GCR Apr 2012 by Prime Creative Media

March/April 2012

RUSSIA’S INSTANT WAR The major players prepare for battle

PRODUCTION OUTLOOK

A coming supply crisis?

KENYA’S COFFEE THEFTS The deadly downside to high prices

THE HEALTH DEBATE

Caffeine’s changing stigma

CHAIN REACTION

Leaders share their lessons learned in China

A VOICE

AT THE SOURCE TRUNG NGUYEN’S CHAIRMAN ON IDENTITY AND POWER IN PRODUCING COUNTRIES

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CONTENTS March/April 2012

COVER STORY VIETNAM’S COFFEE IDENTITY

Trung Nguyen Chairman shares with GCR his plans to help coffee growing countries take control of the price of a commodity upon which their economies depend.

“IN OUR OPINION, WE DON’T ONLY SELL QUALITY COFFEE. WE ARE DEALING IN THE DESIRES AND THE DREAMS OF VIETNAMESE PEOPLE.” Dang Le Nguyen Vu Chairman, Trung Nguyen

IN THIS ISSUE FEATURES

INDUSTRY PROFILE

PLANTATION

10 THE COFFEE PARADOX

33 LEADING INDIA’S CONSUMPTION SHIFT

40 WASTE WATER

Trung Nguyen’s Chairman on helping coffee growing countries achieve an economically sustainable industry.

14 UNLEASHING THE BEAR

Russia’s coffee industry is primed and ready for a battle of the coffee giants

20 CHINA’S COFFEE CHAINS

Industry leaders say that doing business in China is less of a battle and more of a learning curve.

24 COFFEE & CRIME

High prices in Kenya have caught the eye of organised criminals, with a deadly spate of coffee thefts.

COFFEENOMICS 28 THE COFFEE SUPPLY CRISIS?

Production is struggling to keep pace with demand, as coffee supplies run their fifth consecutive year of deficit. 3

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Café CoffeeDay launches possibly the first capsule system priced for a developing, tea-drinking country.

36 G REEN IDEAS, INFINITE POSSIBILITIES

Italy’s Caffe Agust puts environmental sustainability at the core of its business.

RESEARCH & TECHNOLOGY

The problem of wastewater from coffee processing is seeing some positive developments.

44 EVERY LAST DROP

Penagos equipment has emerged as a market leader in reducing water usage during processing.

50 A CASE FOR ORGANIC

One Costa Rican farm owner discusses his decision to work within organic practices.

46 THE COFFEE HEALTH DEBATE Experts discuss the changing health stigma of coffee.

REGULARS

58 MAMMAL BIODIVERSITY AND COFFEE

4 EDITOR’S NOTE

One student’s work in examining the potential for agroforestry on shade-grown plantations.

NEWS DRIP BY DRIP

54 DIARY DASHBOARD 56 MARKETPLACE 58 LAST WORD

50 28

EDITOR’S NOTE Global Coffee Review

PUBLISHER John Murphy john.murphy@primecreative.com.au EDITOR Christine Grimard christine.grimard@primecreative.com.au

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JOURNALIST Sarah Baker sarah.baker@primecreative.com.au

WHAT MAKES A SUSTAINABLE INDUSTRY?

It was an awe-inspiring experience sitting on either side of the Skype camera with this edition’s cover interviewee: Trung Nguyen’s Chairman, Dang Le Nguyen Vu. Speaking through a translator, Vu calmly answers the standard list of questions one asks a business leader – on prospects for growth, market positioning, competition and so on. His answers, however, are as unconventional to what I’ve come to expect from the business world as the white tunic he wears. At a time when companies the world over are pushing their environmental sustainability work to the forefront of their public relations agenda, Vu only briefly sums up the company’s efforts. What he is most interested in speaking of is sustainability in the economic sense. In a world where few companies like Trung Nguyen hold the power of trade in growing countries, Vu shares his vision for the future of coffee, and the role of coffee in lifting up the position of developing countries. He argues that it’s time that the balance of power in coffee trade sits in regions where coffee is grown. His vision may not be so far off. Demand in growing countries is continuing to drive high prices, as our look at global coffee supplies show a fifth consecutive year of deficit (page 28). A company similar to Trung Nguyen, India’s Café CoffeeDay is showing its commitment to promoting consumption at home with the release of the WakeCup

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(page 33). The system is possibly the first capsule technology priced for a developing market. China is also continuing to show vast potential for growth. The coffee chains who are making their mark in this rapidly developing economy, point that out there is still plenty of room for growth, challenging portrayals of a vicious battle for territory (page 20). But high prices from increased demand don’t necessarily equate to power. Our Nairobi correspondent brings us the chilling story behind Kenya’s coffee thefts (page 24), which is sadly leaving behind a growing death toll. The steep rise in prices has attracted the attention of organised crime. Apparently, top dollar for beans isn’t always good news. Surely, only when safety as well as income can be secured can we move towards true sustainability.

ART DIRECTOR Joel Parke DESIGN Blake Storey, Alice Ewen, Karen Sloane, Michelle Weston, Sarah Doyle GROUP SALES MANAGER Brad Buchanan brad.buchanan@primecreative.com.au PUBLICATION CO-ORDINATOR Hayley Blain hayley.blain@primecreative.com.au PHOTOGRAPHY Catherine Karnow Robert Wanyony CONTRIBUTORS Scott Harris, Eugene Gerden Daniel Howden, Maja Wallengren Glenn Jampol HEAD OFFICE Prime Creative Pty Ltd 11-15 Buckhurst Street South Melbourne VIC 3205 Australia p: +61 3 9690 8766 f: +61 3 9682 0044 enquiries@primecreative.com.au www.globalcoffeereview.com SUBSCRIPTIONS +61 3 9690 8766 subscriptions@primecreative.com.au

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NEWS In Brief

NEWS DRIPBYDRIP MAJA WALLENGREN, BRAZIL Looking out from the ‘mirage’ view point at the Ipanema coffee estate in Brazil’s top coffee producing region of Southern Minas, rows of trees stretch as far as the eye can see. Ipanema is one of the largest coffee estates in the world with 3,709 hectares of coffee. The farms estimated production this year won’t be enough to cover even half a day of the world’s coffee consumption – roughly 380,000 bags per day. Last year, the estate produced over 138,000 bags of green coffee, but this year they expect to produce just 85,000 bags. The estate is on the opposite cycle of the Brazilian coffee cycle. Ipanema is an example of what most market analysts are failing to take into consideration in making their predictions for this year’s Brazil crop. More than two months before a single flower emerged for the 2012–13 crop year, funds and other sectors had been busy playing up the prospect for the new crop to potentially reach over 60 million 60-kilogram bags. The predictions were largely based on the ongoing replanting efforts undertaken over the last several years with higher density trees and better genetic material, providing the groundwork for a potential crop of between 62 and 65 million bags. Many producers, however, point out that for this to happen, weather would have to be perfect – something that rarely, if ever, happens in coffee. As the Brazil harvest moves closer to the start of the peak harvesting season in June, forecasts for the new crop have quickly dwindled with most industry estimates now pointing to production of between 52 and 54 million bags. The case of Ipanema helps explain why Brazil’s harvest forecasts in recent years have become increasingly volatile. Down-cycles appear bigger than normal and the up-cycles don’t produce the yields that many analysts at

the beginning of the coffee year predict. “The difference between the up-cycle and down-cycle has become much smaller in the last few years,” says Luiz Suplicy Hafers, Director of the Coffee Department of the Brazilian Rural Society. “With all the replanting that has been going on, production in a lot of areas has evened out so that we’re not seeing this big change anymore from one year to the other.” The higher density of trees has allowed Brazil to move from an average output of 25 million bags in 1990, to 35 million bags by 2000 and 45 million bags in 2010. Output is expected to continue to grow in the same gradual way over the next few years, although whether it can get to an average of above 50 to 55 million bags is in doubt. Hafers says that at some point yield and plant density “will be maxed out” from the current cultivated area. Many in Brazil also question just how the world supply-demand balance will be sustained, as the South American giant’s own consumption continues to grow rapidly. “Brazil needs to produce an average of 50 million bags, because we need at least 30 million bags in order to maintain our exports and we need 20 million bags for our own consumption,” says Joaquim Libanio Leite, Export Director for the Cooxupe cooperative in Minas Gerais state. “So we have a problem, because we can’t drink only Robusta coffee, so at least half of the local demand needs to be supplied by Arabica coffee.” Brazil’s Agriculture Ministry’s forecasting agency, Conab, pegged the 2011–12 harvest to reach 50.6 million bags, including 37.7 million bags of Arabica and 12.9 million bags of Robusta. Conab made the forecast following the latest review of the flowering and mid-term cherry development. This is up 16 per cent from the 43.5 million bags that Conab estimates Brazil produced in the last 2010–11 harvest. Some in the private trade, however, are

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SPECIAL REPORT: BRAZIL’S CROP UNLIKELY TO REACH RECORD LEVELS

saying that Brazil will produce between 55 and 56 million bags. Hope of the crop reaching 60 million bags is now unlikely. “Based on our last crop trip we have lowered our numbers for Southern Minas but Cerrado, Espirito Santo and Bahia is up and that compensates a bit for the loss in South Minas because of the drought,” says John Wolthers, Trader with Santos-based exporters Comexim. Comexim now estimates the new crop will yield 55.8 million bags, but has revised its number down from its initial projection of 58 million. This represents a 17 per cent rise on the year-ago figure and compares to the group’s estimate of total production reaching 47.8 million bags in the last season. Minas Gerais state accounts for 55 to 60 per cent of Brazil’s production, of which Southern Minas alone accounts for about a third. But, across Brazil, an increasing number of producers, farms and cooperatives are reporting figures at the opposite end of the national upcycle. “In 2010 I harvested 700 bags and then last year I only had 240 bags. This year I am expecting to harvest about 600 bags. It’s a good crop but it’s not as good as in 2010,” says Sebastiao Porfirio, a producer in Juruaya. Coffee regions across Southern Minas including Guaxupe, Varginha, Mogiana, Alfenas and Juruaya, show a mixed picture of the crop. Some farms have trees bursting with abundant fruit, while farms in some regions show signs of complete abandonment. Most areas show decent but not impressive yields. From highs to lows, the average forecast sits at between 52 and 54 million bags. Many say that the new crop is not as good as the 2010–11 harvest season when Brazil picked 48.1 million bags, according to Conab, although private trade said the figure was closer to 52 million. “Our expectation is that the approaching crop will ease the tightness,” says Wolthers. “For sure, it will be very welcome.”

MARCH/APRIL 2012 | GCR

NEWS In Brief

India’s Café CoffeeDay (CCD) has released what could be the first coffee capsule system priced for a developing market. CCD’s WakeCup will cost around US$80 for the machine, and capsules 20 cents each. See page 33. Australia’s Griffith University has found that caffeine levels in an espresso-based drink can vary so greatly, that advice on how many cups of coffee a day to drink is near impossible. In a study of 135 coffees, the findings show that caffeine levels varied from 25 milligrams a serving up to 215 milligrams. The study is one of hundreds of coffee and health related research that are regularly making headlines, as the stigma of coffee’s health effects takes a shift for the better. See page 46.

Efforts to promote the treatment of wastewater production are taking an incentive approach. A UTZ Certified-led project is exploring the production of biogas from wastewater treatment. The project is focusing on Nicaragua, Guatemala and Honduras, working with larger plantations and smallholders. For the bigger plantations they see the potential for these companies to obtain carbon credits under the WWF’s Gold Standard Scheme. See page 40.

G C R | MARCH/APRIL 2012

Kraft Foods and Nestlé have announced major expansion plans in Russia, with experts predicting the country is set for further consolidation of the instant market. Nestlé will invest over US$260 million in the expansion of its already existing Russian coffee factory. The plans would see the Nestlé plant emerge as the largest coffee factory in Europe, with total production capacity of 36,000 tonnes per year. Kraft Foods announced a plan to spend more than US$100 million in doubling capacity for the production of freeze dried coffee at its Russian plant. See page 14.

Global coffee supplies are set to enter a fifth consecutive year of deficit. Stocks and inventories have continued to dwindle, with New York and European warehouses as of 27 January 2011, registering 1.532 million 60-kilogram bags, a drop over the same time a year prior. These tight conditions, however, aren’t enough to make analysts predict that prices will be pushed back over US$3 per pound. Many are saying that the supply and demand fundamentals will support prices starting at US$2.40 to $2.80 per pound. Research in Costa Rica is looking at the link between mammal biodiversity and shade-grown coffee plantations. Doctoral Student Amanda Caudill has set up a series of square metre grids to track what mammal life can be found on a series of farms in Costa Rica. She’s hoping to use the results of her study to help advise coffee certification programs such as Bird Friendly and Rainforest Alliance on how to best promote and enhance mammal biodiversity. See page 58.

EUROPE

Caffe Agust is one of a handful of company’s in Italy to install a catalytic converter on their roasting machines. The device converts harmful gases into less toxic emissions that are released into the atmosphere. The company also installed a photovoltaic plant in 2007, consisting of solar panels mounted on the roof of their Brescian roasting facility. See page 36.

AFRICA

$38 M Kenya’s export earnings from coffee were dropped by 2 per cent due to coffee thefts, costing farmers an estimated US$38 million – and a growing death toll. See page 24.

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Starbucks opened its 500th store on mainland China last October, in what news reports have dubbed the “China coffee wars.” Costa Coffee and McDonald’s leaders, however, tell GCR that with such vast potential for growth, this war is more hype than reality. Vice President of Corporate Relations for McDonald’s Asia, Pacific, Middle East and Africa, Liam Jeory, says: “not a coffee sale that happens at any outlet is at the expense of anywhere else.” See page 20.

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Trung Nguyen Chairman Dang Le Nguyen Vu, would like to see Vietnam’s coffee industry be worth US$20 billion by 2015. Chairman Vu tells GCR he would like to see coffee growing countries gain more control over coffee markets. See page 11.

AMERICAS

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ASIA PACIFIC

Three security guards in Kenya were killed late last year in the growing list of victims of coffee thefts. With record high prices, coffee thefts in Kenya have been linked to organised crime. A January report by Kenya’s Internal Security Administration estimated that coffee thefts have cost farmers US$38 million. Kenya’s export earnings from coffee were revised from a projected growth of 7 per cent down to 5 per cent, according to the Agriculture Ministry Permanent Secretary Dr Kiome, on the back of coffee crime. See page 24.

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cover story Trung Nguyen

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ResolvinG the Coffee paRadox Trung nguyen has helped lifT The profile of VieTnam’s coffee as more Than jusT a green bean source. chairman dang le nguyen Vu Tells gcr of his plans To help coffee producing counTries haVe more conTrol of The markeTs ThaT Their liVelihoods depend on.

