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The Market Value of Centrals

By Tracy Ging

During the past several years, there have been a number of quality initiatives aimed at increasing the cup value for Central American coffees. How these programs have helped Central American coffees is the question at hand.

Within Central America, each country has developed projects to better serve market needs, in conjunction with the Coffee Quality Institute (CQI), which has been actively engaged in the region through its programs, Coffee Corps and the Q Program. Several other non-profit organizations also have created programs designed to improve the quality of coffee and promote sustainable practices. When combined, this work marks one of the most intensive periods of quality improvement efforts in the region, which only poses one question: Has the market value for Central American coffees changed as a result?

Creating a Common Language for Quality
In 2003, at a time when CQI began working more intensely in Central America with funding from the United States Agency for International Development (USAID), a major concern for farmers was defining quality. By then, the pressures of the coffee crises had eased somewhat, and while there were more opportunities for farmers to earn higher prices in the specialty market, the increasing number of buyers brought increasing demands. For every buyer, there was a different definition of quality and many farmers, who wanted to better meet the market needs, were confused as to how.

While there will always be a subjective element to quality, it was clear that a ‘bulls-eye’ needed to be established. Using standards developed by the Technical Standards Committee of the Specialty Coffee Association of America (SCAA), a large part of CQI’s work in the region was to train cuppers and others within the industry to understand and utilize industry protocols.

In total, more than 130 cuppers were trained in Central America. Twenty-nine individuals successfully passed the rigorous two-day training program to earn the distinction of Licensed Q Grader, the industry’s first professional accreditation for cuppers. Additionally, the growth in online auctions, such as the Cup of Excellence, SCAA Marketing Partners and Q Auctions, which has brought more opportunities for cuppers to receive on-the-job training at grading events, while working alongside some of the industry’s most respected coffee professionals.

Today, the industry is responding favorably to this increasing expertise at origin. As more and more coffee buyers draw on professional cuppers at origin for assistance, they are realizing efficiencies in the buying process and more importantly, farmers are gaining a tangible measure of quality to identify what, if any, opportunities they may have to improve their offering. By creating a common language for quality, buyers and sellers can more easily communicate, and sellers have a clearer picture of what the markets demands.

Defining Quality In A Cup
As standards took hold throughout the region, a concurrent step was to work with those growers who had opportunities to improve the quality of their production. Major efforts were concentrated on coffee producers, helping them to develop a “seed to cup” perspective, and making sure they understood all the areas where quality could be affected and how to match that knowledge with market expectations.

Coffee Corps was developed by CQI as a unique volunteer-based program, matching industry experts with producers seeking technical assistance. There were 68 assignments completed on the topic of “seed to cup” quality, and the result was that significantly more farmers and millers were able to understand the specific relationship between production and processing standards and cup quality. In total, over 2,500 small to medium-sized farmers received technical assistance. CQI estimates there is a ‘10x factor,’ as the individuals that directly benefited from this training, share the knowledge and skills with others in their community.

In El Salvador, there was an additional effort to use quality standards to better differentiate their coffee exports. Thanks to the hard work of the local sector, and a sustained effort to add value and improve communications about the virtues of Salvadorian coffees, exports to specialty markets including organic, Fair Trade, and other certified coffees, increased from 8% to 24% in a five-year period1. This represents a significant increase in prices, which means the market is rewarding farmers for their quality efforts. These farmers are then able to make continued investments in their production.

Increasing Local Consumption
A common occurrence within producing countries is that internal consumption is very low, and what is consumed is often derived from lower quality beans. In terms of sale, this is not only a missed opportunity for origin countries, but it makes it more difficult for those involved in coffee production to truly understand ‘quality.’ If you have never tasted quality, it is challenging to meet the market’s expectation of quality. In order to increase local consumption, within the past few years, all of the Central American countries have invested in projects.

After a number of barista training programs were sponsored by the Specialty Coffee Association of Costa Rica (SCACR), the association sought assistance from Coffee Corps to further help bring its baristi project up to world class standards. Costa Rica held the first Central American barista competition in 2004, with the help of Coffee Corps’ volunteers Danny and Sherri Johns. Jose Miguel Coto emerged from the competition as the winner, and later went on to place seventh in the World Barista Championship. He was the first person ever from an origin country to place in that competition. He is now sought after as a trainer, helping others to learn the techniques of making a quality coffee beverage. He also went on to complete a Coffee Corps assignment in Honduras, helping baristi there achieve similar success.

