GCR Jul 2013 by Prime Creative Media

July/August 2013

TRADING UP

The push towards premium capsules

HARD RAIN

Indonesia’s struggle with a changing climate

CONFLICTING DATA

Whose forecasts should you believe?

NEW HORIZONS

Building brand awareness through global events

GLOBAL GATHERING Melbourne hosts coffee leaders

THE CASE FOR SUSTAINABILITY NESPRESSO’S GUILLAUME LE CUNFF ON WHY THE COMPANY’S AAA PROGRAM IS AN ESSENTIAL PILLAR OF THE BUSINESS

www.globalcoffeereview.com 29.00

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CONTENTS July/August 2013

COVER STORY

THE AAA BOTTOM LINE

Nespresso’s International Strategy and Marketing Director tells Global Coffee Review why the their AAA Sustainable Quality program is crucial to the company’s value chain

IN THIS ISSUE

FEATURES

INDUSTRY PROFILE

RESEARCH & TECHNOLOGY

10 THE AAA BOTTOM LINE

32 DEEP ROOTS

41 CULTIVATING POTENTIAL ON LAKE KIVU

Guillaume Le Cunff on the outlook of Nespresso’s AAA Sustainable Quality program

14 ABOVE THE CROWD

How market leaders have moved to premium single-serve products to sustain growth

28 INDONESIA’S STRUGGLE WITH CLIMATE EFFECT

The world’s second largest Robusta producing nation sees steep production rise

36 THE HEIGHT OF GOOD TASTE

Why India’s coffee is making waves in foreign markets

38 SERIOUS BUSINESS

Franke Coffee Systems’ CEO Yvo Locher on conquering coffee’s final frontier

EQUIPMENT 34 FRESH OPPORTUNITIES

Packaging specialist Jet Technologies sets its sights on Indonesia

The effects of temperature, altitude and latitude on coffee quality

MARKETING

50 A NEW WORLD OF OPPORTUNITIES

Melbourne hosts the Global Coffee Review Leaders Symposium and MICE2013

COFFEENOMICS 23 CONFLICTING MARKET DATA With so many crop forecasts out there, who should we believe?

18 REACHING ACROSS WORLDS

ega on global W sponsorship opportunities

“WE ARE ENGAGED IN A LONG-TERM JOURNEY – SUSTAINABILITY BASED ON THE PRINCIPLE OF CONTINUOUS IMPROVEMENT.” Guillaume Le Cunff Nespresso International Strategy

and Marketing Director

World Coffee Research provides assistance to the Kivu Specialty Coffee Project

REGULARS 04 EDITOR’S NOTE 07 NEWS DRIP BY DRIP 52 GUEST COLUMNIST 54 DIARY DASHBOARD 56 MARKETPLACE 58 LAST WORD

ORIGIN 45 PAPUA NEW GUINEA AIMS FOR GROWTH

Plans to boost productivity after years of land disputes and abandoned estates

45 JULY/AUGUST 2013 | GCR

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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ACTING EDITOR Nick Sheridan nick.sheridan@primecreative.com.au ASSISTANT EDITOR Sarah Baker sarah.baker@primecreative.com.au

AN ENTICING FUTURE

ART DIRECTOR Joel Parke DESIGN Blake Storey, Alice Ewen, Karen Sloane, Michelle Weston, Sarah Doyle BUSINESS DEVELOPMENT MANAGER Steve Roberts steve.roberts@primecreative.com.au

With an industry that spans the globe and traverses many different worlds in between – from smallholder farms at origin through to the boardrooms of the United States and Europe – good, effective communication is essential for the future of coffee. Without good communication between all levels of our industry, we run the very real risk of losing our way. If the needs and priorities of producers and consumers are not aligned, our industry will suffer. As we all well know, the future of our industry ultimately rests in the hands of millions of smallholder coffee farmers around the world, many of whom struggle everyday to make enough to sustain their farms and their families. It is addressing this struggle that lies at the heart of our preoccupation with the issue of sustainable practices for our industry. As Nespresso’s International Marketing and Strategy Director, Guillaume Le Cunff says in this issue’s cover story (see page 10), without sustainable farmers, there is not a sustainable future for his business. I would go so far as to say this equation could be applied to our industry as a whole. This is why it is so important to bring together the people from all branches of our industry, as we were so proud to do at the first Global Coffee Review Leaders Symposium, which was held in Melbourne on 22 May (see page 50). At this event we were privileged to hear the views of senior

G C R | J U LY / A U G U S T 2 013

leaders from right across the breadth of our industry. With representation of leaders from origin countries such as Vietnam, Colombia and Guatemala, through to machinery manufacturers, futures traders, sustainability experts, green bean traders and of course roasters, the event was not just a chance for each segment of the industry to have their voices heard, but also to facilitate a dialogue that we hope will actually help to improve the industry that we all rely on for our livelihoods. As noted in our stories on Papua New Guinea (see page 45) and the Democratic Republic of the Congo (page 41), there is still massive untapped potential for the cultivation of our beloved bean, we just need to make sure that the rewards are sufficient to allow the people at origin to sustain a future in, and for, the industry.

GROUP SALES MANAGER Brad Buchanan brad.buchanan@primecreative.com.au PRODUCTION COORDINATOR Michelle Weston michelle.weston@primecreative.com.au ADMINISTRATION MANAGER Hayley Richert hayley.richert@primecreative.com.au PHOTOGRAPHY Anoush Abrar, Stéphane Martinelli, Scanferla, Maja Wallengren, Christophe Montagnon, Sarah-Jane Collins CONTRIBUTORS Maja Wallengren Natalie Dunleavy Campbell Sarah-Jane Collins 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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ARTICLES

All articles submitted for publication become the property of the publisher. The Editor reserves the right to adjust any article to conform with the magazine format.

Christine Grimard Editor

COPYRIGHT Global Coffee Review is owned by Prime Creative Media. All material is copyright and no part may be reproduced or copied in any form or by any means (graphic, electronic or mechanical including information and retrieval systems) without written permission of the publisher. While every effort has been made to ensure the accuracy of information Prime Creative Media will not accept responsibility for errors or omissions or for any consequences arising from reliance on information published. The opinions expressed in Global Coffee Review are not necessarily the opinions of, or endorsed by the publisher unless otherwise stated.

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Welcome to Global Coffee Review’s newest section, where you can find the biggest and best jobs on offer in the industry. If you are looking for the best talent to grow your business, contact our business development manager, Steve Roberts now, to help make it happen!

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www.globalcoffeereview.com As global leader in the market segment of roasting machines and plants PROBAT is represented by subsidiaries and agencies in more than 40 countries. All over the world we employ approx. 600 people at our locations in Germany, Brazil, the USA, Italy, India and on the Philippines. Over 90% of our sales is achieved outside Germany.

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NEWS In Brief

NEWS DRIPBYDRIP markets, according to the Director of the Center for Customer Insights at the Yale School of Management, Professor Ravi Dhar. See page 14.

Single-serve market leader Nespresso is set to reach its target of sourcing 80 per cent of its coffee through its AAA Sustainable Quality program by the end of 2013. With more than 50,000 farmers in eight countries, the program is now in its 10th year. The company has done extensive research on the benefit of AAA to farmers, finding that the advantages are social, environmental and economic. As Nespresso’s International Marketing and Strategy Director, Guillaume Le Cunff tells Global Coffee Review, this program is as much about safeguarding the future of the business as it is about social responsibility. See page 10. Espresso machine manufacturer Wega is seeking to build its global brand awareness with major sponsorship deals in the European sporting arena. The company has become

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EUROPE

the official product partner of Cannondale Pro Cycling and the 2013 Trentino Fiemme Nordic Skiing World Championship. The 12-day skiing event in Val di Fiemme, Italy, attracted 400,000 spectators and saw widespread coverage on the internet, newspapers and social media channels. Marketing and Communications Stategist Pat Freeland-Small discusses how event partnerships are effective in raising a brand’s profile. See page 18.

The Colombian Coffee Growers’ Federation (FNC) has launched a new series of online lectures about the science of growing coffee. Hosted on the Colombian Coffee Hub website, the series aims to help coffee professionals around the world increase their knowledge of issues at origin. In the first installment, FNC’s Director of Quality Control Dr Edgar Moreno discusses how temperature affects the flavour of coffee and how this is in turn affected by altitude and latitude. The FNC will be running more lectures in the series over the course of the year. See page 36. With so many conflicting crop forecasts out there, it is difficult to know which to believe. Current predictions for Brazil’s output in the 2013-14 crop year vary by as much as 10 million 60-kilogram bags. The Executive Director of the International Coffee Organisation says that he aims to find a way to get more accurate data out of Brazil. See page 23.

While the single-serve coffee market is the industry’s fastest-growing product segment, it is becoming ever more crowded. Now a handful of market leaders are seeking to differentiate themselves by offering more premium products. Companies such as Nespresso and Starbucks are just two of the big names who are leading the trend towards premiumisation. However, this strategy is only really effective in developed

A new piece of software is connecting producers with their customers. US-based company Cropster has developed a program that helps farmers manage their crops and their relationships with customers through the technology that tracks information right through the production process and allows all parties to share it at the click of a button. See page 58.

AMERICAS

80%

Nespresso aims to source 80 per cent of its coffee from AAA farmers by the end of 2013. See page 10. JULY/AUGUST 2013 | GCR

NEWS In Brief

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The US Department of Agriculture predicts that recent heavy rains in Indonesia will cut the country’s coffee production for the 2013-14 crop year by 5.5 per cent. With growing domestic consumption, and increasing competition for land from the cocoa and palm oil industries, analysts are paying close attention to weather patterns and production trends in the Southeast Asian nation. See page 28. More than 11,000 coffee professionals from around the world converged on Melbourne for the Melbourne International Coffee Festival from 23-26 May. The event hosted the World Barista Championship and the World Brewers Cup, which were won by Americans Pete Licata and Erin McCarthy respectively. On 22 May, more than 100 of

G C R | J U LY / A U G U S T 2 013

World Coffee Research (WCR) has teamed up with a range of international organisations to help revive the coffee industry in the Democratic Republic of the Congo (DRC). With a geographical profile similar to that of neighbouring Rwanda, WCR representatives say the potential for coffee grown in the DRC is huge. However, after decades of conflict, there is much to be done to get the DRC industry functioning effectively. The project in the South Kivu region in the east of the country will focus on identifying the best crop varieties, improving agricultural practices and ultimately increase quality and volumes for the output from the region. See page 41.

the industry’s top leaders met for the Global Coffee Review Leaders Summit. Delegates heard from more than a dozen international speakers on issues ranging from doing business in Asia to how Central American nations are dealing with the coffee leaf rust crisis. See page 50. Australian packaging manufacturer Jet Technologies is eyeing expansion into Asia, opening its first office in Jakarta in early May. The company’s General Manager, Sam Dickson, says that while the nation already has an established coffee culture that present good opportunities for the company, the specialty coffee scene is also growing there. Dickson says that he hopes this expansion is just the first step for the company into the Asian coffee markets. See page 34.

THE PACIFIC

11,000 There were more than 11,000 visitors to the Melbourne International Coffee Expo in May. See page 50.

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ASIA



AFRICA

Papua New Guinea’s coffee output has hovered around 1 million 60-kilogram bags for many years now. However the past two years have seen some fluctuations. After producing a record 1.4 million bags in 2011-12, output dropped considerably in 2012-13, with estimates for the crop varying between 650,000 and 850,000 60-kilogram bags. It is expected that the current crop cycle will see a return to historic levels. And with international agencies such as the World Bank paying attention to PNG’s industry, farmers are recognising the potential to earn a decent living from the crop, which has the potential to drive output levels up further. See page 45.

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COVER STORY Nespresso

G C R | J U LY / A U G U S T 2 0 13

AAA

THE

B OTTO M L I N E NESPRESSO’S INTERNATIONAL MARKETING AND STRATEGY DIRECTOR GUILLAUME LE CUNFF TELLS GLOBAL COFFEE REVIEW WHY THEIR AAA SUSTAINABLE QUALITY PROGRAM IS ESSENTIAL FOR THE FUTURE OF THE COMPANY.

s a Swiss company, it should come as no surprise that Nespresso has great timing. The single-serve pioneer, however, has taken this penchant for punctuality one step further. Nespresso’s consistency in being ahead of the curve has become as much a hallmark for the company as its distinctively coloured coffee capsules or, indeed, brand ambassador George Clooney. Established in 1986, Nespresso led the way in the single-serve coffee phenomenon that has been powering the domestic consumption of quality coffee for some years. The company’s position as market leader is so entrenched that at a recent meeting of some of the global coffee industry’s leading figures in Melbourne, one of Nespresso’s key European competitors used the company’s Clooney-fronted ad campaign as an example of exactly how to build brand loyalty. But Nespresso’s good timing goes beyond its creation of a brand new market segment. On the sustainability front, Nespresso, which is an autonomous arm of the Nestlé Group, has also managed to run ahead of the pack. Launched 10 years ago, the Nespresso AAA Sustainable Quality program is unique in that it was first conceived as an answer to the company’s business needs, rather than as a feel-good add-on to the product’s overall offer. “Without high quality coffee and product consistency, we couldn’t sustain the growth of Nespresso,” the company’s International Marketing and Strategy Director, Guillaume Le Cunff, tells Global Coffee Review. “Without sustainable farmers, we had some doubts about the sustainability of our value chain and, by consequence, for our business. So [AAA] was a business proposal first.” Nespresso estimates that just 1 to 2 per cent of the world’s coffee matches up with its quality

and aroma profile requirements. Le Cunff says because of the company’s completely vertically integrated structure, the need to secure that supply was imperative. “To address this business concern, our company decided to create and organise a program to make our value chain more sustainable,” Le Cunff says. The result is AAA, a co-creation between the company and Rainforest Alliance. Le Cunff says this is one of the points of difference between AAA and other certification programs, which can function as an end in themselves, rather than as a framework for doing business. “Certification is a point of reassurance for consumers, so I think [AAA] has a lot of value for many customers, but it can also be confusing because you have a lot of different types of certification available,” Le Cunff says. “The certification is serving as a diploma for farmers, but the end-game [with AAA] is to have the farmers using the right level of

J U LY /A U G U S T 2 0 1 3 | GCR

COVER STORY Nespresso

Nespresso is present in almost 60 countries with more than 300 boutiques worldwide.

