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    Coffee Growers Discover That Quality Pays


    © International Trade Centre, International Trade Forum - Issue 4/2004

    http://www.cupofexcellence.org. The visionary Cup of Excellence idea ­- a competition to select the best coffee a country has to offer and a well-engineered Internet auction - has brought gourmet coffee from Bolivia, Brazil, El Salvador, Honduras and Nicaragua to the world.

    The coffee market is oversupplied, with the price of coffee at its lowest in a century. Over the years, ITC has supported several projects and initiatives to help coffee producers. One of the most innovative projects was the world's first Internet coffee auction, the origin of what is today the Cup of Excellence® programme.

    Convincing producers to add value to their product, and thus earn more revenue, is a commonly proposed solution to the current coffee crisis.

    While this proposal is neither simple nor realistic for many producers, ITC supported the efforts leading up to the Cup of Excellence programme. The programme takes advantage of current market trends towards quality and has resulted in some producers finding their reward in higher prices.

    The Cup of Excellence programme takes advantage of the gourmet coffee market, aiming at discerning consumers worldwide. By doing this, the programme has lifted several small farmers out of anonymity to gain not only fame in the exclusive world of professional "cuppers" (coffee tasters), but also fortune as they obtain better prices. In the oversupplied coffee market, this initiative is proving that quality pays.

    A pioneering approach

    The idea of an Internet coffee auction was born in 1999 as part of the Gourmet Coffee Project (1998-2000), which was initiated by the International Coffee Organization and ITC, and financed by the Common Fund for Commodities. ITC was the operational and practical partner in the project, which supported the development of gourmet coffee from Brazil, Burundi, Ethiopia, Papua New Guinea and Uganda.

    Frustrated at the inability of Brazilian coffees to tempt specialty buyers in the United States, project participants recalled the excellent products that had been uncovered during the life of the project. They decided to link up with the already existing annual competition process to select the best coffees in Brazil and offered to sell the top ten coffees from "Best of Brazil 1999" at an Internet auction. Some 310 farmers entered the competition and 14 international cuppers selected 900 bags (5,400 kg) of coffee from ten farms.

    The winning coffees were sold at the world's first online coffee auction held in December 1999, involving 23 bidders from four continents who participated in the 48-hour auction.

    Significant preparatory efforts were put into this experiment in 1999. The Gourmet Coffee Project sponsored several of the most active partners, parts of the web site design and also legal advice on contracts between the parties. But farmers were very sceptical, given the experimental nature of the Internet auction, and several were tempted to abandon the programme. In the end, however, all agreed to join when ITC offered to guarantee a minimum sales price. A lump sum was deposited in Brazil as a guarantee to keep the farmers on board.

    The auction was a huge success. The technology worked and prices were considerably above expectation. Some coffees fetched more than double the expected price. ITC's guarantee was returned from Brazil to Geneva a few weeks after the auction - and the funds could thereby be used for other activities in the project.

    Those behind the successful experiment developed the concept further and created Cup of Excellence, a regular competition run today by the Alliance for Coffee Excellence, a non-profit organization. Brazil has hosted the Cup of Excellence auction every year since 1999; El Salvador, Guatemala, Nicaragua, Honduras and Bolivia have joined since then and more countries are likely to participate in coming years. Details are available on the web site, at http://www.cupofexcellence.org.

    The amount of coffee sold at the Cup of Excellence auctions is "a drop in the ocean", says Peter Smit, Chief of ITC's Market Development Section. But the positive impact of the programme and its potential far outweigh the pounds of coffee sold. "This programme can be duplicated and can make a huge difference worldwide. The challenge ahead is how to involve other countries in Africa and Asia."

    A "quality revolution" for farmers in Brazil

    The Brazil Specialty Coffee Association (BSCA) represents growers in all areas of the country where high-quality arabica coffees are grown. BSCA President Marcelo Vieira says the programme's greatest impact has been on the international market. Five years ago, BSCA members exported 80,000 bags per year. Last year, the number topped 300,000 and demand is stronger for 2004. Another important impact is on the growers, anxious to participate in the Cup of Excellence auction.

    "What was at the beginning a small elite of growers dedicated to producing high-quality coffees has grown to thousands," Mr Vieira explains. "No one believed high quality could be attained in some of the regions, but each year they are proved wrong. This is due to research initiatives into better processing methods, which is causing a quality revolution in the Brazilian coffee scene."

    The growers who are rewarded with participation in the Cup of Excellence auction must be viewed in a wider perspective: "They are the tip of the iceberg. The true impact of the programme will be felt over the long term throughout our country," he adds.

