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EXPORT IMPACT FOR GOOD

The Coffee Exporter’sGuide

THIRD EDITION


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Street address: ITC 54-56, rue de Montbrillant 1202 Geneva, Switzerland

Postal address: ITC Palais des Nations 1211 Geneva 10, Switzerland

Telephone: +41-22 730 0111

Fax: +41-22 733 4439

E-mail: [email protected]

Internet: http://www.intracen.org

The International Trade Centre (ITC) is the joint agency ofthe World Trade Organization and the United Nations.

© International Trade Centre 2011


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The Coffee Exporter'sGuide

THIRD EDITION


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ii

ABSTRACT FOR TRADE INFORMATION SERVICES

ID=42619 2011

International Trade Centre (ITC)

The Coffee Exporter's Guide. – [3rd ed.]

Geneva: ITC, 2011. xvi, 247 p.

Guide providing information on trade practices relating to exporting coffee – presen

coffee trade and markets; deals with international coffee contracts (Europe and Uniteddispute resolution, futures markets, risk management and hedging, trade financing

issues; covers coffee quality with a special emphasis on quality control aspects; outli

trade such as electronic commerce, niche markets, organic certification, fair trade labe

schemes; highlights climate change and environmental issues relevant to the coffee

frequently asked questions from coffee producers and the respective answers.

Descriptors: Coffee, Trade Practices, Contracts, Organic Products, Certification, La

Electronic Commerce, Market Surveys, Manuals.

English, French, Spanish (separate editions)

ITC, Palais des Nations, 1211 Geneva 10, Switzerland (www.intracen.org)

The designations employed and the presentation of material in this publication do not

of any opinion whatsoever on the part of the International Trade Centre concerning th

country, territory, city or area or of its authorities, or concerning the delimitation of its fro

Cover design and illustration: © International Trade Centre, Kristina Golubic

© International Trade Centre 2011


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FOREWORD

This third edition of The Coffee Exporter’s Guide marks the 20th anniversary of this populaCoffee - An exporter’s guide in 1992 and subsequently updated in 2002, this practical hanmost extensive and authoritative publication on the international trade of coffee.

With neutral, hands-on information about the mechanics of trade in green coffee, thestakeholders in both coffee-producing and coffee-importing countries. A detailed overvaccompanied by advice on marketing, contracts, logistics, insurance, arbitration, futures risk management, quality control, e-commerce and more.

This new edition addresses trends which were barely apparent in the coffee industry ten yeadaptation and mitigation, as well as the important role of women in the sector. It also featuof the leading sustainability schemes – in addition to more established certification schefair trade.

Over the years, this guide has been used by ITC and many others to train both newcomerin the coffee industry, who use the information regularly – both in daily routines and for ma

We wish to thank the many industry experts, companies and institutions that have contribuWe are particularly grateful for the support from the International Coffee Organization, whiall three editions of the guide, and also has cooperated with ITC in other coffee projects ov

It is our hope that this guide, along with its companion website www.thecoffeeguide.oressential training and knowledge-sharing tool to advance the interests of producers, exthem in coffee-producing countries around the world.

Patricia FranciExecutive DireInternational T


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ACKNOWLEDGEMENTS

Hein Jan van Hilten is the principal author of this guide as well as the previous editionspent some 50 years in the coffee industry, first as an exporter in East Africa and suCoffee Development Consultant in numerous producing countries. Currently he serves o Association, a mainstream sustainability initiative for the coffee industry, and moderateselectronic version of this guide.

The guide was made possible through the valuable contributions of expertise, expercompanies and organizations below, whose assistance is acknowledged with thanks and

Paul J. Fisher was also co-author of the 2002 edition of the guide. He has served manyroasting sectors. In recognition of his contribution to the industry, including his role in deCOPS™ (Electronic Commodity Operations Processing System), he was elected an HonCoffee Association (GCA) in 2011 and remains active in GCA affairs in an advisory capac

Michael A. Wheeler served many years as Executive Director of the Specialty Coffee Assocextensively to both this and the 2002 edition of this guide. At the International Coffee OrgOverseas Representative for the Papua New Guinea Coffee Industry Corporation and has

at ICO.

Beatriz M. Wagner is a former Class A member of the Coffee, Sugar and Cocoa Exccontributor also to the 2002 edition of the guide. Mrs. Wagner continues to lecture and coissues. She is also co-author of ITC’s guide on cocoa trade.

Gerd Uitbeijerse is a Master Mariner and former Senior Cargo Care Expert with leading shinvolved in cargo care matters through the Global Cargo Consultancy Management enter

Sunalini Menon is founder and CEO of Coffeelab Pvt. Ltd. in Bangalore, India. She is an cupper and has contributed extensively to the chapters dealing with coffee quality, especi

Captain Reinhard Diegner has many years experience in commodity marine insuranceloss assessment, primarily from many years with a leading firm of underwriting agents in G

Michael P. Flynn is a past Chairman of the European Coffee Federation’s Contracts Comadviser to the Committee and has contributed extensively on issues related to contracts a

Joost Pierrot has many years experience in the field of organics and contributed to the gissues. He works as an Organic Development Consultant and has contributed to other pu

Roel Vaessen is Secretary-General of the European Coffee Federation and serves on contributed extensively on European Union issues as food safety and cargo security rules

Morten Scholer, Senior Market Development Adviser in ITC, was responsible for overall t t i di ti f th k i ITC


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vi

Individual contributors

Peter Baker, Romeo S. Barbara, Maurice Blanc, Carlos H.J. Brando, Ivan Carvalho, RenaudDouqué, Norbert Douqué, Reinier Douqué, Pablo Dubois, Stephen Dunn, Dick Engelsma, GMassimiliano (Max) Fabian, Judith Ganes Chase, M.P.H. Gathaara, Bernard Gaud, Gordon S.Michael C. Glenister, Gabriel Cadena Gomez, Jeremy Haggar, Jos Harmsen, Hidetaka HayasF. Installé, Birthe Thode Jacobsen, Phyllis Johnson, Rebecca L. Johnson, Sipke W. de JongKatzeff, Soren Knudsen, Paula A. Koelemij, Karl Kofler, Surendra Kotecha, David Landais, TedMcAlpine, Jan Meijer, Kerry Muir, Robert F. Nelson, Henry Ngabirano, Kif Nguyen, Doan Trieu NNorberto Pascoal, Alain Pittet, R. Price Peterson, Gloria Inés Puerta Quintero, Paul Rice, MikeRoche, Aimee Russillo, Josefa Sacko, Jasper P. van Schaik, John Schluter, Christian Schøler,Dominic Stanculescu, Gerrit H.D. van der Stegen, Søren Sylvest, Joachim Taubensee, PanoMartin Wattam, Joachim R. Wernicke, Birgit Wilhelm, Christian B. Wolthers, Eric C. Wood.

Organizations

The Coffee Quality Institute – United States of America, the Coffee Science Information CeEuropean Coffee Federation – ECF, the International Women’s Coffee Alliance – IWCA, the of USA, Inc., NYSE Euronext Liffe – United Kingdom, the Specialty Coffee Association of AmCoffee Association of Europe – SCAE.

Dianna Rienstra copy edited the guide. Publication production and promotion was managed bpublishing was done by Isabel Droste in ITC.


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CONTENTSFOREWORD .................................................................... iii

ACKNOWLEDGEMENTS ................................................ v

NOTE .............................................................................. xvi

CHAPTER 1 1

WORLD COFFEE TRADE – AN OVERVIEW ...2

THE IMPORTANCE OF COFFEE IN WORLD TRADE .. 2

SUPPLY, PRODUCTION, STOCKS AND DOMESTICCONSUMPTION ..............................................................2

Definitions related to supply ..................................... 2Readiness for export .................................................3Coffee producing countries by ICO qualitygroup ...........................................................................3

Geographical distribution ......................................... 4Conversions to green bean equivalent ................... 4Grading and classification .......................................5Domestic consumption ..............................................6Exports .........................................................................7Stocks in producing countries ................................. 7

DEMAND, CONSUMPTION AND INVENTORIES ........ 8

Consumption trends ..................................................8Stocks or inventories in importing countries .......... 9

PRICES ............................................................................10

THE INTERNATIONAL COFFEE ORGANIZATION ....10

Identification of exports ...........................................10Main elements of the International Coffee Agreement 2007 ....................................................... 11

CHAPTER 2 15

THE MARKETS FOR COFFEE .....................16

THE STRUCTURE OF THE COFFEE TRADE 16

FACTORS INFLUENCING

LIFESTYLE, DIET AND C

ADDING VALUE – AN OV

Soluble coffee ...........Soluble coffee – OutloSoluble coffee – ManDecaffeinated coffee

The decaffeination prRoasted coffee ..........Ready-to-drink and ex

TRADE PRICES, INVESTM AND TARIFFS ..................

Imports and prices ofcoffee .........................Tariffs and taxes .......Classification of coffeinternationally ...........Tariffs imposed on co

PROMOTING COFFEE C

CHAPTER 3

NICHE MARKETS, E AND SOCIAL ASPEC

THE SPECIALTY MARKE

The meaning of specNiche markets – DefinQuality segmentation

Exclusive marketing aThe scope for specialThe difference betweeand specialty roaster

ORGANIC COFFEE ......