“WITHOUT SUSTAINABLE FARMERS, WE HAD SOME DOUBTS ABOUT THE SUSTAINABILITY OF OUR VALUE CHAIN AND, BY CONSEQUENCE, FOR OUR BUSINESS. SO [AAA] WAS A BUSINESS PROPOSAL FIRST.” Guillaume Le Cunff

Nespresso’s International Marketing and Strategy Director

sustainable farming practices on a daily basis on their farms.” The AAA program is built on three pillars – quality, sustainability, and productivity. While Nespresso sets the quality requirements according to its own coffee sensory profiles, the sustainability aspect is informed by the standards of the Sustainable Agriculture Network (SAN). These standards include both social and environmental criteria, with those farmers who achieve them also enabled to apply for Rainforest Alliance certification. Le Cunff says these SAN standards are a target for aspiration rather than a starting point, which is the quality of the coffee. “We are going out to find the coffee we need, not the other way around. We cannot go to farmers and tell them, ‘you have the coffee we want, but now you need to go away and get certified and then come back to us’,” says Le Cunff. “You cannot ask a smallholder farmer of one hectare in Colombia to reach the SAN standards in two days. It’s a long journey for them, so it’s all about defining where

G C R | J U LY / A U G U S T 2 0 1 3

they stand when they’re entering the program: what are the gaps that they have to face to get up to the SAN standards? It’s also about bringing them the assistance and training so that over time they can close these gaps and reach the right level of practices.” This approach seems to be working. Nespresso has a target of sourcing 80 per cent of its coffee from AAA farmers by the end of 2013, which Le Cunff says, they will definitely achieve. This will build on the 52,000 farmers Nespresso currently works with in eight countries – Brazil, Colombia, Mexico, Costa Rica, Guatemala, Nicaragua, India and most recently Ethiopia. Another plank of the program’s sustainability platform is improving farmer’s livelihoods, which also ties into the third pillar, productivity. Nespresso already pays AAA farmers 30 to 40 per cent above the market price for their coffee, which is 10 to 15 per cent above the price of coffees of a comparable quality. However, Nespresso’s approach goes beyond simply paying a premium for good coffee. Drawing on the findings of a study by the INCAE Business School in Costa Rica that showed the key driver for a farmer’s profitability is not price, but quality and productivity, Nespresso has developed its own concept called Real Farmer

Income. This framework aims to increase the net profitability of farmers by equipping them with the knowledge and technology they need to improve the quality and productivity of their farms. “We are rewarding the improvement of the farmers,” Le Cunff says. “Each time they lift their standards and improve their quality, they are sure to sell their coffee to Nespresso, because we purchase the coffee they are producing as soon as they reach a certain level of quality.” This assistance has yielded real results – not just for Nespresso, but also for the farmers themselves. A May 2013 study conducted by Colombian research firm, the Centre for Regional Entrepreneurial and Coffee Studies (CRECE) found that in comparison to other farmers, the lives and businesses of AAA farmers were measurably better on a range of key indicators. Evaluating the scores of AAA farmers against non-AAA farmers on three indices – social, environmental, and economic – the study found marked advantages for the AAA group in all three. Using a points system, CRECE found that AAA farmers were 22.6 per cent better off than the control group on the social index, 52.1 per cent better off on the environmental index and ahead by 41 per cent economically. This is the second time the study has been done, with the results also showing that the positive outcomes for AAA farmers were growing over time relative to the control group. Interestingly, more research by CRECE and other partners in Costa Rica, Mexico, Guatemala and Nicaragua into the relative effects of the coffee leaf rust crisis on farmers in Central and South America found that AAA farmers were consistently better of than their non-AAA counterparts. In Colombia, the study showed that 49 per cent of non-AAA farms were affected by the disease, as opposed to 33 per cent of AAA farms. According to the report, AAA farmers also receive 40 per cent more technical support than other farmers, which has directly improved their ability to deal with the crisis. Of course in the general marketplace, Nespresso faces numerous challenges, with the number of competitors in the singleserve market growing rapidly over the past few years.

Nespresso will source 80 per cent of its coffee from AAA farmers by the end of 2013.

Figures from international research firm Euromonitor show that while the global markets for coffee pods has grown explosively – from US$2.4 billion in 2007 to more than US$8 billion in 2012 – Nespresso’s market share has been declining steadily, from 33.9 per cent to 25.8 per cent over the same period. However, while the company does not release its sales figures, Nestlé Group’s 2012 Annual Report states that Nespresso continues to experience double-digit growth, making it the group’s fastest growing brand. As Le Cunff points out, however, the company’s vertically integrated business model dictates that it is not just the growing competition that the company must manage, but also how it plans for growth. Nespresso places a great emphasis on maintaining long-term relationships with farmers, meaning the company must manage any expansion very carefully. “The challenge is not to be overpromising,” Le Cunff says. “If we have too many farmers joining the AAA program and we are not managing to sustain or support this promise, we are destroying these values.” However this will not dull their ambition. “We are engaged in a long-term journey – sustainability based on the principle of continuous improvement. You can imagine the logic, coming from 80 per cent [of coffee sourced from AAA famers], is to bring some more ambition to that,” Le Cunff says. “Of course we are thinking about how to make that 100 per cent AAA. This should be seen as the end game for us.”

J U LY /A U G U S T 2 0 1 3 | GCR

FEATURE Premium capsules

ABOVE THE CROWD

MARKET LEADERS ARE MOVING TOWARDS PREMIUM PRODUCTS TO SUSTAIN GROWTH IN THE SINGLE-SERVE COFFEE MARKET.

BY NATALIE DUNLEAVY CAMPBELL

s the global single-serve coffee market gets larger, more companies are looking to find profit in the fastest growing segment of the coffee industry. With this inevitable wave of new competition, industry titans are looking towards a marketing tactic often used in the alcohol, chocolate and fashion industry to help sustain growth in a market some analysts say could hit US$12 billion this year. Marketers call the strategy premiumisation. It’s a growing trend in the coffee capsule industry that has companies trying to differentiate themselves from competitors with a more expensive, premium product to increase profits. For capsule manufacturers like Swiss-based Nestlé Nespresso, brand differentiation may be a key ingredient in recovering from a faltering growth rate over the past few years. With a number of patents expiring and several court cases in the works, the once exclusive manufacturer of pods for its Nespresso machine now faces dozens of rivals. Already well positioned as a premium brand targeting their baseline product to a higher end consumer, the company took an even bigger stride in this direction with the launch of Hawaii Kona Special Reserve in October 2012. Made from 100 per cent pure Hawaii Kona Arabica, Nespresso’s media release touted the product as having “earned a global reputation as one of the world’s most prestigious coffees, beloved by true connoisseurs; it boasts a complex aromatic profile, exceptional rarity and specialist growth methods to ensure the coffee classification ‘Extra Fancy’.” At US$2 a shot, the cost was four times the cost of its regular pods, or US$364 per kilogram. It sold out within weeks. Analysts say the launch of the expensive limited edition brew was part of a larger effort to upmarket Nestlé’s food and beverage products that helped its 2012 sales growth. Ravi Dhar, a Professor in Management and Marketing and Director of the Center for Customer Insights at the Yale School of Management in the United States, tells Global Coffee Review that premiumisation is a way for companies to stand out in a saturated market. “The way to think of premiumisation is ‘how do we get people to pay more money for the same

G C R | J U LY / A U G U S T 2 013

product and provide a richer experience?’” Dhar says. He explains that premiumisation leads to building a premium version of the product you have. Diane Duperret, Corporate PR Manager at Nestlé Nespresso, says other limited edition premium blends launched since the Kona brew, such as Trieste and Napoli, were also highly successful. “Hawaii Kona, like the rest of our limited editions, is part of our constant drive to innovate and offer our consumers new coffee sensory experiences,” she says. Duperret could not confirm whether the company would release similar limited editions to Kona in the future.

A MATTER OF QUALITY Professor Dhar says the key to success with brand premiumisation is customer experience. “[Brands should] try to differentiate based on the raw material itself, the process, or the packaging,” he says. “The idea is to give a better, richer customer experience overall, to get the customer to pay more for coffee.” Dhar specialises in consumer behaviour and branding, marketing management, marketing

strategy, and bringing psychological insights to the study of consumer decision-making. His research focuses on using psychological principles, such as limited self-control and cognitive limitations in processing information, to investigate fundamental aspects about the formation of consumer preferences and goals in order to understand consumer behaviour in the marketplace. He says there are a number of benefits when premiumisation is successful. “The benefits are pretty obvious,” he says. “The first is that it allows you to differentiate yourself from competition. The second is that people are willing to pay more.” The main risk, Dhar explains, is the inability to convince the consumer that the experience the company is providing is different from its baseline product. “The key is how tangible is your strategy around premiumisation,” he says. Dhar says that while premiumisation is aimed at a higher end customer, the benefits trickle downwards in terms of product branding. He says cell phone producer Nokia has used the strategy for its Vertu line of luxury mobile phones before it was sold to private equity in 2012. While Nokia did sell a moderate quantity of the high end mobile phones, Dhar says the intent was to build the entire Nokia brand as being a leader in its market. The tactic is also used in the fashion industry, when fashion designers release a limited high end line of clothing, as well less exclusive mainstream lines aimed at a broader segment of their market. Dhar says premiumisation is a good model for companies like Nespresso who are seeking to expand in markets already ripe with competition, such as the US. “The question becomes ‘how many dollars are spent on my coffee?’ And not ‘how much coffee do I sell?’” Professor Ravi Dhar says He cautions, however, that premiumisation might not be an effective premiumisation is most strategy in developing markets. In this environment, Dhar says the best effective in established markets. strategy for brands would be to develop a basic offering and then move up and differentiate as competitors move in.

“THE WAY TO THINK OF PREMIUMISATION IS ‘HOW DO WE GET PEOPLE TO PAY MORE MONEY FOR THE SAME PRODUCT AND PROVIDE A RICHER EXPERIENCE?’” Ravi Dhar

Director of the Center for Customer Insights at the Yale School of Management

US EXPANSION A 2013 report from the National Coffee Association (NCA) this year pronounced the US as the world’s largest consumer of coffee. With that same NCA report finding that 83 per cent of Americans adults drink coffee, averaging about three cups a day, it’s no wonder the US is such a significant battleground for the single-serve market. While Nespresso’s effort to grow its US presence is likely to be felt by its American single-serve rivals, coffee giants Starbucks and Green Mountain Coffee Roasters (GMCR) don’t see this as direct competition. However, the two US-based companies do have premiumisation on the corporate agenda and are working together in hopes that Starbucks’ clout as a premium brand will help them gain a larger share of the market. They renewed their partnership last May with a five-year contract that will triple the number of K-Cup packs Starbucks makes for GMCR’s Keurig brewing machine. The initial launch of Starbucks K-Cup packs in 2012 was so well received that it was named one of the year’s top 10 food and beverage product launches by Information Resources, a market research company focused on the consumer packaged goods. “Our customers had been clamouring for Starbucks in the K-Cup format,” says Mike Conway, Executive Vice President, Global Channel Development for Starbucks. “We had and have a lot of existing customers who brew using a Keurig at home and were excited when we entered the premium single cup market.” According to Nasdaq analysts, Starbucks, through its VIA Ready Brew instant coffee and K-Cup packs, now commands almost 22 per cent of the

J U LY /A U G U S T 2013 | GCR

Nespresso’s Hawaii Kona Special Reserve, released in 2012, earnt a global reputation as one of the world’s most prestigious coffees. The cost was four times that of regular pods, or US$364 per kilogram.

premium single cup market, which is a significant growth from its zero presence in this segment a few years back. Conway believes the quality of its product, along with their partnership with GMCR, were instrumental in this success. “Our goal is to offer the highest quality coffee products to our customers in multiple formats and channels,” he says. “We worked closely with GMCR, leveraging our strong coffee knowledge to create a Starbucks K-Cup pack that delivers the quality and taste our customers expect from Starbucks.” In addition to limited edition seasonal blends, the Starbucks will expand its line of K-Cup pack varieties to offer caramel and vanilla varieties this fall. GMCR’s Vice President of Corporate Communications and Investor Relations, Suzanne DuLong, explains that partnerships with companies such as Starbucks have been mutually beneficial, helping them meet the demands of consumers by offering a premium product. “We are at the intersection of two very important consumer trends,” DuLong says. “One is the trend towards premium coffee. We believe the Keurig system has taken that and combined it with the trend of consumer desire to have that experience in their own homes.” DuLong tells the Global Coffee Review it is these kinds of partnerships with fellow coffee manufacturers that have been key to the company’s success with the Keurig machine. “Consumers clearly are trending towards more premium beverages,” she says. “We realised what

G C R | J U LY / A U G U S T 2 013

Photo: Stéphane Martinelli

FEATURE Premium capsules

MODERN PROCESS EQUIPMENT CORPORATION

was more important to them in their purchase decision [for a single-serve machine] were the brands and variety available to them in the coffee system. “The Keurig system has taken the quality, the convenience, and most importantly, the variety that consumers want, and put it right on their kitchen counters.” Conway is also optimistic about growth in the singleserve market with its Verismo System, a premium singleserve machine that makes espresso and brewed coffee. “We have seen early success with our Verismo System by Starbucks, which crafts a true espresso shot using patented high pressure technology as well as brewed coffee all on one machine,” he says. “There is plenty of room for growth in premium single cup.” GMCR is also taking strides towards premiumisation for its own brand of coffee. It released a limited edition premium brand of coffee, Colombia Geisha Special Reserve, last November. The company promoted the product as an “extremely rare and sought after variety that is known for its sweet, dynamic citrus-like flavour profile,” with a highly refined manufacturing process that involves picking the beans every eight days. At a suggested retail price of US$31.99 for a K-Cup pack of 18 capsules, the cost works out US$1.78 per capsule, or US$137.95 per kilogram. In comparison, GMCR’s lowest costing baseline capsule sells at US$16.49 for a box of 24. It also sells Diedrich and partner brand Eight O’Clock Coffee varieties for as low as US$0.62 per capsule. DuLong says their special reserve sold out quickly. While she cannot pre-announce future product plans, she says GMCR is open to future premium releases. “It’s definitely a niche opportunity that consumers seem interested in,” she says. “As we come across special opportunities like this, we will likely look to pursue them.”

