimental programs in Brazil and Bangladesh in the 1970s soon followed, as did the emergence of government assistance that focused on providing agricultural credits to farmers in the hope of increasing productivity. Throughout the 1990s, microcredit became a popular tool for economic development, with hundreds of institutions using microcredits as a strategy to alleviate poverty.

“Microcredits [today] are so varied that their sufficiency actually depends on how well it suits the needs of the community,” Dr Anuja Cabraal says, a researcher at the Graduate School of Business and Law at RMIT University in Melbourne, Australia. “The top-down approach, where things are imposed on the community or people, tends to be less sustainable. People need to understand their options, why it can be a benefit to them and understand how they can use it.”

According to the 2012 State of the Microcredit Report, over the last 13 years the number of poor families with a microcredit loan has grown more than 18-fold, from 7.6 million in 1997 to 137.5 million in 2010. These loans have helped more than 687 million family members. Of loan recipients, 82 per cent were women. At the time of the report, around 1.6 billion working-age poor people lived on less than $2 a day. Around 180 million people had a microenterprise to support themselves.

In her doctorate on the social and financial impacts of microfinance programs, Cabraal

50

G C R | S E P T E M B E R / O C T O B E R 2012

JUST AS THE COFFEE KIDS PROGRAMS TARGETS EDUCATION, MICROCREDIT LOANS CAN BE USED TO PURSUE ANY ENTREPRENEURIAL PROJECTS THAT GENERATE EXTRA INCOME AND IMPROVE LIVING CONDITIONS.

APROCASSI’s community grocery store

Photo: Coffee Kids

Doña Sofia (right) of APROCASSI receives an annual microcredit loan

Photo: Coffee Kids

found that effective dialogue between the two parties is key to achieving an effective microcredit model. “I’m a real advocate for a community development approach,” she says. “This involves working on the ground with the communities to find what the best solutions are for them, how they manage their money and then building a model around that.”

For the most part, Cabraal recognises that microcredit programs have proven to be an effective tool in providing an income to poverty-stricken – empowering them with choices and increasing their participation in mainstream economic communities. “In today’s society, we emphasise the need and there’s a real sense of pride and empowerment around social and financial inclusion,” Cabraal says. “Small microfinance groups give you a sense of belonging based on social interaction. It actually takes the emphasis away from commercialisation and you develop a type of community around you instead. That’s a kind of wealth in itself.”

Dr. Asadul Islam, Senior Lecturer at the Department of Economics at Monash University in Melbourne, Australia, says that a well-thought-out microcredit program is key, as history has proven the dire consequences of badly set-up models. He points to the most famous example in India, known as the

LOANFACT The microcredit industry serves about 200 million people in developing countries, according to CGAP. Two and a half billion people however, still have no access to formal loan or savings accounts.

microfinance crisis of Andhra Pradesh. The model took an aggressive approach to loan repayments, leading many loan recipients to plummet further into debt.

“People think microfinance is the answer to eliminating poverty. But there are so many varieties of microfinance in the world and they don’t all follow the same objectives,” Islam says. “The term microfinance is used too loosely by [monetary financial institutions] who want to be seen as socially responsible.

But if a business’s sole focus is to make money, than that’s the problem.”

To ensure microcredits benefit the borrowers and not the lenders, Islam says a solid program of development around the loans is paramount. “A credit loan is not enough, it’s not solution. We need to plant mechanisms that will complement the loans,” he says.

Islam suggests that organisations have an independent set of guidelines and policies without affiliation of government control.

He says proper training, in addition to larger value amounts of loans and a more flexible installment system, is necessary to improve current models. Most importantly, he says borrowers need to understand exactly what they are receiving and what they are entitled to do with it.

Today the microcredit industry serves about 200 million people in developing countries, according to CGAP. However, 2.5 billion people still have no access to a formal loan or savings account.