“V

irtually no competition” is an enviable position for a company to be in. In Vietnam, which has seen a gradual increase in competition since the mid1980s shift to a market economy, a dominating position is particularly enviable. The country has an attractive consumer base of over 90 million people and, since the turn of the millennium, has posted some of the strongest economic growth rates in the world. Yet “virtually no competition” is how Chairman Dang Le Nguyen Vu describes Trung Nguyen’s market share of the roast and ground market in Vietnam. A fully privatelyowned, family-run business, Trung Nguyen was established in 1996 by a group of medical students. Today, Trung Nguyen is synonymous with Vietnamese coffee, serving 9 billion cups over 15 years to the country’s coffee loving population, and exporting to over 53 countries and territories worldwide. Vu tells GCR that the establishment of Trung Nguyen was as much about promoting Vietnamese-grown coffee to the nation and the world, as it was a business venture. “When the company was established, Vietnam was the second largest coffee exporter in the world, and not many people knew that. We seemed to be lost somewhere, with the

middlemen so focused on raw materials,” he says. “It was Trung Nguyen’s ambition to spread the word of Vietnamese coffee to the world.” In addition to what the company has already accomplished in the last 15 years, he says it has only really established the base of what he envisions. In a world where coffee growing countries’ prosperity rests in the hands of companies and markets in Western nations where coffee isn’t grown, Vu shares with GCR a vision to take back control. “In the coffee industry there is this paradox… where the trade is controlled by countries that don’t grow coffee – companies like Starbucks and Nestlé,” he says. “I think we have to change this imbalance. Coffee growing countries should have their own voice in the world.” Trung Nguyen emerged in Vietnam before a foreign coffee chain could carve out a share of the Vietnamese market. The country officially entered the World Trade Organisation in 2007, and only recently started to see the introduction of foreign companies. By getting in early, Trung Nguyen has grown today as not only the strongest player on the market, but as an important facet in the cultural identity of Vietnamese life. “In our opinion, we don’t only sell quality coffee. We are dealing in the desires and the dreams of Vietnamese people,” he says. “We need to contribute to the great design of the national image. I think that through the creativity that coffee offers, we can contribute to the culture of the nation.” Around 3 million cups of Trung Nguyen coffee are consumed daily, mainly in the Vietnamese drip fashion, served over condensed milk and sometimes with ice to suit the warm climate. The company also has a third of the instant coffee market, which Vu says is shared more or less equally between Trung Nguyen, Nestlé’s Nescafé, and Vinacafe. Coffee chains such as Highlands Coffee, and others are contributing the rise of Western-style coffee chains. Trung Nguyen, however, has maintained its dominant position in Vietnamese-style roast and ground coffee. Vu says that as a domestically-owned company, Trung Nguyen holds a competitive advantage with a solid infrastructure, brand recognition and affordability. “To keep our position, we have to continue to operate in our own distinguished way,” he says. “Most importantly, we need to get the message out there that we’re here to play with the major international players in the market.” In bringing Vietnamese-style coffee to the world, Vu says he sees the company as holding a huge responsibility to the sustainability of the country’s coffee industry. His reference to sustainability refers largely to economic potential.

m a r c h/a p r i l 2012 | GCR

Photo: Catherine Karnow

cover story Trung Nguyen

tRunGfaCt Trung Nguyen has virtually the entire share of Vietnam’s roast and ground market, serving around 9 billion cups of coffee in the last decade and a half, exporting to 53 countries worldwide.

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“We want to foster the coffee industry in Vietnam. We plan for a national coffee industry that 15 years from now will be worth US$20 billion,” he says. A report by the Vietnam Coffee and Cocoa Association at the end of 2011, estimated that coffee exports were around US$2.4 billion. The figure was a 58 per cent increase over a year prior, mainly on the back of doubling export prices. Vu’s predictions are naturally not dependant on ever-increasing export prices. With those prices controlled by foreign markets, Vu’s vision is to increase value at every level of the production chain, including the quality of coffee and production yields. “We need to increase the value of the whole chain, with a focus on increasing the farmers’ livelihoods,” he says. Improving the quality of living among farmers seems to be a trend coffee industry leaders the world over are taking on board, as seen by the rise of certification programs and other initiatives following the coffee price crisis that climaxed in 2002. Vu’s position from a coffee producing country, however, takes a difference stance on the best way to improve the quality of farmers’ lives. “We have the ambition to foster creativity for the sustainable development of coffee in the world,” he says. “Coffee growing countries can’t depend on stock markets in London and New York. We need our own voice. We need close cooperation among coffee growing countries and to set up our own financial institutions.” Vu’s vision starts with each coffee growing country having a similar company like Trung Nguyen as a strong domestic brand.

“It’s this kind of business that you need to contribute to the strategic plan of each country, to be better involved in the supply chain – from the beginning, right until the end,” he says. In terms of environmental sustainability, Trung Nguyen is adopting models from foreign companies to invest in the farmers. The company purchases its coffee from ethnic minority farmers that live in the country’s Central Highlands, where Vietnam’s coffee is mostly grown. To help improve production, the company imports technology from Israel that helps bring water straight to the coffee plant’s roots. The company also works with a company from Norway to import its fertiliser. “We don’t own any coffee plantations, but we’re investing in the farmers,” he says. “In bringing these things to them, it helps them lift their quality so that they can sell their coffee at a higher price.” Vu says that the main trait that sets Trung Nguyen apart from international coffee traders is its domestic position, lending the company a more vested interest in lifting the country’s coffee industry. “Other traders come in just to purchase the

coffee and leave. We’ve invested in the farmers from the start, giving them technology and sending in expertise,” he says. “At the end of the day, we’re buying at a higher price to ensure we help lift their quality of life.” In addition to improving conditions on the production side, Vu says that promoting domestic coffee consumption is an important step in lifting the position of coffee producing countries, whereas the consumer base won’t be so heavily weighted outside the coffee belt. In Vietnam, Vu says his greatest challenge in meeting his goals are similar to anyone trying to bring new ideas and perspectives into an established society. In Vietnam, he says that new perspectives can often conflict with old ideologies that can naturally lead to conflicts with policy-makers: “We see ourselves as avantgarde, and as such we face those challenges.” In addition to policy issues, Vietnam’s coffee growing industry faces the challenges arising from climate change. With its long coastline, Vietnam is among the top five countries most affected by rising sea levels. Increasingly violent weather in the still developing country has seen entire villages wiped out, a regular annual death

“To keep our posiTion, we have To conTinue To operaTe in our own disTinguished way, MosT iMporTanTly, we need To geT The Message ouT There ThaT we’re here To play wiTh The Major inTernaTional players in The MarkeT.” Dang Le Nguyen Vu

Chairman of Trung Nguyen

toll from natural disasters and faltering crops from irregular weather patterns. Fortunately, Vu says that because coffee grows in highland areas the crop is less affected than other agricultural products. When talking of future ambitions, Vu isn’t shy about discussing his vision not only for Trung Nguyen, but for the changes he would like for the global coffee industry. “My coffee dream is to help lead the world coffee industry into a new era,” he says. “We need to connect and develop the coffee spirit and culture in producing countries… We need to create a consuming culture that involves creativity that helps bring people together from producing countries to a common point. This is how you create a sustainable industry.” GCR

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FEATURE Russia’s market

UNLEASHING THE RUSSIAN COFFEE LANDSCAPE IS SET TO BECOME A BATTLEFIELD OF COFFEE MAJORS, WITH EXPERTS PREDICTING THE CONTINUED CONSOLIDATION OF A GROWING MARKET. Story by EUGENE GERDEN

n the shadows of its closest BRIC cousins, China and India, Russia’s population of 141 million may pale in comparison, but not enough to escape the eye of major coffee companies as a target for growth. The Russian coffee market may soon become a battlefield of the world’s largest producers, particularly Kraft Foods and Nestlé, that have recently announced plans for massive expansion in Russia.

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This recent interest is understandable – in contrast to Soviet times, when coffee was hard to find, in recent years Russia has become the world’s leading country in terms of instant coffee consumption. “Today, Russia is ranked the seventh country in the world in terms of overall coffee consumption, at the same time as being an absolute leader in terms of instant coffee consumption,” says Fyodor Borisov, Executive Director of the Russian Organisation of Coffee Producers. Currently, around 75 per cent of Russians regularly drink coffee. In 2011, the Russian coffee market reached 114,000 tonnes in volume, with more than half of the coffee consumed processed within the country. Borisov says that total amount of foreign investments in domestic coffee production over the past 10 years has reached US$600 million. Such trends have not gone unnoticed by Kraft Foods and Nestlé, that are considering a significant expansion of their Russian business. For Nestlé, the Swiss company has already started implementing a plans to invest over US$260 million in the expansion of its already existing Russian coffee factory in the Krasnodar region of Russia. The majority of funds are expected to be used to introduce new technology and launch the second stage of the factory, known as ‘Nestlé Kuban’. According to the company, this will significantly help raise Nestlé’s production capacity and increase output, both for the domestic market and for former Soviet states. The factory’s product range is also expected to expand.

THE BEAR The launch of the second stage will make the Krasnodar Nestlé plant the largest coffee factory in Europe, with total production capacity of 36,000 tonnes per year (compared with the current 31,000). Nestlé’s Russian expansion plans seem to have evoked a prompt response from Kraft Foods. A week after Nestlé’s announcement, Kraft Foods declared its plan to spend more than US$100 million in doubling the capacity for production of freeze-dried coffee at its Russian plant in the Gorelovo village (St. Petersburg region). The American company said that by 2013, production will grow from the current 10,500 tonnes to 16,900 tonnes of coffee per year. By 2015, the company plans to increase capacity to 23,000 tonnes. The company will also install equipment for the processing of solid waste. The present production capacity of Kraft’s Russian factory is estimated at 10,500 tonnes. The majority of coffee is produced under well-known brands such as Jacobs, Carte Noire, Maxwell House and others. Since 2000, the company has invested more than US$150 million in the expansion of the plant. According to Kraft Foods Russia, the expansion of production follows growing demand for freeze-dried coffee in the country. In addition to supplying to local market, the American company plans to increase exports. At present, around 10 per cent of total production from Kraft’s Russian plant supplies most former Soviet states, as well as Tunisia, Morocco, Iran and Bulgaria. Raw materials for the factory are imported from South America, Africa, China, and Oceania states. According to Borisov, the largest importers of raw materials to Russia include the major coffee powerhouses of Brazil, India, Vietnam, Ecuador, and Colombia. Russian analysts believe that both Kraft Foods and Nestlé have chosen the right time to

expand their Russian coffee businesses. Commentators say that the market has already recovered from the consequences of the recession, and that consumer demand for instant coffee is steadily growing. According to The Russian Association of Tea and Coffee Producers (Roschaykofe), the Russian coffee market is currently estimated at 112,000 – 114,000 tonnes, equivalent to US$4 – $4.5 billion. Around 70 per cent of the market is instant coffee. Before the recession, the annual growth of coffee sales in Russia was around US$100 million, however since the second half of 2008 market growth has slowed down. Although the economic crisis resulted in a shift of consumer demand towards more economical alternatives, the downturn did not have a

significant negative impact on the overall demand for coffee in Russia. At present, the largest players in the Russian coffee market are Nestlé and Kraft Foods, as well as Tchibo, Russian Product, Grand, Orimi, and Moscow Coffee House, among others. Kraft Foods has an estimated 20 per cent market share of the overall Russian market, compared with Nestlé’s 28 per cent. Both companies are focusing operations in the instant coffee segment. Nestlé’s share in the

M A R C H/A P R I L 2012 | GCR

FEATURE Russia’s market

granulated coffee segment in Russia is currently close to 100 per cent, with no other brand able to compete with its flagship Nestlé Classic coffee, which remains an absolute leader in terms of value for money. This is a stark contrast to the freeze-dried coffee market, which is virtually divided in two between Nestlé and Kraft (which each account for around 40 per cent market share). One company that is nipping at the heels of Kraft Foods and Nestlé is the Israeli Strauss Group, which can be also considered a significant player in the Russian coffee market. The company is actively expanding its Russian operations, through an increase of production and the acquisition of local producers. In 2008, Strauss acquired Cupola, a well-known Russian coffee producer. Cupola has well-established brands in Russia, in particular Chernaya Karta and Kaffa. The deal was reportedly worth US$90 million. Two years later, in late 2010, Strauss acquired another Russian coffee producer Le Café for US$40 million. In August 2011, Strauss acquired the rights for popular coffee brand Ambassador, previously owned by Sucafina SA, a Swiss Coffee trading company based in Geneva. The deal was reportedly worth US$10.4 million.

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40%

Currently, the freeze-dried market in Russia is divided almost equally between Nestlé and Kraft, which each account for a 40 per cent market share. Nestlé’s share in the granulated coffee segment is currently close to 100 per cent, with no other brand able to compete with its flagship Nestlé Classic coffee,

At present, Strauss Group operates two production facilities in Russia, one of which is located in the Odintsovo, while the second one in the Strunino (Vladimir region). Some analysts have noticed the absence of US food giant, Sara Lee. With an annual global turnover of US$10 billion, the company has yet to gain a foothold in Russia. While the instant-market may be in the hands of foreign entities, fresh roasted coffee has remained in domestic territory. The good news for local companies is that the growth rate for ground coffee currently exceeds those of instant. Alexander Kolkov, CEO of Paulig Russia, the Russian branch of one of the world’s largest producers of freshroasted coffee, says that fresh-roasted coffee’s share of the entire Russian coffee market is estimated at 30 per cent and is continuing to grow. “More and more local consumers see the difference in taste between instant and fresh coffee,” says Kolkov. “The segment of fresh coffee has better prospects for future growth than instant coffee, which is more

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M A R C H/A P R I L 2012 | GCR