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WORTH THE MONEY? So who is the target customer that is willing to pay up to eight times the amount of a regular cup of coffee? There are different schools of thought. For Starbucks’ Conway, the answer is simple. “It all comes down to quality and taste,” he says. For Professor Dhar, it’s a combination of quality and consumer experience. “They are enthusiasts,” he says, “they are knowledgeable, and they really want the ultimate experience. It’s a combination of not just having money, but to be seen as a maven of the category.” GMCR’s DuLong says it stems from the consumer’s growing exposure to variety. “Consumers are increasingly exposed to wonderful specialty coffees,” she says. “As they are exposed to them, their palettes develop.” She explains the experience is not unlike consumer relationships with wine. “Once you have exposure to different varieties of wine... it’s not unusual for consumers to search out other options and other experiences.” G C R

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FEATURE Wega

worlds

REACHING ACROSS

A LOOK AT HOW STRATEGIC SPONSORSHIP THROUGH EVENTS HAS THE POWER TO MAXIMISE BRAND AWARENESS ON A GLOBAL STAGE.

Images: Scanferla

BY SARAH BAKER

G C R | J U LY / A U G U S T 2 0 1 3

yes are drawn to the sporting prowess of cyclists travelling more than 3400 kilometres in harsh alpine terrain and the world’s best ski jumpers leaping off a 138-metre platform. But when it comes to sporting events, the stars in the coloured jerseys are no longer the only ones making a visible impact. In a strategic move to market their brand to a broader global audience, Wega Macchine per caffè have become the official product partner of Cannondale Pro Cycling and the 2013 Trentino Fiemme Nordic Skiing World Championship. “Both [sporting events] are international players – exactly like Wega,” says Wega Macchine per caffè Managing Director Paolo Nadalet. “We firmly believe that these opportunities show our company policy towards values and purposes and they will also give us the chance to give our brand wider exposure on the international scene.” Previously, Wega has successfully used press advertisements, sponsorship deals, and national and international exhibitions to grow their brand awareness. Nadalet says the recent agreement, announced in early 2012, will allow Wega to increase their exposure in strategic markets, thanks to the international dimension of certain sports such as cycling, which, like Wega, operates in all seven continents. “We are convinced that, considering the inner characteristics of the world of coffee, events where people can meet and see our quality products with their own eyes are the best opportunities to take advantage of,” says Nadalet. From 20 February to 3 March 2013 in Val di Fiemme, Italy, the clearly identifiable Wega logo appeared on the Trentino Fiemme Nordic Skiing World Championship’s advertising channels and banners. The 12-day event attracted 400,000 spectators and saw widespread coverage on the internet, newspapers and social media channels. Wega set up 10 coffee islands around the venue, featuring

the customised Wegaconcept in key areas including the crosscountry skiing centre, public marquees and ski jump stadium. For 21 days from 4 – 26 May, Wega was also able to boast the title of official sponsor to the Cannondale Pro cycling team when it followed the team’s white-green jerseys from Naples to Brescia in Italy for the Giro d’Italia cycling race. Wega Mininova models were placed in the Cannondale motor homes, campers and logistical offices to guarantee both athletes and spectators had access to quality coffee in freezing weather conditions. “[The athletes] used our machines every day,” says Nadalet. “We wanted to help them increase their energy to get through the race.” Wega also organised daily hospitality for guests and clients to experience the atmosphere of the Giro d’Italia. Sport has long been a powerful tool for brands. Typically high profile sporting events such as the Olympic Games, FIFA World Cup and Formula 1 Moto GP attract car sponsorship, gas companies, phone companies, banks and food retailers. For a number

A customised Wegaconcept was used at the Trentino Fiemme Nordic Skiing World Championship in March.

J U LY /A U G U S T 2 0 1 3 | GCR

FEATURE Wega

Members of Cannondale Pro cycling team sample coffee from Wega’s Mininova model during the Giro d’Italia.

of major brands, the chance of grabbing a share of a global audience’s attention is a unique business opportunity to promote themselves, build their reputation and develop deeper customer relationships. The cost of a 30-second television commercial during the 2013 Super Bowl was estimated to have cost between US$3.7 million and US$3.8 million. Brands such as Volkswagen, Calvin Klein, Hyundai Motor Group and Mars were attracted to this event, which drew a broadcast audience of more than 100 million people. For 14 days of sport, more than 4.8 billion people in 200 countries and territories tuned in to watch more than 100,000 hours of footage from the 2012 Olympic Games in London, according to the International Olympic Committee. This reach makes the Olympic Games one of the most soughtafter and effective international marketing platforms in the world. With only 11 worldwide sponsorship opportunities available, brands such as Coca-Cola, Acer, GE and McDonalds each paid an estimated US$100 million for their prime position as worldwide sponsor. Pat Freeland-Small, Marketing and Communications Strategist at P5Strategic, says it’s no surprise a company such as Wega have chosen to align their marketing campaign with sporting events and sporting identities. “It’s a natural fit,” says Freeland-Small, a strategist of 20 years. “There’s already a strong category connection between coffee and cycling because cyclists are early morning coffee drinkers. Therefore when cyclists wear a brand logo or are seen using the brand’s product, they are effectively walking billboards.” Freeland-Small says this interactive method of advertising is effective because a large cohort of people see this branding. “Cycling and skiing are premium elite sporting activities and the idea is that people who support and enjoy these sports would also enjoy and fit in the coffee culture,” he says. “If the audience can see the high profile athletes using the product, then the cohort will tend to gravitate towards that brand because it’s deemed desirable.” In today’s strategic world of marketing, Freeland-Small says focusing on a brand’s correct demographic is critical to a campaign’s

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US$100 MILLION The estimated value 11 worldwide sponsors paid for prime position advertising in the 2012 London Olympic Games.

success. “It’s hard to pin the tail on a donkey blindfolded. Experienced marketers will have a sense of what will work with various market segments, but the most astute will also invest in some background research to really hone their campaigns,” he says. Unlike traditional forms of advertising such as billboard, radio and newspapers, which FreelandSmall says are at times fragmented in today’s multimedia society, it makes sense to target an event with global reach. “It’s very cost-effective. Choosing the right event for your brand is crucial to the brand’s marketing success. Marketers must choose brand-enhancing relationships and I give [Wega] a big tick for their connections to cycling and skiing – it’s ideal,” he says. Charles Areni, Professor of Marketing at the University of Sydney Business School, says in an incredibly competitive category such as coffee machine manufacturers, exclusivity is crucial to making an impact. “The rule of thumb for brands with a small share of voice is – you have to be unique in choosing communication vehicles. If you do something unique, like a coffee brand sponsoring a cycling team, people will take note of the brand,” says Areni. “Some may find it out of the ordinary, but that’s exactly the point. It’s unusual so people will remember it.” He says it’s important for businesses to work sensibly within the boundaries of their budget. “If you have a small share of voice, meaning a smaller marketing communications budget than most competitors in the product category, you have to find a unique way to get your message out there. If you use the same communication channels as your competitors, your message will be lost in the clutter,” Areni says. For most companies partnering global events, the aim isn’t to push product sales, but to simply increase brand recognition. “Sports and other kinds of sponsorships won’t necessarily drive sales right away, but they are effective in increasing brand awareness – an important step to ultimately becoming the preferred brand of consumers,” Areni says. For this reason, he adds it is hard to measure how much revenue is generated from large advertising campaigns. “It’s difficult to judge precisely why people come into a shop and buy a particular brand,” Areni says. “However, the cost per thousand audience members is relatively cheap, especially if the event is undervalued by the promoters. In general, the size and prestige of the events are major factors. Events that attract

“THE RULE OF THUMB FOR BRANDS WITH A SMALL SHARE OF VOICE IS – YOU HAVE TO BE UNIQUE IN CHOOSING COMMUNICATION VEHICLES.” Charles Areni

Professor of Marketing at the University of Sydney Business School

large and affluent audiences will charge higher sponsorship fees.” Areni says for many consumers, deciding to buy a product is a two-step process. “First they think to themselves, ‘do I recognise the brand or not?’ Then consumers will think, ‘I recognise the brand and I associate it with something in particular.’ In this instance [of sporting events], it’s about positioning coffee in a way that appears as a healthy rather than unhealthy lifestyle. If people see it in that context they are more likely to go purchase it.” Of all the events Wega could have chosen to partner with, from fashion shows, music festivals or fundraising events, Wega’s Nadalet says a coffee manufacturing company partnering with some of the strongest sporting events in the world has more similarities than most people would think. “Both [sports and coffee] are beautiful realities but they are circles where there is only space for the best players: you have to do a great job if you want to access those amazing worlds,” Nadalet says. “Wega has always believed in the values of sports: diligence, perseverance, and the

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continuous attempt to improve in what you do. Good teamwork makes the difference. Also in business it is important to cooperate to achieve a common goal more easily.” He adds that, like the Wega brand itself, targeting a young and dynamic audience was key to their sports campaign. “Technical excellence speaks for itself, but it’s important to expand the stage to communicate our positioning and our values; both are in line with team sports and internationally-recognised events, where the main element – quality of performance – can reach a young public that is keenly aware of new trends,” Nadalet says. “We always look for something which reflects our values: international openness, respect for the environment, and team spirit.” At the end of the day there will only be one winning athlete, but for the sponsors who can maximise their visibility, they will be the ones best positioned to come out on top. “Every brand has a personal identity which can be demonstrated in different ways,” Nadalet says. “Wega shows how [a] company involved in the coffee business can be close to a young and dynamic world such as that of sport.”

COFFEENOMICS Conflicting data

WITH CONFLICTING COFFEE DATA,

WHAT TO BELIEVE

WITH ESTIMATES FOR BRAZIL’S 2013-14 CROP VARYING BY 10 MILLION BAGS, IT IS HARD TO KNOW WHOSE FORECASTS TO TRUST. SO HOW DO ROASTERS, TRADERS OR BUYERS DECIDE WHAT INFORMATION TO BASE THEIR DECISIONS UPON?

here was a time when coffee forecasting was easy. That was when the International Coffee Organisation (ICO) was one of the only global institutions releasing forecasts for world production and consumption. Sure, the US Department of Agriculture (USDA) was also in business, but as producing countries regularly met with importing nations to decide on export quotas and minimum prices, all parties would make sure the balance was right. That all came to an abrupt end in 1989, when coffee prices crashed because of massive overproduction and the US decided to leave the ICO’s International Coffee Agreement on export quotas and minimum prices. As the Cold War came to an end in the years that followed, so did the unwritten agreement between the ICO and the USDA to keep figures for supply and demand in check. With the demise of Cold War politics came a new market fully empowered by free trade. A consequent effect of that development is a coffee market that today is bombarded with countless forecasts from private traders, analysts, exporters, green coffee buyers, investment funds and roasters as well as the traditional official institutions. “If you go by the ICO forecast, year after year they are pretty consistently going to be in the lower range while the USDA is constantly in a higher range,” says Marco Ruttimann,

a partner in the Miami-based brokerage Coffee-Link International. “When you have these forecasts none of these institutions or agencies want to give out numbers that could cause any significant impact or disruptions to the market.” When the 2012-13 international crop cycle officially started last October, both the ICO and USDA pegged the new world crop between 148 million and 151 million 60-kilogram bags. But these forecasts soon started moving in opposite directions, and with market volatility growing and prices increasingly fluctuating, it would appear that ICO and USDA have grown further apart than ever. The ICO primarily releases forecasts based

J U LY /A U G U S T 2013 | GCR

COFFEENOMICS Conflicting data

Crop forecasts for Brazil are always at the centre of global supply data, the problem is it is increasingly difficult to know whose forecasts to believe

on the official estimates issued by governments in producing countries. However, the organisation is frequently criticised for not conducting more individual analysis when presenting its forecasts in monthly market reports. The USDA, in contrast, is seen by many individual farmers and producer organisations as supporting the large multinationals that dominate coffee buying and trading. “The ICO always cites the figures from Conab for Brazil which is always too low, and the figures from Vicofa for Vietnam which are notoriously on the low side as well,” says Oscar Schaps, Managing Director and Head of Global Soft Commodities for financial services company INTL FCStone. Private stakeholders including INTL FCStone, Morgan Stanley and Italian roasters Illy Caffe, all believe the 2012-13 harvest cycle will end with a healthy oversupply. These same groups also believe that even with the continuing onslaught of coffee leaf rust in Central America, other origins like Brazil, Vietnam, Indonesia and Colombia will easily make up for the shortfall. According to Brazil’s main crop supply forecasting agency, Conab, total production in Brazil in the 2012-13 harvest reached 50.1 million bags. Conab puts output from the new 2013-14 crop, for which harvesting is now at its peak, at 48.6 million bags. The USDA, meanwhile, has pegged the new Brazil crop to reach 53.7 million bags, only

G C R | J U LY / A U G U S T 2 013

marginally down from the output in the 2012-13 harvest of 55.9 million bags. If this margin is seen as too wide for comfort, private trade forecasts put the figure even higher, with current production seen up to 58 million bags. This would potentially make it not only the biggest ever crop in an off-cycle, but could be a new all-time record for Brazil after the 2012-13 crop, which Conab had ending at a record of 50.1 million bags. However private estimates of this result vary, from Brazilian consultants Marcado e Zafra’s figure of 54 million bags to 57 million bags from Santos-based exporters Comexim. But the industry remains divided between those who agree with comments such as those

“WHEN YOU LOOK AT THE NUMBERS COMING OUT OF THE TRADE YOU HAVE TO CONSIDER THAT THEY MANAGE THE BOOKS ACCORDING TO OPINION AND TRY TO MANIPULATE NUMBERS ACCORDING TO WHAT WILL FIT THEIR BOOKS.” Marco Ruttimann

Coffee-Link International

There is often a wide gap between crop forecasts from official data sources such as Vietnam’s Vicofa and those from private traders.

from Schaps, and those who disagree and believe the overall balance is a lot tighter. Those speaking in favour of the ICO say critics need to remember that, although government agencies in large producer nations like Brazil and Vietnam may have a tendency to underestimate crops, many other countries consistently overestimate their crops for a variety of political reasons. A large share of the surplus of crops from the balance of underestimated countries is put up against the deficit in crops from countries that are regularly overestimated such as Ethiopia, Ecuador, Mexico, Nicaragua and Colombia. By the end of all counts, the final balance may not be too far off, say those traders, analysts and roasters. Many veterans in the coffee trade also applaud the efforts the ICO has made in the past decade to improve its statistical base and make figures available on a more regular basis, update earlier statistics and present more credible market information overall. “The ICO is wonderful for the statistics, they have done a great job at improving their database and the ICO figures today really are very good,” says commodity analyst Jack Scoville, Vice President of Chicago-based financial services company, The Price Group. “All organisations that provide statistical data have a margin of error,” says Carl Leonard, Vice President for Green Coffee of US roasters Community Coffee. “Most of us who follow production and consumption patterns typically say that the area of accuracy is somewhere between the numbers that the USDA provides in their tropical