Jeanette Thomas, Knowledge Products and Communications Officer at CGAP, says in order to expand access to financial services to the poor, practitioners and policy makers need to create an environment in which full financial access for the poor is properly supported.

“A key challenge is how to create a broader interconnected ecosystem of market actors and infrastructure needed for safe and efficient product delivery to the poor,” says Thomas.

“Finding viable ways to deliver a full range of low cost services is still very much needed.

People living in poverty, like everyone else, need a diverse range of financial services to run their businesses, build assets, smooth consumption, and manage risks.”

Thomas says a growing body of empirical evidence shows that access to the right financial service at the right time helps households to do just that, as well as generate income and

S E P TE M B E R /O C TO B E R 2012 | GCR

51

FEATURE Microcredit

Representatives of the Las Trancas community and Coffee Kids staff

“SMALL MICROFINANCE GROUPS GIVE YOU A SENSE OF BELONGING BASED ON SOCIAL INTERACTION. IT ACTUALLY TAKES THE EMPHASIS AWAY FROM COMMERCIALISATION AND YOU DEVELOP A TYPE OF COMMUNITY AROUND YOU INSTEAD. THAT’S A KIND OF WEALTH IN ITSELF.” Dr Anuja Cabraal

Researcher at the Graduate School of Business and Law at RMIT University, Melbourne

protect themselves from risk. “Therefore, under the right conditions and given the right context, microfinance in general and microcredit in particular can be valuable tools for the poor to access formal channels of finance.”

Thomas says to achieve more financial access to the poor, other services beyond microcredit are necessary including savings services, remittances, insurance and pensions.

With the majority of coffee produced in smallholder farms, microfinance lends itself well to coffee projects. In addition to the Coffee Kids program, not-for-profit Whole Planet Foundation funds microcredit to the very poor in communities where Whole Foods Market suppliers source their products. Allegro Coffee Company and many other suppliers source from coffee-growing regions, including Bolivia, Guatemala, Costa Rica, Kenya, Uganda and the Dominican Republic, where poverty conditions can be serious.

52

G C R | S E P T E M B E R / O C T O B E R 2012

“Microcredit empowers a woman to change her own life using her own creativity and energy so that she can lift herself and her family out of poverty,” says Lauren Evans, Outreach Specialist for Whole Planet Foundation. “When microcredit loans are repaid, they are re-loaned and repaid again and again, creating even more opportunity for a better life.”

Currently, Whole Planet Foundation supports microlending projects in 52 countries in the developing world and the United States.

The average loan size supported by MFI grants from Whole Planet Foundation is US$239, and loans are used to start or expand home-based businesses.

Whole Planet Foundation has committed US$29.3 million to fund microcredit and supports 212,102 microcredit clients through worldwide partners, helping more than one million people worldwide. Ninety per cent of all microcredit clients supported through Whole Planet Foundation are women. “While microcredit is not the silver bullet to end poverty, it is a way to bring sustainable change to our global communities,” Evans says.

José Luis Zárate, Coffee Kids Program Director, says that microcredit loans are a welcome service for many Peruvian coffee farmers, who have limited access to formal financial institutions.

“Most people living in coffee growing areas have to diversify their incomes, and microcredit is one option available to them,” Zárate says.

He adds that savings are a very important component of microcredit. “It is not enough when a woman has the money to pay back her credit. We believe that the best impact indicator is the amount of money that she was able to save after making a good investment in a micro-business,” he says.

Thanks to Coffee Kids Microcredit Education program, which started in Mexico in 1995 and in Peru in 2010, Zárate says families like Larreatigue’s can now plan for their future, send their children to school, and make savings.

“The cooperative members are aware they pay a 2 per cent interest on top of their loan, but they know that the loan is actually their money,” Zárate says. “It’ll stay in their hands and they have control of it.” G C R

GlobalCoffeeReview

The intelligent magazine for the global coffee industry EXCLUSIVE BENEFITS:

HERE COME THE CHAINS

2012

COVER STORY

FUELLING TH INDIA’S GROW S T A R BUCKS’ N I A H E C U E R O H P T EAN QUE S

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

RESEA RCH & TECH

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

of The discovery indigenous Australia’s firstis an coffee species for important step coffee the future of production.