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FEATURE Russia’s market

“MORE AND MORE LOCAL CONSUMERS SEE THE DIFFERENCE IN TASTE OF INSTANT AND FRESH COFFEE.” common for Russian consumers.” Paulig, a Finnish company, is putting high hopes on this growing Russian market. This hope was reflected in last year’s decision to launch a coffee roasting plant in Russia’s Tver region. The project is worth an estimated US$29 million, with a capacity that could reach 10,000 tonnes of coffee per year. Deals like these will likely keep popping up as Russian consumption figures continue to rise. The past decade has seen the most significant increase in consumption, which can be largely attributed to the entry of coffee chain superpowers, Starbucks and Costa Coffee. The entry of these chains helps explain the increase in demand for fresh ground coffee over instant, as well as an increase in orders for espresso-based coffee. Rising incomes and local purchasing power are also helpful factors, although it should be noted that these figures are still significantly lower than in the European Union and North America. Average per capita consumption of coffee in Russia sits at around 1 kilogram per year, compared to 12 kilograms in neighbouring coffee-loving Finland. Average per capita coffee consumption in the European Union ranges from 4 – 8 kilograms. Further increase and changes in consumption trends may likely depend on the activities of these international coffee chains and the number of new stores, which currently sits at around 600. According to Euromonitor, over the next several years the Russian market

will continue to grow at an average rate of 5 – 6 per cent per year. The rate of growth in value terms, however, is expected to be higher, as a result of growth in commodity prices. Retail prices are expected to grow with inflation rates – since 2004 the average rate of inflation in the Russian coffee market reached 64 per cent. With market growth, comes predictions for further consolidation of the Russian coffee market. An increase of market shares of large foreign companies is expected, alongside the withdrawal of small local producers from the market. According to Russian news source Kompania, Kraft Foods is eyeing acquisition of a local company Orimi Trade, the only coffee producer in Russia that holds a relatively strong market positions in instant coffee (5 – 6 per cent of the market). The company is also a leader in fresh ground coffee and tea. Ramaz Chanturia, the head of the Roschaykofe, says that the next several years will see fierce competition in the Russian coffee market. Chanturia predicts the market could tighten up to only include five or six companies, with the process of consolidation the inevitable path. If Chanturia’s predictions are accurate, Kraft Foods and Nestlé are on the right track to stay in the select group. GCR

M A R C H/A P R I L 2012 | GCR

FEATURE China’s Coffee Chains

THE COFFEE WAR THAT NEVER WAS THE COFFEE CHAINS WHO ARE MAKING THEIR MARK IN CHINA SEEM TO AGREE – THERE IS NO NEED TO FIGHT OVER MARKET SHARE WITH SUCH VAST POTENTIAL FOR GROWTH. INDUSTRY LEADERS TELL GCR WHY THEIR EFFORTS IN CHINA ARE MORE OF A LEARNING CURVE THAN A BATTLE FOR TERRITORY.

t’s the kind of content that headline writers love, with enough puns to do the rounds. “A coffee war heats up in China,” China.org posts; “Coffee wars brewing in China,” Business Without Borders reports; “I declare a coffee war,” China Hearsay hails. But those companies on the supposed ‘front lines’ say the vast opportunities that China presents as an emerging coffee consuming nation means that there is little need to fight each other for market share. “I don’t think there’s a war in China over coffee,” Paul Smith, Asia Director for Costa Coffee, tells GCR . “Everyone is helping move the Chinese consumer towards coffee drinking. If you look at the coffee shops per capita in China compared to other areas there’s still lots of room for growth. I don’t think there’s a war on.”

G C R | M A R C H/ A P R I L 2 012

Rather than a strategy of attack, in his discussions of the UK coffee chain’s move into China at the beginning of 2007, Smith says his experiences have been more about learning from the market and adapting their business model accordingly. Smith says this work hasn’t gone unnoticed by the company most often put forward as their biggest adversary, American-giants Starbucks. After 14 years of operations in China, Smith says Starbucks is similarly adapting their business model more than they ever have before. “I’d like to think that we probably helped them see that,” he says. Starbucks is undoubtedly the earliest player in what has been dubbed “the coffee wars”, having opened its first store in the Greater China market area in Taiwan in 1998. The first Starbucks store on mainland China opened in Beijing in January 1999, through a licensing agreement with Mei Da Coffee Co. Ltd. At time of print, Starbucks operated around 550 stores across 47 Chinese cities, having entered 13 new markets over the course of the company’s Fiscal 2011. “The stores in these new markets have been popular and well-accepted by the local customers and community,” a company spokesperson tells GCR . “We aim to accelerate our growth momentum in 2012.” In a statement upon the opening of the companies 500th store last October, a Starbucks press release noted that: “For the past 12 years, Starbucks has not only been a symbol of China’s rapid urban development, but also for its customer: the authentic coffee culture, genuine moments of connection between its partners and customers, and unique Starbucks Experience have come to embody a new modern lifestyle pursuit and aspiration.” Adding to this position, earlier this year Starbucks announced it was getting into China’s coffee growing processing industry, forming a joint-venture company with the Ai Ni Group, a

THE CHINESE MARKET IS SO BIG, THERE REALLY IS ROOM FOR EVERYONE HERE Liam Jeory

Vice President of Corporate Relations for McDonald’s Asia, Pacific, Middle East and Africa

coffee operator and agricultural company in Yunnan Province. Costa’s entry into the Chinese market eight years after Starbucks has seen a similar rapid rise in the number of outlets. In a presentation to investors in 2011, Costa Coffee’s Managing Director, John Derkach, said that in 2012 its investment in China was close to breaking even, and will surge forward into 2016 with plans to open 350 stores nationwide.

The unlikely player that has emerged into discussions of the spread of coffee chains in China has been McDonald’s specialty coffee concept – McCafé. Originally from Australia, McCafé emerged from the desire for accessible quality coffee, and Australians’ preference for espresso-based drinks. The McCafé concept has since grown around the world as an addition to the McDonald’s experience. With over 2000 McDonald’s restaurants already in place in China, where the market is right, the company has been adding their specialty coffee outlet to their Asian offerings. Mirroring Costa’s Smith’s remarks, Vice President of Corporate Relations for McDonald’s Asia, Pacific, Middle East and Africa,

MCCAFEFACT The McCafé is originally an Australian invention, to cater for local tastes for specialty, espressobased drinks. McDonald’s has since expanded their McCafé offering to outlets around the world.

M A R C H/A P R I L 2012 | GCR

FEATURE China’s Coffee Chains

CHAINFACT The United States, with less than a quarter of China’s population, has over 20 times the number of Starbucks outlets.

G C R | M A R C H/ A P R I L 2 012

Liam Jeory, says he certainly doesn’t consider McCafé entangled in any “coffee war”. “The Chinese market is so big, there really is room for everyone here,” he says. “Let’s put it this way – there is not a coffee sale that happens at any outlet that is at the expense of anywhere else.” Interestingly, in their lessons learned McCafé and Costa Coffee have taken different approaches in bringing their products to the Chinese market. Costa and Starbucks are adapting their floor plans and drinks to suit local preferences, however Jeory says that McDonald’s is using the same model that has worked everywhere else. “The Chinese are like everyone else in that they like to experience the brands available in the West, like McCafé,” he says. “These McCafés have the same offering as everywhere else in the world. You don’t go into a McDonald’s not to get McDonald’s.” The decision for McDonald’s to enter the Chinese market, Jeory says, came from the simple potential for growth. With such a huge population, and a rapid pace of urbanisation, the potential for quick service restaurants (QSR) was enormous. The motivation to introduce McCafé, he says, came from the evidence of a large number of ex-pats looking for convenient, quality coffee and an increasingly sophisticated number of young Chinese who were taking a liking to the coffee culture.

“THAT’S WHAT YOU’RE SELLING THE CHINESE, YOU’RE SELLING THEM AN EXPERIENCE – 20 MINUTES OF SPACE AND A GOOD CUP OF COFFEE.” Paul Smith,

Asia Director for Costa Coffee

These were similar motivations that led to Costa’s introduction to China. However, the UK chain’s Smith says they were more careful in the way they introduced a brand that was less ubiquitous than McDonald’s. “The consumer opportunities in China were enormous, but

we were careful enough to assume it wasn’t going to be as easy,” says Smith. “We had to be more customer-driven than we’d ever been before.” The dilemma, Smith points out, is that before adjusting their model, they would first have to use the traditional Costa model, and use a learn-by-doing approach. Smith says that Costa’s first two to three years were mostly about testing the waters, investing in a heavy amount of research and customer surveys. Smith says it’s only since 2010 that the company has been able to use that research to adopt their model accordingly. One of the major lessons Costa has learned along the way, Smith says, is that in China people mostly visit a coffee shop for the environment. With 1.3 billion people in the country, he points out it can get pretty crowded, and the coffee shop is often sought out as a sort of sanctuary. As such, Costa has adjusted their store layout to provide enough small, isolated areas, where people can have some personal space. “That’s what you’re selling the Chinese, you’re selling them an experience – 20 minutes of space and a good cup of coffee,” he says. While the food is still traditional coffee shop food, Costa has adapted to the local culture. “The focus in China around food is that people see us as more as a snacking and sweet food option,” says Smith. “As a result, we have tailored our range to offer more ‘mini’ products like sharing plates, and really focused on our desserts and cakes.” In their Chinese stores, Smith says Costa offers more indulgent drinks, including ice-blended drinks with a range of toppings, that can be customised by different flavour syrup shots, and in much larger sizes. Interestingly, Smith says they often sell a lot of drinks in take-away cups, although customers rarely leave the store with their drinks. “It’s a lot about being seen,” he says, adding that customers often purchase the largest cup they can, enjoying the large brand names. The pricing of their drinks was also an interesting lesson for Costa. When Smith first started

with the company, they were selling coffee in China for the equivalent of US$4.45, much higher than the $3.50 in the UK. With China a developing market, Smith says he found it “ridiculous” they would charge more for their coffee in a poorer market. As such, they did a trial in a city where they brought the price down to around US$3.00. While the sales initially reacted, they quickly went back to normal. In a customer survey, their clients told them to leave the prices as they were because Costa was an “aspirational brand”. As these companies continue to expand, market reports continue to show why there’s space for everyone to grow. The UK, with a population of less than a tenth of China’s, currently has almost ten times the number of Costa outlets. The United States, with less than a quarter of China’s population, has over 20 times the number of Starbucks outlets. With this much potential, it’s little wonder these coffee giants are leaving their battle gear at home. GCR

M A R C H/A P R I L 2012 | GCR

FEATURE Coffee theft

COFFEE & CRIME HIGH PRICES IN KENYA HAVE CAUGHT THE EYE OF ORGANISED CRIME, AS A SPATE OF COFFEE THEFTS AND A GROWING DEATH TOLL SHOW CAUSE FOR INTERNATIONAL ALARM. Story by DANIEL HOWDEN, NAIROBI

G C R | M A R C H/ A P R I L 2012

oses Wekesa was among the first to realise that something was wrong in the early hours of 4 December 2011. A night watchman at the Namang’Ofulo coffee factory in Sirisia, Western Kenya, he was well aware that armed gangs had been raiding similar facilities throughout the region. Shortly before 3am he saw men with machetes approaching in the night. “They told us to lie down,” says Wekesa. “But I escaped in the dark.” His colleagues were not so fortunate. All three of them were hacked to death by the raiders over 100 bags of beans. Isaac Kuywa Waliuba, John Kiabi Mwale and Festo Wambakaya Sitati joined the growing death toll from Kenya’s increasingly brutal black market in coffee. As prices have soared for East African beans, the coffee industry has drawn the unwanted attention of organised crime. The ripples from a drop in production in the world’s leading coffee producer, Brazil, and growing demand from China and India, coupled with a drought in East Africa last year, meant that anyone who could get hold of premium Kenyan beans stood to make a fortune. When prices at Nairobi’s coffee auction climbed to an all-time high at the end of the 2010/11 season of US$1022 per bag for benchmark grade AA, it should have been cause for celebration among Kenyan growers. But the ruthless pursuit of profits by some has terrorised many in the industry. “The situation is serious and we are facing a crisis,” says Dr Romano Kiome, a senior civil servant at Kenya’s Ministry of Agriculture. “The high prices mean that coffee has come to be seen like bank notes and it’s causing deaths right now.” As well as those killed, a January report by Kenya’s Internal Security Administration estimated that the coffee thefts have cost farmers US$38 million. On paper Kenya is a regulatory model with a paper trail that follows the coffee from bush to cup. Permits are required to transport green or dried beans, millers need paperwork to show where their supplies are coming from and all high-grade coffee is processed through the Coffee Board of Kenya auction in the capital, Nairobi. On the ground it has been a different story though, as gangs have targeted factories, warehouses, farms and trucks transporting the valuable commodity. “They are highly organised and they

are managing to get around the regulations we have in place,” says Kiome. “We are doing everything we can and have put new measures in place but the crisis is not over.” The government has responded by setting up a rapid response police unit with motorcycles, and promises to increase patrols in areas where growers and factories are under threat. Internal Security Permanent Secretary, Francis Kimemia, has gone public saying the elite squad formed to combat coffee thieves has “a clear mandate to deal with the criminals in the sector like any Kenyan journalist Robert W anyonyi other common thug”. is now in hiding in Uganda following But the fallout from the Western death threats for his allegations of organised crime. Kenya killings has made the official claims sound hollow. On the night of the attack, villagers rushed to the factory and caught the thieves as they finished loading their truck. They were unable to prevent the vehicle leaving but managed to grab two of the attackers, who were then lynched by the furious crowd. Local journalist Robert Wanyonyi arrived at the scene at dawn and found hundreds of villagers surrounding a third man who was caught nearby trying to escape. Badly beaten, the captured man was pleading for his life when the local District Commissioner (DC) appeared along with a bunch of armed policemen. “The man pointed at the DC and said he was the man who sent them to the factory,” says Wanyonyi. Then as the Kenyan journalist filmed the scene, the man being interrogated was shot dead. The villagers demanded to know why the police had killed the alleged thief they were interrogating and began to clash with the police. The reporter was told to stop filming and then chased from the scene and shot at while four local men were killed in a running battle that ensued. The footage of the fallout from the Namang’Ofulo raid was shown on Kenyan television thanks to bravery of Wanyonyi – who is now in hiding in neighbouring Uganda – while the DC involved has been suspended and 22 of his men transferred out of the area. A local human rights group claims to have identified the three killed raiders as off-duty policemen prompting a major scandal.

M A R C H/A P R I L 2012 | GCR

PHOTOS: Robert Wanyony

FEATURE Coffee theft

The reporter who has received a stream of death threats and an anonymous offer of US$6000 to shut up, claims that he is the victim of a high-level cartel. “In my investigations, I came to realise that the coffee theft syndicate is carried out by Kenyan provincial administrators through a wellwoven network in Western, Nyanza and Central Provinces,” he tells GCR. “They are calling me and telling me, ‘you alone will not stop this business, other people have tried and we have cleared them out’.” Kenya’s own internal security agency appears to confirm the journalist’s findings in its report Coffee thefts: A security concern. It concludes that the thefts are being coordinated by organised criminal networks cutting across farmers’ representatives, co-operative society officials, millers and well-placed public servants. “We have received claims of some millers and roasters allegedly engaging in dealings that are causing theft of coffee and we have forwarded the information to the relevant arms of government for action,” the Managing Director of the Coffee Board of Kenya, Loise Njeru, told reporters in Nairobi, without providing specific details. “We are calling for vigilance among players in the industry because the thefts are injurious to the sector,” she added. She has called on all millers to take “religious precautions” to ensure that valid movement permits are taken from anyone delivering coffee for processing. But so far Njeru’s threats to get tough, including

G C R | M A R C H/ A P R I L 2012

removing the licenses of firms caught buying stolen coffee, have not been acted on. Meanwhile, “coffee laundering” continues in two ways, according to industry insiders. The most obvious route is to take the stolen coffee across the border into Uganda where regulation is lighter. Motorcycle taxis in the border area are reportedly being paid US$20 – up to five times what they normally earn – to transport a single bag over the frontier. The other, more complicated, route is for unscrupulous millers to forge the necessary paperwork and launder the stolen coffee. “If you can get it into Uganda you get paid no questions asked,” says a senior industry figure who asked not to be named to prevent reprisals against his company. He went on to say that a second

EXPORTFACT Kenya export earnings from coffee went up by around US$120 million last year. The projected growth in production of 7 per cent has been revised down to 5 per cent thanks to coffee crime.

