Bitter or Better Future for Coffee Producers? the Coffee Market Is Over-Supplied. with the Price of Coffee at Its Lowest in a Century, There Will Be Winners and Losers in the Fierce Competition for Exports. Getting Producers to "Add Value" to Coffee and Earn More Revenue Is a Commonly Proposed Solution. However, This Proposal Is Complex and, for Many Producers, Unrealistic

By Scholer, Morten | International Trade Forum, April-June 2004 | Go to article overview

Bitter or Better Future for Coffee Producers? the Coffee Market Is Over-Supplied. with the Price of Coffee at Its Lowest in a Century, There Will Be Winners and Losers in the Fierce Competition for Exports. Getting Producers to "Add Value" to Coffee and Earn More Revenue Is a Commonly Proposed Solution. However, This Proposal Is Complex and, for Many Producers, Unrealistic


Scholer, Morten, International Trade Forum


The collapse of world coffee prices is causing many exporting countries to suffer their worst economic crisis in years. How did this happen to one of the world's largest commodities? The over-supply of coffee is due to several factors: rapid expansion of production in Viet Nam; new plantations in Brazil; higher yields; increased efficiency; and incentives to expand production, such as the liberalization of markets in the 1990s, which led to an increase in coffee farmers' share of the export price.

To this, add what one could call "under demand". Analysts often concentrate on over-supply and overlook the effects of emerging market trends and new technologies in the international supply and demand debate. What also tends to be forgotten is that coffee is not a uniform product: arabica coffee is fine-flavoured, aromatic and usually fetches the highest prices, whereas robusta coffee is normally a cheaper product that is easier to produce. The market share of robusta has grown significantly in the last ten years.

Product quality, production costs and relations with international partners have been coffee trade parameters for years. After more than three years of over-supply and low prices, however, competition has sharpened. For many producers and exporters, survival in the industry depends entirely on complying with market demands for even higher quality; consistency (same quality for repeat deliveries); traceability of origin; transparency (economic, social and environmental); ability to tailor delivery on demand; and capacity for long-term partnerships directly between producer and roaster. Politicians, advocacy groups, and non-governmental and international organizations are grappling with potential solutions. Unfortunately, many of them come as bitter news to already-desperate producers and their families.

Some will be able to capitalize on specialty coffee trends and industry campaigns to promote consumption in new markets. Many, however, will need to diversify, and policy-makers need to plan for this.

Why not "add value" at origin?

Less than one-fifth of 1% of coffee exports from producing countries is in the form of roast and ground beans. Instant coffee counts for another 5%, and all other coffee is shipped as unprocessed green coffee beans. Coffee that is roast and ground at origin therefore equals less than two cups out of every 1,000 drunk in importing countries. Why is the downstream value-added so low? Many blame import duties on processed coffee. But even if importing countries reduced or lifted duties, the export of finished products is likely to remain modest for several reasons, including:

* Market-specific blends and brands. Roast and ground coffees are very often blends sold as branded products; roasters are reluctant to change "the right mix". Blends are tailor-made to appeal to different tastes in the market and to adapt to different water qualities. Also important are availability of substitutes and seasonality of both supply and demand. These factors are all difficult to handle far away from the consumer.

* Preservation of quality. Unprocessed, green coffee beans have a long shelf life and can remain in warehouses for months, sometimes years. This is not the case for roast and ground coffee, although new packaging materials have extended their shelf life. The best cup quality is usually obtained by processing as late as possible, for example, by grinding just before consumption.

* Just-in-time delivery. Sellers must be able to deliver within days when roasters suddenly change their blends or quantities. In addition, roasters must accommodate retailers' changing orders. For example, "Delivery next Thursday must be 1 kg packages, instead of last week's 500 gram packages". This situation is not easy to handle 10,000 km from the buyer.

Trends in demand pushed prices down

Recent years have seen a steady decline in coffee prices overall. …

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Bitter or Better Future for Coffee Producers? the Coffee Market Is Over-Supplied. with the Price of Coffee at Its Lowest in a Century, There Will Be Winners and Losers in the Fierce Competition for Exports. Getting Producers to "Add Value" to Coffee and Earn More Revenue Is a Commonly Proposed Solution. However, This Proposal Is Complex and, for Many Producers, Unrealistic
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