43

WORD GREEN IS THE stable

COFFEE CONGO’SL REVIVA station to

From deva

Wild

Volcafe Director Managing Divisional

ww w.nu

33

Portable contro controls fingertips: iPad wave in next could be the ements. equipment advanc

How compo ing is material in packagof the face changing the ry. coffee indust

INDONE SIAN COFFEE ECONO MY g an

56

nelli.co

www.globalcoffeereview.com 29.00

m

T

THE COFF EE REINTROD CHAIN’S EMEA PR UCING TH E ICONIC ESIDENT ON 00 .com 29.

BRAND iew ev er ffe

SED ON INCREA DIRECTOR PRODUCTION ANAGING OF OLAM’S M OVER THE MEANS CONTROL

www.glo

balco

www.glo

balcoffeer

eview.co

m 29.00

43

4 EDITOR’S NOTE DRIP 7 NEWS DRIP BY ARD 54 DIARY DASHBO 56 MARKETPLACE

research Coffea Brassii

58

58 LAST WORD July/aug ust

I

arabica rabica & Robusta, 2011 | GCR

3

meet youR new ffRiend,

BRassii BR

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

The discovery of AusTrAliA’s firsT indigenous coffee beAn species is An imporTAnT sTep for The long-Term fuTure of coffee producTion.

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.

COFFEE BOARD OF INDIA CHAIRMAN ON UPSCALING CONSUMPTION AND PRODUCTION

ovasimo

GAME

CTION INNOVATION IN INTERA l at your

REGU LARS

hope

Photo copyright 2011 K. Schulte.

marketing La Marzocco

TA, YOUR ARABIC A & ROBUS I NEW FRIEND BRASSI

28

INPUT COSTS

NOLO GY

Is less fina TEPS nce more?

ck

2012

WMF’s coffee talks or Export Direct new ing about explor across s opportunitie markets.

MICRO-S

The Starbu

a Tim e d The re was wou ld sen wh en we wor k in ex-paTs To believe i origin, buT gon e. has e Tim ThaT

playin With coffee in this important part economy, ’s pacific nation ul Arifin Professor Bustan h researc outlines his ape of on the landsc coffee Indonesian production.

s

Market for sustainabil ces in ity

E CH MAD A MATLH I IN DE s Tata deal

May/June

DS AFRICA N GROUNtic market

50

Are funds the culprit?

A look at se production to increa

10

ORIGI N

GLOBAL EXPERI ENCE machines

48

A look at the s for vast opportunitie as tea growth in China, g the makin drinkers start switch to coffee.

38

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

of The significance f with a tattooing onesel as the company’s logo brand of ultimate sign . identification

BEANS FROM LEAVES TOseemingly

22

34

33

Volcafe’s Divisio or speaks Managing Directprices, the out about rising of trade and changing face will come where growth from next.

16

BRAND ED

CERTIF D DEMANIE D

tober 2012

THE FRONT QUIETLY LEADIN G nal

10

58

MARK ETING

FEATU RES

atema productionlan effort

THE COFFEE PRICE BLAME GAME

september/Oc

IN THIS ISSU E

THE QUAL ITY EQUATION Gu

Saving wild Arabica

P PPLY GA THE SUco untries set

experience, After an acquis centuries of of the and over two one emerged as nies in Volcafe has trading compa largest coffee the world.

16

World figu sign of slo res show no wing down

SOUTH SUDAN RESCUE MISSION

NABLE ?

