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Coffee and Tea Reports from the Front Lines

Second ICO World Coffee Conference

Brazil - Over 1,500 participants - including 486 representatives from 65 countries attended the 2nd World Coffee Conference, which was sponsored by the ICO and the Brazilian government, for three days in late September in Salvador Bahia, Brazil.

The event, which was themed, “Lessons Emerging from the Crisis: New Paths for the Coffee Sector,” was led by Roberto Rodrigues, Minister of Agriculture, livestock and food supply (MAPA) who served as president of the conference, assisted by Nestor Osorio, executive director of the ICO. The president of Brazil, Luiz Inacio Lula da Silva, officially marked the start of the conference by welcoming participants from various countries.

Roberto Rodrigues addressed the audience on ways to avoid new crisis and tomorrow’s coffee barriers. The challenge is to assure a less volatile market and more stability of income for all links of the supply chain. The sustainability of coffee production must be guaranteed with market mechanisms that enable policy coordination among the main producing countries. Rodrigues noted that Brazil has had a very positive experience with options and minimum price programs that show producers and the market that short-term surpluses can be acquired for the formation of strategic stocks. This is important for the orderly commercialization of production especially the bicyclical nature of Brazil crops.

Gordon S. Gillett, senior vice president of Nestle, Switzerland, was not the only speaker to defend the idea of large world consumption increase. He noted that during the first World Coffee Conference, it was predicted that world consumption would reach 115 million (60kg) bags by 2005, a prophecy that was achieved.

On the theme of “Lessons from the Crisis,” Ambassador Rubens Barbosa, president of the Council of Foreign Commerce of the Federation of Sao Paulo Industries, said that coffee is the source of income and work for 25 million families worldwide and in some countries amounts to 50% of export income. He defended the importance of fair participation in export prices for producers and a reduction of export barriers for Brazilian instant coffees in some markets. He also supports the promotion of industrialized coffee products with added value.

Keiji Ohta, president of the All Japan Coffee Association spoke of the various measures taken by the Japanese trade to increase consumption in the years after the signing of the International Coffee Agreement. One such measure, is the launch of the RTD Coffee Vending machine, which can be found on practically every street corner and in most office buildings in Japan. He noted the arrogance of a coffee health problem has been overcome by corrective publicity and has contributed to stimulate overall consumption increase.

“The Long Term Impact on the Termination of Coffee Controls,” was led by Christopher Gilbert, professor of the Economic department of the University Degli di Trento, Italy. Gilbert defended the idea that the termination of price controls (ICO Quotas) and not excess production was the direct cause of the four year coffee crisis. His opinion is that the price of coffee was maintained for a long time above real values and the liberation served to gradually restore prices to more correct levels.

On day two, attendees heard lectures on the topic of “Coffee Policies in a Market Economy.” Ambassador Alui Mchumo, managing director of the Common Fund for Commodities (CFC), said that the origin of the Fund was directed at the disturbance and fighting in African countries. It was founded in 1989 and now has 106 participating countries. The CFC works together with the World Bank and other sources to provide financing to small growers for warehousing and pre-crop assistance in disease prevention and other aids including crop diversification. He added that producers receive less than 10% of total income from world coffee commerce and some countries like Burundi and Uganda depend on coffee for 70% of their export income. The main objective of the Fund is to work to change the rules of trade so producers will share in the prices to consumers in a free market.

David Neumann, member director of the Neumann GMBH Group spoke on the theme, “Consumption Growth: Who will Supply the Coffee” and gave one of the more interesting speeches of the conference. He pointed to the tremendous potential of the Asian markets for increased consumption noting that 65% of coffee production is consumed by only 15% of the world population. He believes there is large potential within producing countries. With respect to current market trends, he thinks a price of about 90¢/lb. is a fair amount for producers and consumers. He dismisses the estimate of 50 million bags for the 2006-07 Brazil crop; an increase from 34 to 50 million bags in one year is just not possible at the present conditions. He feels that world production will continue to grow to match consumption and barring any unforeseen problems, Brazil’s production and market share will continue to satisfy local and export demand. An interesting feature of Neumann’s presentation was his prediction that world consumption will reach 150 million bags by 2015. He estimates this volume will be in the demand ratio of 52% for normal roasted coffees and 48% for instant coffees. He closed his address by saying, “Instant is the name of the game.”