WIDE MARGIN Depending on who you believe, Brazil’s 2013-14 crop will total anywhere between 48.6 million and 58 million 60-kilogram bags

J U LY /A U G U S T 2013 | GCR

COFFEENOMICS Conflicting data

“THE ICO IS WONDERFUL FOR THE STATISTICS, THEY HAVE DONE A GREAT JOB AT IMPROVING THEIR DATABASE AND THE ICO FIGURES TODAY REALLY ARE VERY GOOD.” Jack Scoville

Vice President , The Price Group

coffee production reports and the numbers that the ICO provides.” The Executive Director of the ICO, Roberio Silva, tells Global Coffee Review that he plans to address the issues of conflicting data during his term at the head of the ICO. He says he will seek to find a way to improve the Brazilian figures released by Conab, since the weight of Brazil in overall statistics by far is the most influential. Silva says better and more balanced views from Brazil would go a long way to helping reduce some of the speculation in the market. “I want to find a way to sit down with all the main Brazilian groups and try to see if we can figure out why there is such a big difference in the numbers and how we can collaborate with all of them to get a better and more balanced forecast out for Brazil?” says Silva, referring not only to Conab but also to other players in the Brazilian market such as the Coffee Exporters Council, Cecafe. The troubling news to some in the market is that even if the verification and analysis behind some of the key figures in coffee statistics are improved, there is no telling whether this will have any significant impact. The fact remains that the largest volume of forecasts come from the market itself. “The question you have to ask is whether forecasts by any of these companies really can be considered objective, because all these companies make a living by trading coffee at favourable levels to generate profits,” says a physicals trader with a big hedge fund in New York, speaking to Global Coffee Review on condition of anonymity. “Just because the data coming from these companies dominates the flow of forecasts and you have more than 10 times the figures for these companies than what you see from the ICO, doesn’t make it any more correct than the one or two forecasts that stand out by not following the trend.” Besides the two main agencies, market observers can find a long list of financial service providers that all actively participate with individual quarterly or biannual reports on coffee. These include Macquarie, Rabobank, Citigroup, Commerzbank, SocieteGenerale, Standard Chartered, Deutsche Bank, Morgan Stanley, Fortis, Neumann Kaffee Gruppe, Ecom, Noble, INTL FCStone (formerly Hencorp), Volcafe/EDF&Man, Italian coffee roasters Illy Caffe, and private investment funds. “When you look at the numbers coming out of the trade you have to consider that they manage the books according to opinion and try to manipulate numbers according to what will fit their books,” says Coffee-Link International’s Ruttimann. Looking at what is on top of the books based upon data available through mid-June, investment funds are currently holding net short positions worth at least 9.2 million bags, according to the Commodity Futures Trading Commission. This is not far from the record numbers for short positions worth over 11.1 million bags, both recorded in February and March 2013. Any attempt to try to cover these positions

G C R | J U LY / A U G U S T 2 013

could easily lead to major disruptions. Perhaps the only forecasting agency that stands apart as providing independent analysis is German statistician F.O. Licht. This company’s figures for most crop years stand in the higher middle ground between the ICO and the USDA. The other set of forecasts that in the last year has become a topic of increasing industry talk is the quarterly supply and demand outlook reports released by Volcafe. While Volcafe generally uses a higher base for many of its production figures, it also has adjusted figures for demand upward for all the key consuming markets. So what does all this mean for the market? Looking ahead of the official start of harvesting for the 2013-14 crop in October, the big unknown is the extent of the impact of the coffee rust disaster in Central America. “Honduras’ production is down but not by as much than the rest of Central America,” Ruttiman says. “Production in Nicaragua and Guatemala is definitely going to be down, El Salvador and Costa Rica are losing production too and now the rust has also started in Mexico. Production for the region is definitely going to be down, but is it going to be down 10 to 15 per cent or 5 million bags? It’s definitely possible that you could lose 5 million bags from Central America, but it’s still too early to say.” Unfortunately, it appears that, for all of the opinions out there, that definitive number remains elusive. G C R

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FEATURE Indonesia

INDONESIAN

GROWERS STRUGGLE WITH

CLIMATE EFFECT INDONESIA HAS FOR MANY YEARS BEEN THE JOKER IN THE PACK WHEN IT COMES TO INTERNATIONAL COFFEE STATISTICS. THE 2012-13 CROP YEAR LOOKS TO BE NO EXCEPTION.

t is a little-known fact that Indonesia is among the oldest coffee growing nations. The world’s third largest producer over the past five years, Indonesia started planting coffee more than 300 years ago. For much of the past 30 years, Indonesia’s production figures made it one of the world’s most stable coffee nations with output between 6.5 million and 7.5 million 60-kilogram bags per year. That all changed in the 2009-10 crop cycle when production numbers were suddenly raised to 11.4 million bags, which stoked the curiosity of many in the industry. The answer was quite easily traced to the fact that for years, nobody had incorporated the growth in local demand, which by 2010 had reached 3.3 million bags, according to figures from the International Coffee Organisation and the Association of Indonesian Coffee Exporters (AEKI). As the 2012-13 harvest is being wrapped up in Indonesia’s main producing regions on the island of Sumatra – home to between 65 and 70 per cent of total output – and picking of the new 2013-14 crop has started in the growing regions of Java and Sulawesi, uncertainty is once again prompting speculation in the market. “We have never before seen the weather changing this much from one year to the next,”

G C R | J U LY / A U G U S T 2 013

says Irfan Anwar, President Director of Medan-based PT Coffindo coffee exporters, which started business in 1999 and handles some 120,000 bags of coffee a year. “From one region to the other the effect of climate change here is really felt very much in all the coffee growing areas in Indonesia.” According to AEKI figures, the 2011-12 harvest ended at about 8.6 million bags and preliminary figures show that production in the now completed 2012-13 harvest reached between 9 million and 9.2 million bags. “We believe the harvest which has just ended was a little bit better than the year before and overall production did go up about

Indonesia’s 2011-12 harvest ended at about 8.6 million bags according to AEKI figures. Preliminary research show that production in the now completed 2012-13 harvest reached between 9 million and 9.2 million bags.

5 per cent,” Anwar tells Global Coffee Review. Anwar’s company, PT Coffindo coffee exporters, which was named Indonesia Best Exporter in 2010 by AEKI, has its headquarters in Medan, located on the south-eastern border of Sumatra within the Aceh province. While AEKI has yet to release any forecast for the new harvest the United States Department of Agriculture (USDA) recently said it expects the ongoing negative impact of weather to once again lead to reduced harvest output in the 2013-14 crop. The USDA also said the 2012-13 harvest failed to surpass the 10 million bags initially forecast due to a number of weather problems from drought to excess rains, ending instead with 9.7 million bags. Weather and the impact of climate change continues to affect production in the new 2013-14 harvest, which has been reduced by more than 500,000 bags to 9.165 million bags, according to the USDA’s forecast for the new cycle released in its biannual report on 15 May. “Indonesia coffee production is expected to decline by 5.5 per cent in [crop year] 2013-2014,” the USDA report says. “Lower production is principally due to poor weather; drought conditions during flowering, followed by excessive rainfall during early cherry development.”

Drought occurred in 85 per cent of major Indonesian coffee production areas during the critical flowering period from June to September 2012, which led to poor conditions for flowering and resulted in many flowers not maturing into coffee cherries. “By contrast, during the onset of the most recent cherry development stage [December 2012 to January 2013], most Indonesian production areas received above average levels of rainfall. Heavy rains pounded young coffee cherries and a significant portion of the cherries were lost as a result,” the USDA report says. When coffee cherries receive too much rain at the crucial stage of bean formation halfway

J U LY /A U G U S T 2013 | GCR

FEATURE Indonesia

The main focus across Indonesia’s coffee industry is on improving quality and raising the productivity of producers to ensure that future consumption is met without neither cutting further into exports nor relying on imports.

Anwar. The main focus across Indonesia’s coffee industry at the moment is on improving quality and raising the productivity of producers in the world’s fourth most populous country to ensure that future consumption is met without neither cutting further into exports nor relying on imports. Even in Indonesia’s 2009-10 record harvest, the country’s 3.6 million growers, who with a handful of exemptions are all small-holders with about 1-2 hectares of land, registered average yields of only 8.5 bags per hectare. Many Indonesian farmers have in recent years also replaced coffee with other tropical crops such as palm oil and cocoa, which have generated higher earnings. The USDA, for instance, says the coffee area ahead of the 2013-14 crop has been reduced to 1.25 million hectares. “There is a lot of foreign interest in programs that seek to address these issues and we want to improve the productivity and try to improve the challenges from climate change at the same time,” says Anwar, adding that companies such as Louis Dreyfus, Neumann and certification programs like Rainforest Alliance and Utz all are actively involved in Indonesia. Indonesian imports have surged in the past three years to between 1 million and 1.45 million bags. Analysts estimate that Indonesian consumption is headed to between 4.2 million and 4.5 million bags by 2016. As a result, the internal competition in Indonesia’s coffee market is expected to grow accordingly. G C R

through the flowering season, the excess rains prevent the bean from developing adequately. This causes either black or hollow beans, known as floaters, while the bean size is also reduced. Local trade and exporters in Indonesia agree with the USDA and say the weather has offered no helping hands to producers hoping to repeat the bumper crop of four years ago. “There is always a conflict over data in Indonesia, especially in areas like Aceh, where the current situation and the significant impact from weather has had its effect,” says Edi Susmadi, Owner and Director of the Pt Soegee Gayo Indonesia coffee company, which exports fully-washed Gayo Arabica coffee from Aceh and Mandheling Arabicas. “The Mandheling harvest is tight, but not so much because of low production as the unpredictable weather pattern in Northern Sumatra,” says another Indonesian coffee trader in the Mandheling region. “Fly crops are taking longer time than the normal crop to mature, and the normal crop has been maturing in a much shorter period of time.” Comments such as these have become the norm during harvest times in Indonesia recently, and coffee scientists in Indonesia and abroad agree: the most typical changes seen in coffee cultivation in northern Sumatra today include higher average temperatures year-round, drier wet season in January and February, and higher rainfall at the peak of the dry season, from June to August. Naturally, all of these factors severely impact the coffee trees’ flowering and maturation patterns. But if production forecasts are unlikely to provide the export market and trade with greater certainty until the main 2013-14 harvest begins in Sumatra in October, the one number that is sure to rise is domestic consumption. Analysts and industry officials say that the growing popularity of coffee drinking during the past 10 years will continue to cut into the volume of Indonesian beans available for exports. “The coffee consumption in the domestic market continues to grow significantly, so we have Indonesia coffee production is expected to decline by 5.5 per cent in [crop year] 2013-2014 due to drought conditions during flowering, followed by excessive rainfall during early cherry development. to reduce our coffee exports,” says AEKI’s

G C R | J U LY / A U G U S T 2 013

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PROFILE Coffee Board of India

DEEP WHILE MOST CONSUMERS KNOW INDIA FOR ITS TEA, THE NATION ALSO HAS ONE OF THE WORLD’S OLDEST COFFEE INDUSTRIES. HOWEVER, IT HAS JUST STARTED TO GAIN POPULARITY IN FOREIGN MARKETS OVER THE PAST DECADE.

t all started with seven coffee seeds smuggled into India from Yemen in the 17th century. From these seven seeds, one of the world’s earliest coffee industries would blossom into one of the largest coffee producing nations in the world. Despite still being better known for growing tea, India’s coffee has a rich history and it is one that continues to grow. With production growing slowly but steadily, India’s coffee output is expected to continue to climb as new regions have been added to the country’s coffee producing map in the past few years. While exports of premium Indian coffees such as single estate, single origin and top-quality washed Robustas are picking up, so is coffee drinking at home. So much so that India’s instant and soluble industry imports between 1.2 million and 1.4 million 60-kilogram bags every year. This is to keep up with both export demand and local consumption, which is close to 2 million bags per year. “We have identified a few markets that we believe will grow fast and offer Indian coffees a very good scope of growth. Australia is one such focus market for us,” Chairman of the Coffee Board of India (CBI), Jawaid Akhtar, tells Global Coffee Review. “It’s already an important market for Indian coffee, but still there is huge potential of expansion that needs to be tapped. India has some 400,000 hectares cultivated for coffee across 17 different producing regions. Total annual production has grown from between 4.5 million to 4.8 million 60-kilogram bags a decade ago to between 5 million to 5.3 million bags in the past few crop cycles. The CBI expects that figure to continue to climb gradually to about 6 million bags over the next five to 10 years. This will increase to between 6.2 million to 6.4 million bags in another 15 years as new regions start entering the production cycle.

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“Traditionally coffee is grown in the southern part of India with the three states of Karnataka, Kerala and Tamil Nadu producing about 95 per cent of India’s total annual coffee production,” Akhtar says. “The rest of the regions have been relatively small in output, but during the past 15 years we have gradually added 60,000 hectares under coffee cultivation in non-traditional areas such as the Araku Valley in the state of Andhra Pradesh, Koraput in Orissa and in the North-Eastern India, mostly in Andhra Pradesh. “Andhra Pradesh is a harsh area for growing coffee. The yields are low and the farmers come from tribal communities who are new to coffee farming, so we work hard to train them. The coffee cultivation in this region is, by default, organic,” Akhtar adds. “But even with these conditions, coffee still yields the best economic returns to the people of this area. Before getting into coffee, the growers here never had any fixed or stable

income. They had to rely solely on picking and gathering fruits and forest products and selling them in the local markets.” While yields in India today have managed to improve to an average 11 to 13 bags of green coffee per hectare – which puts India in the top 10 for productivity in the world of coffee – the average yields in Araku Valley are as low as three to four bags per hectare. “The growers here are very small and still need a lot of training, but they grow good quality Arabica coffee with medium body and medium-to-sharp acidity,” Akhtar says. “Arabica coffee has a good demand in in European Union, especially in Germany. Now this coffee is being exported to Australia as well.” To many in the coffee industry, especially in the vast group of producing countries struggling with already high and rapidly increasing labour costs, productivity below 15 to 18 bags per hectare is no longer considered economically viable. Small-holder coffee growers across the world have increasingly left land in a state of semi-abandonment because even with good yields the average land units have become too small to generate an income a family can survive on. In India, however, coffee still provides a way out of poverty and the CBI has seized that opportunity to ensure a share of the market that gradually will become available as other coffee growing regions go out of business. There is no denying that the name of the game in coffee today is quality. That is why the CBI has made major efforts to improve the quality of Indian coffee sold to the export market, whether it be from the tiniest tribal producers or the big estates and plantations. From established grades such as Plantation A and Plantation AA, single estate and single origin fully-washed or natural Arabica beans, to natural, semi- or fully-washed Robusta coffees from India, all grades are happily finding new markets with roasters across the world. “We have had a very big focus on quality improvement for quite a long time now, and we are really starting to see the efforts of this paying off,” says Ashok Kurien, President of the Specialty Coffee Association of India and himself a grower in the Chikmagalur region in Karnataka State. “Like in the case of the Australian market, we have always been exporting coffee from India here, but it’s only in the past few years that we really have seen the whole specialty market picking up and now we are even starting to see all the single estate coffees coming in here, so that is a wonderful development.”