Wh t i


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viii

TRADEMARKING AND GEOGRAPHICALINDICATIONS IN COFFEE ............................................51

Trademarks and logos ............................................ 51Trademarks versus geographical indications ..... 51

SUSTAINABILITY AND SOCIAL ISSUES IN THECOFFEE INDUSTRY ......................................................52

Sustainability, certification, verification,corporate guidelines ............................................... 53Integrated farming systems .................................... 54The European Retail Protocol for Good Agricultural Practice ................................................ 54Codes of conduct .....................................................54

THE MAIN SUSTAINABILITY SCHEMES INTHE COFFEE SECTOR .................................................54

Fairtrade Label Organization ................................. 54UTZ CERTIFIED ........................................................56

Rainforest Alliance .................................................. 57The 4C Association – Mainstreamingsustainability in coffee ............................................. 58Other sustainability labels ...................................... 59

CERTIFICATION AND VERIFICATION ........................ 59

SUSTAINABILITY AND GENDER ................................. 61

Women’s employment and ownershipin the coffee sector ...................................................61 Women’s associations in the coffee sector ........... 61

CHAPTER 4 63

CONTRACTS ................................................64

INTRODUCTION TO CONTRACTS ............................. 64

When things go wrong ............................................ 64Mitigation of loss ......................................................64 Variations to standard forms of contract .............. 64

COMMERCIAL OR ‘FRONT OFFICE’ ASPECTS ....... 65

S if i ‘ lit ’ O d i ti 65

Letters of credit ..............

Destinations, shipment aDelayed shipments .......The bill of lading ............Title to and endorsementDispatching bills of ladinCertificates .....................Missing and incorrect do

STANDARD FORMS OF COOverriding principle .....European Coffee FederaGreen Coffee Associatio

ECF AND GCA CONTRACT

UCP 600 IN SALES CONTRA

Irrevocable and confirme

Non-documentary requirTime allowed to banks tothe documents ............... Force majeure ................

INCOTERMS® .....................

Two distinct classes of ruTerminal handling charg

Rules for domestic and in

CHAPTER 5

LOGISTICS AND INSU

BASIC SHIPPING TERMS ..

Shipping services .........

Shipping hubs ...............Ocean freight and surchTerminal handling chargBills of lading and waybiDifferent types of bills of S bill


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Bulk containers: Lining and filling .........................96

Fixing the liner ..........................................................96CONTAINERS AT THE RECEIVING END ....................97

Inland container stations ........................................97

Discharge ..................................................................97Quality and sampling ..............................................98 Weights and supervision ......................................... 98

Container weights at shipment ..............................98Outlook ......................................................................99Cost and convenience .............................................99

Container security at customs................................99Receiving containers – United States ...................99

Receiving containers – European Union ............ 100Container seals ......................................................101Container tracking and smart containers .......... 101

INSURANCE .................................................................102

Utmost good faith ...................................................102The risk trail to FOB ...............................................102

The risk trail to FOB: Farm gate to processing .. 102The risk trail to FOB: Warehousingand processing.......................................................103

The risk trail to FOB: Transport to port ................ 103Delivery to FOB: FCL (or CY) terms .....................104Delivery to FOB: FCL (or CY) terms in bulk ........104Delivery to FOB: LCL (or CFS) ..............................104

Termination of risk .................................................. 105Standard forms of contract ..................................105

INSURANCE: THE COVER .........................................105

Insuring risk ............................................................105Types of cover ......................................................... 106

Claims from receivers at destination ..................107

WAR RISK INSURANCE IN SHIPPING ...................... 107

PAPERLESS TRADE ......

Taking the paper out An example ................Bird’s eye view ..........The electronic enviroFrom B2B-exchange tCentrally available dathrough processing ..Legal framework req

Contract and title regCompliance, verificatSecure transfer of da

SPECIFIC ASPECTS .....

Security, common groresolution ...................Guaranteed originals

What are the benefitsElectronic trade execEnd result and outloo

TECHNICAL QUESTION

Who could use an eleStandards ................. Access ........................

CHAPTER 7

ARBITRATION ..........

THE PRINCIPLE OF ARB

Arbitration centres ....Types of dispute and

Common errors ........ Appointing arbitrator Awards ........................Failure to comply with Variations to standard


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x

ARBITRATION IN GERMANY ..................................... 124

The Deutscher Kaffeeverband e.V. ...................... 124Technical arbitration by the DKV ......................... 124Quality arbitration in Hamburg ............................ 125

ARBITRATION IN FRANCE ......................................... 126

The Chambre arbitrale des cafés et poivresdu Havre ..................................................................126Documents to be submitted and time limits ....... 126

Arbitration panels .................................................. 126 ARBITRATION IN THE UNITED STATES ................... 127

The Green Coffee Association ............................. 127Quality arbitrations ................................................127Gross negligence and fraud ................................ 128Technical arbitrations ............................................ 128Practical considerations ....................................... 129

Costs and fees ........................................................130

CHAPTER 8 131

FUTURES MARKETS ..................................132

ABOUT FUTURES MARKETS ..................................... 132

Internet access .......................................................132

The function of futures markets ............................132The two markets – cash and futures ................... 133Price risk and differential ...................................... 133Liquidity and turnover ............................................133 Volatility ................................................................... 135Leverage..................................................................135

ORGANIZATION OF A FUTURES MARKET ............. 135

Clearing house .......................................................135Trading of futures ...................................................135Financial security and clearing houses .............. 135

THE PRINCIPAL FUTURES MARKETSFOR COFFEE ................................................................136

THE NEW YORK ARABICA CONTRACT 136

Tenderable growths, pacand certification ............Supervision by LCH ......Outlook for an electronic

BOLSA DE MERCADORIAS– BRAZIL ..............................

Separate contracts for spOptions ...........................

Clearing services, turnovTurnover – futures and op

SINGAPORE EXCHANGE LTROBUSTA COFFEE CONTR

VIET NAM – TWO EXCHANG

THE MECHANICS OF TRAD

Floor procedure.............

Delivery ...........................Offsetting transactions ...Futures prices ................Types of orders ................

CHAPTER 9

HEDGING AND OTHERHEDGING – THE CONTEXT

Principle, risks, protectioRisks ................................Types of price risk ...........The selling hedge ..........The buying hedge .........

The buying hedge – An e

TRADING AT PRICE TO BE F

The principle of trading PFixing PTBF contracts .....Using PTBF – An exampl


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HOW TRADE HOUSES USE FUTURES .................... 154

Arbitrage ................................................................. 154 Arbitrage – An example ........................................ 155Trader speculation ................................................. 155

COMMODITY SPECULATION ................................... 155

Differences between hedging and speculation .. 155Types of speculators .............................................. 156Speculative strategies ........................................... 157

Straddling – An example ......................................158TECHNICAL ANALYSIS OF FUTURES MARKETS ... 158

Open interest ..........................................................159 Volume of operations ............................................. 159Relationship between open interest, volumeand price .................................................................159Charting ..................................................................160

CHAPTER 10 163

RISK AND THE RELATION TO TRADECREDIT ........................................................164

TYPES OF RISK ............................................................164

IN-HOUSE DISCIPLINE ...............................................165

Avoid over-trading .................................................. 165Long and short at the same time .........................166 Volume limit ............................................................. 166Financial limit .........................................................166Margin calls – A potential hedge liquidity trap .. 167Currency risk ..........................................................167

RISK AND CREDIT .......................................................167

Trend risks ............................................................... 168Risk is not static ......................................................169Changing risk and smaller operators ................. 169Credit insurance as a (credit) riskmanagement tool ...................................................170

Availability and cost o

Monitoring .................RISK MANAGEMENT AN

Risk management as Availability of credit isRisk remains risk ...... Warehouse receipts a Warehouse receipts –

pre-conditions ...........TRADE CREDITS IN PRO

Trade credit terminoloTypes of coffee trade

TRADE CREDIT AND AS

Physical risk ..............Price risk or market rDifferential risk or baCurrency risk ............Performance risk ......Common errors and m

LETTERS OF CREDIT ....

Advance credit – Thre

Uniform Custom and Documentary Credits

ALL-IN COLLATERAL MA

Functions of the collatModern collateral macredit ..........................Guarantees ...............