Dr. Ernesto Illy, of Illycaffe, began his address by attacking farm subsidies in the industrialized countries that impair agriculture in tropical regions. He pointed out that it is cheaper to import milk products from Holland than to produce locally. Dr. Illy believes market stability can be reached by consumption promotions like education programs in Eastern Europe and Asia on the health benefits of coffee drinking. An eyebrow raising part of his speech was his assertion that organic coffees have no future. His declaration was based on a study made by a Dutch scientist, H. Van der Fossen, which revealed that although the grower may receive a price premium for organic coffee there is about a 70% loss in yield. The study also indicated that continued cultivation of organics will deplete the soil of elements like phosphate which are necessary to produce a quality coffee with flavor and aroma. He stated that organic coffees only give profits to the certification agencies and result is an inferior drinking product.

Giuseppe Lavazza, of Luigi Lavazza SpA, also spoke on coffee policies in a market economy. Lavazza began his talk noting that Italy is the fourth largest coffee importing country after the U.S., Germany and Japan. Lavazza enjoys 50% of the Italian retail market. He spoke of the marketing difficulties in most European countries where consumers are price-conscious and promotional campaigns represent 40% of sales.

Robert Nelson, president of the National Coffee Association, spoke about the ways in which the coffee world can move forward. He believes the ICO should look forward to promote trade in a free market economy and remove the barriers that in some countries restrict growth and cause unemployment. Nelson said that the NCA has developed a program called, “Risk Master,” which is designed to educate small and medium growers in the management alternatives of options and futures as well as crop diversification.

Rick Peyser, president of both the Specialty Coffee Association of America (SCAA) and coffee roaster, Green Mountain, showed the remarkable growth of certificated coffees such as Rainforest Alliance and Fair Trade, which are now part of the marketing campaigns of the larger roasters like General Foods and Proctor & Gamble.

The conference closing chair, Linneu da Costa Lima, secretary of production of MAPA said that his farm was reduced during the four years of the crisis from a total of 2 million trees to present plantings of only 250,000. The surplus land was rented to sugar cane growers for production of sugar and alcohol. He added that the government is helping with maximum possible budget allocations, but in his case, and in the case of many of his friends, the funds received only go to pay off past debt and leave little for investing in crop treatment or new plantings. The secretary also pointed out the critical state of Brazil coffee stocks.

Over a 12-month period, Brazil needs 42 million bags to supply present export demand for 27 million bags (green & soluble) and 15 million bags for local consumption. With government stocks of 3.5 million bags of 20 year-old coffees and estimated stocks of 12 million bags in private hands, Linneu calculates that the availability of Brazil coffee at the beginning of the 2006-07 crop year will be the lowest in history. He said, “We are very much nearer a scarcity of coffee than a situation of large surpluses.”

ICO president, Nestor Osorio, in his closing address, thanked everyone in attendance for their cooperation and contributions to achieve the objectives of conference. Osorio also commented that some of the recent weakness in the coffee market has been due to some of the funds migrating to petroleum futures and he believes market players have not yet evaluated the critical level of stocks not only in Brazil, but in other producing countries, as well. - Harry C. Jones

Los Angeles Investors Boost Kisoro Farmers

Kampala - Coffee growers in Kisoro are counting their fortunes following plans by a leading organic coffee company and other investors in California to further invest in the area. The group is expected in Uganda shortly, writes Kampala’s New Vision newspaper.

The project involves linking up coffee, tourism and education in one combined package designed to give visitors leisure, pleasure and exposure in one of the world’s top eco-tourism, undisturbed getaway holiday spots.

This will add to the already established organic coffee growing, which has given the farmers leverage over other coffee growers. Kisoro’s farmers currently make over $5 a kilo, compared to the previous amount of less than $1. Urth Caffe, with over $4 million in annual sales, imports organic coffee from Kisoro’s Muhabura volcanic ranges.

This relationship was established after a California-based company, CofCon International, a marketing and distributing company through Uganda Coffee Development Authority (UCDA), held talks with Urth Caffe on the possibility of buying Ugandan organic coffee.

“Kisoro coffee is one of the best in the world,” said Shalom Berkman, Urth Caffe’s boss.