Chairman of the Coffee Board of India, Jawaid Akhtar says there is huge potential for expansion of Indian coffee in the Australian market.

“WE HAVE IDENTIFIED A FEW MARKETS THAT WE BELIEVE WILL GROW FAST AND OFFER INDIAN COFFEES A VERY GOOD SCOPE OF GROWTH. AUSTRALIA IS ONE SUCH FOCUS MARKET FOR US.” Jawaid Akhtar

Chairman of the Coffee Board of India (CBI)

During the first Melbourne International Coffee Expo held in 2012, Indian producers, exporters and the CBI joined forces and held the annual Flavour of India cupping competition with what industry officials agree was “overwhelming” response from Australian roasters. “Every single lot in the auction was bought on the spot by different roasters in Australia and we were extremely happy with the results,” says Kurien. “This is also why this year we signed up as exhibitors [at MICE2013] as we realised what a great opportunity this show is for us, as a producing nation, in order to reach roasters directly with our coffees.” From the core traditional specialty blends such as Monsooned Malabar and Mysore Nuggets, the Indian flavours have grown to 17 distinct names and regions over the past decade, and that is in addition to the single estate coffees. Elephant, tiger and monkey conservation coffees are also gaining popularity, due to the unique fact that 100 per cent of all Indian coffee is produced under heavy shade, the majority also through 100 per cent organic practices. “We have had coffee for over 300 years and Indian coffee has already been appreciated here in the Australian market since many years,” says Akhtar. “But we are very happy and enthusiastic to be here in Melbourne this year because there is a lot of development in the local coffee market here.” G C R

J U LY /A U G U S T 2013 | GCR

PROFILE Jet Technologies

FOPPORTUNITIES RESH PACKAGING SPECIALIST JET TECHNOLOGIES IS ALREADY A MARKET LEADER IN AUSTRALIA AND NEW ZEALAND, BUT NOW THE COMPANY IS SETTING ITS SIGHTS ON A NEW FRONTIER.

hen it comes to keeping coffee fresh, Jet Technologies’ General Manager Sam Dickson knows what he’s talking about. That knowledge has translated into a leading position for his business in the Australian and New Zealand markets. Now, Dickson is taking his business into uncharted territories. “We see the Indonesian market as our next big opportunity,” Dickson tells Global Coffee Review. “With more than 230 million people, even if that market only grows by 1 or 2 per cent per annum, we see significant opportunities there.” Jet Technologies opened up an office in Jakarta at the beginning of May 2013. Dickson says they are breaking new ground in the Indonesian coffee industry. “We’re selling products that aren’t produced within [Indonesia’s] domestic economy, so the Goglio machinery that we’re offering is brand new there,” he says. But Jet Technologies’ products aren’t the only thing that’s new about their Indonesian venture. “It is a very different way of doing business in Indonesia, which is why we’ve employed local people,” Dickson says, adding that they have two people in their Jakarta office. There is also the issue of adjusting to a whole new system for importation and establishing themselves in a brand new market. While Dickson says the bulk of the coffee consumed in Indonesia is sold as three-in-one – instant coffee blended with milk powder and sweetener – the specialty coffee scene is gaining popularity. “Specialty roasters are looking at equipment like ours so they can offer Italian-style roasted beans and ground coffee,” Dickson says. “Then there’s a few companies in Indonesia that are roasting in one day what Australia would do in two weeks.” While this is Jet Technologies’ first foray into Asia, Dickson already has his eye on the next opportunities in the region, naming Singapore, Vietnam and Japan as likely future targets for expansion. It is in Japan that Jet Technologies got their latest piece of technology – a machine that manufactures pre-made bags that feature the patented one-way degassing valve from Goglio, for whom Jet Technologies is the Australian representative. The Sydney-based company is also aiming to capture the growing number of small to mediumsized roasters Australia and New Zealand.

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Along with the pre-made bags, Jet Technologies supplies Comunetti equipment to fill and seal them. “This system is most economical for businesses roasting less than four tonnes per week,” Dickson says. He adds that larger roasters are best served by a system using printed roll stock. This Goglio vertical form fill equipment creates the bag from a large roll of printed material, then fills the bag with coffee, often gas flushes or vacuums the bag and then seals it with top finishing. The technology used to form the bags is just the tip of the iceberg, however. Years of work have gone into designing the bags’ material. “In coffee it’s crucial that we have aluminium within the structure so that no light, oxygen or moisture can get in and affect the shelf life of the coffee,” Dickson says. On the outside of the aluminium layer, Jet Technologies usually uses reverse-printed polyester, while on the inside they use polyethylene. “The polyethylene seals the valve inside the bag, provides puncture resistance and of course to seal the bag,” he says. The valve is crucial in allowing the freshly roasted coffee to release their gas without damaging their packaging.

Jet Technologies’ General Manager Sam Dickson says that packaging is constantly evolving.

To maintain the shelf life of coffee, Jet Technologies’ packaging uses an aluminium layer to block light, oxygen and moisture.

“WE’RE SELLING PRODUCTS THAT AREN’T PRODUCED WITHIN [INDONESIA’S] DOMESTIC ECONOMY, SO THE GOGLIO MACHINERY THAT WE’RE OFFERING IS BRAND NEW THERE.” Sam Dickson

General Manager, Jet Technologies

“During the shelf-life cycle, one kilogram of roasted beans could degas more than three litres of aroma and carbon dioxide. Using the Goglio one way valve with half moon punching, we allow the gas out of the bag, otherwise the bag will blow up, fall over on the shelf, break carton boxes or even burst,” Dickson says. While the valve has become an almost ubiquitous feature of coffee packaging, Dickson says he is seeing new trends emerge. “We’re seeing a big shift into four-corner sealed, gusseted bags and block bottom bags. We’re also seeing compostable laminates and different finishing techniques applied, so clients can use a matte and or glossy finish on their bags,” he says. The four cornered bag allows roasters to have two flat faces, front and back, on their packaging for marketing purposes. Jet Technologies can offer further help on this front, with three in-house graphic designers,

an experienced rotogravure printer and National Sales Manager, Dean Gleeson, on staff. “We can do the whole process from artwork mock-up through to bag formatting and design,” Dickson says. While Australian consumers may fancy themselves as being at the forefront of the world when it comes to their favourite drink, Dickson says the New Zealand market is ahead on at least one count. “In Australia, people still buy ground coffee in a brick pack, whereas in New Zealand they understand the importance of roasting locally,” he says. “So in the New Zealand market, everything is packed fresh in a soft pack. I think within five or so years the trend will move away from brick packs in Australia and everybody will roast, grind and pack fresh, with a valve, in a soft pack.” And when the industry is ready to make the change, Jet Technologies will be there to help them. G C R

J U LY /A U G U S T 2013 | GCR

RESEARCH Geography & coffee Cenicafe’s investigations on the environmental factors affecting coffee production show that lower temperatures cause fruit to ripen more slowly, causing it to build up higher levels of sugar.

THE HEIGHT OF

GOOD TASTE COLOMBIAN COFFEE EXPERT DR EDGAR MORENO TELLS GLOBAL COFFEE REVIEW THERE IS STILL MORE TO BE LEARNED ABOUT THE INFLUENCE OF TEMPERATURE, ALTITUDE AND LATITUDE ON THE QUALITY OF COFFEE.

r Edgar Moreno has been studying the factors that go into making a great coffee for many years. As the Director of Quality Control for the Colombian Coffee Growers’ Federation (FNC), Moreno says that geography has alway been a significant factor but, as he tells Global Coffee Review, there have been some significant discoveries recently. “Comprehension about geography [understood as soils, topography and weather] and their influence on production and quality of the coffee has been enhanced significantly indeed,” Moreno says. He says that the FNC’s research institute, Cenicafe, has conducted numerous trials and investigations into this area. As a result they have developed technology for adequate use and preservation of soils, as well as technical management of the coffee fields under shade, semi-shade and full sun exposition according to the natural luminosity of the specific regions where coffee farms are located. The results of these studies have allowed the FNC to determine the effects of key environmental

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factors on the production of coffee and assist and inform their farmers accordingly. As Moreno shared in his lecture on the FNC’s website, the Colombian Coffee Hub, this information has allowed the FNC to create a detailed topographical profile of Colombia’s coffee growing regions and the types of coffee they produce. The benefits of temperature and altitude on the quality of coffee are many, Dr Moreno says. First of all, a lower temperature will mean the fruit ripens more slowly, allowing it to build up higher levels of sugar. These higher sugar levels

do not just improve the flavour of the coffee, ultimately transforming into acid and aromatic compounds, they also protect the fruit against freezing on cold nights. Moreno says the altitude also plays a part in determining the characteristics of the soil, which can then amplify the effects of the temperature on the coffee. “In higher altitudes, soils are made up of volcanic ashes whose physical characteristics allow the plant’s root development,” he says. “Also, those ashes have a great power of retaining humidity that can nurture the plant during drought periods. “ Moreno says that the optimal temperature for growing Arabicas is between 18°C to 23°C, while for Robustas it is between 24°C and 30°C. A basic interpretation of this information would dictate that, in a warm country like Colombia, Arabicas are best grown at higher altitudes and Robustas closer to sea level. However, with latitude having such a pronounced effect on climate, the altitudes needed to achieve different temperature ranges will change according to where the coffee is grown in relation to the equator. This knowledge is helping Colombian farmers to determine the best places for starting new plantations, particularly in light of threats from pests and disease. “We are witnessing the progressive movement of coffee farms to higher altitudes to diminish risk of diseases like roya (coffee leaf rust) or plagues of broca (the coffee berry borer),” Moreno says. “Another common example is related to the preferential development of organic programs or Rainforest Alliance, where shaded coffee farms are required due to high natural luminosity and the low relative altitude of these coffee fields, such as in Colombia’s Santander and Sierra Nevada regions. At the same time coffee growers are more conscious of the importance of the environmental as well as the human factor in obtaining good quality coffee.” Moreno adds that this knowledge is helping Colombian growers cater to the more lucrative premium coffee markets. “Knowledge of different coffee profiles from different Colombian coffee regions due to specific geographical conditions also allow us to lead the supply of high-end specialty coffees that

The optimal temperature for growing Arabicas is between 18°C to 23°C, while for Robustas it is between 24°C and 30°C.

have robust and sound information about them,” he says. However, despite these findings and the effect they have had on farmers’ livelihoods, Moreno says there is still more to be learned. “It is not still clear how the soil’s chemical composition affects cup profile in certain areas or how exactly the rainfall or the Dr Edgar Moreno The Director of Quality Control for the Colombian Coffee dry season contributes to quality/ Growers’ Federation (FNC) production and through which exact mechanism,” he says. Moreno’s lecture was just the first in a series being run by the Colombian Coffee Hub, with the aim of enhancing the knowledge of coffee professionals around the world with information from origin. It is through this kind of knowledge exchange that the FNC hopes to better equip its farmers to mitigate impact of any future challenges such as the one they have faced in the past few years with the leaf rust crisis. These lectures can be accessed on the Colombian Coffee Hub’s website, www. colombiancoffeehub.com, or via their YouTube channel. G C R

“IN COLOMBIA, THE ALTITUDE ALSO PLAYS A BIG PART IN DETERMINING THE CHARACTERISTICS OF THE SOIL.”

J U LY /A U G U S T 2013 | GCR

PROFILE Franke

SERIOUS

BUSINESS

WITH GOOD COFFEE AVAILABLE AT HOME AND IN CAFÉS, FRANKE COFFEE SYSTEMS’ CEO YVO LOCHER IS AIMING TO IMPROVE THE QUALITY OF COFFEE IN THE MARKET’S FINAL FRONTIER – THE OFFICE.

BY SARAH-JANE COLLINS

CEO of Franke Coffee Systems Yvo Locher says the office is the next battleground for quality coffee. 38

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ranke Coffee Systems does not compete with in-home coffee machines and has no intention of doing so in the future, says Franke Coffee Systems CEO Yvo Locher. Instead, his company’s strategy is to build on people’s expectation for quality coffee wherever they are. “It’s a different market and it’s a different way of manufacturing the machines. But inhome machines help a lot to improve the quality of the coffee industry,” Locher tells Global Coffee Review. “This high quality of in-home coffee will only help us. If there is fantastic coffee at home then you go to a coffee shop and have a great coffee and then you go to your office,” Locher says. “When you are in your office normally you get something, but it’s not what you want. So expectation will drive better quality in the workplace. We’re putting a lot of our focus there.”

Locher wants Franke coffee machines to be the go-to choice in offices and small businesses around the world. “The strategy is to develop the right machine for the right size workplace,” he says. “You will see coffee more and more everywhere in the world, maybe at the doctor, the hairdresser. Coffee will be following you and you will be following coffee.” Franke Coffee Systems, a Swiss-based global brand, makes coffee machines for business, catering and hospitality. Their machines, from automated one-step units to more traditional espresso machines, provide the latest in coffee technology. Locher took the helm at Franke in January 2012 and has been busy travelling across the world to the many destinations – including Germany, the Netherlands, Austria, the United States, United Kingdom and Japan – where the company’s machines are in use. The company employs more than 500 people and is one of the largest coffee machine suppliers in the world. In May he was in Australia, where Locher says the quality of coffee is already very high. “Australia is an important market throughout the industry. Australia doesn’t have a large population, but when you see the amount of coffee machines in Australia, it’s impressive. Australians drink a lot of coffee and they drink a lot of good coffee,” he says. With an Italian mother and a background in the catering and hospitality business, Locher knows what he likes, and his vision for Franke is a company that can provide the best coffee, no matter the size or style of machine. “At the moment, the more expensive the machine is, the better the coffee, especially with milk coffee,” Locher says. “But in the future we want to provide the same quality, with or without milk, and it should not depend on the price of the machine. There will still be cheaper and more expensive machines, but that will depend on the output, not on the quality.” Franke’s latest machine, the Foammaster, is designed with that principle in mind. The machine incorporates a touchscreen menu design and allows users to choose from a large array of options. The touchscreen, says Locher, is designed to reflect the way people use technology today. “The way [people] communicate with the machine is changing a lot. The user interface of the machine has to reflect what you use normally, and it should be easy to understand.