SUSTAIN IENCEd CONVE capsules an

AFE INSI DE VOLCition

by ED&F Man

der Jan Kees van

er the rains

Mitaca crop trickles in

Thailan story success

12

CONSU CALLINGMPTION

COLOMBIA’S OUTLOOK

URT FORECO COFFEE d’s unlikely

October 20

BRAZILIA N OUTLOO K Aft

Foreign cafés tap into opportunity in Vietnam

Coffee onment the envir

CONTENTS July/August 2011

september/

fractured visions

May/June

quality espresso

GlobalCoffee Review

July/August 2012

The new dimE ensi espressFAIRTRAD on of o qu STANDOFF The outcomeaoflity

Review GlobalCoffee

6 editions per year Access to our exclusive website Weekly global updates Special reports and reviews on of Global leadership insights dimensi The new

28

G C R | j u ly/ a u 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

july/august 2011 | GCR

july/august 2011 | GCR

STAy AHEAD OF THE PACK 29

35

Subscribe online now

EXCLUSIVE SUBSCRIPTION OFFER

www.globalcoffeereview.com

DIARY Dashboard COFFEE AROUND THE GLOBE

WORLD COFFEE EVENTS 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

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

SINTERCAFE TRIESTE, ITALY TRIESTESPRESSO EXPO

25 – 27 OCTOBER TriestEspresso Expo brings together the world of coffee under one roof: importers, roasters, producers of espresso equipment, roasting and processing machines, packaging, coffee cups and accessories, connected services, merchandising and trade press. Special attention will be paid to international trade visitors who represented 39 per cent of the last edition attendees. A total of 230 exhibitors from 22 countries signed agreements in 2008 worth millions of Euros, establishing new sales channels. www.triestespresso.it

54

G C R | S E P T E M B E R / O C T O B E R 2012

REAL INTERCONTINENTAL HOTEL

SAN JOSÉ, COSTA RICA

7 – 10 NOVEMBER Each November Costa Rica becomes the meeting place for key decision makers from the most important companies in the world. Sintercafe is among the most interesting and best attended coffee events taking place in a coffee producing nation. Each year more than 400 participants exchange information, share their experiences, and interact with the world’s coffee community to strengthen commerce. www.sintercafe.com

EUROPEAN COFFEE SYMPOSIUM

THE PASSENGER TERMINAL AMSTERDAM, THE NETHERLANDS

20 – 22 NOVEMBER The European Coffee Symposium is a flagship event for executives from across the branded coffee shop and food-to-go sector. The event provides a platform to develop knowledge, build relationships and drive business performance. Fuelled by the expertise of leading-edge market analysts and the contribution of industry thought leaders, the event provides decision makers with ready-to-implement market insight, innovative ideas and networking opportunities. www.europeancoffeesymposium.com

KEEP A LOOK-OUT China Xiamen International Coffee Fair 19 – 22 October 2012 Xiamen, Fujian China www.coffeefair.cn International Coffee & Tea Festival 30 October – 2 November 2012 Dubai, United Arab Emirates www.coffeeteafest.com Café & Bakery Fair 1 – 4 November 2012 Seoul, Korea www.cafenbakeryfair.com The 11th Seoul International Café Show 22 – 25 November 2012 Seoul, Korea www.cafeshow.co.kr

MELBOURNE INTERNATIONAL COFFEE EXPO

MELBOURNE, AUSTRALIA

23-26 MAY 2013

Food & Hotel Vietnam 24 – 26 April, 2013 Hoo Chi Minh City, Vietnam www.foodnhotelvietnam.com The London Coffee Festival 25 – 28 April 2013 London, United Kingdom www.londoncoffeefestival.com

World Coffee Events announced that the Melbourne International Coffee Expo (MICE) will host the 2013 World Barista Championships (WBC) 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 from 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. With the main show floor almost sold-out, organisers have opened up additional space in the walkway connecting MICE with the WBC stage. www.internationalcoffeeexpo.com

SEPTEMBER/OCTOBER 2012 | GCR

55

PRODUCTS Marketplace

ÈSPRESSO 1882 Italian coffee is now available in Nespresso compatible capsules with the introduction of Èspresso 1882. Produced in Italy, Èspresso 1882 is made by 130-year-old Italian coffee manufacturer Caffè Vergnano. Èspresso 1882 comes in four unique aromatic blends, which each have a distinctly traditional Italian flavour. The capsules are made from Biodè biodegradable plastic and sold in recycled cardboard cartons. For more information visit www.espresso.caffevergnano.com

DC PRO Functionality meets design in Dalla Corte’s dc pro professional espresso machine.