 “PRICES ARE NOT THE ONLY REASON. THE COUNTRY’S PRODUCTION HAS BEEN VERY LOW AND THERE ARE A LOT OF PLAYERS IN THE MARKET WHO NEED COFFEE AND THEY’RE USING EVERY MEANS POSSIBLE TO GET IT.” Newton Ndiritu

Coffee Farmer, Othaya, Central Province

network is fencing the coffee without having to smuggle it out. “There are a few rogue figures in the coffee industry who are allowing stolen coffee to flow back into the auction system,” he says. “We know who they are but the authorities are doing nothing.” His firm has already lost one employee, who was shot through the heart with an arrow during a recent raid by up to 60 attackers. The epidemic of thefts has forced even the larger firms to take “extreme measures” like placing armed guards and closed circuit security cameras at storage depots as well as paying for police to escort produce transported by road. The cartels work by cannibalising supplies from farmers contracted by rival roasters and marketers, and often also resort to armed break-ins at storage facilities or attacks on transit trucks. The worrying new trend over the past 12 months has been attacks at the farm level and on small cooperatives. While the big players can afford to beef up security in a bumper year, the real sacrifices are coming from the bottom end of the industry where farmers armed with clubs and bows are sleeping with their crop if they can’t afford the US$4 it costs to hire a night watchman. The broader implications of the crime wave are stark. Kenyan coffee, with its high prices and plaudits from critics, should be enjoying a boom in production. The coffee sector has been targeted for expansion under the country’s “Vision 2030” plan that sought to expand an industry that already employs hundreds of thousands of small farmers. Many insiders believe the best hope for stemming the tide of robberies is for the price to drop. Already a better rainy season has fed into the market with prices for a kilo of premium coffee coming down from highs of US$8.50 in the last quarter of last year to as little as $5 per kilogram at the beginning of January. Kenya export earnings from coffee went up by around US$120 million last year on the back of record prices to around $310 million,

but the projected growth in production of 7 per cent has been revised down to 5 per cent, according the Agriculture Ministry Permanent Secretary Kiome, thanks to coffee crime. Just as the rewards on offer promised to reverse the long-term slump in output, the shadow cast by the allegations of graft and high-level complicity are turning some Kenyans away from coffee. “The coffee theft is a national problem,” says Newton Ndiritu, a coffee farmer from Othaya in Central Province. His cooperative was hit in January, and lost more than 100 bags after thieves cut their way through a wire fence at one of the factories, tied up the guards and dumped them in a fermentation tank. And like many growers Ndiritu believes that there is more to the spate of thefts than local opportunists. “This is organised crime because it’s going on almost everywhere, it’s a business,” he says. The coffee grower of 20 years says the police should “do their job” and that locals must stop tipping off the criminal gangs on where to strike and what security arrangements are in place. The industry itself is also to blame, he says: “Prices are not the only reason. The country’s production has been very low and there are a lot of players in the market who need coffee and they’re using every means possible to get it.” He asks a question that is being echoed by farmers across the country: “How can a vehicle transport coffee across the whole of Kenya without being noticed?” he alleges. “Money is changing hands along the way.” The Othaya cooperative has 11,000 active growers and another 4000 whose bushes have been left to go wild. The worse the coffee theft crisis gets the less chance there is of persuading the inactive growers to come back to the fold. “We know there’s a lot of impunity and we as the small, small [sic] farmers cannot do anything.” GCR

M A R C H/A P R I L 2012 | GCR

COFFEENOMICS Supply crisis

THE GLOBAL COFFEE SUPPLY CRISIS?

GLOBAL COFFEE CONSUMPTION IS SHOWING NO SIGNS OF WANING AND PRODUCTION IS STRUGGLING TO KEEP PACE WITH DEMAND. MAJA WALLENGREN TAKES A REGION-BY-REGION LOOK AT THIS CROP YEAR’S FORECAST, AND REPORTS WHY DWINDLING STOCKS ARE LIKELY TO CONTINUE THEIR DOWNWARD FALL.

G C R | M A R C H/ A P R I L 2 012

or four years running, the world’s coffee supply-demand has been running at a deficit. Global stocks and inventories have continued to dwindle with no recovery in sight. Certified stocks under the ICE futures exchange in New York and European warehouses as of 27 January this year were at 1.532 million 60-kilogram bags. Take into account total green coffee stocks in the United States, which include shipments from the 2011-12 Brazil crop, and the figure comes to 4.295 million bags – equal to half a month’s demand in importing countries. “This figure has continued to come down year after year, and even with the new crop from Brazil, and the main crop from Colombia and Vietnam, we still have not seen stocks recover,” says Pedro Echavarria, a veteran independent analyst in Colombia. A comparison to the year-on-year figures shows the continued decline. By the end of December 2011, certified stocks were at 1.530 million bags, down from 1.706 million bags a year prior. On 27 January this year – when stocks should have picked up as this is peak export season – the 1.532 million bags represented a drop of 113,000 from the 1.654 million bags recorded a year prior. “This is the time that stocks should be increasing, and not going in the other direction, so that is not exactly a great indicator of new supply. As a result of the continuing tightness we have seen premiums rise sharply,” says one green coffee trader who works with a major buyer in the New York Arabica market. When the flowering season for the 2011-12 harvest started across the prime Arabica producing region in Central America and East Africa, hopes were high that the new cycle would provide a bumper crop and a healthy recovery in output numbers. But climate change and erratic weather patterns across the world’s coffee belt have once again cut these initial hopes for a healthy recovery short of expectations. This means that the world supply of coffee as of January has 2012 entered its fifth deficit year. “Adverse weather conditions during crop year 2011-12, which could have negative impacts

“ADVERSE WEATHER CONDITIONS DURING CROP YEAR 2011-12, WHICH COULD HAVE NEGATIVE IMPACTS ON PRODUCTION OR POST-HARVEST ACTIVITIES, WERE RECORDED IN MANY EXPORTING COUNTRIES, PARTICULARLY IN CENTRAL AMERICA, COLOMBIA AND INDONESIA.” Roberio Silva

Executive Director of the International Coffee Organisation

on production or post‐harvest activities, were recorded in many exporting countries, particularly in Central America, Colombia and Indonesia,” says Roberio Silva, Executive Director of the International Coffee Organisation (ICO), in his latest market report. “Speculation on estimated production for crop year 2011-12 continues to put pressure on coffee prices,” says Silva, adding that “the supply-demand balance continues to be tight”. While an official estimate for consumption in 2011 has yet to be published, ICO sources and industry analysts tell GCR there has been no indication of world consumption slowing down and global demand should come in at close to 137 million bags. These growth rates are the direct reason for the draw down in stocks. While estimates for how much coffee the world held in total stocks have typically varied greatly, most market calculations put total world stocks at between 40 – 48 million bags at the end of 2007. The continued supply deficit, since those stock levels were recorded, would have seen a decline in stock of close to 32 million bags, as buyers have fed off the remaining stocks while consumption rose against a shortfall in production. This is a far different picture than in 1999-2000, when massive overproduction saw the cycle produce 130 million bags, at a time when world consumption was at about 110 million bags. This is what forced prices down to historic lows. The result was what became known as the “coffee crisis” as millions of small growers worldwide were thrown into unprecedented levels of poverty and social misery, with tens of thousands of children in coffee regions in East Africa and Central America suffering severe malnutrition. In Ethiopia alone, malnutrition linked to the coffee crisis was reported by NGOs to have caused the deaths of over 60,000 children under five years old. Since then, coffee consumption has exploded by around 25 per cent to current figures approaching 137 million bags. Production, however, has stagnated at about 130 million bags. The impact by the coffee crisis on farms and producers worldwide has left large parts of the producing world, which is managed by tiny small-holder producers, permanently damaged and unable to recover to production levels seen in 1999-2000. Erratic climate has added even more challenges to producers. ICO figures for world production today show that tot a l global production stood at 120 million bags in 2007-08; 128.3 million bags in 2008-09; 123 million bags in 2009-10; 133.1 million in 2010-11;

M A R C H/A P R I L 2012 | GCR

COFFEENOMICS Supply crisis

Global Coffee Supply & Demand 140,000

Consumption

130,000

Production

120,000

110,000 2007-2008

SUPPLYFACT ICO figures for world production today show that total global production is expected at 128.6 million bags in 2011-2012, while consumption for 2011 is expected to come close to 137 million bags.

G C R | M A R C H/ A P R I L 2 012

2008-2009

2009-2010

and 128.6 million bags in 2011-12. World demand meanwhile registered at 129.3 million bags in 2007; 132.9 million bags in 2008; 131.8 million bags in 2009; 135 million bags in 2010 and 2011 is expected to come in at close to 137 million bags (see chart for details). “Consumption continues to grow at very healthy levels, with the slowest growth seen in the traditional consumer markets in Europe and the United States still recording average growth of 1.5 per cent. But many emerging markets are continuing to attract growth rates two or three times higher,” says one senior industry analyst. Many in the industry expect this will add a minimum 2 million bags to world demand a year for the next five to 10 years. Colombia’s Echavarria says that even though a number of other analysts openly marvel over the ICO’s report that the 2010-11 crop season saw 104.5 million bags of coffee exported – the highest figure on record – this “is really quite insignificant” as it did not materialise into any replenishing of world stocks. As the 2012 crop year gets underway, many eyes remain firmly fixed on Brazil’s production. From the time when supply was at its tightest in 2011, and many in the market tried to talk up the prospect of a record crop of over 60 million bags in Brazil, consensus today is building that the new up-cycle harvest is unlikely to yield more than 52 to 54 million bags. “Everybody in coffee loves to talk about the 60-million-bag crop in Brazil, but we have never actually produced that much,”

2010-2011

2011-2012

says Luiz Suplicy Hafers, an analyst and the current Director of the Coffee Department of the Brazilian Rural Society (SRB). “And when growers talk about ideal climate for coffee they really mean perfect and that just never happens in coffee.” Hafers, who comes from seven generations in Brazil’s coffee industry, says that as the crop is starting to enter the late cherry development and final bean formation, it’s becoming increasingly clear that the drought that hit many key areas in Brazil right after the flowering were “severely affected” and will draw the final production figure downward. In Vietnam, the world’s second largest grower, production is down 5 per cent at 18.5 million bags, from 19.467 million bags in 2010-11. Indonesia’s new harvest could reach 9 million bags, largely unchanged over the past crop year. India’s coffee producers are hopeful they may harvest a bumper crop of as much as 5.33 million bags. In Central America, drought and two weeks of non-stop rains from five different tropical storms and hurricanes in October has already taken a severe toll on the region’s new crop.

“THE IMBALANCE IN THE SUPPLY-DEMAND PICTURE IS SO PRECARIOUS THAT ANYTHING THAT MIGHT GO WRONG AT THIS STAGE IN PRODUCING COUNTRIES, ESPECIALLY IN COLOMBIA AND BRAZIL, COULD SEND THIS MARKET FLYING TO LEVELS NEVER DREAMED OF BEFORE.” Marco Ruttimann

Coffee-Link International Partner

Damage estimates on losses are between 750,000 and 1 million bags for the region including Central America and Mexico. As picking of the 2011-12 harvest wound down, the latest official forecasts from the region’s coffee institutions have been lowered to levels significantly below those used by the ICO. “Everyone was anticipating bigger crops which were never likely to come. The flowering did not come out that well in a lot of areas and even though prices have been good in the last year, a lot of people in the market are forgetting that most of the producers in Central America are still paying off debts so they don’t have any money left to invest in their farms,” says Commodity Analyst Jack Scoville, Vice President of The Price Group in Chicago, adding that he expects the region’s 2011-12 crop to come in below last year. Production from the region that comprises Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua is almost flat, with 12.613 million bags expected, compared to 12.378 million bags in 2010-11. This latest forecast has been gradually lowered from the original, which was expecting a 10 per cent growth. It is most likely still a welcome figure, after the failed Central American 200910 harvest of 10.524 million bags, which was the smallest crop in the region since the 1950s. But it remains some 20 per cent below levels seen 10 years ago when the five countries produced between 14 and 15 million bags in an average cycle. In East Africa, many coffee producers in Uganda are still struggling to recover from years of wilt disease. Elsewhere in the region, pressure on land for industrial development and over-population continue to create challenges of proportions not seen elsewhere. From a share of over 15 per cent of world output nearly a decade ago, total African production has fallen to just over 10 per cent, of which the bulk is produced in East Africa. As the East African harvest is ending, estimates point to a modest recovery of about 9.5 per cent with total output rising to 11.917 million bags from Burundi, Ethiopia, Kenya, Rwanda, Tanzania and Uganda. This compares to the 10.885 million bags in the last cycle. Despite the small recovery, exporters and analysts are still expressing disappointment. “I would have expected a slightly better crop from East Africa, just as the same hopes were pinned on Central America given extremely favourable pricing and improved crop care,” says Coffee Analyst Judith Ganes-Chase. She says that while such forecasts are disappointing, the main supply issue at stake for the coffee industry continues to be the ongoing structural problems that have made it difficult for Colombian producers to recover from years of trouble. “Colombia just doesn’t look too good and there is a certain amount of nervousness in the market about the supply situation in part because of the Colombian crop,” says The Price Group’s Scoville. The latest official figures from Colombia, the world’s largest producer of

mild washed Arabica, confirmed private reports of a 2011 harvest even worse than expected, with total production in the calendar year 2011 ending at just 7.8 million bags, down 12 per cent from the 7.8 million bags produced in 2010, according to the National Federation of Coffee Growers (Fedecafe). Colombia’s harvest based on the 2011-12 coffee year, which runs from October through September, is expected not to surpass 7 – 7.5 million bags, one of the smallest crops on record in more than 50 years. Colombia used to produce between 11 and 13 million bags. These figures continue to add pressure on an already tight supply balance. “There is coffee today, but not enough to restore availability or rebuild stocks and inventories,” says the American green coffee trader. “It’s a mixed bag of news from Central America. But one thing that’s certain is that nobody wants to be short for the end of this crop because roasters have very little on the books from now until June.” Tight conditions have generally made analysts and traders wary to provide any forecasts on future prices. Few traders seem confident that the supply deficit is enough to push prices back up over US$3 per pound or higher during the second quarter, but most seem to agree that fundamentals support prices starting at $2.40 per pound to $2.80 per pound. “Anything is possible here,” says Marco Ruttimann, a Partner in the Miami-based brokerage Coffee-Link International. “The imbalance in the supply-demand picture is so precarious that anything that might go wrong at this stage in producing countries, especially in Colombia and Brazil, could send this market flying to levels never dreamed of before.” GCR

M A R C H/A P R I L 2012 | GCR

PROFILE CoffeeDay

LEADING INDIA’S CONSUMPTION

SHIFT

AFTER PIONEERING OUT OF HOME COFFEE CONSUMPTION, INDIA’S CAFÉ COFFEEDAY IS NOW EYEING THE AT-HOME SINGLE-SERVE MARKET. THE COMPANY’S PRESIDENT OF MARKETING K RAMAKRISHNAN TELLS GCR OF THE JOURNEY TOWARDS THIS LATEST ENDEAVOUR.

