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Coffee Business Leaders Offer Insight
for the Next Decade: Part 2


By Melissa J. Pugash

As the conclusion of this series, Melissa Pugash asks her final two questions to industry leaders from varying locales and sectors in the coffee industry.

Question 3. What are the key components that companies will need in order to remain successful?

Patrick Criteser: “For coffee roasters, success will require playing a leadership role in the entire coffee supply chain, from farms and co-ops to retail. Roasters are uniquely positioned to translate consumer needs into action back in the places where coffee is grown and processed, the step where much of the quality and unique characteristics are built into the product. At the same time, roasters need to be prepared to play a key role, along with their retail partners, in educating consumers about coffee.” Moreover, he notes, “Because the best hope for growth in our industry is in addressing the trend towards better coffee, roasters also need to deliver on the promise with real commitment to great tasting coffee. In our case, as a roaster in the specialty coffee segment, key components for success include a commitment to the art of small batch roasting, relationships with quality-oriented Arabica coffee farmers, a strong company culture of fanaticism about quality and company values in line with consumers’ values in social, environmental and economic sustainability.”

Judith Ganes-Chase: “Innovation in terms of product placement and positioning within the beverage category.”

Nathan Herszkowicz: “Innovation, differentiation and increasingly better quality are the tools that can ensure success. The coffee industry is moving decisively to modify the usual and traditional ways of preparing coffee. With leading edge technology to develop machines that prepare coffee in an increasingly more appropriate way, coffee improved taste and the consumers’ satisfaction in tasting it. Furthermore, there is an ample availability of coffee services, coffee can be consumed at any time, at home, in the office or in the streets, which increases consumption and ensures the success of a growing number of coffee-dedicated companies. Industries are looking for more value added in modern preparation options, such as monodoses, capsules, prepared liquid coffees, in order to ensure their success and their competitiveness in very competitive markets.”

Henry Hüeck: “Sustainable practices are the key. We are also heading more rapidly in the CSR [Corporate Social Responsibility] sector as a strategy. We need to move constantly to improve in that direction. We, in the coffee industry, need understand each other better. The role that everyone plays is very important and the product is of utmost importance. Without the coffee there is nothing else…so from seed to the cup - being the barista that serves the product to the end consumer.”

Andrea Illy: “First and foremost, you must be willing to innovate and take smart risks, all in the name of seeking and raising quality. It extends to everything, from how and where you source beans, how you work with growers, roasting methods, quality assurance, all the way through to the preparation method. It is why I feel better every day about being fully vertically integrated, from bean to cup. If you want to really improve quality, and take the risks and make the investments necessary get better quality, you have to understand how every single action in the chain affects all others, however remote the relationships may at first seem.”

David M Neumann: “In the coffee trade some factors for success have changed. Maintaining liquidity has become a challenge in a difficult financial market in which banks and other institutions have difficulties in understanding and supporting the risks inherent to our business. At the same time the main factors for success will stay the same. To be successful, the green coffee trade needs to continue to act with its customer front and center in their mind. We must market what our customer wants and offer them the services and input that they need to be able to make their decisions. In trade and industry, those companies will endure which offer a diverse range of products and understand themselves as agents between the interests and the desires of the consuming countries on the one and the possibilities and development of producing countries on the other hand.”

Ricardo Villanueva Carrera: “It is important to understand that the patterns of supply and demand are changing, companies and producers need information faster, market tools in order to react faster to market conditions. Thanks to technology the industry is able to communicate faster.”

Christian Wolthers: “Success in Brazil’s private coffee sector will depend entirely on promoting a wider range of products, with higher quality and at more competitive prices. Brazil’s currency, the Real, is expected to remain strong against the US Dollar; agricultural and industrialized product prices may become expensive when compared to imported similars through time. Better quality for the same price and lower prices for a wide range of processed coffee products are the roads toward renewed success.”

Question 4. What role will sustainability and/or corporate citizenship play in the coming year?

Patrick Criteser: “In the coffee industry, sustainability in the broader sense is not just a marketing strategy; it is an imperative for our industry to thrive. Farming practices must be environmentally sustainable, and the production of specialty coffees must support a reasonable quality of life, otherwise the land, ingenuity and hard work now dedicated to growing coffee will be used for other purposes. Fortunately, consumers continue to show more interest in the impact that their purchasing and consumption habits have on the planet. Those roasters and retailers that are good citizens of the planet, support and invest in sustainable farming and manufacturing practices, lower their emissions and environmental impact and pursue values that benefit everyone in the supply chain will continue to be rewarded with better sales in the coming year. Although younger consumers moving into the category today are certainly leading this trend, there is a growing interest in sustainability in most demographics.”

Judith Ganes-Chase: “I think more and more sustainability is going to be expected or the norm and consumers will become less willing to pay a premium for this and instead will simply demand it or choose not to purchase that product. Health, safety and environmental concerns will remain paramount in consumers’ purchasing decisions. More than likely coffee prices will be headed higher in the months ahead. Roasters/retailers are going to be working in a difficult competitive environment with better grades harder to come by at attractive prices due to a combination of poor weather and reduced fertilizer use. As a result, relationships, a key component within the industry, are going to be put to the challenge as well.”

Nathan Herszkowicz: Sustainability, consumption awareness and good citizenship are concepts that will prevail now and in the near future. Coffee is an agricultural culture that demonstrates huge progress in terms of compliance to programs with sustainability rules. Sustainability combined with quality will attract more consumers who are willing to pay a little more for those types of coffees.”