    Women growers reach the top in El Salvador

    Women captured three of the top four price-paid-per-pound spots in the June 2004 Cup of Excellence auction held in El Salvador's second annual coffee competition. Arabica coffee grown by Lya de Castaneda was the top price-per-pound winner, earning US$ 6.89 per pound for green coffee beans, for a total of US$ 20,670.

    The green coffee beans grown by 35 Salvadorean coffee growers, all chosen as winners of the 2004 Cup of Excellence, were bid for by 83 international buyers. During the auction, buyers purchased all coffee offered, spending a total of US$ 291,277. The average price paid was US$ 2.44 per pound, or almost three times more than the recent average market price of arabica beans.

    El Salvadorean growers are working hard to reposition themselves as producers of good-quality coffee that can be sold at premium prices. El Salvador was well positioned in the coffee market during the 1970s but lost its position during the war. When the war started in 1979, coffee trade was nationalized. All of the mills were closed and all milling and export operations were centralized. Quality declined, as all the coffee was mixed together and sold under one brand. Traditional brands that had earned international recognition were lost. In 1985 business was privatized, but farms, mills and export brands were in a state of neglect and had to be rebuilt.

    Silvia Larin de Cuenca is the fourth generation in her family to grow coffee on their family estate, where they produce, mill and export their own coffee.

    "The Cup of Excellence [programme] is an opportunity for us to demonstrate the quality of our coffee to international buyers who will learn to appreciate Salvadorean coffee," she says. "It is a test for us to prove that we have excellent coffee and we can compete with these other countries that are well known in the gourmet coffee market."

    Spin-off benefits

    The Cup of Excellence programme helps the producer recognize different niches and needs. It helps develop infrastructure and distribution systems that support high-quality farmers and buyers with small lots of premium coffee, as well as introducing regions never recognized before for the quality of their coffee.

    The lot size requirements are small enough to encourage even the smallest farmers to participate with their best coffee. These farmers have access to and develop direct buying relationships with buyers of high-quality coffee worldwide. Discerning consumers will associate the producing country's name with the great taste represented by the winning coffees.

    What in the world happened to coffee prices?

    The real price of coffee has dwindled to its lowest level in a century, dramatically affecting the livelihoods of 20 to 25 million families.

    The collapse of world coffee prices is causing many exporting countries to suffer their worst economic crisis in years.

    How did this happen? The coffee crisis is the result of market oversupply, caused by several factors: the rapid expansion of production in Viet Nam and new plantations in Brazil; higher yields; increased efficiency; and incentives to expand production as liberalized markets in the 1990s raised farmers' share of the export price. Added to this is what could be called "under demand". Analysts tend to concentrate on oversupply and overlook the effects of market trends and new technologies in consuming countries.

    ITC coffee projects in recent years

    ITC's projects in the coffee trade aim at facilitating market access for green coffee at the best possible prices. Some projects are country specific; others benefit all producing countries. In addition, ITC has supported in-company training of 120 people from producing countries and held workshops and consultations in 30 countries in the 1990s. The following are examples of ITC's involvement:

    • The Gourmet Coffee Project (1998-2000) took placein Brazil, Burundi, Ethiopia, Papua New Guinea and Uganda in cooperation with the International Coffee Organization and the Common Fund for Commodities. The project involved numerous trials and new methods of producing, processing and, in particular, marketing of high-quality coffees with a potential for higher prices. The project included the Internet coffee auction in Brazil in 1999, which led to the Cup of Excellence programme, now used in several countries.

    • Ethiopia Coffee Quality Project (2004-2006), financed by the Swiss State Secretariat for Economic Affairs (seco). This project involves the establishment of cupping laboratories, training and marketing support. The objectives are to improve quality, consistency and traceability as demanded by the market.

    • "Question & Answer" service on coffee web site (from 2005). The web site will be the first of its kind in the coffee sector. It will contain the entire text of ITC's coffee guide in three languages (see below). A panel of experts will offer tailor-made answers to questions from the coffee industry in developing countries.

    • Coffee: An exporter's guide, financed by the government of Denmark. This 330-page guide was the ITC publication most in demand in 2003. Available in English, French and Spanish, it covers trade practices for coffee exporters. The guide is also of interest to coffee producers, coffee authorities, importers, banks, customs authorities and shipping companies.

    The guide reviews coffee trade contracts and deals with logistics, insurance, arbitration, futures markets, risk management and hedging, financing and coffee quality control, as well as electronic commerce, niche markets, organic and fair-trade labelling, codes of conduct and environmental issues.

    Writer: Dianna Rienstra

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       Related ITC links:

    Coffee: http://www.intracen.org/mds/sectors/coffee/welcome.htm