STiR coffee and tea magazine

6 STiR coffee and tea / Issue 5, 2018 (October / November) Representation for STIR Asia I Middle East I Africa Southern & Eastern Europe Glenn Anthony John October Inter Co. Ltd. Interchange 21 Bldg., Room 3225, 399 Sukhumvit Road 32nd Fl. Bangkok, 10110, Thailand Tel +662 660 3789, Fax +662 660 3881 Mobile +1 917 843 0000 or +66 818 299 409 gaj@octobermultimedia.com The Americas I Northern Europe Emerson Leonard Cardinal Media LLC 2 Glenfield, Barrington RI 02806 United States Tel +1 917 680 1050 edl@octobermultimedia.com Printing/Distribution overseen by: October Inter Co. Ltd. Distribution by: DHL Express International (Thailand) Ltd. Published by: October Multimedia Co., Ltd. Printed in Thailand By Dan Bolton Up Front 3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.5 1.0 1.5 2.0 2.5 3.0 ON THE COVER 1 Modern Processing Equipment's IMD699 series grinder for single-serve coffee. [www.mpechicago.com/coffee-grinders] 2 The PC600 from ICA thermoseals filter paper pods with .2 gram accuracy. [www.icausa.us] 3 Switzerland-based Rychiger AG celebrates its 100th anniversary [www.rychiger.ch/] 1 2 Coffee Pricing Crisis As the New York C-price for coffee dropped below US$1.00 per pound in September alarm bells that had been ringing for months suddenly sounded too urgent to ignore. It now appears that too little will be done, too late, in a repeat of a disastrous cycle spurred by speculators whose successful gamble on oversupply is crushing small coffee growers in Central and South America and Africa. The harvest is record-breaking, with production expected to outpace demand by 10 million 60-kilo bags. A decline is inevitable based on fundamentals but a sub-$1.00 threshold is well below the cost of production no matter what the quality of coffee. The coffee industry's common goal is "sustainable" production which means that at the price at origin, where labor constitutes about 70% of production costs, must double. The best-case scenario for a Latin American farmer would be to receive 87% of the export value, according to researchers at Cornell University who evaluated four cooperatives in Peru, Honduras, Colombia, and Mexico. They calculated the free on board (FOB) break-even price at $1.08 per pound. The latter assumes transportation expenses paid by cooperatives. No calculations were made for the cost of farm equipment, land and water improvements, or even the value of the farmer's own labor. Fees to market and sell the coffee and obtain training to improve quality and funds to service debt are additional. Volatility, inherent in markets for all agricultural commodities, has unleashed a punishing round of external factors beyond the control of growers. The 10-year average composite market price for coffee, according to the International Coffee Organization (ICO) is only $.02 higher now than in January 2000. These economic realities put in jeopardy 25 million growers and threaten the long-term availability of coffee. In its well-researched Coffee Barometer report, a joint effort of Oxfam, Soidaridad, COSA, HIVOS, and the SAFE Program, economists value the coffee industry at $200 billion per year, only 10% of which is retained at or near origin by growers, millers, brokers, and local service suppliers. In the past eight years coffee produc- tion, led by Brazil and Vietnam, has grown by 26 million 60-kilo bags, shifting to smallholders that now grow an estimated 70% of global coffee. Much has been written about the success of specialty coffee. Consumer enthusiasm is the foundation of record prices at Cup of Excellence auctions and some retailers get $12 per cup but the Barometer estimates only $350 million is invested annually in sustainability efforts, most as premiums for certified coffee, with only 20% from the private sector. "There is critical underinvestment, since almost 0% of the profits are re-invested in increasing sustainability of the production side of the coffee value chain," according to the report. Coffee leaders from Brazil and Colombia, the world's largest arabica producers, jointly condemned the harmful effects of speculation, the concentration of the industry, and the distribution sector. They issued a joint statement pointing at the root causes and calling for stockpiles to be shifted from origin to the producing countries. "The programs that some multina- tional companies do to promote sustainability are offset by their business practices," reads the statement signed by leaders of 11 coffee organizations including BSCA (Associação Brasileira de Cafés Especiais) and FNC (Feder- ación Nacional de Cafeteros). No one knows what comes next. A Decade of Volatility Source: Intercontinental Exchange ICE

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