Henry Hüeck: “I was reading a November 2000 presentation from Panos Varangis and Bryan Lewin given at Sintercafé, and the trends at that time were:

  • Growing demand for specialty coffees - high quality.
  • Increased food safety concerns
  • Growing social and environmental concerns for products’
Now the sustainability part is the key point. Quality plays it’s roll but by itself is not really sustainable. As coffee producers, we believe in quality, but most important to me are education and the development of our human capital as part of our Corporate Social Responsibility [CSR] strategy. Education is the most important - with an educated collaborator we can teach him or her any strategy and we will be able to put it to work…because he or she will have the intelligence to understand the why and see the sustainable practices as an advantage.”

When we educate a child at the farm we assure ourselves for the future, when we provide a healthy environment we are assuring our future in our coffee communities, when we give back and share with our neighbors we assure a safe environment and at the same time our buyers see a provider that is assuring a consistent quality product for them and they see a relationship that goes beyond any C-Market price! This is how I see the world advancing in the next 10 years - it started 10 years ago and it is going stronger now.

Sustainable practices are the key - we are heading faster and faster in the CSR direction…we have to keep improving our efforts to make this a better world and practically save it. The coffee industry is key in the production side; and I see the industry working together to find ways of getting more money to the production side through ways like carbon bonds, sustainable coffee production and better practices that will be the bridge key for entire supply chain. Water and its importance is going to be an issue."

Andrea Illy: “I believe that this will be a year of healthy evolution for sustainability, in both overall business and for producers in our industry who are approaching it the right way. Consumers are getting smarter. Many of the “green” claims you see are going to be taken less and less seriously, and conversely, companies that are doing the right things and can substantiate their story well will be rewarded. The best marketing campaign starts by doing the right thing. Det Norske Veritas (DNV), a leading worldwide certification authority, has developed a Sustainable Supply Chain Certification to measure the extent of corporate sustainability efforts. The new standard is modelled on illycaffè’s highly regarded supply chain, developed through two decades of direct relations with coffee producers in the Southern hemisphere.”

Illy notes, “We view sustainability and quality as directly related to one another at every link in the chain. Investing in sustainability is the only way to achieve the goal of long-term quality. Our chain starts by transferring our research and knowledge to coffee growers, working directly with them and incentivizing them to meet our quality standards by guaranteeing a good profit if they meet them. We purchase our Arabica beans directly from those farmers, knowing and wanting them to capture every bit of that profit, without having to pay fees or dues to a consortium that may have good intent, but that cannot possibly approach the supply chain from the ultimate quality objective in mind.”

David M. Neumann: “The mega trend of the next years will be sustainability and traceability in the final product. This issue is growing in importance and will not and should not go away. A new generation of consumers is expecting substantially more information about the products they purchase and the corporations they purchase them from. At the same time more and more companies are embracing systems of corporate social responsibility as part of their core business, not as a luxury or as a charitable activity separated from their daily activities. NKG has been deeply committed to these topics since a time well before they became fashionable and consumers have begun to want more information about their coffee. Out of the conviction that to be good, any business must positively contribute to the livelihood of all those participating in the coffee value chain, we have over the years developed many hands-on activities in producing countries in projects, consulting and farmers education. Today, we work on these topics in¬tensively in an exclusive sponsorship agreement with Hanns R. Neumann Stiftung, a non-profit organization under German law.”

Roel Vaessen: “Sustainability and corporate social responsibility will continue to play important roles in the near future. The way this is realized will be varied. The role of the consumer as a driver, while definitely present, should not be overestimated. Certainly, the logos of the well-known sustainability initiatives will continue to appeal to the more dedicated consumers and purchasers, including government institutions. A significant group of consumers, however, will simply expect the supplier, be it of a branded product or a private label, ‘to do the right thing’. Whatever the driver, Corporate Social Responsibility will increasingly become a ‘license to operate.” On average, and even without being very articulate on the topic, consumers will simply not buy from suppliers seen to be performing inadequately.

Vaessen continues, “In all of this, there will be an added component, namely climate change. On the one hand the coffee sector will need to respond to the challenges posed by topics like water and CO2 footprint. On the other hand, adaptation efforts on the production side will be needed to cope with increasingly unpredictable weather patterns. Some measures are comparatively easy, like building water basins to use surplus rainfall in dry periods. Others are more complex like developing drought and pest-resistant strains. Some experts say that even a small increase in average temperature will greatly influence the presence of pests. One of the problems will be that regions and even localities will be affected differently. Acquiring the necessary detailed knowledge and developing made-to-measure adaptation policies will be part of the sustainability agenda not only next year, but for many years to come.”

Ricardo Villanueva Carrera: “Climate changes are affecting production worldwide, environmental and social sustainability are important issues, and coffee production has been a tool to eradicate poverty in producing countries.”

Christian Wolthers: “Sustainability and corporate citizenship are already on the supermarket shelves, in other words, they are already reaching mainstream status. Today, roasters and food distributors have many certification options: UTZ, Rainforest Alliance, Organic and Fair Trade now also available from medium and large farms as long as these comply with the Social Program code imposed by FLO. I would almost risk saying that the Industry has done its homework in this area. It is really the consumer who will have to indicate how big the coverage by certification must be. The next step in my mind is to create a clear quality code to the certification programs, a code with a language that consumers can understand. Brazil is working on the Quality Code and Stamp which is probably the greatest step toward additional growth in consumption.”


Tea & Coffee - March, 2010
Triestespresso


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