Henry Nagibirano, the UCDA managing director, said they are working closely with the Kisoro farmers on quality control to get into the lucrative U.S. market.

James Finlays Goes Into Green Tea Production

Africa - James Finlays has commissioned a multi-million shillings ($1 U.S. dollar is equivalent to about 1,827 Ugandan shillings ) green tea production plant, in a move that will position the firm in the lucrative tea industry, The Standard reports.

The Saosa factory, at the heart of the James Finlays’ tea estates in Kericho, will produce the green tea. Green tea contains antioxidants that help the body guard against the mutation of cells, which weakens the immune system.

“Unlike black tea, green tea is not fermented during processing and therefore it does not lose the valuable antioxidants,” said Joseph Mbugua, the plant’s manager.

The move marks the final phase of Finlays’ repositioning in the global tea market, which has been hard hit by price fluctuations.

With its latest product range in the market, James Finlays, market insiders say, promises to revolutionize the whole concept of tea taking. The green tea is a popular brand in the Far East region, especially in China, Japan and Korea.

“Demand for this new brand of tea,” says Finlays Solutions sales and administration manager, John Cheruiyot, 'has increased since it hit the local market.”

The Saosa plant receives green leaf from the tea fields owned by James Finlays, and thus the quality of leaf is tracked right from the field as the bush grows to plucking, through the transportation and delivery to the plant.

“Starting with the leaf, quality is therefore well-monitored throughout the processing, packaging and dispatches to meet stringent international standards,” said Mbugua.

Coffee Shops Look to Cash In On Snack Craze

Canada - Canadians are skipping meals more than ever, leading to more time and money spent in restaurants on mid-morning snacks and afternoon coffee breaks, than on what is supposed to be the most important meal of the day.

Coffee retail chains like Starbucks and Second Cup are cashing in on the trend that has many folks replacing bacon and eggs, or a lunchtime burger and fries with an afternoon cappuccino. Meanwhile, traditional doughnut shops, like Tim Hortons and the Country Style chain in Ontario, are introducing upscale beverages in some locations, including pricier espresso-based drinks to try to capture their share of the new meal category.

The average Canadian skips breakfast a little more than three times a week, but buys a mid-morning snack more than two times a week, according to market research firm NPD Canada.

“Morning snacks and afternoon snacks are outperforming the growth across the rest of the sector,” said Jane Graham, general manager of foodservice at NPD Canada.

Afternoon snacking has increased 6% between 2001 and 2005, while morning snacking has jumped 9% over the same period. In comparison, restaurant visits during breakfast hours are up 4%, lunch has gained 2% and supper just 1%.

About two-thirds of the snack purchases are beverage only - often a fancy coffee drink. NPD research shows the so-called specialty beverage category is now worth $931-million in annual sales, up 19% in 2005. In terms of market share, specialty coffee has increased an average of 14% over the past 10 years. It was up 4% in 2005 over 2004, while regular brewed coffee declined by 2% for the same period. This was the first market share decrease for brewed coffee in a decade.

Though it may not be the best choice nutritionally, consumers are often using those pricey chai tea lattes and Mochachinos as meal replacements. “Consumers will just skip lunch,” said NPD senior client development manager, Robert Carter. “We would call it a meal in a cup.”

Coffee Farmers Reaping from Receipts on Quality

Kampala - Following the establishment of the Warehouse Receipt Systems, coffee farmers in eastern Uganda realized an average of 15% increase in the prices, The Monitor reports.

The Warehouse Receipt System (WRS) is where a farmer is issued a receipt after depositing his produce at a gazetted certified warehouse. The farmer can then use the receipt, which contains details of the quality and quantity of his coffee, as collateral to acquire a bank loan or seek out buyers for his produce.

Christian Baine, the project coordinator at the WRS, said that the farmers have not only attracted a premium price following an improvement in the quality of coffee, but they also now have a better bargaining position, since they know the quality of their produce.

“The moisture content of the coffee deposited was 10.4%, which is far better than the average moisture content of coffee, which is 16 %. This explains why it attracted a premium price,” said Baine.

Under the WRS, a farmer gets an independent quality analysis for their coffee from an independent warehouse operator, who in this case is Cotecna, a Swiss-based firm. The warehouse also grades the coffee for farmers and brings a sample of their coffee to UCDA for a cup test, to determine its quality. The results are then displayed on the receipt given to the farmer.