The technological core is enclosed in a body, created by Swiss designer, Thomas Liebe. The aluminium is 100 per cent recyclable. The dc pro espresso machine is now available in three different versions: Classic Aluminium, with its surface-treated, oxidation-proof aluminium body; Industrial Titanium, for a more aggressive look; and Dynamic White – for more classical and dynamic environments.

The machine’s engineering is based on the original multi-boiler technology Dalla Corte led in 2002. Espresso brewing groups are independent of the steam boiler and ensure a constant temperature. The parameters of each brewing group can be calibrated separately and work independently of one another. This allows users who extract several blends or single origins to set the right temperature for each type of coffee. For more details visit www.dallacorte.com

STEAMPUNK The Alpha Dominche Steampunk enhances the traditional siphon coffee brewing process.

The Steampunk’s single-cup brewing system enables a barista to simultaneously brew up to four different cups of coffee or tea in as little as 30 seconds. Advanced controls allow the barista to set specific brew parameters for each cup. Steam and hot water are precisely controlled in temperature and volume. When they reach the coffee in the upper chamber, the agitation and aeration that occurs delivers a close-up look at the extraction technique. The Steampunk provides a commercially viable single-cup brewing method for café owners, allowing them to take the customer’s experience to the next level. For more information visit www.alphadominche.com

56

G C R | S E P T E M B E R / O C T O B E R 2012

THE COFFEE CATCHA The Coffee Catcha is a new tool developed in New Zealand by Espresso Corp to help reduce wastage of ground coffee. Wastage is a problem for many café owners, but the Coffee Catcha acts as a funnel to stop the coffee grinds from falling over the edge of a portafilter. This new product aims to save café owners money, eliminate mess, increase quality consistency and provide better hygiene. Cafés regularly waste 5 – 10 per cent of their coffee grinds: the Coffee Catcha saves this and also acts as a scraper to give a consistent dosage every time it’s used.

The Coffee Catcha is ideal for domestic, office and commercial use. For more information visit www.espressocorp.com

OTTO ESPRESSO MAKER The Otto is a stove top espresso maker that combines modern ergonomics and functionality to ensure optimum performance and superb coffee. Otto’s handcrafted stainless steel build promises a lifetime of satisfaction. It features an internal brewing system that accurately controls pressure and temperature. The espresso maker can extract two full-bodied espresso shots and allows milk to be textured to perfection.

Otto is free of any moving parts or electronics and uses precision thermodynamic engineering for reliability. It is heated by a compact induction top that alerts at the start of an extraction and automatically switches off at the end of the process. Five additional heat settings are included. The compact build offers portability so you can have handmade coffee anywhere in the world.

For more information visit www.ottoespresso.com

CELSIS AUTOSAMPLER The Celsis AutoSampler for the dairy and beverage industry is now available globally.

The product is a robotic sampling unit for the Celsis Innovate rapid microbial screening system. By automating the few manual processes used in the Celsis rapid detection process, each AutoSampler enables companies to test up to 500 samples per hour while reducing human error. The AutoSampler integrates with the Innovate luminometer instrument, which measures the light output of the reaction. The AutoSampler also integrates with the Celsis RapiScreen reagents and Innovate software, which can connect to a manufacturer’s LIMS, ERP or other system. This interaction delivers a rapid microbial system that is rugged and easy to use, with unmatched detection sensitivity.