In El Salvador, preparation for the opening of the Salvadoran Coffee School is underway. This training center will be open to restaurants and cafes, offering a variety of courses designed to help them achieve the perfect cup. The training center will also serve to develop skills in cupping and roasting, as the first step in a larger initiative to strengthen institutional capacity of the region.

Using Technology to Enhance Transparency and Traceability
In Guatemala, the focus has been on making information more accessible to buyers. In 2000, Anacafé, with the support of USAID and more recently the Spanish Agency for International Cooperation (AECI), embarked on a massive project of Geographic Information System (GIS) to identify and document each farm and cooperative within the country’s seven coffee growing regions.

Using GIS technology, a buyer can access information on a specific farm and access more accurate information regarding the farm and the region. This allows for more effective traceability, which supports quality initiatives because it becomes much easier to match cup profiles to the exact area where the coffee was grown. It also helps protect the buyer. In the case of Antigua, there have been upwards of 200,000 bags on the market despite the fact that it only produces about 75,000 bags. With this technology, only those farms identified within the region of Antigua are certified as produced in the region so a buyer has a viable research tool to verify information.

This system also gives farmers an opportunity to differentiate their coffees and market, as individual estates versus just under the broader category of Guatemalans. To date, all cooperatives and 2,100 farms have been mapped and the collection and verification of data is an ongoing process.

Establishing Best Practices
TechnoServe is an organization that has been helping small and medium-scale coffee producers in Latin America for over 20 years. With a focus on raising profits by improving productivity and coffee quality, their main emphasis now is helping such producers move into specialty markets. Part of their work, with funding from the Inter-American Development Bank, is aimed at improving the region’s competitiveness by benchmarking best practices and developing a quality management system. With this knowledge, TechnoServe is able to work with individual Cooperatives to find solutions that help them become more competitive. In Nicaragua, TechnoServe helped establish a Cooperative of more than 300 small producers and has helped nearly half of them become certified organic growers. Thanks in part to organic price premiums, the group’s sales have increased 10-fold within five years.

Certifications
The number of certified farms in the region has increased substantially in the past few years. According to the Rainforest Alliance, there are currently 2,600 certified farms in Central America versus 250 in 2004. Markus Fischer, c.e.o. of La Bastilla Coffee Estates, a Rainforest Alliance certified farm, commends the program for helping raise quality awareness at the farms, both in terms of coffee quality and quality of life. He recognized that coffee quality is one of the key components for success, so he participated in the Q Auctions and was pleased that through that program, the quality of his coffee was verified and rewarded. The La Bastilla lot, with a dual Rainforest Alliance and Q certification, went on to earn one of the highest prices in all of the Q Auctions.

Certifications have helped open new doors for La Bastilla Estate, and while it is too early to make firm conclusions about the impact of their approach to quality on production, they are convinced that quality is the key for survival for all Central American farmers and exporters.

Meeting Specific Market Needs
In response to the growing demand from Japan, and the different standards for that market, the SCACR embarked on an important project to create a quality certification program that covered both process and product. Working with key members of the coffee sector, including producers, millers and exporters, the SCACR developed a unified manual that defined quality standards and practices. They then developed a certification program that provides independent auditing.

Since its inception, over 25 companies have registered, and more than 100,000 bags have been certified. Many of these lots have gone on to fare well in various competitions, confirming the results of the quality certification.

The certification commission has also repeatedly visited Japan and its sector leaders, participating in conferences, workshops and practical meetings. Surveys, technical standards and manuals have been translated into the Japanese language to facilitate the process. The program was extremely well received by the Japanese market, and with assistance from the CQI, the SCACR was able to further refine its procedures. This has also helped to define the needs of that specific market, enabling producers to better serve those needs. These findings will be shared with the other Central American countries for reapplication.