M A R C H/A P R I L 2012 | GCR

PROFILE CoffeeDay

Ramakrishnan, Café CoffeeDay’s (CCD) President of Marketing, isn’t fooling himself as to the current dismal levels of coffee consumption in India. Average consumption sits at around 82 grams a year, giving India a three-figure ranking among the world’s coffee consuming countries. “The coffee drinking households are largely restricted to southern parts of India,” Ramakrishnan tells GCR. “Whatever marginal consumption [that exists] at home is for social occasions in the form of instant coffee.” It’s an interesting statement of facts coming from the company that just launched India’s most affordable capsule machine, designed specifically for at-home consumption. Priced at around US$80 for the machine, with capsules costing just 20 cents each, CCD’s new WakeCup system is possibly one of the first coffee capsule machines priced for a developing market, with the nearest comparable machines starting at US$200 each, and 60 cents per capsule. India’s low consumption figures are to be expected from a country that is still primarily a tea-drinking nation. As such, Ramakrishnan says CCD’s move into the at-home coffee market is less about meeting an existing market demand and more about driving market trends. “Our attempts at enhancing in-home consumption are our fresh and ground outlets and now, WakeCup,” he says. “We believe this is ideally suited for such parts of the country where in-home consumption is negligible.” Ramakrishnan says that the WakeCup will work to “demystify” what Indians perceive as a complex process of making café-style coffee at home, in providing consumers the ability to make coffee at the touch of a button. CCD’s commercial aspirations are likely fuelled from the astounding success of single-serve machines abroad. American market-leaders, Green Mountain Coffee Roasters (GMCR), announced early this year net sales of over US$1.1 billion in their first quarter results for fiscal year 2012, largely led by sales of their Keurig Single Cup Brewing system. On the European end, Nespresso continues its success, with Nestlé announcing sales of US$3.2 billion in 2011. Sara Lee has recently increased its stake in the single-serve market, paying Philips US$222 million for a partnership in Senseo coffee systems, having already sold 33 million of the appliances worldwide when the deal was struck early this year. While these results show that the technology has a strong place in these respective markets, CCD’s challenge will be in promoting singleserve systems to a non-coffee consuming public. This, however, won’t be the first time the company has successfully directed consumption trends. The confidence in which CCD takes up this endeavour follows on from its historical success in the coffee drinking arena. Today, CCD takes credit for introducing the ‘coffee shop’ concept to the Indian market, now operating a network of 1270 cafés in 185 cities. CCD’s roots are with the Amalgamated Bean Coffee Trading Company (ABCTCL), with its Chairman V G Siddhartha coming from a family of

G C R | M A R C H/ A P R I L 2012

 “THE YOUTH NEEDED A PLACE TO MEET, SOCIALISE OR PLAN AND SIMPLY RELAX…. CCD PROVIDED JUST THAT.” K Ramakrishnan

Café CoffeeDay President of Marketing

coffee plantation owners. After the deregulation of the coffee business in India, ABCTCL started selling coffee directly to the international market. It was at this point, Ramakrishnan recounts, that Siddhartha saw potential in building a coffee brand for the Indian market. The company released CCD’s first sub-brand ‘Coffee Day – Fresh n’ Ground’ to the domestic market. “Until around the late 1990s… coffee drinking was limited to the South

Indian traditionalist, the intellectual and the five-star coffee shop visitor,” Ramakrishnan says. Coffee may have been hard to find in India, but CCD noticed that neighbouring markets in South East Asia were seeing a rising popular culture of consumers visiting cafés for experiential purposes, usually enjoying a glass of beer. These cafés were promoting a cyber culture, offering internet access, and providing a perfect hangout and meeting space. It was these trends that inspired CCD to introduce the first cybercafé-cum-coffee shop, although the company replaced beer with coffee. “This was arguably India’s first commercial cybercafé,” says Ramakrishnan. From its early beginnings, he says, these cafés have always been most popular among the ‘young’ and ‘young at heart’. “There wasn’t a place that resonated the pulse of the youth in India who, by the late 1990s, weren’t so different from its counterparts in the rest of the world,” he says. “The youth needed a place to meet, socialise or plan and simply relax with a cosmopolitan feel. CCD provided just that.” In finding its niche market in this demographic, CCD also found an impressively large consumer base. India has perhaps the largest youth population, with around half of its residents under 25 years old. India’s culture of hanging out in a town or village square, and collectively enjoying a beverage, has historically been a part of the national identity, Ramakrishnan says. The country’s strong growth post liberalisation, and increased exposure to media from around the world, meant that these young Indians began having the means and desire to be in a more cosmopolitan environment “The brand has always either reflected

AGEFACT India has possibly one of the world’s largest youth populations, with half of its residents under 25 years of age. Café CoffeeDay’s target consumer base is mainly found in this younger market.

like a mirror what its young audiences are looking to have at their favourite café or has acted as a ‘lighthouse’ in showing the way forward,” says Ramakrishnan. Throughout the company’s transformation, it has continued to maintain a vertically integrated business model in producing the coffee it sells. As the internet has become more widely available, CCD has moved away from the cybercafé environment with the greatest focus on coffee. “Over time, we see that conversation is the centre of attraction and it is buttressed by coffee and other beverages,” he says. “We have coffee in our genes, and that reflects in our keenness in keeping the interest in coffee alive.” CCD is now hoping to translate this introduction of drinking coffee in public into the home. As other markets have learned, the key to the product’s success will largely lie in the quality of coffee available. In this end, CCD has adopted MaxEx technology, developed and patented by TuTTOespresso from Italy. The coffee is laser scanned to test for quality. The machines deliver more than 15 bars of pressure through the capsules to create an espresso coffee. The question now will be if enough of India’s almost 1.2 billion people will take on coffee drinking as part of their domestic routine. In this, Ramakrishnan is highly optimistic. “WakeCup is our effort at expanding the in-home coffee consuming market. We are committed to building the same,” he says. “We believe in the long run, there is huge potential in this.” GCR

M A R C H/A P R I L 2012 | GCR

FEATURE Caffe Agust

G R E E N I D EAS,

INFINITE POSSIBILITIES AS CONCERNS ABOUT GLOBAL WARMING ABOUND, ONE COMPANY IS LEADING THE PACK WITH A STRONG, SUSTAINABLE ETHOS AND A COMMITMENT TO A WIDER CAUSE.

G C R | M A R C H/ A P R I L 2 012

Native American once told Marco Corsini: “When one person has killed the last animal on earth, after the last fruit has been eaten and the last fish has been caught, when everything is destroyed, only then will they learn that money cannot be eaten.” It is this powerful proverb that Corsini, Managing Director of Caffe Agust, says he refers to each time he makes an executive decision about his roasting company. At the foot of the Alps in the town of Brescia in Northern Italy, Corsini’s father Augusto founded Caffe Agust in 1956. The company took its title from Augusto’s nickname, and he sold his roasted coffee door-to-door to local residents with the slogan ‘The smallest roaster – but the best coffee’. Corsini, an agricultural technician, now leads the 56-year-old company, with his son Giovanni, incorporating the sustainable principles that build on his father’s environmentally-conscious philosophy. Twelve years ago, Caffe Agust was one of the first companies in Italy to start in the organic sector. “At that time, there was no market for organic coffee in Italy, but we persisted because organic coffee is not just good for people, but especially for the planet,” Corsini says. Adapting to organic farming, Corsini helped established a new line of organic coffee and developed Natura Equa from a selection of Fairtrade and Certified Organic

“IF EVERYONE IN THE INDUSTRY CAN LOOK FOR SIMILAR [ENVIRONMENTALLYFRIENDLY] PACKAGING, THEN FOR SURE, WE WILL FIND THE SOLUTION.” Marco Corsini

Managing Director of Caffe Agust

Arabica coffee from farmers in Central and South America. Corsini says this blend is one of the most sustainable coffees in the world thanks to its certified ‘Zero Impact’ to the environment packaging guarantee. Corsini says he wanted to launch a new line of organic coffee for years, but couldn’t move forward as the green coffee available on the market did not reach the company’s desired standards. The Natura Equa blend was awarded a gold medal at the 2008 and 2010 International Coffee Tasting competition in Brescia in the espresso category. Caffe Agust also won a gold medal for their ‘Espresso Made in Italy’ blend in the pod and capsule category. As a coffee roaster, Corsini says that he finds the demands of the market challenging. “We know that the packaging we use, and that of other companies all over the world, has an impact on the environment,” he says. “We are constantly looking for alternative packaging methods that don’t include aluminium, plastic or polyester, and that have zero impact on the environment.” Corsini says that he’ll always try to choose the option with the least environmental impact.

For instance, the company decided to produce coffee pods instead of coffee capsules because capsules generally have a higher impact on the planet. Currently, Caffe Agust uses carton boxes for packaging distribution instead of plastic materials, and Corsini says they are on the hunt for a more eco-friendly option. “If everyone in the industry can look for similar [environmentally-friendly] packaging, then for sure, we will find the solution,” Corsini says. “If everyone in the packaging industry pushes in this direction, then someone will be obliged to produce it – but at the moment, it’s not the way many companies think.” Corsini installed a photovoltaic plant in 2007, consisting of solar panels mounted on the roof of the Brescian roasting facility. The annual capacity of this system is more than 52,000 kilowatts, meaning that their coffee is actually “roasted by the sun”, taking less than 5 per cent of their power from the main grid throughout the year. Corsini says that strict Italian laws make Caffe Agust’s sustainable efforts difficult. “Initially, the laws didn’t allow us to exceed over 50 kilowatts from our solar panels,” he says. “We wanted to increase the panels on our roof, but we’d have to change our business activity and be recognised as an energy producer, and not an Italian roaster.” Thankfully the laws have since changed. Corsini has also installed a catalytic converter on his roasting machines to convert harmful gases into less toxic emissions. As it’s not required by Italian law, Corsini says it’s rare for Italian companies to install these machines because they are expensive. This machine allows a further elimination of pollution particles from combustion, and for the conservation of clean air for people living near the roasting plant. When asked how such a small family business is able to promote such advanced environmental initiatives, Corsini says it all depends on the individual. “You have to ask yourself how much you want to gain and how much you want to invest in the green philosophy,” he says. “How much do you want to buy a villa or apartment or live near the seaside?” Corsini says he’s fighting to maintain a balance between profit and personal satisfaction.

M A R C H/A P R I L 2012 | GCR

FEATURE Caffe Agust

ENVIROFACT Caffe Agust installed a catalytic converter on its roasting machines to reduce toxic emissions from the plant. Few roasting companies have one, as these are not required by Italian law.

G C R | M A R C H/ A P R I L 2 012

Another of Corsini’s initiatives is to reuse the leftover parchment from roasted beans. Corsini has bought a special compacting machine that compacts the protective membrane into coffee logs. The organic logs are chemical-free and are given to companies in the agricultural sector of Brescia to be used as firelogs, compost, or animal bedding on farms. “Why throw away material that you can salvage? We need to respect the earth as much as possible,” Corsini says. On the transport side, Corsini has switched the company’s vans from gasoline to natural gas, and has purchased an electric car to complete Caffe Agust’s office needs. The car is recharged by the plant’s solar power. Caffe Agust produces 300 tonnes of coffee a year. Corsini says he is satisfied with the company’s progress and intends to increase its production moderately, yearby-year. Looking back, he says it’s certainly a huge leap from the eight tonnes of coffee Caffe Agust produced in 1992. Predominately, Caffe Agust’s main market is based in the province of Brescia where the business supplies around 800 bars, cafés and restaurants. Caffe Agust now exports 40 per cent of their production throughout Europe, Russia, Canada, and Australia. “Our immediate aim is not to increase our turnover but to increase our quality. It’s always our aim to improve,” he says. “I’m not interested in selling more quantity with low quality. I’d rather distribute to smaller companies at a higher quality.”

Corsini says he also puts great emphasis on his employees’ work-life balance. “I’ve worked in this sector for 30 years, meaning I like what I do. I want to work with pleasure and that my team has the same pleasure in working for me. A big part of our life is working and I want my staff to live and feel this part of their life in the best way possible.” The roasting company also takes great pride in its social responsibility, working with La Mongolfiera, an Italian organisation that helps people with mental disabilities enter the workforce. Since the early 1990s, Caffe Agust has collaborated with the non-profit organisation that aims to improve the living conditions of people living with disabilities and their families. Each year the company invites mentally impaired workers to perform small tasks at the Caffe Agust factory, such as counting coffee pods and packaging them into cartons for distribution. Corsini says his involvement with this organisation is rewarding because he sees a positive change in the workers’ confidence, personality and social skills. For many of the staff from La Mongolfiera, Corsini says this is the first time they have done paid work. One such student, Luca Colosio, 26, is now a part-time staff member at Caffe Agust. He packages 1000 gram coffee bags and has gone on to win gold in a number of athletic events at the 2010 European Special Olympic Games in Warsaw, Poland, for people with handicaps. Corsini says that he doesn’t see his own contributions as anything special, but simply the bare minimum: “What we do here at Caffe Agust is just a little drop in the ocean, but if everyone does a small drop, then we can change the world.” GCR

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Not every brand, however, finds its way onto the human body, so what is it about the likes of La Marzocco that foster such strong examples of brand loyalty? Academic literature demonstrates the role of the tattoo as a signifier of social membership and suggests contemporary tattoos act as symbolic markers of sub-cultural membership. Terry Ziniewicz of Espresso Parts is one example of how tattoos can represent modern signifiers of social membership. In discussing the La Marzocco logo tattooed on his calf, Ziniewicz speaks of this idea of community that first attracted him to the coffee industry. “La Marzocco is family to me and my tattoo connects me to the coffee community at large,” he says, noting how his introduction to La Marzocco coincided with his introduction into this community. In the early 1990s Ziniewicz met CEO of La Marzocco International, Kent Bakke, to discuss using his machines in his burgeoning coffee chain. “We spent three days playing around with coffee and when it was all said and done I bought a whole bunch of machines from him and we have been great friends ever since.” Lizz Hudson of Seattle’s iconic Stumptown Coffee has the La Marzocco logo tattooed across her chest. For her, it is also this notion of familial ties that she finds appealing about the brand. “La Marzocco is family,” she says. “They look out for one another. They listen to, and involve, their customers and other coffee professionals in the design of their products.”