For information visit: www.celsis.com/dairy

S E P TE M B E R /O C TO B E R 2 0 1 2 | GCR

57

LASTWORD Longevity Link

LONGEVITY LINK:

COFFEE DRINKING AND REDUCED

MORTALITY RISK SCIENTISTS HAVE GIVEN long-term coffee drinkers a reason to smile, reporting that increased coffee consumption is associated to reduced risk of death.

“Coffee is a widely consumed beverage worldwide, but the relationship of coffee drinking with health has been unclear,” says Dr Neal Freedman from the Division of Cancer Epidemiology and Genetics at the National Cancer Institute (NCI) in America. “Our intended aim was to investigate whether coffee drinking was associated with total risk of death over the course of our study and to look at various different causes of death.”

Freedman and his colleagues conducted an observational study on more than 400,000 people over 14 years. The study consisted of about 229,000 men and 173,000 women between 50 to 71 years old.

Participants completed a questionnaire between 1995 to 1996 as part of the National Institute of Health (NIH) AARP Diet and Health study.

Participants answered questions about their coffee intake, demographics, diet and behaviours, and were tracked until 31 December 2008, or until the date they died, whichever came first. People who had previously had cancer, heart disease or some other serious illness were excluded from the study.

Freedman says the study is the largest-ever analysis of coffee and mortality risk.

The results, published in May 2012 in the New England Journal of Medicine, found that increased coffee consumption reduced the risk of death.

Compared to the men and women who did not drink coffee, participants who consumed three or more cups of coffee a day had approximately 10 per cent lower risk of death.

Women who drank six cups of coffee per day had a 15 per cent reduced risk of death compared with non-drinkers, while men consuming the same amount had a 10 per cent reduced risk.

In addition, the researchers found that coffee was also associated with lowered risk of death from specific diseases, such as heart disease, respiratory disease and diabetes, stroke and infections.

The researchers accounted for differences between coffee drinkers and non-drinkers such as body mass, smoking status, the consumption of alcohol and the intake of red meat, white meat, vitamins, fruits and vegetables.

Coffee drinking was not associated with cancer mortality among women, but researchers did find a statistically significant association of heavier coffee intake with increased risk of cancer death among men.

Freedman says no correlation was found between participants who

58

G C R | S E P T E M B E R / O C T O B E R 2012

drank regular coffee or decaffeinated coffee, therefore suggesting that the benefit comes from one of coffee’s other 1000 compounds.

Reduced risk of death was also strongly linked in coffee drinkers who had never smoked. Freeman found that among those who smoked, coffee consumption could have some benefit.

Because the study was observational in nature, Freedman says it has some limitations. Coffee intake was assessed by self-report only once at the beginning of the study, and there was no information about how the coffee was prepared, such as filtered, instant or espresso.

“Coffee drinking is associated with many risk factors of death, like smoking, and so we had to conduct our analysis very carefully in order to take these associations into account,” Freedman says. “Coffee has been suggested as both harmful and helpful towards health and so we were not sure what to expect in our study.”

Despite these promising results for coffee drinkers, Freedman cautions that coffee intake alone won’t help people live longer.

“As an observational study, we don’t know that coffee itself is having the effect. It might be something else associated with coffee drinking and the risk of death,” he says. “Coffee has many different components, and so if there truly is a mechanism between coffee and disease, the mechanism responsible still needs to be determined.”

With many relations between coffee and health still unanswered for, Freedman says he will pursue further More than 400,000 people research including the effect of coffee took part in the study. preparation and the roles of individual Participiants who consumed coffee compounds in health. For now, three or more cups of however, he says coffee drinkers can sip coffee a day had approxiaway with peace of mind. mately 10 per cent lower “We believe that our results provide risk of death compared to some reassurance for people who enjoy men and women who didn’t drinking coffee but had worried that it drink coffee. may have negative health effects,” he says. “However, coffee should not be considered to be a health remedy.” G C R

STUDYFACT

The new dimension of espresso quality

www.nuovasimonelli.com