TRADE CREDIT AND RISCredit channels in theProviding collateral csmallholders .............Risk management anPrice risk manageme


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xii

QUALITY SEGMENTATION – FOURCATEGORIES ...............................................................190

Exemplary quality ..................................................190High quality .............................................................190Mainstream quality ................................................190Undergrades or lowgrades .................................. 190

QUALITY AND PRODUCTION.................................... 191

Variety, soils and altitude ...................................... 191

Rain fed or irrigated...............................................191 Wet or dry processed ............................................ 191Cost and yield versus quality ............................... 192Estate or smallholder grown ................................ 192

HIGH QUALITY ARABICA ...........................................192

Preparing high quality arabica – The basics ..... 192Defining quality ......................................................193

High quality arabica (green) ................................ 193High quality arabica (roast)..................................199High quality arabica (taste) .................................. 200Mainstream quality ................................................202

ROBUSTA......................................................................203

CHAPTER 12 209

QUALITY CONTROL ..................................210

QUALITY CONTROL ISSUES .....................................210

ICO MINIMUM EXPORT STANDARDS ..................... 210

ISO QUALITY SYSTEMS ............................................210

HAZARD ANALYSIS CRITICAL CONTROL

POINTS – WHAT IS IT? ...............................................211HACCP: HOW TO MANAGE? .................................... 212

HACCP AND THE UNITED STATES: FOODSAFETY AND BIOTERRORISM ..................................212

POTENTIAL HAZARDS ...............................................213

The cup or liquor ...........

The coffee liquorer (the cCLASSIFICATION TERMS ..

Glossary – Green or raw

Glossary – Liquor or cup

Phenolic taste, Rio flavou

CHAPTER 13 CLIMATE CHANGE ANINDUSTRY ....................

RISING TEMPERATURES – C AND CHALLENGES ..............

Some considerations ......

Climate change and coffPossible effects of climatproduction ......................

Climate change and soil

POSSIBLE INTERVENTIONSMEASURES .........................

Adaptation and mitigatio

Carbon credits...............Terminology ...................

Measuring and forecasti

Complexity mixed with u

Coffee species and clima

Helping producers prepa

Websites on climate cha

FROM STRATEGY TO ACTU

What are the priorities? ..

Realistically, what can be

Adapting to climate chan


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TABLES

Table 1.1 World coffee exports, by value and volume,1990–2010 ...............................................................2

Table 1.2 Crop years in producing countries ..........................3

Table 1.3 ICO qualiy groups .......................................... ..........4

Table 1.4 Illustration of a defect count for sun-dried(natural) coffee ........................................ .................6

Table 1.5 Overview of world production by type, coffeeyears 2006/07–2010/11 ...........................................6

Table 1.6 Domestic consumption in coffee producingcountries, crop year 2010/11 ...................................7

Table 1.7 Overview of world exports by type,2006/07–2010/11 .....................................................7

Table 1.8 Opening stocks by type, crop years2006/07–2010/11 .....................................................8

Table 1.9 Consumption in importing countries/areas,2006/07–2010/11 .....................................................9

Table 1.10 Membership of the ICO .........................................12

Table 2.8 Exports of soluble 2005–2010 ..........

Table 2.9 Classification of cinternationally ......

Table 2.10 Tariffs for import o

Table 3.1 Total worldwide sa

2004–2010 .........

Table 3.2 Fairtrade premium

Table 3.3 Comparative overschemes for coffe

Table 3.4 Women’s employ

Table 3.5 Women’s ownersh

Table 5.1 Cost distribution b

Table 8.1 Annual turnover ingross world impo

Table 8.2 Annual turnover in1990–2010 .........

CHAPTER 14 243

QUESTIONS & ANSWERS ATWWW.THECOFFEEGUIDE.ORG ................ 244

Answer to question 032 ......................................... 245 Answer to question 142 ......................................... 246


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xiv

BOXES

Box 9.1 The selling hedge – an example ..........................148

Box 11.1 Screen sizes ....................................... .................197

Box 12.1 Persistent Organic Pollutants ..............................214Box 13.1 The Kyoto Protocol ........................................... ...228

Box 13.2 Carbon footprints and sinks ................................231

FIGURES

Figure 1.1 Share of coffee in total exports by value,2005–2010 ......................................... ....................2

Figure 1.2 Annual arabica production, 1981/86 and2006/11 .................................................................4

Figure 1.3 Annual robusta production, 1981/86 and2006/11 .................................................................4

Figure 1.4 Total inventories in importing countriesand prices, 1990-2010 ..........................................9

Figure 2.1 Leading coffee trading companies worldwide,2010.....................................................................16

Figure 2.2 Leading coffee roasting companiesworldwide, 2010 ..................................................18

Figure 2.3 World coffee imports, 1949–2010 .......................18

Figure 2.4 Consumption of soluble coffee – 2000, 2005and 2010 .............................................................19

Figure 2.5 Imports of roasted coffee by origin, average2005–2010 ......................................... ..................33

Figure 2.6 Imports of soluble c2005–2010 ..............

Figure 2.7 Export value of soluproducing countriesComposite Indicato

Figure 2.8 Export value of roasmembers compared

Indicator Price, 1990

Figure 9.1 Example of a daily cchart (December 204 November 2011...

Figure 9.2 Example of a monthchart; Coffee – ICE,

Figure 11.1 Processing of coffeegreen coffee beans


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NOTE

Unless otherwise specified, all references to dollars ($) andcents (cts) are to Unites States dollars and cents.

All references to tons are to metric tons. The term ‘billion’denotes 1 thousand million.

The following abbreviations are used:

AA Against actuals ACPC Association of Coffee Producing Countries

ASP Applications service provider

B/L Bill of lading

BM&F Brazilian Mercantile & Futures Exchange

CAD Cash against documents

CDM Clean Development Mechanism

CFR Cost and freight

CFTC U.S. Commodity Futures Trading CommissionCFC Common Fund for Commodities

CFS Container freight station

CHIPS Clearing House Interbank Payment System

CIF Cost, insurance, freight

CM Collateral manager

COE Cup of Excellence

COT Commitment of traders

CSCE Coffee, Sugar and Cocoa Exchange (New York)

CY Container yard

DAF Delivered at frontier

ECC European Contract for Coffee

eCOPS Electronic Commodity Operations ProcessingSystem (at ICE, New York)

ECF European Coffee Federation

EDK Ex dock

ETA Estimated time of arrival

EU European Union

EUREP Euro-Retailer Produce Working Group

EUREPGAP EUREP Good Agricultural Practice

EWR Electronic warehouse receipt

GHG Greenhouse g

GIS Geographic in

GP General purpo

GPS Global positio

GSP Generalized S

GTC Good till canc

HACCP Hazard Analys

ICA International CICE Intercontinent

ICO International C

ICS Internal Contro

IFOAM International FMovements

IPCC Intergovernme

ISO International O

ITC International T

JIT Just-in-time

LCH London Clear

LCL Less than con

L/C Letter of credi

LIFFE London InterOptions Excha

MFN Most favoured

NCA National Coffe

NCAD Net cash agai

NCSE New York Coff

NGO Non-governm

NY 'C' Coffee ‘C’ Co

OTA Ochratoxin A

PTBF Price to be fixe

RTD Ready-to-drinSAS Subject to app

SCAA Specialty Coff

SCAE Specialty Coff

STC Said to contai

SURF Settlement Uti


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xvi

CONVERSIONS TO GREEN BEAN EQUIVALENT

In accordance with internationally accepted practice, all quantity data in this guide represent bgreen coffee or the equivalent thereof, i.e. GBE: green coffee equivalent. Green coffee meansform before roasting.

The International Coffee Organization has agreed the following conversion factors tocoffee to GBE:

Dried cherry to green bean: multiply the net weight of the cherry by 0.5;

Parchment to green bean: multiply the net weight of the parchment by 0.8;

Decaffeinated green bean to green bean: multiply the net weight by 1.05;

Regular roasted coffee to green bean: multiply the net weight of the regular roasted coffee

Decaffeinated roasted coffee to green bean: multiply the net weight of the decaffeinated ro Regular soluble coffee to green bean: multiply the net weight of the regular soluble coffee

Decaffeinated soluble coffee to green bean: multiply the net weight of the decaffeinated so

Regular liquid coffee to green bean: multiply the net weight of the dried coffee solids cocoffee by 2.6;

Decaffeinated liquid coffee to green bean: multiply the net weight of the dried coffee solids cliquid coffee by 2.73.

Alternatively, for statistical purpose: 60 kg green coffee represents:

120 kg dried cherry;

75 kg parchment.


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CHAPTER 1

WORLD COFFEE TRADE

AN OVERVIEW

THE IMPORTANCE OF COFFEE IN WORLD TRADE ................................................

SUPPLY, PRODUCTION, STOCKS AND DOMESTIC CONSUMPTION ..................

DEMAND, CONSUMPTION AND INVENTORIES......................................................

PRICES ..........................................................................................................................

THE INTERNATIONAL COFFEE ORGANIZATION ....................................................


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CHAPTER 1 – WORLD COFFEE TRADE – AN OVERVIEW2

WORLD COFFEE TRADE – AN OVERVIEW

THE IMPORTANCE OF COFFEEIN WORLD TRADE

Coffee is an important commodity in the world economy,accounting for trade worth approximately US$ 16.5 billionin calendar year 2010, when some 97 million bags of 60 kg(5.8 million tons) were shipped. World production in coffeeyear 2010/11 is estimated at 131 million bags (7.8 million

tons) while consumption in calendar year 2010 is estimatedat 135 million bags (8.1 million tons).