HistoRy Historical brands tend to denote quality, tradition, craftsmanship and reliability. The sense of history is embodied in La Marzocco’s logo, taking its iconography from the classic Marzocco statue, a seated lion sculpted by Donatello. Synonymous with victory and triumph, it is the emblem of the La Marzocco’s founding city of Florence. Hudson credits the beauty of this image for some of her motivation in acquiring a La Marzocco tattoo. Even before the offer of a free machine, Hudson notes that she’s wanted to get the tattoo for a while because she “loves the company that designed it” and brand aside “the design of the logo really is beautiful.” Espresso machine technician, Peter Droste, who has an image of the logo tattooed down his bicep, was similarly attracted to the aesthetic beauty of the logo, as well as its historical roots. He says he wanted his La Marzocco tattoo shortly after seeing Donatello’s sculpture in a Florentine museum. “I’m really proud of it, it’s a bad-ass lion holding a shield,” he laughs. But, his motivations weren’t entirely aesthetic. “If it wasn’t for La Marzocco I certainly wouldn’t have picked the symbol. It’s the fact that I’ve worked at their factory in Florence and the fact that I work with their machines every single day.” The tattoo comes in handy, as Droste notes that occasionally when repairing or servicing

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rand loyalty and identification manifests itself in many ways, from what we choose to consume, to the logos displayed on the front of t-shirts. Recently, company logos have found their way onto the human body in the form of tattoos, as perhaps the ultimate sign of brand identification. La Marzocco has been manufacturing artisan espresso machines in its hometown of Florence, Italy, since 1927. Today, on the other side of the globe, American baristas and coffee industry workers are tattooing the iconic brand on their bodies. Anthropologists note that historically tattoos signified membership in a clan or community. The images used within these communities belonged to a shared mythology of cultural iconography. The human desire for community and belonging is just as strong today as it was back then, but the cultural landscape has changed. The village is now global; cultural iconography is no longer dominated by religious symbols, but images of pop culture, Hollywood stars, advertising, and of course, brand names. It is little wonder then, that modern forms of tattooing incorporate iconic brand images.

G C R | j u ly / a u g u s t 2 011

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2011 | GCR

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Espresso Parts

espresso machines he’s questioned by his clients on his knowledge of La Marzocco. “Now I just pull up my sleeve and [the tattoo] displays an interesting bit of a credibility.” Connection with place was a similar motivation for Espresso Parts’ Ziniewicz. He notes that it was a family trip to the La Marzocco factory in Florence that cemented his idea to get his tattoo. What struck Ziniewicz was that La Marzocco Hon. President Piero Bambi, whose father and uncle established the company, took time out of his day to meet with them on their visit. “That sense of family really showed itself and the tattoo idea came in through this dedication to family,” he says. Much like a historical tattoo’s traditional role in demarcating community, it seems this sense of the La Marzocco family is a common thread among those sporting this brand. La Marzocco’s Marketing Director, Chris Salierno, says he’s proud of the company’s family traditions. “We’re a small company, but we don’t want to grow so much that we lose connection with our customer,” he says. “We’re small enough that when people come to Florence our doors are always open to our customers. I think that makes us unique.” Salierno explains that knowing your product and being able to have a dialogue with your customers across all facets of the industry is paramount. He says the company invests quite a bit internally in technical training for all employees. Salierno further attributes La Marzocco’s success, in part, to the culture within the company that encompasses a genuine passion for what they do. “We pride ourselves on our ability to communicate with our customers. There are a lot of companies out there whose employees don’t even know how to use the espresso machines they manufacture,” Salierno says.

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G C R | j u ly/ a u g u s t 2011

july/august 2011 | GCR

source

perspeChinese

Growth is booming from the latest industry trend

How science and coffee are clashing

CONTENTS July/August 2011

t industry re

n 1801 botanist, Robert Brown, joined Commander Matthew Flinders on the HMS Investigator for the first circumnavigation of Australia. On 2 November, 1802 the Investigator weighed anchor at Goods Island (Palilug Island) in the Torres Strait, allowing Brown to collect a rather insignificant and unknown plant belonging to the coffee family (Rubiaceae). This same plant was collected again in 1821 by botanist and explorer, Allan Cunningham, from Sunday Island. It was not seen again on Australian soil for 150 years until 1971 on the island of Dauan in the Torres Strait. Three years later, rainforest botanists, Len Webb and Geoff Tracey, found the same plant growing on a remote headland on the east coast of the Cape York Peninsula, near the mouth of the Pascoe River. In the meantime, this unknown plant was finally named as a new species, Paracoffea brassii, which later changed to Psilanthus brassii. Nearly four decades later, this plant would find itself the subject of discussion among the coffee industry at large, after taxonomic research undertaken earlier this year – led by Dr Aaron Davis at the Royal Botanic Gardens, Kew, in the United Kingdom - confirmed a close relationship between the coffee genus, Coffea and the genus Psilanthus. As it turns out, what Brown had discovered 209 years ago, was Australia’s first and only known indigenous coffee species. Scientists can now confirm that Psilanthus, which includes 20 or so species, is now accepted as part of the natural variation of coffee. Subsequently, to reflect the latest findings, this wild Australian coffee has been reclassified as Coffea brassii. Genetic analysis of C. brassii shows that it is closely related to the Asian coffee species, which in turn, are related to the all-important cultivated species, Robusta (C. canephora) and Arabica (C. arabica). Records show that Coffea brassii was collected in 1933 in the Central Province of Papua New Guinea. However, it is possible that the plant was collected earlier and that specimens have languished in piles of unidentified specimens in herbaria. According to Professor Darren Crayn, Director of the Cairns-based Australian Tropical Herbarium at James Cook University and who is heading the Australian side of the research on C. brassii, the genetics of the Coffea genus and Psilanthus are very similar and the one thing they both have in common is that they possess coffee beans. Since the discovery, Crayn has spent four days on the Cape York Peninsula collecting fresh samples of the native species for further testing. Between 50 and 100 plants were found in a localised area. “The plants themselves don’t look anything like commercial coffee plants,” Crayn says. “They were found to be much smaller and they don’t produce as much fruit. We now know what the species is related to, but we don’t know what the beans contain or how the plant behaves ecologically or in cultivation.” It is thought the plant could be known to Indigenous tribes that inhabit the Cape York region, as Indigenous people elsewhere in the world use a number of wild coffee species as a stimulant. Quite a few wild coffees are cultivated on a small scale and consumed locally, such as the Kafé kely species from Madagascar. Translated as “small coffee,” this plant contains tiny beans that are more or less caffeine free. Davis says this coffee is collected from the wild and consumed directly by the collectors or sometimes sold in local markets and roasted by the Indigenous community who seem to favour Kafé kely over Robusta. Roasters eager to sip this new bean, however, should hold off on warming their machines just yet. Scientists are yet to determine if the latest find even contains caffeine, but the new discovery is an exciting feat for the coffee industry and scientists alike. The scientific community has historically found that wild

july/august 2011 | GCR

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PLANTATION Wastewater treatment

WASHED

WASTEWATER HAS LONG BEEN ONE OF THE MOST DAMAGING BY-PRODUCTS FROM COFFEE PROCESSING. RESEARCHERS ARE STARTING TO TAKE AN ECONOMICALLY-FOCUSED APPROACH TO PROVIDE INCENTIVES FOR PLANTS TO DEAL WITH THESE DANGEROUS EFFLUENTS.

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“THE PROBLEM WITH COFFEE IS THAT IT’S A THIRD WORLD PRODUCT. THESE COUNTRIES ARE SLOWER TO DEAL WITH THE EFFECTS OF WASTE AS THEY JUST DON’T HAVE THE RESOURCES.” Ken Calvert

ind the clock back a few decades, and Ken Calvert, a retired Energy and Wastes Treatment Engineer, says it wouldn’t be uncommon to find black water flowing up to 20 kilometres downstream from a coffee processing plant. “Historically, coffee factories were not liked much by the people in nearby communities,” says the New Zealand researcher. “The black colour of the water was naturally a bit of a problem for them.” The dangers of wastewater from coffee processing, Calvert explains, are about a lot more than aesthetics. The effluents from washed and semi-washed methods are loaded with organic matter and high in toxicity. The results can lead to degradation of the level of oxygen in water, which can kill off virtually all aquatic life. Unfortunately, wind the clock back to today and in many places wastewater continues to flow straight from the factory to local water sources, with minimal purification efforts. Although the damaging effects of wastewater are becoming increasingly known, with coffee mostly grown in developing countries, limited resources don’t help the sustainability cause. “The problem with coffee is that it’s a Third World product,” he says. “These countries are slower to deal with the effects of waste as they just don’t have the resources.” Vera Espindola Rafael, Latin America Field Coordinator for Coffee, Cocoa and Tea for UTZ Certified, has made similar observations on the poor state of wastewater treatment in many growing countries. “From what I’ve seen, some have the resources [to treat wastewater], and some don’t,” she says. “Sadly, sometimes you just see a small tube running straight into the river.” With hardly enough resources to run processing factories, and virtually no financial incentive to limit wastewater, it’s little wonder that for years these effluents have been ignored. However, research efforts by Calvert, Espindola and others, have recently taken an incentive approach towards improving the environmental situation. Where resources are limited, the solution to wastewater is being found in innovative models, using natural local

Retired Energy and Wastes Treatment Engineer

materials, and in some cases providing a welcome by-product in the form of renewable energy. For Calvert, the first part of the solution has come from inspiration in the local landscape. Plant species that have the ability to thrive where other plants suffer, he’s found, can have their aggressive nature used to an advantage. “Our world is full of horror stories about such introduced species which, transported away from their old natural enemies have recreated entire environments to their own advantage,” he writes in one report for his consultancy Renertech. “However, it is these same species which can clean up immense amounts of pollution from other quarters.” Calvert has studied the use of some of these “aggressive” plants in wetlands where wastewater is discharged. These plants pump the oxygen down to their root system, and reoxygenate the water. TechnoServe’s Coffee Initiative has taken a similar approach to treating wastewater, recommending the use of the Vetiver System. The project uses a wetland grass native to India to deal with wastewater. “Traditionally wet mills use evaporation ponds that risk seepage into rivers and pose a major safety hazard, often being very deep and permanently containing water,” says Carole Hemmings, Regional Manager, Agronomy and Sustainability at TechnoServe. “Correctly sited, a Vetiver wetland offers an environmentally friendly solution to the waste water problem. Densely planted Vetiver rows both filter and take up the waste water, eliminating both the water and the smell;

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PLANTATION Wastewater treatment

Training farmers at the Cooperativa Danilo Gonzalez, Nicaragua, as part of the UTZ Certified-led project.

WATERFACT Using drum pulping technology, equipment from South American company Penagos uses just 227 litres of water per tonne of coffee cherry, compared to 20,000 litres with traditional technology.

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the perfect cheap and simple solution.” As the rule of matter goes, of course, these toxic materials don’t simply disappear. In some cases, the plants produce a by-product in the form of bio-gas. In a new set of pilot studies, this bio-gas is being captured and used as a renewable energy source. Where farmers could be provided with an economic incentive to produce their own energy, this fortunate byproduct has the potential as both an economical and environmentally sustainable development. This innovation could also be a historical first, as the first coffee project at the source to generate carbon credits. Calvert first explored these options in a Renertech report in 2006, writing: “The use of carbon credits may assist the coffee growing and processing industries of the Third World to bring back some profitability to what has been an industry under pressure.” Today, this theory is being put to the test thanks to an UTZ Certified-led project that could see the first carbon credits generated at origin. In February this year, UTZ’s Field Development researcher Espindola presented the first steps of the group’s efforts in generating bio-gas from wastewater. The process uses anaerobic microorganisms that convert organic pollutants to bio-gas, which contains methane and carbon dioxide. While this method is currently in use in some places such as Costa Rica, Espindola says that the gas is typically burnt off rather than used as energy. Which, she points out, is certainly better than not treating the water at all. “It’s the decision of each plantation what they want to do with their wastewater,” she says. “To do this [flame the gas] is at least something.” For Espindola’s project, however, the breakthrough step will be to create a renewable energy source in seeing how that bio-gas can be used on site. Following UTZ and partner Solidaridad’s research, the project received funding from the Dutch govoernment a Dutch NGO Hivos in May 2010 to work in Central America. The project will focus on Nicaragua, while also including pilot sites in Guatemala and Honduras. The timing of the project’s launch was too late for the 2010-11 harvest, however Espindola is confident

“IF YOU WANT A FARM TO UPSCALE, YOU NEED TO SHOW THEM THE COST BENEFIT. WITH THE ENVIRONMENT, YOU CAN’T ALWAYS SHOW THE COST – UNFORTUNATELY NO ONE REALLY WANTS TO PAY FOR THE ENVIRONMENT.” Vera Espindola Rafael,

Ken Calvert consults on wastewater treatment in Honduras in 2005.