People don’t want to spend two or three days learning how something works,” Locher says. Sometimes even Locher, who is an espresso drinker, says he feels like a chococino with cold foam – and Franke’s idea is to provide the best. “I’m not going to drink it every day, but I like to be surprised,” he says of the less well-known beverages the Foammaster can produce. One of the biggest challenges for a global brand like Franke is devising machines that suit the many different types of coffee drinkers globally. “Our new machine, and the ones that we will have in the future will have the ability to deal with the demands of different coffee markets,” Locher says. “Everything is different depending on the market you are in, even the foam consistency. If you want to do a cappuccino in Italy, the foam expectation will be different to somewhere else.” Locher spent a decade on the other side of the coffee machine business, running the catering operations for Swiss railways. As a result he is acutely aware of the challenges that Franke’s customers face. One of his top priorities is to ensure that Franke coffee machines can be repaired seamlessly and quickly if they break down. Franke Coffee Systems’ Foammaster 800 is designed as a new premium-class standard in fully-automatic coffee machines. It features a 10.4-inch touchscreen for easy use, both in fullservice and self-service mode.

“Coming from the other side of the business, breakdown is a nightmare. Breakdown should be dealt with quickly,” he says. Locher adds that the company wants to ensure that broken machines are repaired within hours, not days. Locher’s goals may seem ambitious, but he believes if the strategy is executed correctly, Franke will be able to increase its reach and continue to grow rapidly. Locher says as demand for quality coffee grows, the company will only see more interest in their machines. “I do think as awareness of good coffee increases we get more customers. The market is getting better. But you have to make sure that you understand it because even if the coffee culture is getting better worldwide, it can be very different,” Locher says. But there’s no doubting Locher knows good coffee from bad. He’s determined to continue to push coffee markets around the world to a higher standard. “Twenty years ago when I was going around the world it was very difficult to get good coffee. I remember my first visit in the United States. After three weeks there going back to Europe was so nice, I could finally get a good cup of coffee,” he recalls. “Nowadays in Seattle, in New York, San Francisco, they have better coffee, and it’s the same everywhere, which can only be good for us.” G C R

J U LY /A U G U S T 2013 | GCR

GlobalCoffeeReview

The intelligent magazine for the global coffee industry eXCLusiVe Benefits: 6 editions per year Access to our exclusive website Weekly global updates Special reports and reviews Global leadership insights

May/June 2013

July/August

BRAND POWER ETHIOPIA’S POTENTIAL

The birthplace of coffee advances

trading

up The push premium catowards psules

PRICE TRENDSETTERS How to make your own predictions

COLOMBIAN STANDOFF

hard

Are government subsidies a band-aid solution?

CONTENTS July/August 2011

COVER STORY

40 YEARS IN BUSINESS

Buencafé embraces a changing landscape

AFE INSIDE VOLCition by ED&F Man

experience, After an acquis centuries of of the and over two one emerged as nies in Volcafe has trading compa largest coffee the world.

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A look at the s for vast opportunitie as tea growth in China, g the makin drinkers start switch to coffee.

DS AFRICA N GROUNtic market

Africa’s domesopportunity presents clear a handful and for growth, are working of companies to entrench to get in early potential themselves in markets.

B Community

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.

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Terry Ziniewicz

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 2 011

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Volcafe’s Divisio or speaks Managing Directprices, the out about rising of trade and changing face will come where growth from next.

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Volcafe Director Managing Divisional

MARK ETING

FEATU RES

Indonesia’rain a changings struggle with climate

global gathering Melbourne CAREFUL APPROACH hosts ROASTER’S coffee lea MARCO LAVAZZA ON THE ITALIAN ders TO EXPANDING THE FAMILY BUSINESS INTO A GLOBAL EMPIRE.

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2013

Why GMCR isn’t afraid of expired patents

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

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

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RESEARCH Coffee in Africa

CULTIVATING POTENTIAL ON LAKE KIVU ONE OF AFRICA’S MOST TROUBLED NATIONS, THE DEMOCRATIC REPUBLIC OF THE CONGO HAS THE POTENTIAL TO FOLLOW ITS NEIGHBOUR RWANDA AS A FUTURE STAR OF THE SPECIALTY COFFEE SCENE.

offee from the South Kivu province of the Democratic Republic of the Congo (DRC) has the potential to be good. In fact, if history is any guide, it can be great. “There used to so much money in [coffee from the region] that they were transporting it out of here using airplanes back in the 1950s,” says Dr Timothy Schilling, who is working with World Coffee Research (WCR) to try to revitalise the industry in DRC. The son of one of the world’s richest men, Warren Buffett, and a prolific philanthropist with a strong agricultural background, Howard Buffett saw the potential for the revitalisation of the DRC’s coffee industry on a recent visit to the region. The result is the Kahawa Bora Ya Kivu, or Kivu Specialty Coffee Project. A WCR team visited South Kivu in early 2013 as part of the US$5 million project, which is being funded by the Howard Buffett Foundation in partnership under a Global Development Alliance with the United States Agency for International Development (USAID), Catholic Relief Services (CRS), and Eastern Congo Initiative (ECI). The project will provide research into the best ways to assist local coffee growers to increase productivity, quality and market access. South Kivu is located in the eastern part of the DRC, Africa’s second-largest nation. The province is located on the western banks of Lake Kivu, which lies along the border of the DRC and neighbouring Rwanda.

After almost two decades of internal conflict in the central African nation, however, the Kivu Specialty Coffee project is about much more than just supplying the world with more specialty coffee. For many young men in South Kivu, joining one of the militias that still terrorise the surrounding regions can seem like the only way to make a living. It is hoped that renewed growth in the coffee industry will provide an alternative. According to figures from the DRC’s National Coffee Office, the nation’s coffee production peaked in the late 1980s at around 110,000 tonnes per annum. However, the industry declined steadily during the latter stages of the Mobutu regime, which was ousted in 1997. Since then it has continued to struggle, with production running at about 50,000 tonnes in 2009. In that time, conflict

J U LY /A U G U S T 2013 | GCR

A typical garden in the DRC will have coffee trees planted irregularly among other staple crops.

in the nation had been rife and exports were relatively minute – around 10,000 tonnes per annum. Schilling estimates that, at present, South Kivu is producing just 5000 tonnes per year. Willy Mulimbi, who is the CRS project leader, says there are still many challenges facing the region. What coffee exists is poorly maintained and grows haphazardly, he says. Most plots are not well tended and the coffee plants are dispersed irregularly among other crops. Often the plants are 40 years old or more and the roots have been damaged due to plowing close to the tree base in order to plant other crops. Add to this the fact that some plants are of varieties that are not resistant to rust and seed production is in a parlous state, it is hard not to despair. The people also face massive social and economic challenges, Mulimbi says. “Most of these people lost their resources and family members during the period of insecurity,” he says. “Few livestock being raised, plant disease, low income and weak seed system security are some key points that come to increase their food insecurity.” It is not just coffee production in the region that is challenged, Mulimbi says. Another of the key crops, banana, is being destroyed by the banana xanthomonas wilt disease. “Banana is known as the bank of all the farmers,” Mulimbi tells Global Coffee Review. “As it produces all year round, every time you need cash or food you just get in your banana plantation and cut some bananas that you take to market. “A coffee farmer told me that he has been told by his parents: ‘Plant coffee and banana because these two crops will maintain you during your oldness.’ The same man asked me: ‘Right now coffee is abandoned and banana is disappearing. What are we going to become?’” The Kivu Specilaty Coffee Project aims to address this by testing 30 new rust-resistant varieties in three different locations around South Kivu. Although the experimental trials will not be complete until 2016, the results should determine which varieties will produce significantly greater

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Photo: Christophe Montagnon

RESEARCH Coffee in Africa

yields and quality than current varieties being used there. In the meantime, the project is working on improving productivity through scaling up the best existing varieties and introducing new agricultural practices such as investigation into fertilisers that can be used in the area. Plans are afoot to import the California Red Worm from Rwanda and train locals on the culture of worms and how to produce highly nutritive organic fertilisers from their pulp piles. WCR is also planning to bring in an organic fungus-bacteria complex that helps in the degradation of pulp. It is hoped that these initiatives will increase yields by 50 per cent (to 7500 tonnes) by 2016 and by 100 per cent (to 10,000 tonnes) by 2020. In addition to this, WCR will work with locals to develop quality assurance protocols right throughout the production process, including the establishment of cupping labs for better quality evaluation. Finally, WCR will provide marketing

Photos: Christophe Montagnon

Despite the dilapidated state of many coffee gardens in South Kivu, the coffee that does grow is of surprisingly good quallity.

“MOST OF THESE PEOPLE LOST THEIR RESOURCES AND FAMILY MEMBERS DURING THE PERIOD OF INSECURITY. FEW LIVESTOCK BEING RAISED, PLANT DISEASE, LOW INCOME AND WEAK SEED SYSTEM SECURITY ARE SOME KEY POINTS THAT COME TO INCREASE THEIR FOOD INSECURITY.” Willy Mulimbi

Leader of the Kivu Specialty Coffee Project

support for the coffee coming out of the region by developing a brand for Kivu coffee, running buyers trips and taking the coffee to trade shows around the world. Farmers in South Kivu also face problems with onerous government regulations, which prompt some people to smuggle their coffee to Rwanda, which lies on the other side of Lake Kivu. However, this comes with its own set of dangers. “This activity of taking coffee by fraud is generally done by night and many families lost their members who sank in the lake,” Mulimbi says.

Local farmers often struggle to find suitable equipment for processing their coffee once it is ready.

However, Schilling believes we need only look to the success of neighbouring Rwanda to see the potential for improvement. Riven by domestic conflict in the late 1990s, Rwanda only began to produce specialty coffee about a decade ago. The result has been spectacular, with coffee now accounting for more than 50 per cent of the nation’s exports and Rwandan coffees grown on the other side of Lake Kivu being highly sought after on the world market. The past year has been a peaceful one for South Kivu, meaning people are able to try to improve their lot free of the threat of violence. Schilling says there is a strong entrepreneurial spirit among the people that will sit them in good stead once the fundamentals are right. “All they need is a prolonged period of peace and they will prosper,” he says. “We want to show these farmers that this is business. This is money. They can make real money out of this crop.” G C R

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ORIGIN Papua New Guinea

PAPUA NEW GUINEA AIMS FOR

GROWTH PAPUA NEW GUINEA’S OUTPUT HAS REMAINED ROUGHLY STABLE FOR THE PAST 15 YEARS. NOW THE LOCAL COFFEE INDUSTRY IS MAKING PLANS TO BOOST ITS PRODUCTIVITY.

ords like fascinating and mysterious don’t even start to describe the incredible cultural diversity to be found in Papua New Guinea (PNG). And as those who love their coffee know well, when it comes to quality beans, this isolated Pacific nation has a stellar reputation. The good news for coffee lovers familiar with PNG’s coffee is that the harvest for the 2013-14 crop year is coming in well above the last crop, which was one of the lowest in history. “The new harvest should definitively get us back to production between 1 million to 1.1 million 60-kilogram bags,” says Navi Anis, Chief Executive Officer of the Coffee Industry Corporation (CIC) of PNG. While figures for total production in the past 2012-13 crop cycle are still being revised, the best-case scenario for that harvest has the final result at 850,000 bags. However many local coffee industry officials say the actual amount of coffee harvested and processed for shipment only reached 650,000 bags. This shortfall was caused by a mass labour shortage at the peak of the harvest as many workers picked up casual jobs in the 2012 general election campaign. The low output was unusual for PNG, which traditionally has remarkably stable

Coffee pickers arrive at the wet mill of the Colbran Estate in Papua New Guinea’s Kainantu region with the day’s work of perfectly picked top quality beans.

outputs. One factor contributing to this stability is that the main harvest starts in May and June, but harvesting and picking continues year round, so output from an up-cycle will often help compensate for some of the lower production seen in the lower cycles. In 2011-12 the country turned out a record harvest of 1.4 million bags. Industry officials and exporters alike attribute this to an unusually early crop that allowed for most of the 2011 harvest to be incorporated in the crop cycle starting that year. This was further boosted by healthy carryover stocks from a late harvest in 2010. But, according to the CIC, these figures hide the fact that production in general has been below par. “For the past 15 years production here has stagnated at about 1.1 million bags,” says Anis. “We also have a lot less estate coffee available today and that has resulted in PNG also having

J U LY /A U G U S T 2013 | GCR

ORIGIN Papua New Guinea

Increased attention on PNG’s coffee industry from international agencies such as the World Bank has encouraged more people to focus on their crops.

less of the top quality coffee available as we used to have, so we are very concerned about how to correct this balance.” Driving through the provinces of Jiwaka, the Western Highlands and Simbu to Kainantu in the eastern-most part of the Eastern Highlands – four provinces that alone account for more than 90 per cent of Papua’s total annual production – one sees kilometre after kilometre of abandoned or semi-abandoned former private estates. Tribal and land disputes are blamed for most of the private estates being left by their original owners, but authorities are now trying to find adequate solutions to re-activate the land. The Colbran Estate is one of the few privately held farms still active in Kainantu, which used to be one of the prime areas for the Papuan coffee sector. “The farm here was started by my grandfather Ben Colbran who was one of the first to embark on plantation-grown coffee here in 1965,” says Nick Colbran. “There used to be more than 50 private estates in this region alone and now there is less than handful left.” While the volume of estate coffee has gone down in PNG, there is no disputing the quality of the coffee grown at estates such as the Colbran’s, which is also known as the Colbran Coffeelands or the Baroida Estate. Arriving late in the afternoon, hundreds of pickers are lining up at the wet mill to have their coffee weighed and processed. Few farms in the world would be able to compete with the flawless standards maintained here as one bag of perfectly picked ripe cherries after another is opened and loaded into the washing tank. From picking to washing, drying to processing, the beans are meticulously sorted every step of the way. “Most of our coffee is of the Arusha and Typica varieties, and most of the balance comes from

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Bourbon, Mundo Novo and Blue Mountain varieties,” Colbran says. “Last year was one of the worst crops ever but this year we should get back to normal production levels.” Colbran also buys several containers worth of green coffee from nearby smallholder producers at premiums well above the local market in order to motivate the growers to pick only ripe cherries. Anis says that while issues such as low yields and picking only ripe cherries continue to be a struggle, one of the many positive factors in the PNG coffee industry is that small-holder producers are increasingly moving toward seeing coffee as a business opportunity rather than a subsistence crop. Even though close to half of the country still depends on coffee as their main source of income, they do not rely on coffee for their basic daily survival as they have their food needs covered.