Table 1.1 World coffee exports, by value and volume,

1990–2010

Calendaryear

US$ billionMillion bags(60 kg net)

Cts/lb (EUV)*

1990 6.9 80.6 65

1995 11.6 67.6 130

2000 8.2 89.5 69

2005 9.2 87.6 79

2006 10.8 91.6 89

2007 12.8 96.3 100

2008 15.4 97.6 119

2009 13.3 96.2 105

2010 16.5 96.7 129

Source: ICO.

* Export unit value, rounded to nearest US cent.

Some 70 countries produce coffee. Three countries alonehave in recent years produced around 55% of the world’s

average share of coffee exportsexceeded 10%.

Figure 1.1 Share of coffee in

2010

21%

18%

17%

13%

9%

6%

5%

4%

3%

3%

3%

3%

2%

2%

2%

2%

2%

2%

Timor-Leste

Burundi

Ethiopia

Rwanda

Honduras

Nicaragua

Uganda

Guatemala

El Salvador

Colombia

Papua New Guinea

Kenya

Costa Rica

Viet Nam

Brazil

Sierra Leone

Côte d'Ivoire

Peru

Cameroon

Panama

Jamaica

U.R. of Tanzania

S ICO


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CHAPTER 1 – WORLD C

Exportable supply, however, is defined as supply minusdomestic consumption and an amount deemed to be

required for working stocks.

Working stocks is not precisely defined. It relates to thevolume of coffee required to maintain a steady and plannedflow of exports to the market. It is generally perceived as theamount of coffee in the pipeline in an exporting country at anyone time. Harvesting and export patterns vary from countryto country. As a result, working stocks are not defined as afixed percentage or proportion of a country’s production or

export capacity, but rather as an individual amount uniqueto every country. In many respects the calculation of workingstocks is arbitrary, but it is generally based on historical datafor each country.

Exportable production is total annual production lessdomestic consumption in producing countries. Availabilityfor export is equivalent to the carry-over stocks from theprevious year plus exportable production of the current year.

Any difference between exportable production and actualexports (surplus or shortfall) results in an adjustment up ordown of the carry-over stocks to the following year.

Crop year. Coffee is a seasonal crop. Seasons vary fromcountry to country, starting and finishing at different timesthroughout the year. This makes statistics on worldwideannual production very difficult to collate: any single12-month period may encompass a whole crop year in one

country, but will also include the tail end of the previousyear’s crop and the beginning of the next year’s crop inothers. In order to compare supply aggregates as wellsupply with demand, where possible supply data has beenconverted from crop year to coffee year (which runs fromOctober to September). It should be noted that this is notalways possible.

READINESS FOR EX

Of course there is a delay band its readiness for expconditioning and so forth. timing of the approximateselected countries:

Arabica

Brazil: 86% in Ju

Ethiopia: 75% in JaHonduras: 60% in JaKenya: 70% in JaPeru: 68% in JuColombia: availability isspread fairly equally thr

Robusta

Brazil: 75% Janu

Indonesia: 65% July Uganda: 64% JanuViet Nam: 55% Janu

COFFEE PRODUCINQUALITY GROUP

For administrative reasons,

of quotas in the past, the ICfour groups on the basis ofproduced by each member

Table 1.2 Crop years in producing countries

1 October-30 September

BeninCameroonCentral African RepublicColombiaCosta Rica

GhanaGuatemalaGuineaHondurasIndia

PaSiSrThTo


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Table 1.3 ICO qualiy groups

Quality group ProducersColombian mildarabicas

Colombia, Kenya, United Republic ofTanzania

Other mildarabicas

Bolivia (Plurinational State of), Burundi,Costa Rica, Cuba, Dominican Republic,Ecuador, El Salvador, Guatemala, Haiti,Honduras, India, Jamaica, Malawi,Mexico, Nicaragua, Panama, Papua NewGuinea, Peru, Rwanda, Venezuela(Bolivarian Republic of), Zambia,Zimbabwe

Brazilian andother naturalarabicas

Brazil, Ethiopia, Paraguay, Timor-Leste, Yemen

Robustas Angola, Benin, Cameroon, Central African Republic, Congo, Côte d’Ivoire,Democratic Republic of the Congo,Equatorial Guinea, Gabon, Ghana,Guinea, Indonesia, Liberia, Madagascar,

Nigeria, Philippines, Sierra Leone, SriLanka, Thailand, Togo, Trinidad andTobago, Uganda, Viet Nam

GEOGRAPHICAL DISTRIBUTION

Coffee is indigenous to Africa, with arabica coffee reportedlyoriginating from Ethiopia and robusta from the AtlanticCoast (Kouilou region and in and around Angola) and theGreat Lakes region. Today, it is widely grown throughoutthe tropics. The bulk of the world’s coffee, however, isproduced in Latin America and in particular in Brazil, whichhas dominated world production since 1840.

Brazil is the world’s largest grower and seller of coffee. VietNam, which expanded its production rapidly throughoutthe 1990s, now holds the number two position, bringing

Colombia into third place and Indonesia into fourth.

The figures below demonstrate the shift of regional sharesof arabica and robusta production since 1981.

CONVERSIONS TO GR

EQUIVALENT

In accordance with internatioquantity data in this guide re(132.276 lb) green coffee or thegreen coffee equivalent. Greethe naked bean form before ro

The International Coffee Org

following conversion factorsof coffee to GBE:

Dried cherry to green bean: cherry by 0.5;

Parchment to green bean: mparchment by 0.8;

Decaffeinated green bean toweight by 1.05;

Regular roasted coffee to gweight of the regular roasted

Decaffeinated roasted coffenet weight of the decaffeina

Regular soluble coffee to gweight of the regular soluble

Decaffeinated soluble coffenet weight of the decaffeina

Regular liquid coffee to grweight of the dried coffee soliquid coffee by 2.6;

Decaffeinated liquid coffee net weight of the dried codecaffeinated liquid coffee b

Alternatively, for statistical purepresents:

120 kg dried cherry;

75 kg parchment.


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GRADING AND CLASSIFICATION

Green coffee is graded and classified for export with theultimate aim of producing the best cup quality and therebysecuring the highest price. However, there is no universalgrading and classification system – each producingcountry has its own, which it may also use to set (minimum)standards for export.

Grading and classification is usually based on some of the

following criteria: Altitude and/or region;

Botanical variety;

Preparation (wet or dry process = washed or natural);

Bean size (screen size), sometimes also bean shape andcolour;

Number of defects (imperfections);

Roast appearance and cup quality (flavour,characteristics, cleanliness, etc.);

Density of the beans.

Most grading and classification systems include (oftenvery detailed) criteria, e.g. regarding permissible defects,which are not listed here. The Origins Encyclopaedia atwww.supremo.be is an example of a website which givesinformation on the export classification of coffees of most

origins. Terminology on size and defects as used forclassifications is also found at www.coffeeresearch.org.

The diversified classification terminology used in the tradeis illustrated with a few examples below. It should be notedthat descriptions such as ‘European preparation’ may differfrom one country to another. The examples refer primarily tothe trade in mainstream coffee and do not reflect the oftenmore detailed descriptions used for niche markets.

Brazil/Santos NY 2/3

Screen 17/18, fine roast, strictly soft, fine cup.

Brazil/Santos NY 3/4

Screen 14/16, good roast, strictly soft, good cup (often

Preparation (maximum 6Preparation (maximum 1

Ethiopia Jimma 5

Sun-dried (i.e. natural) aType 5 refers to a gradincount and cup quality.

Guatemala SHB EP Hueh

Strictly Hard Bean is from

five altitude levels from babove 1,400 m. Europe15, allows maximum 8preparation: above scree

India Arabica Plantation

Washed arabica, screenand C. Other classificatioand robusta.

Indonesia Robusta Grad

The export grade scale 4 allows 45–80 defectssometimes specified as qProcessing depends on

Kenya AB FAQ even roas

Kenya arabica grade Agrading system (E, AA, Abean size and density, finto 10 classifications. Tsold on actual sample ba

Mexico Prime Washed Eu

Prime Washed (prima 600 m and 900 m, on aEuroprep is retained by 15 defects per 300 g.

Papua New Guinea (PNG

Y1 is one of the gradesdefect count colour o


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Table 1.4 Illustration of a defect count for sun-dried(natural) coffee

1 black bean 1

2 sour or rancid beans 1

2 beans in parchment 1

1 cherry 1

1 large husk 1

2–3 small husks 1

3 shells 1

1 large stone/earth clod 5

1 medium-sized stone/earth clod 2

1 small stone/earth clod 1

1 large stick 5

1 medium-sized stick 2

1 small stick 1

5 broken beans 1

5 green or immature beans 1

5 insect damaged beans 1

DOMESTIC CONSUMP

Domestic consumption in prodto have risen from about 26 over 41 million bags in crop yeincrease is attributed to growBrazil, which has increased frthan 19 million bags over the scoffee consumed in producingpoint to the growth in real disp

a policy of using better quality cas important factors behind thi

Elsewhere in Latin America, cby relatively low urban incombeen some growth in Mexicoreasonably substantial in Colom

By comparison consumption

the exception of Ethiopia, wheestablished tradition of coffee d

In Asia, total consumption isIndonesia and the Philippiconsumption levels are relative

Table 1.5 Overview of world production by type, coffee years 2006/07–2010/11 (in millions of

Coffee Year 2006/07 2007/08 2008/09 2

World 127.1 127.8 126.7

ArabicasBrazilColombiaOther Americas AfricaA i d th P ifi

77.329.112.623.18.34 2

80.130.312.524.2

8.74 4

75.832.28.7

22.87.64 4


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Table 1.6 Domestic consumption in coffee producingcountries, crop year 2010/11 (estimated)

(’000 bags)

Africaof which:

Côte d’IvoireEthiopia

5 181

3173 383

Asia and the Pacificof which:

India

IndonesiaPhilippinesViet Nam

8 328

1 800

3 3331 0801 583

Latin Americaof which:

BrazilColombiaMexicoVenezuela (Bolivarian Republic of)

27 501

19 1301 4002 3541 650

Total 41 010

Source: ICO and own estimates.