Fred Mwesigye, the national coordinator of the system said, “The WRS is one of the ways to help farmers move higher in the value chain to enjoy better prices. With time we want organized groups to start exporting by themselves.”

He urged farmers to form organized groups in order to raise enough quantity, which can then be warehoused and jointly transported to certified warehouses.

Plantation Sector Worried Over Low Prices for Tea

India - If the downtrend in auction tea prices continues to persist, it might deepen the crisis in Kerala’s tea plantation industry. In recent weekly sales, the price realized at the auction has dropped by Rs 7-8 a kilogram, industry sources said.

This is the seventh year the tea plantation industry is facing such a crisis. The mismatch between the cost of production and sale price realization continues to remain unabated, and the current low sale price realization has only deepened the crisis.

The sale price average during the same period last year was Rs 55 a kilogram, and the price realized currently is Rs 47 a kilogram. Hence, it is time that all the stakeholders take a serious view of the situation and take drastic steps to save the plantation industry.

Given this situation, the Association of Planters of Kerala (APK), had sought the cooperation of the trade unions not to press for the minimum wage revision and to come forward for settling the wage issue on a realistic and pragmatic basis.

The APK came out with the request given the low prices of tea, coffee and cardamom. "Without a substantial increase in labor productivity, there is no chance for the tea industry to survive by paying even the present wages, let alone the proposed high minimum wages," they said. The financial crisis in the south Indian tea industry, in general, and Kerala, in particular, was acute, they added.

According to official figures of the State Government, 37 plantations have been closed down in the State. The Government formed district relief committees and is providing some care to the affected workers.

The year 2003 was the worst in the tea crisis saga. The slight improvement in prices during 2004 kindled some hope that the industry might be on the way to recovery. But the trend does not seem too encouraging, the APK said.

Sao Paulo Coffee Quality Awards

The Sao Paulo Coffee Quality Awards was held October 26th at the Brazilian Coffee Museum located in the Santos Coffee Exchange.

The annual awards, which began in 2002 are sponsored by SINDICAFE,The Sao Paulo Roasters Union, the State Secretary of Agriculture, the Santos Commercial Association, ABIC, the Brazilian Coffee Industry Association and APAS, the Sao Paulo Super-Market Association. The event was organized as in the past by Eduardo Carvalhaes Jr., Director of Escritorio Carvalhaes a traditional Santos coffee firm.

The awards began as a campaign of the Sao Paulo Coffee Chamber with the objective to motivate growers to improve their farming methods to produce specialty gourmet quality coffees to capture higher market values. It was also intended to show local and foreign consumers that Sao Paulo and Brazil can produce superior drinking coffees.

Each year, the awards have attracted more rural interest across the State and this year a record 895 farmers submitted samples from 13 regional producing areas represented by Cooperatives, Rural Unions and Growers Associations.

The regulations this year limited the lot size to 10 bags which encouraged smaller growers to enter the contest. After classification by a team of qualified trade experts, the lots were reduced to 101 samples which were sent for final classification at the coffee testing facilities of the Santos Commercial Association. The arbiters, after a final testing, selected five lots of Natural dried coffees and five lots of Peeled Cherry coffees to be offered to interested buyers at a controlled auction which took place on the premises of the Santos Commrcial Association. Buyers were permitted to evaluate the coffees in a blind test and place their bids for each lot in a sealed envelope observing a minimum price of $189.55 per bag which was already above the going basis for market coffees at the time of $121.75 per bag.

The highest bid was made by a regional roasting firm, Cafe Serra Grama, for a lot of Peeled Cherry produced by Joaquim Jose de Carvalho Dias on his farm Fazenda Recreio located at Sao Sebastiao da Grama in the Alta Mogiana region of the State. Sr. Joaquim, an 87 year old, fourth generation owner of the fazenda founded by a traditional Paulista coffee growing family in 1830 is a legendary figure in the Brazil coffee community. He has won many quality contests including Illycaffe awards but this is the first time he was the winner of the Sao Paulo State award. It was interesting to note that all but one of the finalists this year were growers with farms in the highlands of the Serra da Mantiqueira bordering the State of Minas Gerais.



Tea & Coffee - March/April, 2006
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