“LAST YEAR WAS ONE OF THE WORST CROPS EVER BUT THIS YEAR WE SHOULD GET BACK TO NORMAL PRODUCTION LEVELS.” Nick Colbran Colbran Estate

“Most people have food gardens in addition to coffee to cover their daily needs,” Anis tells Global Coffee Review. “PNG has more than 400,000 families that are involved in coffee growing so this is very much a coffee country, but in the past few years we have seen the industry maturing in the sense that people are primarily seeing coffee as a business.” Coffee was first introduced to PNG in the late 1880s when German, British and Australian colonial powers took over administration in various parts of the country. It wasn’t until the 1940s and 1950s, however, that coffee growing started in earnest when the crop was introduced to tribal communities in the key province of the Eastern Highlands. In the Asaro community, home to the famous tribal hunters known as the Asaro Mud Men, coffee was first planted in in PNG in 1949. One of more than 800 individual tribes in PNG, the Asaro Mud Men still grow coffee and still practice the ritual of talking to the coffee trees throughout the harvest season to ask for good yields. In fact, talking to trees is a common practice across many of PNG’s coffee regions. “I speak to my coffee trees,” says local coffee producer Maggie Kanamon, who lives in the country’s second largest coffee producing province, the Western Highlands. “I say good morning to them and when they don’t produce well I scold them too, but right now almost all my coffee is in renovation.”

It is a common practice in many parts of PNG for farmers to talk to their trees as they grow.

J U LY /A U G U S T 2013 | GCR

ORIGIN Papua New Guinea

“FOR THE PAST 15 YEARS PRODUCTION HERE HAS STAGNATED AT ABOUT 1.1 MILLION BAGS. WE ALSO HAVE A LOT LESS ESTATE COFFEE AVAILABLE TODAY … SO WE ARE VERY CONCERNED ABOUT HOW TO CORRECT THIS BALANCE.” Navi Anis

CEO, Coffee Industry Corporation of PNG

More than 75 per cent of the 800-plus tribes in PNG are involved in coffee growing and many still incorporate tribal rituals into the process.

Kanamon is one of the thousands of producers who are trying to revive years of low productivity and turn coffee into a more profitable business. “The farmers will have coffee trees but they don’t provide regular care and crop husbandry so the yields are quite low,” says Cathy Rumints, a local volunteer community worker in the Mount Hagen coffee area. “We are trying to work with them and make them realize that coffee is a good business and they can earn good extra money from spending more time on the coffee trees.” It’s little wonder that PNG calls itself “the land of mystery” in official tourism campaigns. With 841 different laguages spoken there, it is home to more individual tribes than any other country in the world. Of the country’s more than 800 known tribes, more than 75 per cent – or the equivalent of more than 600 tribes – are involved in coffee growing, according to government data. Travelling to tribal coffee communities anywhere in PNG is the ultimate coffee adventure. Most of the communities are so isolated that, due to a lack of roads and any other basic infrastructure, even

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basic coffee surveys have yet to be conducted. Visitors are far and few between. “There is a direct link between roads and coffee,” says Rumints while on a visit to the Ukuni One village, which can only be reached via four hours on roads that for the most part could barely be called dirt tracks. “When I first met with the women of the groups here they didn’t even know how many coffee trees they had.” In Ukuni One, women coffee growers from the Kope, Nokopa and Kaulga tribes are now in the process of taking surveys of their coffee farms, counting trees and learning about quality improvement. “We have very few visitors here and before we talked to Cathy [Rumints], we didn’t really see coffee as a potential and we had never had anyone visiting us about our coffee,” says Rachel Stephens, Leader of the Ukuni One coffee group of women. Growers in villages such as Ukuni One traditionally will bring a bag or two of cherries along to the weekly trip to the market and sell it along the road. “Now we realise that it can provide a good source of extra income, even if most of us only have between 300 and 500 trees,” Stephens says. The CIC says that providing technical assistance and extension services to all the communities involved in growing coffee is an ongoing struggle with limited resources. But in recent years a number of projects have been started with support from the World Bank and other international funds that seek to help organise smallholders into cooperatives. It is hoped this will strengthen their market base and expand the reach of assistance to help improve basic crop husbandry and quality improvement. The key objective of this is also to recover production lost from the private estate sector. The CIC remains confident that the initial results of these efforts will start to show in coming years. “There is a lot to discover here in PNG for coffee buyers and roasters, we believe we still have a lot of potential we haven’t been able to explore and develop yet and which we need to do in order to remain competitive around the world,” says CIC’s Anis. G C R

FEATURE NEWS Leaders Symposium

A NEW WORLD OF

OPPORTUNITIES MELBOURNE WAS THE PERFECT STAGING POINT FOR THE SOUTHERN HEMISPHERE’S NEWEST GATHERING OF THE GLOBAL COFFEE INDUSTRY.

s the standard-bearer of Australia’s coffee culture, Melbourne is a comfortable fit to host an international coffee event. Before a crowd of more than 11,000 of coffee professionals descended on the Melbourne Showgrounds from 23 – 26 May for the Melbourne International Coffee Expo (MICE2013), a select group of the industry’s leading decision makers came together for the first annual Global Coffee Review Leaders Symposium. The Symposium, held on 22 May, brought together more than 100 of the industry’s top leaders from around the world to talk about issues ranging from doing business in Asia, to the future of the global coffee supply and the trend towards single-serve coffee consumption. As well as helping delegates spot the next business opportunity or make valuable new connections, the day also challenged attendees

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to step back from the day-to-day operations of their businesses and look at the bigger issues affecting the industry. Players from across the spectrum of the industry came together for the event, from producers, roasters, retailers and equipment manufacturers. For many, the Symposium was an opportunity to gain a greater appreciation of the challenges and opportunities affecting all sides of the industry. Head of Vietnam’s largest coffee roaster Chairman Dang Le Nguyen Vu gave attendees a fascinating insight into the view of the global industry from the perspective of the world’s secondlargest coffee producing nation. Trung Nguyen’s Chairman outlined a vision for how consumer nations could work more closely with producer nations, such as his own, to guarantee a more equitable and sustainable future for the industry. Pinpointing three key values – prosperity, creativity and responsibility – Chairman Vu declared his intention to grow Vietnam’s industry from its current US$2 billion per year to US$20 billion by 2030. Chairman Vu also told delegates how he planned to export the Vietnam model internationally. The need for plans such as this was brought into stark relief by a presentation from globally recognised coffee analyst and journalist Maja Wallengren. Wallengren demonstrated how, if nothing is done to address the challenges such as the coffee leaf rust crisis and dwindling productivity across most producing countries, the demand for coffee will far outstrip supply as soon as 2016. Symposium attendees were also challenged to assess exactly what has been driving global coffee prices and how that could affect their business in coming years. In fact, Specialty Coffee Association of America’s Executive Director Ric Rhinehart demonstrated that the global slide in

overall prices will have little or no effect on the bottom line of specialty coffee businesses. Rhinehart showed how the global price reflects that higher demand primarily comes from Robusta while the price of quality Arabica will continue to climb with demand. The perspectives of a number of origin countries were presented, with Santiago Pardo from the Colombian Coffee Growers Federation (FNC) speaking about his nation’s success in exporting their brand to the United States and Japan, and how they plan to replicate that in new and emerging markets. “The key is to articulate what we can offer as an institution – providing all the authenticity and quality of the coffee in Colombia, and the Colombian coffee culture, to our partners,” Pardo said. “Colombian coffee is very well known in Japan [FNC just celebrated 50 years in the Japanese market], so now we need to try and replicate our model in countries such as Korea, China, Australia and New Zealand.” Miguel Medina from the National Coffee Association of Guatemala gave an insight into how his nation is dealing with the rust crisis that has to date caused severe damage to at least 50 per cent of the coffee in Central America. With sponsorship from industry stalwarts Cafetto, Mahlkoenig, Intl FCStone, Condesa, Lion and Mocopan, the Australian industry was naturally well represented at the event. Given Australia has one of the world’s youngest, but also most developed coffee cultures, the Australian delegates were particularly keen to learn from the perspectives of their international counterparts, an exchange that ultimately seemed to go both ways. “I think [the Global Coffee Review Leaders Symposium] is a good opportunity to get a broad understanding of the issues affecting the industry,” said Chris Short, CEO of event sponsor Cafetto. “A lot of people only see their limited patch – this is a good opportunity to see outside that and see some of the dynamics that are driving it, such as singleserve coffee, because that will drive many innovations, not only for ourselves but also the broader industry.” Over the next four days, these trends and insights were put into practice as more than 150 exhibitors and 11,366 visitors came together for Australia’s largest ever coffee event at the Melbourne Showgrounds. With a broad mix of exhibitors from all

“[THE GLOBAL COFFEE REVIEW LEADERS SYMPOSIUM] IS A GOOD OPPORTUNITY TO GET A BROAD UNDERSTANDING OF THE ISSUES AFFECTING THE INDUSTRY.” Chris Short

CEO of Cafetto

over the world, MICE2013 added some star power to its industry clout by also playing host to the 2013 World Barista Championship and the World Brewers Cup. On the show floor there was a strong showing right from day one. Nabi Saleh, Executive Chairman of Australian specialty coffee success story Gloria Jean’s Coffees, told Global Coffee Review that MICE2013 was exactly what the Australian market needed. “The Australian coffee culture has come of age and having this global event here highlights the success of our industry,” Saleh said. Fabrizio Brambati, President of Italian coffee roaster manufacturer Brambati, said the show was a chance for his company to scope out the potential of the Asian market while also visiting his many local clients. “Asia is definitely an interesting market for us, but the Australian market for us is very attractive because of the number of customers we have here already,” he said. Brambati was not the only international visitor to be impressed by the scope of MICE2013. “I have been surprised by the size and the interest in the show,” said Mahlkoenig Board Member Nils Erichsen, whose company was also the official grinder sponsor of the WBC. “It’s very focused on high-end and high quality,” he said. G C R Gloria Jean’s Coffees’ Nabi Saleh says MICE2013 shows the maturity of our Australian coffee market.

Brambati President, Fabrizio Brambati, uses MICE2013 to scope potential for the Asian market.

J U LY /A U G U S T 2013 | GCR

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Photo: Pham Thi Diep Giang

BUILDING A NATIONAL COFFEE CLUSTER IN VIETNAM Đặng Lê Nguyên Vũ

Chairman of Trung Nguyen Group

OVER THE PAST FEW YEARS, Trung Nguyen, which is the largest coffee roaster in Vietnam, has been collaborating with some of the world’s top experts to build a National Coffee Cluster in Vietnam. This plan, which aims to improve the position of Vietnam’s coffee industry and increase the export value of Vietnam’s coffee industry to US$20 billion by 2030, was submitted to the Vietnamese Government in March, 2013. The National Coffee Cluster project has been initially implemented as a four phase campaign: 1. Binding to a national eco-social development strategy. 2. Transforming agriculture. 3. Strategy for product. 4. Space planning. Our plan will completely align Vietnam’s coffee production chain, utilising the most technologically advanced production processes available and building our reputation as a centre of global coffee supply. Our vision encompasses all segments of the coffee value chain, from seeds through to cultivation, raw processing, finished processing, trading and distribution, and added services. Currently, Vietnam’s coffee industry is very segmented. The challenge for Vietnam is to link up these segments and, in doing so, enable them to add value to our industry as a whole. This means ensuring that our coffee cluster is not only horizontally but also vertically integrated. It will include fundamental support from related industries such as finance, tourism, science and technology, culture, education, and health. All of these need to be closely bound to each other in a perfect whole to benefit the indigenous coffee farming community, and in turn, the rest of the nation’s economy. The province of Dak Lak in southern Vietnam lies at the heart of our cluster. We intend to establish this region as a global coffee capital, serving as a prototype for other coffee regions in Vietnam and abroad to follow. We hope to make Dak Lak a destination for connecting the global coffee community on the basis of our coffee philosophy. We also intend

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for the National Coffee Cluster model to create 5 million to 6 million jobs in Dak Lak. The capital of Dak Lak, Buon Ma Thuot city, is a focal point for the 150-year history of Vietnam’s coffee industry, and is the capital of our National Coffee Cluster. As such, we plan to make Buon Ma Thuot an attractive tourist destination for coffee professionals and enthusiasts from around the world.

OUR PLAN WILL COMPLETELY ALIGN VIETNAM’S COFFEE PRODUCTION CHAIN, UTILISING THE MOST TECHNOLOGICALLY ADVANCED PRODUCTION PROCESSES AVAILABLE AND BUILDING OUR REPUTATION AS A CENTRE OF GLOBAL COFFEE SUPPLY.