Note: Figures are rounded up to the nearest ’000.

EXPORTS

Exports of coffee in all formvaried significantly from yeathe variations in world prod

STOCKS IN PRODUC

Extreme caution must b

producer-held stock figuresnecessarily reflect true avaiestimates will underestimatimpossible for the authoritiein private hands in a countrywill exaggerate the amountcase in the past when stodetermining a producing cwas to a country’s advantag

stock figure. Consequentlydifficult to sell and indeedincluded to inflate a countends not to be the situatio

Table 1.7 Overview of world exports by type, 2006/07–2010/11 (’000 bags)

Coffee years 2006/07 2007/08 2008/09

Total exports 98 388 96 032 97 433

Arabicasof which from:

BrazilColombiaOther Latin America Africa Asia and the Pacific

59 908

24 06710 58617 0635 6332 559

57 854

22 30310 84617 2485 1312 326

58 630

27 3188 072

16 3974 7772 066

Robustasof which from:

BrazilOther Latin AmericaViet NamIndonesiaOther Asia and the PacificCôte d’IvoireUgandaO h Af i

31 111

1 571236

18 0662 9342 2431 8072 144

30 541

2 025107

15 7514 6961 9911 4232 711

32 263

1 377339

17 3815 9052 0671 1222 407


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Furthermore, stock verifications ceased in 1989 with thesuspension of the quota system and although the figures

produced from the verification exercise were questionable,they were the product of a reasonably rigorous procedure.Since then the figures have been based on nationalestimates and there has been no independent verificationof the accuracy or otherwise of these figures. As a result,published statistics are subject to frequent revisions, someof which are substantial going back over a number of years. A degree of caution is therefore necessary when usingthese figures in any analysis. See table 1.7.

DEMAND, CONSUMPTION ANDINVENTORIES

Most of the statistical material on trends in imports, re-exports and consumption of coffee worldwide is expressed

in calendar years, which is largely how data on demandand consumption are reported and analysed by consumingcountries and trade bodies. The summary data below aregiven in coffee years to facilitate comparisons with supplydata provided elsewhere.

A straight comparison between the two sets of data is notpossible as time lags produce differences between the basicand aggregate figures. To complicate the issue even further,

statistics on coffee consumption tend to be misleadingas no single set of statistics gives the whole picture.Import statistics, for example, are not a good indicator of

consumption as they do not tachanges in the level of stocks h

overcome this the ICO publishethat take these factors into accto allow for changes in the levby traders, roasters and retaile

For countries, which are membnon-member countries where the figures relate to disappearthe non-member countries they

speaking the two sets of figureclose enough to be incorporate

CONSUMPTION TREND

It is estimated that global c2010/11 will total 130.9 million b

bags were consumed in impo20.5 million bags were consumand the remaining 41.0 millioproducing countries.

Consumption has grown by ayear since the early 1980s. Progrowth has been witnessed inhas grown by around 3.5% a

although it appears to have rea10 years. Japan is now the thin the world.

Table 1.8 Opening stocks by type, crop years 2006/07–2010/11 (’000 bags)

Coffee years 2006/07 2007/08 2008/09 2

World 28 343 27 722 19 463Arabicasof which from:

BrazilColombiaOther Latin AmericaAfrica

21 323

16 503855

2 2921 168

19 076

15 200819

1 3141 253

14 361

11 294366

1 0211 315


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There has been very little growth in coffee consumption inEurope over the last five years, with consumption showing

signs of stagnation and possibly even decline. The situationis only slightly better in the United States, where overallconsumption, despite the boom in the specialty sector, hasremained virtually unaltered over the past five years.

The figures for consumption in non-ICO member countriessuggest that there has been a surprisingly large upsurge

in consumption in these ccentury. On average, cons

per annum, although thereduced coffee consumptiopossibly only temporarily. Hread with some caution, asconsumption in these coucollected from the same so

Table 1.9 Consumption in importing countries/areas, 2006/07–2010/11 (’000 bags)

Importing countries/areas 2006/07 2007/08 2008/09

World 92 619 93 568 92 922

North Americaof which:

United States

23 994

21 199

24 501

21 423

24 901

21 656

Western Europe

of which:FranceGermanyItaly

42 780

5 5819 0825 840

42 340

5 3319 9125 918

39 874

5 3298 4095 752

Eastern Europe 6 195 7 211 7 589

Asia and the Pacificof which:

Japan

12 908

7 265

13 780

7 150

14 280

7 330

Others 6 742 5 736 6 270

Source: ICO.

* Preliminary estimate.

STOCKS OR INVENTORIES IN IMPORTINGCOUNTRIES

Stocks held in importing countries are usually referred to asinventories to distinguish them from stocks held in producercountries. Inventories tend to grow when prices are low anddeplete when prices are higher, although the relationship isfar from linear.

In the past, most analysts wmillion bags were required aHowever, the adoption of th

system by most of the worlthe improvement in logistithat probably should now bbeen reduced to maybe as

The figure below shows th1990 together with the com


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PRICES

There is no single price for ‘coffee’ because coffee, being aproduct of nature, is not a homogeneous product. However,broadly speaking the international coffee-pricing scene canbe divided up as follows:

Physicals – prices for green or physical coffee;

Indicators – prices that track broad groups of comparablecoffees;

Futures – that project prices forward for standardqualities;

Differentials – a system linking physical prices to futuresprices.

Day-to-day physical coffee prices are determined by supplyand demand. Price setting criteria are mostly quality (whatis the quality of a given coffee or origin), and availability(how much or how little is being offered of a particular typeof coffee). This confirms that not all coffee is the same.In fact each parcel of coffee is unique with regard to itscharacteristics, flavour and quality and hence attracts adifferent price. Of course other factors play a role as well, forexample market expectations, speculative actions, changesin currency exchange rates and so on. However, by groupingmore or less comparable types of coffee together, averageprices can be calculated and even traded.

ICO indicator prices, published daily by the International

Coffee Organization in London, represent and track the fourmain types of coffee available in the international market: (i)Colombian mild arabicas, (ii) Other mild arabicas, (iii) Brazilianand other natural arabicas, and (iv) Robustas. These indicatorprices represent spot or cash prices, quoted in the market forcoffee that is more or less immediately available (or within areasonable time-span). The four categories enable the ICOto calculate market prices for these four broad groups andso monitor price developments for each. In addition, using

an agreed formula, the ICO publishes a Daily CompositeIndicator Price that combines these four into a single pricerepresenting ‘all coffee’. This probably represents the bestindication of a current ‘international price for coffee’. This andother price information, also historical, is freely available atwww.ico.org. For an overview of the ICO indicator pricingsystem itself see www ico org/coffee prices asp

coffee are traded. Traders thewith the futures price by esta

the differential. Briefly, this di(i) differences between an indivquality on which the futures maavailability of that coffee (plentiand conditions on which it is of

An example follows. By combinfutures price and the differenFOB (free on board) price fo

coffee. This enables the market‘Quality X from Country Y for ODecember plus 5’ (US cts/lb). the cost of shipping coffee fthe United States, Japan or wtransform ‘plus 5’ into a price ‘

The study of physical coffee pvariability in the quality and a

making it extremely difficult toof differentials and physical presearch purposes the price inInternational Coffee Organizatof New York and London oftenimportant to appreciate that phycan be extremely volatile and no established mechanism oor indeed importers to hedge

coffee price differential volatility

THE INTERNATIOORGANIZATION

IDENTIFICATION OF EX

In the early 1960s the Intern(ICO) instituted an identificatito enable it to apply the expoat the time. However, this codimportant statistical tool in its ow


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To see the entire list of country codes and more on ICOCertificates of Origin go to www.ico.org, look under

Documents – By meeting – Rules, where you can trace ICC102-9. Coffee years run from 1 October to 30 September– individual shipment numbers recommence at 0001 everyyear.

The system allows easy identification of individual bags: thecountry of origin, the exporter, and the shipment numberfor that exporter. For shipment’s in bulk (see chapter 5), theshipping marks, including the ICO numbers, are marked

directly on the container liner, making them visible when thecontainer doors are opened. The container number itself ismarked on the ICO Certificate of Origin, thereby completingthe link.