On the Auction Block
During this same time period of quality initiatives, there was also a new market vehicle developing. Internet Coffee Auctions provided a new outlet for buyers and sellers to transact specialty coffee. More importantly, they created a price discovery mechanism specifically for quality coffees. Rather than relying on the C market, where prices are based on volume, Internet Coffee Auctions created a measure of quality and the market responded by assigning prices based on those cup scores. There was a distinct correlation between cup score and price in Central America, where the countries were very active in auction programs, such as the Cup of Excellence, SCAA Marketing Partners, and the Q Auctions. It became very clear that Central America was home to some of the world’s most prized coffees. In the Honduras Q Auction, held in April 2006, the highest scoring lot at 84.68 was sold at nearly 20% over the prevailing C market price during the same time period. Each year, grading events revealed increasingly high quality lots overall, with more producers entering and qualifying with a minimum of 80 out of 100 points.

A Buyer’s Perspective
Through the various programs, a clearer definition for quality has been set and thousands of people have received training and technical assistance to improve quality. More people throughout the supply chain understand quality and market expectations. Technology is being leveraged and certifications are providing tangible measures of quality. Overall, sales volume to specialty markets has grown, and Internet auctions have provided an indication of increasing value. It would seem there has been a positive effect, but what changes have buyers seen?

Trish Skeie, of Zoka Coffee Roaster & Tea Co., based in Seattle, Washington, believes that quality has improved. However, she is hesitant to attribute it to specific programs. “It is too soon to tell. While there are some excellent coffees in Central America, I think there are many producers who still don’t fully understand why their coffees are earning certain prices,” commented Skeie. She believes that the biggest improvement has been in traceability and the attribution of certain coffees. She is finding it much easier to develop relationships directly with producers. Skeie goes on to state, “Direct dialogue is ultimately where lasting quality improvements can occur, because quality improvements take time and both the buyer and seller need to commit to that process.”

Tim Chapdelaine, of Volcafe Specialty Coffee based in Petaluma, California, echoes those remarks, “Even the most selective buyers in the industry are taking a longer term approach on supply partnerships. Farmers will make continual improvements provided the return is worth the investment.” He cites increased competition among buyers as having a positive effect, since it is forcing the market to work together and develop a broader, more sustainable approach to quality. Chapdelaine also believes that the overall quality of Centrals has improved over the past several years, and while it is difficult to correlate the improvement with any given program, the work at origin has served to raise the bar for the industry. “The change has been most evident on the part of the people at origin who understand and have embraced the work to raise quality. Programs are only as effective as the people behind it.” He goes on to state, “Programs, such as Coffee Corps and Cup of Excellence, have done a great job at bringing buyers and producers together. When a program helps a producer understand what great coffees are, they can go back and do more of what they were doing to produce the great coffees.”

Craig Holt of Atlas Coffee’s based in Seattle, Washington, has detected an improvement in the quality of Centrals over the past several years. As a buyer, a Coffee Corps volunteer and a judge at numerous cupping events, Holt has tasted some exceptional coffees. He also thinks producers have become increasingly sophisticated at separating their coffees and matching profiles to a specific buyer’s needs. Craig noted, “What the various programs have done is give producers a much better understanding of what buyers expect out of their coffees, and that alone has value.”

The Cup Value
In answer to the question proposed in the beginning, which examines the value for Central American coffees and whether this has changed, I believe the consensus is that is has changed for the better. But it seems this inquiry is less about “has it changed,” and more about “how can we continue to improve?”

The most interesting aspect of this topic was the emphasis on ongoing improvement - “What are we going to do tomorrow, not what did we do yesterday?” In this forward-thinking, there was a great deal of optimism and not a trace of divisiveness, as buyers and sellers seemed equally motivated to challenge themselves, not to rest on the laurels of the past few years, and to focus on the future of making further quality improvements. The common theme was that quality was the key to success - for everyone - and the more we focus on quality and raise awareness about quality issues, the more value we create.

1 Statistics provided by the Salvadoran Coffee Association (Consejocafe).

About the Author: Tracy Ging is the director of marketing & communications of CQI. Ging can be reached at: Tel: +(1)(310) 397-0491, E-mail: tging@coffeeinstitute.org, Web: www.coffeeinstitute.org.


Tea & Coffee - November/December, 2006
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