UTZ Certified

they’ll do better the second time around, having already done a fair amount of groundwork. They have decided to focus on larger plantations and smallholders. For large plantations they see the the potential for these companies to obtain carbon credits under the WWF’s Gold Standard scheme which is currently being explored with project partner Climate Neutral Group. “In our work, we need to make a business case,” says Espindola. “If you want a farm to upscale, you need to show them the cost benefit. With the environment, you can’t always show the cost – unfortunately no one really wants to pay for the environment.” Many certification schemes have tried to put a price on the environment, in rewarding farmers’ for sustainability efforts. Unfortunately, as Calvert explains, protecting a selective part of the environment can come at the cost of another. He points to one experience in Guatemala as an example. One farmer was having to cut down local trees to get enough firewood to fuel his processing plant. When one nature-friendly program became aware that they were chopping down trees and endangering local wildlife, the

farmer was forbidden to cut down any trees. As he was still in need of energy, however, he turned to buying black oil. “This is the kind of oil that only burns in furnaces, it’s the dregs of the petroleum industry,” says Calvert. As the oil comes at both a high price for the environment and a high price tag, the farm owner is desperate for another source. As such, Calvert will be travelling to the farm this year to explore the use of renewable bio-gas from wastewater. Espindola points out that better treatment facilities will do little to mitigate the harm from drawing on water resources. There is a need to not only treat water accordingly, but also to limit the amount of water used. “You could produce even more bio-gas by producing more wastewater, and of course this isn’t something we want to promote,” she says. In this end, advances in equipment by South American companies have made tremendous steps in reducing the amount of water needed to process coffee. A 2008 Spread project, focusing on the use of water in Rwanda, looked at these pulping technologies which mechanically remove the mucilage instead of using water to ferment the beans. The Spread project compared energy and water usage, as well as quality outcomes. Generally, it was found that while the South American equipment used slightly more fuel, water usage was reduced from over 20,000 litres of water per tonne, to between 200 and 850 litres. In terms of quality, the study found that the beans processed through the water-saving South American equipment were “significantly better than that [traditional technology] pulping system for flavour, finish, cupper points, and per cent cupping score”. The purpose of the Spread project was to convince buyers of the taste integrity of coffee processed in these methods. The project states that: “some coffee buyers will avoid operations not using the old traditional method.” The results show the true cost of ‘washed’ and ‘semi-washed’ coffee – that come in at 100 times the amount of water used in a region where the resource is scarce. GCR

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FEATURE Coffee & health

THE COFFEE HEALTH

DEBATE

THE HEALTH BENEFITS AND DOWNFALLS OF COFFEE CONSUMPTION SEEM TO HAVE EMERGED AS A POPULAR NEWS TOPIC. SCIENTIFIC AND INDUSTRY EXPERTS DISCUSS THE CHANGING HEALTH STIGMA OF COFFEE, AND HOW TO DISCERN THE FACTS FROM THE FABLES. 46

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n June last year, one research story was picked up by news sources spreading across Europe, Asia and the Americas, and the likely topic of much debate over morning cups of coffee. The topic was the result of a small study conducted by Australia’s La Trobe University. The test saw 92 non-clinical participants asked to listen to white noise, and report each time they heard Bing Crosby’s rendition of ‘White Christmas’. According to the university, the song was never played, although some students did report hearing it. A university press release reported that the test “indicated that the interaction of stress and caffeine had a significant effect on the reported frequency of hearing ‘White Christmas’.” News agencies the world picked up on the press release, declaring the causal link between coffee and hallucinations, with headlines appearing everywhere from the United Kingdom’s Daily Mail, the Times of India and the United States’ LA Times. These are the headlines that likely make Roger Cook, Science Manager at the Institute for Scientific Information on Coffee (ISIC), roll his eyes when he starts off his day. Cook has worked in the field of coffee and health for 18 years, and spends much of his time reviewing studies like this to help medical professionals discern their relevance, largely through ISIC’s Coffee & Health website. When a journalist rang up Cook to ask him about the La Trobe study, Cook looked at the full report and found that “non-clinical” participants meant that they weren’t asked if they had taken any other substances prior to the tests. “It would be unusual to find 100 university students who have not tried other substances that importantly were not controlled for in this paper,” says Cook as he recalls his chat with the journalist.

“UNIVERSITIES ARE BEING PROACTIVE THESE DAYS IN SENDING OUT PRESS RELEASES, BUT THEY AREN’T ABLE TO PUT THE STUDIES IN THE BROADER CONTEXT. JOURNALISTS OFTEN JUST PRINT THE INFORMATION FROM THE PRESS RELEASE.” Roger Cook, Science Manager Institute for Scientific Information on Coffee

An interest in the health effects of coffee is nothing new. Cook says the first documented scientific research into coffee dates back to the 1700s, with efforts increasing significantly in the late 1960s and 1970s. During that time, Cook says that smaller sample sets over short time periods were popularly used in scientific studies. Association between two factors was often enough to be considered a causal link. With smoking habits so strongly linked to coffee drinking, the drink took on a negative reputation among science and health circles. The culmination of this trend is illustrated in a scholarly article published in 1984 ‘Coffee Drinking: An Emerging Social Problem’. The article draws parallels between the controversy over coffee and the early stages of the definition of cigarette smoking as a social problem. “Though coffee has been suspect for some 300 years, public attention since 1970 has been focused on medical research which suggests that caffeine in coffee may cause cancer, birth defects, and heart disease,” wrote authors Ronald J. Troyer and Gerald E Markle in the journal Social Problems. While tobacco has continued its downward reputation spiral to the point where few would dare seriously defend its health benefits, coffee seems to have emerged victorious. In recent years, many damaging health claims (hallucinations aside) have been replaced with discussions over the positive effects of drinking coffee. “There’s something like 2.5 billion cups of coffee consumed everyday. I think that if there were damaging effects, it should

WEBFACT The industry-funded Institute for Scientific Information on Coffee updates their website www.coffeeandhealth.org to help medical professionals discern relevant health reports.

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FEATURE Coffee & health

“WHEN WE LOOKED AT THE DATA, WE WERE SHOCKED BY THE DEGREE IN VARIANCE IN CAFFEINE LEVELS. IF YOU THINK ABOUT THAT, IF YOU HAVE A NINE-FOLD VARIANCE IN THE LEVEL OF CAFFEINE AND YOU MULTIPLY THAT BY SAY 10 COFFEES A DAY, THE HEALTH IMPACT COULD BE MASSIVE.” Dr. Ben Desbrow

Senior Lecturer, Australia’s Griffith University

have been pretty obvious,” says Cook. He says the shift has largely come about as research methodology has improved, better isolating coffee from other factors. With increased consumption of coffee has come about an astounding amount of research into its health benefits. Cook says the drink is probably one of the most researched foodstuffs in the world. “It’s one of those things that is relatively easy to research,” he says. “You don’t have to inject people with anything, there isn’t much of a risk. People are usually pretty happy to drink coffee.” Cook warns that the emergence of so many studies, and journalists’ eagerness to report on one of the world’s most widely consumed drink, has unfortunately led to some “mix-messages”. “People don’t always get the facts,” he says. “Universities are being proactive these days in sending out press releases, but they aren’t able to put the studies in the broader context. Journalists often just print the information from the press release without actually looking at the study.” Ease of research is not the only reason coffee receives so much attention. As one of the world’s most widely consumed beverage, there are more than a few companies out there interested in promoting the consumption of coffee. The service Cook provides in helping medical professionals discern health reports is funded by seven major European coffee companies: Illycaffè, Kraft Foods, Lavazza, Nestlé, Paulig, Sara Lee and Tchibo. With the global coffee industry representing such strong business interests worldwide, Dr. Ben Desbrow, a Senior Lecturer at Australia’s Griffith University, says its natural that such a heavy amount of resources are being invested into studying the consumption end of coffee. “There are massive industry vested interests in keeping consumption of coffee alive,” says Desbrow. “And we’re only seeing that escalate.” Desbrow says the “mixed messages” coming from the scientific community is the natural result of the intense amount of research, and the complexity of the drink. “Coffee is a complex combination of compounds,” he says. “To label it good or bad is just impossible.” For regulatory purposes, however, labels are sometimes necessary. Up until 2004, a maximum level of caffeine was included on the World Anti-Doping Agency’s (WADA) list of prohibited substances. In deciding to take a substance off the list, Desbrow says, WADA takes into account

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three main factors: the threat to an athlete’s health; if the substance is against the “spirit of sport”; and how much it affects performance. On its website, WADA says it took the decision because: “Many experts believe that caffeine is ubiquitous in beverage and food and that reducing the threshold might therefore create the risk of sanctioning athletes for social or diet consumption of caffeine.” The reasoning shows a link between the spread of coffee consumption and the decline in the health stigma of coffee. “Coffee is a beverage that is consumed globally and habitually,” says Desbrow. “It’s reasonably widespread and WADA came to see that not all countries have the same understanding of its effects. There is considerable belief out there that it’s not performance enhancing.” The decision to take caffeine off the list opened the pathway for sports nutritionists like Desbrow to start looking at these effects of caffeine on performance, generating a new onslaught of scientific research. Desbrow’s own look at caffeine in sports performance has led to discoveries relevant for the coffee industry. In his study on the effects of caffeine, the first step was to determine some kind of standard level of caffeine consumption in a single drink, with coffee the obvious choice to start with.

CUPFACT Studies by Australia’s Griffith University of 135 different coffee shops have found that caffeine levels in a standard espresso drink can vary from 25 milligrams to 215 milligrams a cup.

For the study, they measured the amount of caffeine in 135 coffees. The findings showed that caffeine levels varied from 25 milligrams to 215 milligrams a serving. “When we looked at the data, we were shocked by the degree of variance in caffeine levels,” he says. “If you think about that, if you have a nine-fold variance in the level of caffeine and you multiply that by 10 coffees a day, the health impact could be massive.” Desbrow’s conclusions so far are that advice on how many cups of coffee to drink a day means little when the standard amount of caffeine in a cup is unknown. Desbrow can only say that if coffee drinkers limit their coffee to around two cups per day, than the absolute health impacts will be kept to a minimal. All this scientific research aside, as a

social beverage, Desbrow points out that all of the effects of having a cup of coffee, won’t always be found on a data sheet. “Coffee is similar to alcohol in the sense that it’s social, it’s usually consumed with other people. People consume it to unwind, to relax,” he says. “There are psychological effects that are outside of its nutritional value. To talk with your friends over a cup of coffee can be equally positive.” The seemingly conflicting opinions over the benefits of coffee are of little help to a coffee drinker looking to find out what a healthy threshold of coffee consumption is. In this regard, both Desbrow and ISIC’s Cook agree that common sense should prevail. “When you find your health is affected from drinking too much coffee, you should of course cut down,” says Cook. “People tend to consume the amount of coffee that they feel comfortable with. You need to monitor your health and your intake just like everything else you consume.” Desbrow offers similar advice: “Find a coffee you like to taste, find some people you like to share it with and just don’t overexpose yourself. You’ll get all the health benefits and avoid the negatives.” GCR

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ORIGIN Costa Rica

A CASE FOR ORGANIC GLENN JAMPOL, OWNER OF THE FINCA ROSA BLANCA COFFEE PLANTATION AND INN IN SANTA BARBARA DE HEREDIA, WRITES HIS STORY OF THE PERSONAL AND ENVIRONMENTAL REWARDS OF ORGANIC COFFEE FARMING.

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n organic coffee field can be distinguished quite easily from a conventional coffee field both visually and topographically. To begin with, an organic coffee field is almost certainly covered by lush undergrowth in the lanes between the coffee plants, which is a direct result of two practices. First, because an organic coffee farm does not use any kind of toxic herbicides or pesticides, the ground is fertile everywhere throughout the coffee field, not just under the plants’ roots. In addition, due to the fact that a shade grown, organic coffee field depends on the symbiosis between the plants and their neighbouring trees, the falling leaves and other natural organic debris act as an efficient by-product of fertilizer and nitrogen for the ever-demanding coffee plants. One of the most rewarding treasures in these mountainous areas of Costa Rica can be found in shade grown coffee fields and is the result of lush reserves of endemic plant life inspiring and encouraging the arrival and residence of migratory and perennial birds. In the last few years, we’ve been spotting woodpeckers, oropendolas, tanagers, parrots, mott-motts and the like. More exciting still, is that coffee has been emerging as not only as a delicious beverage, but also as a medicinal ‘wonderfood’, with studies recently showing that coffee may reduce the probability of succumbing to maladies such as dementia and Alzheimer’s, type two diabetes, some kinds of liver damage, endometriosis as well as having apparently some beneficial attributes for human skin. It would seem logical then, that by understanding the potential beneficial effects on the human body, we would consider that coffee lovers like myself, who regularly enjoy four or more cups daily, are taking in over 100 cups of coffee a month, and the obvious expectation would be that this coffee is free of carcinogenic and other dangerous chemicals. Whether or not this has been scientifically proven, it seems to me, is rather irrelevant. One can infer that if a chemical can denude the ground of all its undergrowth and the defenseless plants and microbes that exist close by, that the coffee cherries would consequently have a pretty good chance of drawing those same chemicals into its beans. And we, the unwitting coffee lovers would thus be, day-to-day, drinking down these same substances. An organic shade-grown coffee plantation is a natural agar dish for a robust ecology where the factors for sustainability are taken into consideration as much as the quality of the product that would result from this kind of farming. Counter-erosion, water protection, reforestation and green technology are all factors that are used and also considered in some degree in almost

 MY OWN EXPERIENCE IN ORGANIC COFFEE FARMING DATES BACK TO THE 1960S WHEN I WAS STUDYING… AT THE TIME, IN ONE WAY OR ANOTHER, WE ALL FELT SOME NEED TO CREATE A RENEWED AND MORE AUTHENTIC RELATIONSHIP WITH THE EARTH. all of the organic and sustainable coffee farms around the world. There is a symbiosis created between the nitrogen rich trees and the coffee, with its long-standing and friendly allies, poró, banana, plantains, and other native and nitrogen rich trees found in Costa Rica, this allows for a chain of life that surely supplements not only the ecological footprint of the farm but also enriches the aesthetic beauty for the visitor, the labourer and for that matter the owner. My own interest in organic coffee farming dates back to the 1960s, when I was studying at the University of California, at Berkeley. At the time, in one way or another, we all felt some need to create a renewed and more authentic relationship with the earth. Our confidence in consumer protection had been numbed and we became cynical about whether we were buying safe and healthy foods to eat, or if we were being protected from harmful chemicals when we consumed processed foods at the store. Jumping ahead to Costa Rica in the mid-1980s, my wife and I discovered a country full of biodiversity, a consciousness for protection of the environment, an overall satisfaction as a culture, and an inherent happiness as a people, and its attraction as a place to live (Costa Rica is ranked number one in the World Index for Happiness in a study by the 2010 Environmental Performance Index from Columbia and Yale Universities). My wife Teresa and

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ORIGIN Costa Rica

NATUREFACT An organic shade-grown coffee plantation is a natural agar dish for a robust ecology where the factors for sustainability are taken into consideration as much as the quality of the product

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I found ourselves in an energetic blur, overwhelmed by the contagious goodwill of the Costa Rican people, the unrelenting lush and endless landscape of tropical flora, and the omnipresent pride in the fact that the country had deemed one quarter of its territory to National Parks. We found ourselves in the Central Valley of Costa Rica astounded with the enormous views of the elegant mountains and landscapes of the verdant coffee fields all around. In 1985 we bought 8 acres of property on which we dreamed of building a family home on what had earlier been a Motocross field, adorned with a mess of grass moguls and mud holes, which had replaced the earlier coffee plantation, that now lay decimated. All that was left were 10 or 12 giant fig trees, called Higuerónes, interspersed throughout the farm, which were the only witnesses or reminders of the bygone era of the giant, tree-shaded abundant coffee fields. In a kind of ironic nostalgia, I’d arrived from New York City, where I had lived in an area that had previously been the wholesale food centre for

all of Manhattan. An eight story brick and mortar building from the late 1800s towered at the end of my block. The only hint of creativity in its bleak architectural design was a huge Victorian styled sign painted on the bricks that said ‘Martinson’s Coffee’. As I treaded the buckled sidewalks of the centuries old and abused neighbourhood that is now called TriBeCa, I remember being struck by how unusual it was for a city boy like myself in NYC to feel and hear the popping and crunching sound of the dark roasted beans under my soles and to smell the aromatic perfume of the coffee. Little could I have known, and the irony does not escape me now, that some very few years later, I would find myself standing in the centre of a 20 acre rolling mountainous coffee farm, staring over the tired and stunted plants down to the bustling central valley below. We had purchased the farm in 2003 after building a small hotel 18 years earlier on the adjacent property. It was then called Finca Rosa Blanca Country Inn, (opened in 1989) because the coffee economy had succumbed to a glut of coffee and prices had nose-dived. Farmers could no longer afford to even to pick their coffee, let alone fertilize it, in order to