MAIN ELEMENTS OF THE INTERNATIONALCOFFEE AGREEMENT 2007

It entered into force for 10 years on 2 February 2011,on expiry of the International Coffee Agreement (ICA)2001. The Council will however review the Agreementfive years after its entry into force and ‘take decisions asappropriate’.

Extension(s) of the Agreement for up to eight years canbe decided upon by the Council.

The Council remains the supreme decision-making

authority within the organization, but it also operatesthrough a number of other bodies namely:

– The Finance and Administration Committee; – The Projects Committee; – The Promotion and Market development Committee; – The Statistics Committee; – The Private Sector Consultative Board, with the power

to make recommendations on matters raised for its

consideration by the Council; – The World Coffee Conference, which is called uponto discuss matters of interest to the industry at largeand to be self-financing, unless the Council decidesotherwise. World Coffee Conferences have been heldin London 2001, Salvador, Brazil 2005 and GuatemalaCity 2010;

– Collect and publish e

information, statistics

– Provide a forum for conditions in internaproduction and consu

prices to both produc

– Promote training an

relevant to coffee to m – Encourage members

safety procedures in t

– Develop and seek fi

members and the wo – Facilitate the availab

tools and services tha

The ICO’s headquarters

the Council decides othe

The ICO will continue to

prices.

Certificates of origin w

exports.

The preamble acknowled

of coffee to the econom

the livelihoods of milliocontribution that a susta

the achievement of the

It also recognizes that c

can foster an economica

contribute to its develothat increased access to

market-based risk strate

that give rise to market vproducers and consume

Key events in the histo

Agreement (ICA). (Based prCoffee Report, vol. 15. No

history.htm.)

1963: First ICA comes i

regulating supplies throu

1972: Export quotas sus

1980: Export quotas r

in return to abandon a


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4 September 1989: Then-Colombian President VirgilioBarco writes to United States President George Bush

appealing for help to bring back export quotas under anew ICA and receives an encouraging response on 19September.

1 October 1989: ICA extension with its economicclauses suppressed takes effect.

February 1990: President Bush at a Latin Americandrugs summit in Colombia reaffirms commitment toa new ICA and a document is released setting out the Administration’s thinking on its possible shape.

December 1991: During talks with Cesar Gaviria(Colombia’s new President) Brazilian President FernandoCollor de Mello (elected in March 1990), agrees inprinciple to back efforts to restore quotas when the localindustry – given the lead role in formulating policy – canagree a common position.

March 1992: Brazil finally gives the go-ahead to thenegotiation of a new ICA with economic clauses.

June 1992: First round of the negotiations.

9 March 1993: Bill Clinton, victor in the November 1992United States presidential elections, writes to PresidentGaviria supporting a new ICA, although with no sign ofmuch enthusiasm.

31 March 1993: ICA negotiations collapse during thesixth round with little progress having been made andeach side blaming the other for the impasse.

September 1993: In Brazil, 29 countries sign a treatyestablishing the Association of Coffee ProducingCountries (ACPC) with powers to regulate supplies andprices. Citing this as a reason, the United States pulls outof the ICO.

September 1994: New ‘economic clauses (drafted i

five years.

March 1998: First talks oreplacing the 1994 ICA.

July 1999: ICA talks break

September 1999: 1994 ICyears. During the first year, will be made to draw up a re

September 2000: Drafting October 2001: ICA 2001 enhas no provisions for price r

February 2005: The Unmembership.

January 2006: Negotiatiobegin

September 2007: A new

Agreement is approved andinitially for one year, to enabbe completed.

September 2010: The 2007year to provide further time complete their ratification pr

September 2010: Japan Agreement.

2 February 2011: ICA 2007

Table 1.10 Membership of the ICO

Exporting members Importing m

Angola

Brazil

Burundi

Central African Republic

C l bi

Kenya

Liberia

Mexico

Nicaragua

P

European Community

Austria

Belgium/Luxembourg

Bulgaria

C


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Table 1.11 World production by country, 1995/96–2010/11 (’000 bags)

Average C1996/97 2001/02 2006/07

2006/07 2007/082000/01 2005/06 2010/11

TOTAL 106 623 113 423 128 257 127 048 127 835

Arabica group 70 757 73 816 78 364 77 317 80 110

North AmericaCosta RicaCuba

Dominican RepublicEl SalvadorGuatemalaHaitiHondurasJamaicaMexicoNicaraguaPanamaUnited States

20 0342 347

306

6412 2414 653

4332 379

425 4721 127

190203

16 7171 882

231

4041 5033 738

3742 856

334 0761 313

148160

17 5421 544

108

4981 4893 855

3473 714

304 2401 520

159129

17 0891 580

92

4061 3713 950

3613 461

404 2001 300

173154

18 5041 791

84

5101 6214 100

3593 842

204 1501 700

176151

South AmericaBolivia (Plurinational State of)BrazilColombiaEcuadorParaguayPeruVenezuela (Bolivarian Republic of)

40 11717025 07411 102

53930

2 203999

45 60814629 24111 705

54033

2 9291 014

47 32014130 51010 382

49224

3 6581 114

47 72514829 05612 541

69524

3 6911 571

48 45913730 29012 504

51525

3 4681 520

AfricaBurundi

CameroonDemocratic Republic of the CongoEthiopiaKenyaMalawiMadagascarRwandaUgandaUnited Republic of TanzaniaZambiaZimbabwe

6 538363

133883 2241 297

6444

26134052552

147

7 061337

80914 158

9034128

3214124969897

8 924279

84636 170

7271929

3175985733729

8 329298

92605 551

8261830

307540512

5738

8 725299

87675 967

6522130

2916505785528

Asia and the PacificIndiaIndonesiaLao People’s Democratic RepublicPapua New GuineaPhilippinesS i L k

4 0681 855

790145

1 13854

7

4 4581 934

83945888313913

4 4861 5631 677

50959

3510

4 1741 7541 263

50863

359

4 4221 5611 628

509883510


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Average Coff

1996/97 2001/02 2006/072006/07 2007/08 20

2000/01 2005/06 2010/11

Africa AngolaBeninCameroonCentral African Rep.CongoCôte d'IvoireDemocratic Republic of the Congo

GabonGhanaGuineaLiberiaMadagascarNigeriaSierra LeoneTogoUgandaUnited Republic of Tanzania

10 340590

1 174191

53 864

666

339

1395

6445245

2862 949

219

7 390320

710623

2 591315

117

28119

4614926

1292 405

285

7504300

680823

2 370330

126

40329

5844554

1572 392

319

7 86035

074487

32 847

317

129

47353

5875131

1342 160

307

7 90837

070870

32 598

349

031

32340

6144242

1252 600

326

Asia and the PacificIndiaIndonesiaLao People’s Democratic RepublicMalaysiaNew CaledoniaPapua New GuineaPhilippinesSri LankaThailand

Viet Nam

19 9522 7566 286

73160

959

74635

1 252

8 576

24 2232 7245 665

163810

121

49831

789

13 521

30 9733 1007 346

375716

120

41737031

755

18 161

31 1673 4046 367

400500

125

33133

766

19 340

28 6752 8996 937

350930

110

39433

653

16 467

3

1Source: ICO and USDA.

* Provisional.

n.a. = not available.


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CHAPTER 2

THE MARKETS FOR COF

THE STRUCTURE OF THE COFFEE TRADE .............................................................

STRUCTURE OF THE RETAIL MARKET .....................................................................

DEMAND .......................................................................................................................

DEMAND BY GEOGRAPHICAL AREA ........................................................................

FACTORS INFLUENCING DEMAND ..........................................................................

LIFESTYLE, DIET AND COMPETING DRINKS ..........................................................

ADDING VALUE – AN OVERVIEW ..............................................................................

TRADE PRICES, INVESTMENT COSTS AND TARIFFS ............................................

PROMOTING COFFEE CONSUMPTION ...................................................................

CHAPTER 2 THE MARKETS FOR COFFEE16


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CHAPTER 2 – THE MARKETS FOR COFFEE16

THE MARKETS FOR COFFEETHE STRUCTURE OF THECOFFEE TRADE

Broadly speaking, at the consumer level coffee can be

divided into three commercial categories.

Exemplary quality: limited availability – fine to unique

taste experience.

Premium quality: moderate availability – good to very

good taste experience.

Mainstream quality: very widely available – acceptable

taste experience.

Precise figures are unavailable, nor is the situation static,but it is generally accepted that between 80% and 90% of all

coffee consumed worldwide is of mainstream quality.

Figure 2.1 Leading coffee trading companies worldwide,

2010

Source: Trade estimates – subject to constant change.

The structure of the coffee trade in North America, most ofWestern Europe and Japan is very similar. Coffee is generallypurchased from the exporting countries by international trade

Essentially, the coffee trade asthe exporting country to the roaresponsibility for discharging tvessel and make all the nece

the coffee delivered to the roaseither for hedging or as a prprovide roasters spreads of pone month to 18 months in theespecially for later shipment pseller will source the required g

Such positions are typically sol(the differential) against the pric

month on the London or New price to be fixed – PTBF – seemarkets and trading). This givethe price for each individual shiusually up to the first delivery daroasters might want a separatwhile others might have a singfor example July through Decemahead carries considerable risk.

not even have been harvested ytraders sometimes offer such foof a basket of acceptable coffea single growth. This is becominwas in the past, but it remains a in many parts of the world. Typicare given below.