As part of our National Coffee Cluster plan we have focused on the Ea Tul district of Dak Lak as a new model for rural development. In Ea Tul we are working with 2027 households, of which 98 per cent are from minority ethnic groups, and 95.5 per cent derive their income mainly from agriculture. These workers use traditional farming practices that are often less efficient and environmentally friendly than modern techniques. Therefore yields are very low and most of the people are very poor and experiencing unsustainable development. Trung Nguyen is collaborating with experts in researching and

developing the best seeds, utilising hi-tech incubators, seeking balanced watering and fertilising methods and identifying appropriate botanical quarantine conditions. To address the problem of low yields, we have applied advanced cultivation technologies such as drip-watering technology. This delivers dissolved nutritious substances to the root of coffee trees, and has increased yields by 50 to 100 per cent, as well as saving natural resources. We are also using biotechnology for seeding and re-cultivation to ensure our produce reaches international quality and value standards. This strategy will build a stable foundation, and produce a finished product of a consistently high standard. The use of drip-watering technology has also increased output for farmers, helping save labour and investments. Furthermore, Trung Nguyen is also purchasing coffee from farmers at higher prices, instructing them to calculate the volume of water used, apply organic fertiliser to two trial locations, and implementing an intercropping model. These measures will generate higher yields and quality for Vietnam’s coffee, increasing income for coffee farmers and upgrading annual production capacities by 14,000 tonnes. We are working to apply sustainable farming practices according to the Utz international standard, under guidance from some of the world’s top experts. We are also upgrading the coffee processing factory by restructuring the supply chain and introducing modern technologies. Finally, we are increasing participation from the community through activities such as developing small plantations and facilitating traditional cultural activities. Since 2010, Trung Nguyen has mobilized 1500 famer households to cultivate Utz certified coffee, with more than 2200 hectares of certified coffee in Ea Tul. We plan to increase this by 3000 hectares in the near future, also incorporating Rainforest Alliance and Fairtrade certification standards. The income from the Ea Tul project will be prioritised to speed up activities of social development, environmental improvement, upgrading

THE USE OF DRIP-WATERING TECHNOLOGY HAS INCREASED OUTPUT FOR FARMERS, HELPING SAVE LABOUR AND INVESTMENTS, CONTRIBUTING TO A GROWTH IN YIELD OF 50 TO 100 PER CENT. living quality and the public’s knowledge of sustainable practices. Trung Nguyen continues to implement our National Coffee Cluster plan, training and improving management and coffee-cultivation skills for team-leaders and other participants. Our aim is to make them the active nucleus for further training of farmers. Trung Nguyen is striving to build the status of Vietnam in the global coffee trade. While we have already had great success with this, further progress will only come through cooperation from all levels of our nation, from politicians to business leaders, and of course the people. We call on leaders throughout the international coffee industry to engage with us in this process so that we can improve our industry not just for the sake of Vietnam, but for the sake of the trade overall. As I am very fond of saying to my partners in this project – together, nothing is impossible. G C R

J U LY /A U G U S T 2 013 | GCR

DIARY Dashboard COFFEE AROUND THE GLOBE

WORLD COFFEE EVENTS

CAFE SHOW CHINA, CHINA INTERNATIONAL

HOST FIERA MILANO

MILAN, ITALY 9 – 11 AUGUST 18 – 22 OCTOBER EXHIBITION CENTRE, BEIJING, CHINA

Asia’s largest exhibition is coming to China. China is currently seen as one of the strongest potential markets for coffee in the world. Cafe Show China will be a platform for food and beverage industry professionals from all over the world. It will be a place to learn about and share new trends in Chinese coffee culture. The event will be held at the China International Exhibition Centre, a strategic hub for a global gathering of this magnitude. The event is being co-organised with the Chinese government organisation, CIEC Exhibition Company Limited. www.facebook.com/chinacafeshow

HOST is the international exhibition of the hospitality industry. It is a leading marketplace for the sector, and a trendsetter for the HORECA industry. Around 1600 exhibitors take part in the event, coming from 40 countries, from all four corners of the globe. The 2013 event will see a 10 per cent increase in exhibitors over 2012. Around 125,000 professional operators visit the event, including 33,000 international guests from 153 countries. HOST offers specialised areas, including a dedicated coffee and tea segment. www.host.fieramilano.it/en

UNITED COFFEE & TEA INDUSTRY SHOW RUSSIA

EXPOCENTRE, MOSCOW, RUSSIA

12 – 14 SEPT The United Coffee & Tea Industry Show Russia (UCTIS) is an international combined coffee and tea conference and industrial exhibition. Its three-day schedule includes the established Moscow International Coffee Forum (MICF) and Moscow International Tea Symposium (MITS). Major exhibitors taking part in the show include coffee and tea raw material suppliers, coffee and tea producers, exporters, importers, distributors, manufacturers of all types of equipment, packaging, ingredients, and accessories. The UCTIS Organising Committee expects more than 2500 visitors to attend – representatives of all the segments of the coffee and tea markets in Russia, Commonwealth of Independent States (CIS) and other countries. www.unitedcoffeetea.ru

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COTECA HAMBURG MESSE UND CONGRESS, HAMBURG, GERMANY

24 - 26 SEPTEMBER

The COTECA is the only business forum in Europe that unifies the three sectors of coffee, tea and cocoa. With countless exhibitors from around the globe it offers the ideal opportunity to make new contacts. The prestigious two-day conference provides a comprehensive market overview of current topics and trends. Experts meet to share their knowledge, demonstrate solutions and present innovations. The Hamburg location is a trade metropolis with the key European ports of entry for tea, coffee and cocoa. The seat of world-famous tea trading companies, coffee roasting companies and green coffee traders, it is the hub of many key players and associations. The COTECA is supported by the German Coffee Association, GermanTea Association and the German Cocoa Trade Association. www.coteca-hamburg.com/en

SINTERCAFE 27TH EDITION

MARRIOTT LOS SUEÑOS HOTEL

PACIFIC COAST, COSTA RICA

KEEP A LOOK OUT

14 – 17 NOVEMBER

Nordic Barista Cup 5 – 7 September Oslo, Norway www.nordicbaristacup.com

Each November Costa Rica becomes the meeting place for key decision-makers from the most important companies in the world. Sintercafe is among the most interesting and best attended coffee events taking place in a coffee producing nation. Each year more than 500 participants exchange information, share their experiences, and interact with the world’s coffee community to strengthen commerce. www.sintercafe.com

Coffeena International Coffee Fair 19 – 21 September 2013  Cologne, Germany www.euvend-coffeena.com International Coffee & Tea Festival 8 – 11 October 2013 Dubai, Untied Arab Emirates www.coffeeteafest.com Seoul International Café Show 21 – 24 November Seoul, Korea www.cafeshow.co.kr/eng/index.do

EUROPEAN COFFEE SYMPOSIUM HOTEL PULLMAN MONTPARNASSE,

PARIS, FRANCE

26 – 28 NOVEMBER

The European Coffee Symposium is a flagship event for executives from across the branded coffee shop and food-togo sector. Now in its sixth year, the event provides a platform to develop knowledge, build relationships and drive business performance. Fuelled by the expertise of leading-edge market analysts and the contribution of industry thought leaders, the event provides decision makers with ready-to-implement market insight, innovative ideas and networking opportunities. www.europeancoffeesymposium.com

JULY/AUGUST 2013 | GCR

PRODUCTS Marketplace

WMF 1200 S The WMF 1200 S is a high quality professional coffee machine for small to medium needs. This machine can produce a broad range of drinks at the push of a button, including espresso, café crème, cappuccino, café latte, macchiato and even milk chocolate and chociatto. The self-explanatory display ensures a reliable and easy-to-use product. Its possible fittings, range of services and, not least, its price, makes the WMF 1200 S a clear favourite for many users. For more information visit www.wmf.com

WEGA SPHERA Elegant and ergonomic lines distinguish a coffee machine of the highest quality that is also reliable and functional. The Wega Sphera underwent significant restyling in 2012 and has been enhanced with new features for the electronic version. These include a steam wand with lever control and an alphanumeric, multifunctional display. For more information visit www.wega.it

JET TECHNOLOGIES’ PRE-MADE BAGS Jet Technologies and its principal partner Suna Enterprises launched their range of pre-made bags at MICE2013. The new range includes numerous bag styles, barrier properties and sizes, including a new box pouch. Most roasters are familiar with the high quality printing available from Jet Technologies with the reel fed laminates. For their new premade pouches, Jet Technologies offers the same expert print and finishing advice to achieve maximum quality and freshness with bag production. The expert team at Jet Technologies can help customers to make their brand stand out on the shelf. For more information visit www.jet-ap.com

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FLEXICON TUBULAR CABLE CONVEYORS Flexicon has released a new Flexi-Disc line of tubular cable conveyors for the gentle transfer of coffee and tea products. The new tubular cable conveyor complements Flexicon’s established line of flexible screw conveyors and pneumatic conveying systems. Collectively, the lines convey virtually any bulk solid material in the most efficient manner possible. The conveyor moves materials using high-strength polymer discs, attached to a stainless steel or galvanised cable. Modular system components include tubing, drive wheel housings, tension wheel housings and discharges with and without valves. It also includes accessories for wet or dry cleaning, including CIP sanitising. The tubular cable conveyors are available in unlimited configurations. The conveyor is offered as a stand-alone system, or fully integrated with existing upstream and downstream equipment such as inlet hoppers, bag dump stations and bulk bag dischargers. Free testing is offered at Flexicon’s test laboratories on full-scale Tubular Cable Conveyors and upstream equipment that simulate customer processes. For more information contact sales@flexicon.com or visit www.flexicon.com

SUBLIME Buencafe’s Sublime coffee won the freeze-dried coffee category at this year’s Superior Taste Awards at The International Taste and Quality Institute in Brussels, Belgium. Buencafe’s sublime coffee scored a total 84.1 points out of 100 from a group of judges. The coffee was first blind cupped by judges and submitted for analysis to evaluate the coffee’s visual aspects, odor, texture, flavour and taste. Buencafe’s Sublime coffee scored highly for its remarkable taste – containing chocolate and fruity notes. The award is reflective of Buencafe’s dedication and care of their products, which aims to provide consumers with a unique experience in every cup of coffee. For more information contact buencafe.marketing@cafedecolombia.com

NUOVA SIMONELLI Nuova Simonelli has developed the new Easy Cream system for the super-automatic Talento machine. Baristas can customise drinks based on the milk served by the Talento. The Easy Cream system is designed to cater to a range of customer milk preferences including the quantity, density and temperature of the cappuccino foam – simply achieved at the push of a button. The Easy Cream system can also create a cold cappuccino using milk foam at refrigerator temperature. For more information visit www.nuovasimonelli.it

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LASTWORD Cropster

CROPSTER:

A computer software program linking farmers directly with the supply chain DISTANCE, LOCATION AND LANGUAGE have long been barriers for communication between farmers and roasters. Despite the advances of technology, Cropster CEO Norbert Niederhauser says no one in the coffee industry had discovered a computer software program to exchange essential processing and production data from origin to cup – until now. “To be sustainable, [farmers] need to understand ecological management such as how to pick ripe cherries, they need specific training about harvesting and crop production, fermentation and transportation,” says Niederhauser. “But farmers also need to be sustainable in the way they communicate and share data information and methods with the people who roast their coffee.” To achieve this, Niederhauser and his two business partners designed a professional software program for small and mediumsized coffee and cocoa businesses in 2008. Niederhauser says the mechanics of the programs are “simple and reliable”. All that’s needed is a computer device or tablet system to access the online software. Each user has their own account, which they can use to exchange samples of information that contribute to a company’s quality management. The program generates a history of data that can be collated and shared with existing clients or at the start of a new partnership. Niederhauser says the program aims to maximise coffee consistency, improve quality and help farmers stay on top of production. More than 40 different modules are available for users, including Cropster Origin. This software enables farmers to structure and present their production data professionally to improve production, processes and quality control. It’s a way for farmers to log their production quantities, record bean size, defects, flavours, even farm location, size, soil type and processing methods. This information, presented in a PDF or report format, can then be shared at the click of a button with potential buyers or roasting partners. From ground level to the roasting stage of the supply chain, Cropster Roast is another module for roasting professionals to record their roast profiling and blending information for further analysis with producers. This software acts as a digital assistant to auto-check roasts against predefined parametres such as temperature or duration. Cropster’s Roasting Intelligence 2 (RI2) system can also read the bean temperature of up to four sample roaster barrels at the same time. Cropster has also established a web-based solution to support coffee labs and coffee shops in the assessment and analysing of quality data. Cropster’s Coffee Lab program traces coffee samples or lots back to their origin and provides information on the processes and internal operations used.

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Cropster’s software program can monitor all stages of the production process, including roast times, temperatures and track coffee samples back to origin.

CROPSTER More than 40 different software modules are being used by several hundred farmers and roasters in more than 35 countries.

Niederhauser says communication and operation performance from both sides of the supply chain are necessary for a quality end product, and this has been achieved through Cropster’s range of software modules. “[Cropster] creates a common learning experience. It educates farmers about how their coffee is roasted and it gives them the tools for better decisionmaking. And roasters can learn more about how coffee is cared for at ground level,” Niederhauser says. At the time of print, several hundred farmers in more than 35 countries had already joined the Cropster integrated data management system. Niederhauser says the high percentage of users from origin is a breakthrough considering that many origin countries lack the infrastructure to facilitate good communication with buyers. “We want to empower farmers and provide the opportunity for them to earn a sustainable income for their product,” Niederhauser says. G C R

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Move coffee and tea gently, efficiently, dust-free with FLEXI-DISC™ Tubular Cable Conveyors Gently slide coffee and tea through smooth stainless tubing horizontally, vertically or at any angle, to single or multiple discharge points

System can be fed from virtually any new or existing storage vessel or process equipment (Drum Dumper and Bulk Bag Discharger shown), and discharge at a single point, or selectively at multiple points.

FLEXI-DISC™ Tubular Cable Conveyors deliver unsurpassed efficiency, extreme durability and ultra-gentle product handling. Low friction, tight-tolerance, high strength polymer discs glide within smooth stainless steel tubing, evacuating virtually all material and allowing easy cleaning.

• Gentle, dust-free, energy-efficient conveying of fragile coffee and tea with no separation of blends • Single or multiple inlets and outlets allow a wide range of layout configurations • Comprehensive range of components • 4 and 6 in. (100 and 150 mm) diameter Discs on Galvanized or 304/316 Stainless Cable • Sanitary Systems including Nylon-coated or Uncoated Stainless Cable, and CIP accessories

Rugged cable/disc assemblies in 4 and 6 in. (100 and 150 mm) diameters offered in sanitary and industrial designs.

Offered as stand-alone conveyors, or as engineered, fully automated systems integrated with new or existing process equipment

USA sales@flexicon.com 1 888 FLEXICON

CHILE UK AUSTRALIA SOUTH AFRICA

+56 +44 +61 +27

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See the full range of fast-payback equipment at flexicon.com: Flexible Screw Conveyors, Tubular Cable Conveyors, Pneumatic Conveying Systems, Bulk Bag Unloaders, Bulk Bag Conditioners, Bulk Bag Fillers, Bag Dump Stations, Drum/Box/Container Dumpers, Weigh Batching and Blending Systems, and Automated Plant-Wide Bulk Handling Systems ©2013 Flexicon Corporation. Flexicon Corporation has registrations and pending applications for the trademark FLEXICON throughout the world.

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Ideally suited to gently convey green, roasted and ground coffees, and all forms of tea and tea blends, FLEXI-DISC Tubular Cable Conveyors are fully enclosed, preventing dust and product contamination.