 DisCovEr DisCovEr ThE PowEr ThE PowEr oF siMPliCiTy oF siMPliCiTy

ORGANIC COFFEE FIELDS IN MOUNTAINOUS AREAS REQUIRE A PATTERN OF PLANTING THAT FOLLOWS A TOPOGRAPHICAL COURSE ALONG WITH THE NATURAL CURVES OF THE LANDSCAPE. maintain its health and potential. As a result, many salivating developers were eagerly buying these coffee farms at cheap prices and converting them into low cost housing. I recollect standing in the middle of our soon to be newly acquired and striking coffee field, and remarking to my wife that this sojourn might be one of the most beautiful nature based experiences in my lifetime. When this cathartic experience had succumbed to reality I experienced a brief moment of maturity, and realised that we actually knew nothing at all about coffee. I was suddenly overcome with the inevitability of the most basic quandary: how were we going to financially sustain a coffee farm with no prior experience. We went back to our roots, (so to speak), and realised that our strengths lay in the development and innovation of methods for responsible practices – whether it be in tourism or now, in agriculture. We began the very cumbersome home work of training, learning, analysing, and speaking to our hotel workers who were all from the local area and whose families had for the most part spent their whole lives working in and around coffee. We were inspired by their confidence and devotion to coffee, which for them was indeed a noble crop and more than worthy of our attention. It was also implicit that if we were going to involve ourselves in an agricultural business, much like our work in responsible tourism, it had to be done responsibly, sustainably and consequently, organically. We were told that we would have to yank out most of the plants due to age, condition, or the way they were planted. Organic coffee fields in mountainous areas require a pattern of planting that follows a topographical course along the natural curves of the landscape that keeps erosion at a minimum and prevents its washing away during the torrential downpours of our tropical rainy season. This also allows for the greatest amount of natural fertilizers to enrich the soil, such as the nitrogen rich Poró leaves and the fermenting and microbe rich undergrowth remain on the ground. These products are never eliminated in organic farms as they infuse much needed organic nutrients into the soil. Today, as an organic farmer, I walk through my coffee fields and feel confident that all the coffee I’m producing has a rhyme and reason. There’s a certain joy in knowing that I have been contributing to the balance of the ecology in an area that had previously been developed based on high production, yield oriented agricultural products. GCR

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DIARY Dashboard COFFEE AROUND THE GLOBE

WORLD COFFEE EVENTS

EXPO COFFEE & TEA 2012

SHANGHAI INTERNATIONAL EXHIBITION CENTRE

9 – 12 APRIL

27 – 29 APRIL

The 21st Shanghai International Hospitality Equipment & Supply Expo will take place at the Shanghai New International Expo Centre from 9 to 12 April 2012. Also known as Hotelex, the event will continue to focus on the low-carbon development of the hotel industry and its global development direction. The number of exhibitors is expected to reach 1100 this year, with over 48,000 professional visitors expected to attend. The event will also serve as the setting for the China Barista Championship. www.hotelex.cn

The London Coffee Festival, the flagship event of UK Coffee Week, is an inspiring and dynamic celebration of coffee and food culture. Following its launch in April 2011, which saw 7500 coffee lovers, professional baristas, coffee shop owners and top industry decisionmakers come together over three action-packed days, The London Coffee Festival will be back at the iconic Old Truman Brewery on Brick Lane. Within the festival-themed zones, visitors will be immersed in a world of discovery, tasting, demonstrations and entertainment. Festival features will include The Lab, The Growing Community, The Showroom, The Roastery, The Tea Garden, The Chocolate Factory and The Street Food & Artisan Markets. www.londoncoffeefestival.com

SCAA SYMPOSIUM & EXPO 2012

MELBOURNE INTERNATIONAL

18 – 22 APRIL

MELBOURNE SHOWGROUNDS

PORTLAND, OREGON The Specialty Coffee Association of America (SCAA) Annual Exposition offers roasters and retailers the opportunity to exhibit their products, network with decision makers, and further their careers. Food and beverage service professionals are invited to view the industry’s most innovative and cutting edge coffee products. Coffee enthusiasts can catch the United States Barista Championship and more. www.scaashow.org scaasymposium.

THE LONDON COFFEE FESTIVAL

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COFFEE EXPO 2012

4 – 6 MAY

The first international coffee expo to hit Australian soil will make its debut on 8000 square metres of space. From 4 – 5 May, the event will feature trade promotion, while 6 May will continue to attract trade activity while also welcoming the public to the finals of the AASCA Australian Barista Championships. www.internationalcoffeeexpo.com

CAFFÈ CULTURE 16 – 17 MAY

Taking place over two days at the London Olympia, Caffè Culture welcomes 5000 senior decision-makers to meet and do business with more than 200 suppliers. The event offers the opportunity to source new products, network, and keep up-to-date with the latest in industry trends. The event is a highly targeted trade exhibition that exclusively caters for the UK’s café and coffee bar market. As an information-led show, Caffè Culture not only offers exhibitors a platform to network and generate new business, but to gain valuable insight into a continually evolving market. www.caffecultureshow.com

TRIESTESPRESSO EXPO

TRIESTE, ITALY 25 – 27 OCTOBER

TriestEspresso Expo will enter its sixth year, bringing together the world of coffee under one roof: importers, roasters, producers of espresso equipment, roasting and processing machines, packaging, coffee cups and accessories, connected services, merchandising and trade press. This biennial event will see some important changes, moving from Fiera Trieste to Aries, an ad-hoc agency of the Trieste Chamber of Commerce. The successful approach adopted in previous years will be maintained, and special attention will be paid to international trade visitors who represented 39 per cent of the last edition attendees. A total of 230 exhibitors from 22 countries signed agreements in 2008 worth millions of euros, establishing new sales channels.

KEEP A LOOK-OUT Coffee Fest Chicago Chicago, United States 8 – 10 June www.coffeefest.com SCAE World of Coffee 13 – 15 June Vienna, Austria www.scae.com 3rd Moscow International Coffee Forum 17 September Moscow, Russia www.coffeetea.ru COTECA Tea Coffee Cocoa Global Industry Expo 20 – 22 September Hamburg, Germany Coteca-hamburg.com China Xiamen International Coffee Fair 19 – 22 October Xiamen, Fujian China www.coffeefair.cn

www.triestespresso.it

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COFFEENOMICS PRODUCTS Marketplace Trade

MAHLKOENIG GUATEMALA LAB ROASTER Mahlkoenig announced early this year it would provide its Guatemala Lab Roaster to eight Latin American and two African countries for the Cup of Excellence competitions. The precision grinder was designed for use in laboratories, for tastings and in roasteries, with the ability to grind even the smallest amount of roasted coffee without residue. Cross contamination when grinding different coffees is reduced thanks to a special spout with a knock off device that facilitates the removal of left over coffee powder before the next grinding operation. For more information visit www.mahlkoenig.com

COCO CAFÉ Vita Coco, the United States’ largest coconut water brand, has made an investment in a Californiabased beverage start-up called Coco Café, which produces a ready-to-drink beverage of fresh coconut water and organic, fair-trade espresso with milk. Coco Café was started by friends Brian McCaslin and Elan Eifer on the beaches of Santa Monica in California in 2011. Vita Coco was launched in 2004. It sells seven flavours of coconut water at over 35,000 retailers all over the United States. For more information visit www.vitacoco.com

FLEXIS AIR Avery Dennison has introduced the new Flexis Air for Coffee, a one-way valve specifically designed for coffee applications. The valve degasses packaged coffee, offers leak resistance, bonds securely and can be preapplied to packaging materials. The valves can be applied using automatic label application systems at speeds significantly higher than injection moulded heat seal applied degassing valves. While bin degassing can take a week or longer to complete and risks exposing the coffee to oxygen, which robs it of its freshness, the use of the degassing valves allows coffee processors to improve throughput and help reduce expenses associated with inventory and bin outlays. The valves can be printed with logos and promotional messages. For more information, contact Flexis@averydennison.com

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BRITA PROFESSIONAL The Brita range of Purity C water filters has been specially developed for use in the coffee industry to ensure both the machine and the coffee are at their very best. Brita’s ion exchange technology reduces the carbonate hardness and heavy metals found in water, helping to minimise servicing and costly breakdowns of equipment. Activated carbon removes 100 per cent of the chlorine, ensuring there is no taste, colour or odour in the water. Purity C uses four stage filtration for the removal of TDS while the unique blending key allows cafés to blend water to specific coffee requirements, ensuring coffee has the full taste and aroma customers demand. Brita Purity C is designed with coffee in mind. For more information or to find your nearest stockist please contact Brita via email professional@brita.com.au or phone +61 (02) 9486 4227

NEXPOD NexPod is a system of capsules that can be refilled with ground coffee for espresso or tea, and used with all Nespresso machines. The capsules can also be used a second time. Besides traditional coffee (coffee for espresso, barley coffee, chicory coffee), NexPod can also be used with instant and flavoured coffees (i.e. ginseng coffee and guarana coffee). To make a cup of coffee, the NexPod capsule can be filled with whatever ground coffee a person likes, and can also be used with tea. An espresso made using NexPod costs 40 per cent less than using original Nespresso capsules. Moreover the capsules are made of polypropylene, a high quality plastic used in the medical and food sectors, that is heat resistant and 100 per cent recyclable if disposed using plastic collection points, without producing toxic waste. For more information visit www.nexpod.com

ENTENMANN’S FLAVOURED COFFEE AND COCOA Entenmann’s Bakery, a leading American sweet baked goods company, has partnered with White Coffee Corporation for its new signature collection of flavoured coffees and cocoa. The 100 per cent Arabica coffee is currently sold at Burlington Coat Factory, Dollar Tree and Entenmann’s outlets, with expected 2012 sales in mass market, supermarkets, club stores, drug stores and food service outlets nationwide. The new line of Entenmann’s Coffee will be offered in 10-ounce bags and in gift packs featuring flavours such as Cinnamon Crumb Cake, Hazelnut, Vanilla and Chocolate Donut, reminiscent of Entenmann’s sweet baked goods enjoyed by over 26 million households across the United States. Entenmann’s cocoa will be available in Original and Mint varieties. For more information visit www.whitecoffee.com

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LASTWORD Agroforestry

THE POWER OF THE CROP: HOW COFFEE FARMS COULD ENHANCE MAMMAL BIODIVERSITY DOCTORAL STUDENT AMANDA CAUDILL says coffee is one crop that shows great promise in agroforestry. “The way in which coffee is grown and managed can have a huge effect on biodiversity and the types of mammals it attracts,” Caudill says, a student from the University of Rhode Island in the United States. “The main point of difference could be the varying degrees of shade tree species planted within the coffee, which is known as shade coffee or sun coffee.” Caudill says the underlying question would be: ‘How do we enhance coffee habitat for mammals?’ “We know that mammals are abundant in rainforests, but we don’t know what type of coffee habitats would be more hospitable for them,” she says. “Mammals are attracted to rainforests because they have all the resources that they need there, but if they’re travelling through coffee plantations with more tree diversity or food available, they would then stay in coffee more, which could be what we’re seeing – but it’s too early in the research to tell.” After months of planning and revising her research study, Caudill travelled to Costa Rica and set up three field sites in Catie, Jicotea and Aquiares, with the assistance of a university grant. Within these coffee farms, Caudill is looking to assess mammal diversity and define which habitat parameters are important to mammals, by doing vegetation analysis to see where there’s a high abundance and diversity of creatures. To evaluate the mammal biodiversity, Caudill set up grids on the three sites in a parameter of 500-square-metre grids. Using direct and indirect sampling techniques to gather her results, she placed 242 small Sherman traps, (a box-style animal trap designed for the live capture of small mammals) on the three farms, two every 50 metres, to bait the creatures. Each morning, along with rotating field assistants, Caudill goes through a routine check of the traps for mammals, which are then weighed, measured and tagged with an identification number. “The majority of the mammals that we capture are small mammals, mice and rats, with a very small fraction of captures or sightings of medium-sized mammals such as possums, coatis and anteaters,” Caudill says. “Most of the mammals don’t eat the coffee berries as a food resource, it’s more the shade trees within the coffee farms that could provide a food resource such as seeds or fruit.” Caudill says the most common mammal species she’s captured is the Dusky Rice Rat (Melanomys caliginosus). She says one of the most interesting species that she’s seen is the mouse opossum (Marmosa sp.) which is the size of a mouse with a prehensile tail and opposable thumbs on its feet like the larger opossums. So far, Caudill has noticed that the number of mammals captured over the three sites varies, which may lead to some interesting findings as the numbers vary greatly. For instance, at Catie, she captures an average of around 35 mammals during a twoweek sampling period; in Jicotea around 95; and in Aquiares usually around 200. Caudill’s field research also extends to coffee plantations in India and Kenya, where she is performing similar studies on a smaller grid parameter. She says the study in Costa Rica is the largest one by far, in terms of duration and area. Once Caudill analyses her results, she wants to go back to the Costa Rican farms and recommend sustainable farming practices to protect biodiversity, and offer suggestions to coffee certifiers as to how best enhance mammal diversity within coffee farms. Caudill says coffee certifications such as Bird Friendly and Rainforest Alliance are a good way to promote and enhance mammal biodiversity because it requires that shade trees be planted within

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coffee farms, and a reduction in chemicals used in crops. Coffee certification then provides the farmers with a higher premium for their coffee for managing the areas using biodiversity-friendly practices. “The Aquiares farm is Rainforest Alliance certified, so it will be interesting to see if this has anything to do with the overall results,” she says. “You could think organic coffee would have a high diversity and an abundance of mammals. We only have one part of the plantation that is organic [Catie], but we’re not finding very much there at the moment,” she says. Caudill says she’s happy to be doing such a detailed study in the field. “I love being outside, I love being able to hike around, see different trees and mammals in wildlife and the overall goal of trying to create habitats to conserve wildlife. It’s nice to be a part of something that means something,” she says. “There are so many different moving pieces to this study – looking at the socioeconomics of the coffee farmers, the land-use around coffee farms, chemical use, the reasons for them and all the ecosystems. All these things are all intertwined, it’s fascinating. ” GCR`

The new dimension of espresso quality