Guatemala prime washed,standard, and/or Costa R

appropriate delivery monthmarket.

Uganda standard grade, aand/or Indian robusta AB/appropriate delivery months

6

8

10

12

1413.5

10

87

6.5

54

3.5 i l l i o n b a g s

0

2

4 . M

CHAPTER 2


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CHAPTER 2

as the institution that transfers the risk of price movementsto speculators and helps to establish price levels. These

markets do not handle significant quantities of physicalcoffee, although dealers do occasionally deliver coffee ortake delivery of coffee in respect of contracts that have notbeen closed out. Participants in the industry use the futuresmarkets primarily for hedging.

The structure of the trade in other importing countries isbroadly similar, although naturally there are variations. Insome countries, such as the Nordic countries, there are no

main traders or importers as such, but rather just roastersand brokers/agents. In others, such as in Eastern Europe,importers either import directly or increasingly via theinternational trade houses based in the main coffee centresof Hamburg, Antwerp, Le Havre and Trieste.

WHY IS COFFEE TRADED IN UNITEDSTATES DOLLARS?

This question is often asked, particularly at times whenthe United States dollar is weak. When local currenciesin coffee producing countries strengthen against a fallingdollar growers suffer, or do not benefit if global prices rise.What are the possibilities of selling in currencies other thanUnited States dollars, for example the euro, considering theEuropean Union is by far the world’s largest consumer ofcoffee?

There are many sides to this issue, but the points belowsuggest that although change is always possible, for thetime being it is unlikely.

Coffee is a global commodity that is tradedworldwide on a daily basis. It would be very difficult tomaintain this global liquidity if some coffees were pricedin different currencies. Point in case: in 1992 the Londonrobusta market moved from using British pound sterling

to United States dollars for that reason, thereby alsofacilitating arbitrage between the New York and Londonfutures markets.

Price risk management would become very difficultif the market had to interpret both futures pricemovements and currency movements for each and

The United States mato purchase in dollars

will oblige. If elsewherecurrency, this might pocurrency-based arbitragcoffee trade.

One should also bear in minthemselves. If having to bumore risk or a disadvantagetransaction. Therefore, it is

or smaller producing couna change was in the conttriggered by some external

STRUCTURE OMARKET

Retail sales of coffee (both importing countries are chaof retail shops owned by thdirect sales force supplying sand wholesalers and food ba much larger role in the rdid before and supermarkesizeable proportion of retaisold in ground form or as

various types and sizes of cis generally sold in jars, aincreasingly popular, especparticular, for the ‘3-in-1’ ppre-mixed with sugar and a

Single-serve instant portioestablished markets, as capsules for use in dome

machines. What these haof preparation, consistencydisposal of spent coffee grbeen a significant shift tobrewing methods in the Undevelopment of new single



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CHAPTER 2 THE MARKETS FOR COFFEE18

consumption generally account for 70% to 80% of theoverall market. There are exceptions, especially in countries

where there is a well-established catering trade and eatingout is part of the country’s traditions, for example in Italy,Spain and Greece.

Each segment accepts a wide range of products, the qualityand taste of which depend largely upon the coffee growthsthat make up the blends, the degree of roast, the type ofgrind, and so on. Most small roasters tend to specialize inone segment, while larger and in particular multinational

roasters usually service both. The major part of the retailmarket is, however, controlled by a handful of hugemultinational roasters and the degree of concentration isincreasing. Although this trend was temporarily halted by thegrowth in the specialty trade, it is once again acceleratingwith the rapid acquisition of small specialty roasters by themultinationals.

Figure 2.2 Leading coffee roasting companies worldwide,2010

Source: Trade estimates – subject to constant change.

DEMAND

Coffee is one of the world’s moimports of all types of coffeemillion bags in 1949 to 132 mistatistics on gross imports areas they ignore re-exports. In for some 38.9 million bags, altnot as important as they are tnot available prior to 1964, butin gross exports since 1949 a1963. Net imports reflect whatof importation plus any surplus

A more accurate indicator of statistics on disappearance, wexports and changes in the levcountries. Table 2.1 shows wordisappearance and inventorieperiod 2005–2010.

Figure 2.3 World coffee impor

Source: ICO.

Table 2.1 World gross and net imports, disappearance and inventories by form of coffee, 200(in millions of bags)

2005 2006 2007 2008

A. Gross importsG

116.389 7

121.793 3

126.595 9

130.198 2

4.0

6.0

8.0

10.0

12.0

14.013.5

12.8

8.5

5.5

3.52.8 2.7 2.4 2.0 1.9 1.8

M i l l i o n b a g s

0.0

2.0

140

100

120

s

60

i l l i o n b a

0

20 M

49 52 55 58 61 64 67 70 73 '76

Y

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CHAPTER 2

ROAST AND GROUND COFFEE

Estimates suggest that some 100 million bags or 76% ofall coffee consumed in the world (including that consumedin producing countries) is roast and ground. In importingcountries, about 75% of consumption is roast and ground,and of this about 87% is roasted in-country. The remainderis imported from other consuming countries and also, but toa lesser extent, from producing countries.

In some regions the cross-border trade in coffee roastedby importing countries themselves is growing strongly. TheEuropean Union dominates this trade, and in 2010 had 77%of world exports of roasted coffee. Producing countriesaccounted for around 1.5% of this trade in roasted coffee.The United States, Canada and a small number of othercountries made up the remaining 21.5%.

The market for roast and ground coffee is dominated by

large multinationals (Kraft Foods, Nestlé and Sara Lee/DE),despite the fact that in many countries there has been aresurgence in small, locally-based roasters. The bulk ofroast and ground coffee consumed in importing countriesis blended (usually before roasting) to ensure a certainuniformity in the finished product. Blending increases theroasters’ flexibility, making them less dependent on a singlesource of supply. It also allows them to compensate forseasonal changes in the taste of coffee beans and to switchto other coffees if there are any problems with availability orprice.

Roasting develops the coffee’s flavour and fragrance; thehigher the roast the more the flavour is developed. Lightlyroasted beans produce a thin, almost straw-coloured liquidwith little flavour except perhaps acidity, although the weightloss is less. A darker roast will give a dark liquid, which mayhave lost acidity but has gained body and stronger flavour,although the weight loss will be higher. The darker the roast,the greater the cell destruction and fragmentation. Thisfacilitates the extraction of solubles, but too dark a roastmerely leaves a burnt flavour.

Roast and ground coffee has a shorter shelf life than solublecoffee It loses quality the longer it is exposed to air so it is

2000 to 31.1 million bags inof overall consumption it ha

Figure 2.4 Consumption o2010

15

20

25

30

35

M i l l i o n b a g s

0

5

10

Western

Europe

North

America

Japan

Source: NKG Statistics.

In Europe, growth in deman

around 0.2% a year in receslower than the overall growof coffee. In the United Kaccounts for around 75% was beginning to show sbeen revitalized in recent yspeciality instant coffees Elsewhere in Europe, howspecialty instant coffee pr

for soluble coffee, but theshort lived. The Deutscher instant coffee share of demto over 7.5% between 1998in demand for these speciaback to 4.1% in 2010.

Much of the recent growth inbe attributed to a rise in dem

and South-East Asia – botenjoys a high market share. has been tremendous growknown as ‘3-in-1’, a beveragof soluble coffee with a non-in single-serve sachets purc



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Globally, Nestlé and Kraft Foods account for just under 75%of the world market, with Nestlé alone supplying around half

the world demand for instant coffee.

DECAFFEINATED COFFEE

Decaffeinated coffee was developed in Europe, butachieved its first broad market in the United States duringthe 1950s. World consumption of decaffeinated coffee isdifficult to gauge owing to the lack of separate data on this

type of coffee in many importing countries.

In the United States, consumption of decaffeinated coffeewas relatively stable from 2000 to 2005, accounting for 8%–9% of mainstream sales and about 20% of sales of specialtycoffee. Sales thereafter increased significantly, but fell backto 13% in 2011 (from 16% in 2009) according to the latestNCA Coffee Drinking Study. Consumption of decaffeinatedcoffee has been fairly static elsewhere since 2000, andin many countries low-caffeine coffee products are nowan established part of the manufacturers’ range. Theseproducts are not caffeine free, but are either a mixture ofregular coffee and decaffeinated coffee or blends of coffeeswith a naturally low caffeine content. These products aresold as ‘light’ coffee.

Table 2.2 Consumption of decaffeinated coffee as a

percentage of total consumption, 2010

Country % Country %

Australia 7 Italy 7

Austria 4 Japan Low

Belgium/Luxembourg 8 Netherlands 12

Brazil Low Norway Low

Canada 8 Portugal 4

Denmark 6 Spain 16Finland 1 Sweden Low

France 7 Switzerland 4

Germany 7 United Kingdom 10

Greece 1 United States 13

arabicas towards Natural asignificant proportion of this sh

put down to changes in the avand in particular to supply prob America but higher prices partyears has accelerated the swit2005, 48% of United States improducing countries came froOther Milds groups. By 2010 th

Imports from Brazil vary from

increased to over 28% of gree2005, while imports of robustaimports of robusta from Brazifrom just over 25% in 2005 to 27that the initial increase in the greater consumption of esprescoffee, as well as its incorporatiblends as a means of keepingsomewhat constrained increas

by some analysts to reflect altered taste profile that the gre

Roast and ground (or regular) csold for home consumption is 2011, 85% of total consumptioper person per day, takes placNational Coffee Association odominates American coffee

single-cup brewing systems ar

Specialty coffee: This sector hathe image of coffee in the eyesIn 1991 it was estimated that thspecialty coffeehouses, yet by 210,000-plus. This number excsuch as coffee carts, kiosks, vin bookstores, sporting arenas

which have also seen an explo

Even so, brewed coffee remaicoffee consumed in the Unitedfor 92 out of every 100 cups of85 cups per 100 in 2010. Th

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Canada

The coffee market in Canada is estimated to have increasedat a compound annual growth rate of 3.1% since 2004with Kraft being the leading roaster. The market is fairlyfragmented with a large number of smaller roasters, but

is beginning to consolidate following a number of high-profile mergers and acquisitions. Roast and ground coffeeaccounts for 72% of the total market.

EUROPE

The European Union has 27 member states with a populationof 500 million. According to the European Commission, the

EU is the largest barrier-free market in the world, bigger thanthe United States, Canada and Mexico together.

In terms of green coffee imports, the 27 EU member statesaccounted for an estimated 51.3 million bags in 2010(European Coffee Federation data), including intra-EUtrade, and 45.9 million bags excluding intra-EU trade. TheICO’s figures are 52.2 million bags and 46.9 million bagsrespectively.

One consequence of the EU’s single market is that there isno intra-EU import or export, only movement of goods. This ismore than just terminology. It means that the vast majority ofimports are declared at the point of entry into the EU and notat the point of destination. This tends to increase gross importfi f th t i ith th j i t f i t ti

individual EU member countreated with some caution.

After deducting intra-EU trainto EU for 2010 work out atlargest suppliers were Brazil (6%), Honduras (6%) and Pe

Sustainability: Since 2003working on a comprehensivon its way to sustainability’, Common Code for the Coffat establishing a scheme osocial, ecological and econoprocessing and trading

constitutes between 80%–9 Association was formally esecretariat in Bonn, Germaavailable in October 2007.org.

Speciality: Although manhave traditionally consumeyears the speciality conc

acceptance amongst Euchapter 3, Niche markets, a

Summary data on the cocountries plus selected othin table 2.4.

Table 2.3 Coffee consumption in North America, 2010

Country Population(millions)

Net imports (million bags)Main suppliers(green bean)

Per capitaconsumption(kg/year)

Greenbeans

Roasted Soluble

United States 318 20.68 -0.64 1.15 Brazil 28%Viet Nam 18%Colombia 13%

4.1 83pro

Canada 34 2.14 0.91 0.53 Colombia 27%Brazil 22%Guatemala 14%

6.3 98proSta

Source: ICO and other trade sources.

Note: Green bean equivalents are used for roasted, soluble and per capita consumption figures.



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Table 2.4 Coffee consumption in Europe, 2010

Country Population(millions)


Per capitaconsumption(kg/year)

Greenbeans

Roasted Soluble

European Union

Austria 8.4 0.55 0.25 0.11 Brazil 24%Viet Nam 22%Honduras 7%Unidentified viaGermany 22%

6.4 Germapartner62% ofcoffee fexportiGerma

Belgium/Luxembourg

11 1.60 -0.37 -0.12 Brazil 28%Viet Nam 16%Honduras 10%Peru 7%

5.9 One rofor aroualso haparticu

Bulgaria 7.5 0.38 -0.04 0.54 Viet Nam 25%Indonesia 22%Brazil 10%Honduras 9%

3.2 99% ofex EU ssoluble

Cyprus 0.9 0.03 0.01 0.04 Brazil 92% 5.0 98% of

sourcecoffee

CzechRepublic

10 0.32 0.08 0.07 Brazil 27%Viet Nam 16%Indonesia 14%

2.7 99% ofex EU ssoluble

Denmark 5.5 0.66 0.11 0.09 Brazil 14%Viet Nam 6%Uganda 5%Unidentified via

Germany 55%

9.5 Importsalmost with 77EU acc

importsEstonia 1.3 0.01 0.08 0.02 Viet Nam 24%

Brazil 20%Indonesia 12%Uganda 11%

4.7 92% ofare re-eFederaexportsRussia

Finland 5.4 1.10 -0.06 0.04 Brazil 45%Colombia 10%Nicaragua 7%Guatemala 6%

12.1 Four roof the marabica

France 63 4.28 1.62 -0.03 Brazil 21%Viet Nam 11%Ethiopia 5%Honduras 4%

5.7 Kraft Foaccouncoffee accounsoluble

Germany 82 12.69 -2.24 -1.39 Brazil 35% 6.8 Two roa

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CountryPopulation

(millions)

Net imports (million bags)Main suppliers

(green bean)

Per capitaconsumption

(kg/year)

Green

beans Roasted Soluble

Ireland 4.6 0.04 0.02 0.09 Nicaragua 6%Colombia 5%Indonesia 5%unidentified via theUnited Kingdom60%

2.0 Oveprocom

Italy 60 7.71 -2.06 0.15 Brazil 34%Viet Nam 19%

India 13%Indonesia 6%

5.8 Fivis th

70%segperof tof wsucbra

Latvia 2.2 0.05 0.02 0.03 Virtually all importsof green coffeecome via the EU

– with 80% fromGermany

2.6 99%andcof

Lithuania 3.3 0.01 0.20 0.02 Virtually all importsof green coffeecome via the EUwith Germanyaccounting for 64%of these imports

4.1 84%andcofnot

Malta 0.4 0.00 0.01 0.01 Indonesia 40%Costa Rica 40%

1.8 Gre1,0

rec

Netherlands 17 0.99 0.22 0.12 Brazil 33%Viet Nam 15%Guatemala 6%Honduras 6%

4.8 ECcofICOtheimpcou

Poland 38 1.65 -0.17 0.61 Viet Nam 4%

Lao People'sDemocraticRepublic 3%Unidentified viaGermany 83%

3.3 99%

65%orig

Portugal 11 0.76 -0.08 0.08 Viet Nam 19%Brazil 15%

4.1 Nes33%



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CountryPopulation(millions)


Per capitaconsumption

(kg/year)

Green

beans Roasted Soluble

Slovenia 2.0 0.14 0.04 0.03 Brazil 46%Viet Nam 22%India 6%Unidentified viaItaly 11%

6.1 72% ofcome froastedItaly.

Spain 45 4.02 0.17 -0.95 Viet Nam 35%Brazil 21%Uganda 6%

Colombia 5%

4.3 The top60% ofroaster

dominawhere

Sweden 9.3 1.66 -0.46 0.01 Brazil 44%Peru 10%Colombia 8%Ethiopia 7%Kenya 7%

7.9 Dominwith ab20%, LNordquroaster

UnitedKingdom

62 2.21 0.55 0.34 Viet Nam 19%Brazil 16%Indonesia 15%

Colombia 12%

3.0 Soluble80% ofdomina

Nestlé of the sFoods

Other European countries

Norway 4.8 0.59 0.08 0.07 Brazil 46%Colombia 17%Guatemala 12%

9.2 Almostby six ralso im

RussianFederation

142 1.44 0.15 2.07 Viet Nam 37%Brazil 30%

Indonesia 11%

1.6 Roasteand ac

in 201040% ofin the Rlocally.

Switzerland 7.7 1.99 -0.48 -0.50 Brazil 30%Viet Nam 15%Colombia 9%India 7%

8.0 The mafor arouexport to growcoffee around

Source: ICO, ECF and other trade sources.

Note: Green bean equivalents are used for roasted, soluble and per capita consumption figures.

Data on Eastern European countries mostly originate fromthe ICO and F O Licht’s International Coffee Report

China (including Hong

M Ch )

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However, over the last 10 years or so there has also beenan explosion in the number of new American-style coffee

bars opening up in all the major cities. Starbucks alonehas opened more than 470 new shops in different citiesthroughout China since 1999, and other similar companieshave also been expanding at the same rate. As a result,coffee is acquiring a more modern image and is becominga very popular beverage with the young.

Japan

Demand for coffee continues to grow in Japan with averageweekly consumption amounting to 10.9 cups in 2010 upfrom 10.0 cups in 2002. Instant coffee remains the mostpopular form of coffee accounting for 4.8 cups per week,while roasted coffee accounts for 3.3 cups, canned coffee1.9 cups and liquid coffee 1.0 cups.

Republic of Korea

The Republic of Korea has had a thriving coffee market fora number of years based primarily on instant coffee, but

the explosion of specialityoverseas own