Coffee is the second most valuable legally traded commodity on Earth (after oil) with global retail sales of coffee estimated to be $70 billion. Of this approximately $6 billion finds its way

The first interesting thing to note is how important a relatively small number of countries are to the supply situation for coffee. The top five countries accounted for over two-thirds (67.89%) of the worlds supply that year, and the top twenty accounts for over 90%. With 54.72% coming from South America and over 42% from Brazil alone because it had a particularly bumper crop in that year. This year by contrast a substantial decline of this years Brazilian Coffee crop is expected, and a downgrading of expectations to 107.1 million bags worldwide. This is because Brazil’s production is expected to fall from 51.6 million bags to 33.6 million bags. This is a massive difference, but is actually only roughly what the normal crop yields have been over the last five years (35.1 million in 2002 for example); and serves as an interesting example of how the supply of even a global commodity like coffee can ultimately hinge on a single countries crop. Below by counterpoint is a look at some demand figures for world coffee consumption. These are for 2001/2002 as the 2003 figures have not yet been finalized.

The major coffee importing countries are the United States, Germany, Japan, Italy and other European countries. Since the coffee price has been unstable and unpredictable, the coffee stock in the coffee importing countries has been increasing along with certain import condition. That is, they have always been ready to deal with poor harvest.

It is worth bearing in mind that  has shrunk by almost half since 1960. A change which equates to a change from about three to one and a half cups a day per person. And you can see in the columns above that a gradual lessening in individual coffee intake is evident throughout the world. However,  at such rapid rates that demand for coffee continues to grow. The world population did not reach 2 billion until 1930, but by 2003 it had reached 6.3 billion. In the United States in 1950 the population was estimated to be around  whilst in mid 2003 it is reckoned to be 291.5 million, and is projected to be 5. So regardless of changing coffee habits and a decreasing consumption of coffee per person worldwide; the actual global demand for this ubiquitous beverage is going to go up.

Distributing

World coffee statistics are notoriously hard to rely on, but on December 2, 2005, the USDA increased its estimate of world 2005-2006 ending coffee stocks from 14.9 to 20.3 million (60-kg) bags, or 17% of total use, still the lowest in over two decades. World production was estimated at 113.2 million bags with 116.6 million bags of implied total use. Typically, the low ending stocks estimate would mean higher prices, but the market is concerned about Brazil harvesting a larger crop in 2006.

For 2006-2007, the International Coffee Organization predicted on January 16, 2006, that world production will total 121 million (60 kg) bags, more than the 119 million bags of estimated consumption. On December 7, 2005, Safras & Mercados estimated Brazil’s 2006-2007 coffee crops at 47.8 million bags.

Make no mistake, coffee producers have been experiencing financial pain. Coffee prices fell for almost seven years and were close to three-decade lows in late-2001. The 45 members of the International Coffee Organization have agreed to restrain production, but those kinds of plans rarely work. Brazil subsidizes their coffee growers which helps to prevent panic selling, but also encourages them to over-produce.

Social Responsibility

Prevention Strategies

Managing the risk of ochratoxin A (OTA) contamination in coffee involves chain management from the tree to the finished product. Key factors in the successful management of OTA involve good hygiene practices along the chain, rapid drying, and avoiding the re-wetting of coffee by ensuring clean and dry storage and transportation.

Sampling of green coffee from all origins has indicated that OTA contamination may be more frequent in some areas than others, though not necessarily consistently. However, no coffee producing country is entirely free from the risk of OTA contamination.

It is generally agreed that preventive measures taken by all participants in the coffee production and processing chain are the best way to reduce the incidence of mould formation and the associated risk of OTA contamination.

In order to define appropriate prevention strategies, and to disseminate good practices, the global  has undertaken a comprehensive series of interrelated  and investigations. These activities are now being completed, and data from these trials and investigations is being evaluated and synthesized.

Hygiene considerations in coffee production and processing

Agricultural production systems are complex, and involve multiple potential interactions between the biological ecosystem and various processing parameters and methodologies.

Fungal activity in a commodity production and processing system results from a natural host system interacting with pressures that arise from the impact of technologies applied by man to produce the end product - in this case green coffee.

Understanding this interaction, and evaluating where in the  hygiene considerations are most acute, is central in any effort to reduce ochratoxin A (OTA) in coffee.

However, understanding the interactions in the coffee production system presents a major challenge, be it from mycological, socio-economic or practical perspectives. Within the two generic  systems (dry and wet processing) there are numerous specific and contingent practices - quite apart from climatic and geographic variations.

At the heart of the project has been this endeavor - to try and understand the relevance and significance of these various phenomena, and to assess their risk in relation to OTA production, be it in the orchard, during processing or whilst coffee is being transported or stored.

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Industry sector: coffee exporting

Approach: exporting directly, purchase coffee beans directly from the manufacturer, then sell overseas.

Most companies have no time and no specialized knowledge to enter export markets. They don’t have the money or specialized personnel needed to develop an export business neither.  That’s why all manufacturers without export experience should consider an export management company (EMC). Even sophisticated coffee exporters may want to consider using an EMC for exporting coffee to foreign markets. Firms looking for new markets in order to accelerate their business growth will consider using an EMC. This is one of the reasons to choose such a way to enter the international market.

An Export Management Company (EMC) functions as an export sales department, representing the product along with various non-competitive manufacturers. The EMC searches for business for coffee producing companies and usually the following services:

• Performs market research and develops a marketing strategy
• Locates new and utilizes existing foreign distributors or sales representatives to put coffee into the foreign market
• Functions as an overseas distribution channel or wholesaler
• Takes title to the goods and operates on a commission basis

Goals:

-to create an independent firm, which would act as an exclusive export sales department for non-competing manufacturers;

-to be able for handling 50 or more manufacturers, cutting across a wide range of industries and exporting to most world markets;

-focusing on the USA and Germany as counties to export into.

-gaining an ability to handle all details.

-establishing a strong foreign distribution system.

-hiring experts on business conditions abroad.

Keys to success in this business that will give us that extra measure of respect in the public eye: the friendliest servers - cheerful, skilled, professional, articulate; the finest reputation - word-of-mouth advertising, promotion of our community mission of charitable giving.

Company background: Limited Liability Corporation with facilities in Brazil, Colombia (top coffee producing countries), Germany and the USA with further opportunities of growth. All membership shares are currently owned by "Name", with the intent of using a portion of the shares to raise capital. Plan calls for the sale of 100 membership units in the company to family members, friends, and Investors. Each membership unit in the company is priced at $4,250, with a minimum of five units per membership certificate, or a minimum investment of $21,250 per investor.
If all funds are raised, based on the pricing established in the financial section of this plan, the Head manager will maintain ownership of no less than 51% of the company.

Start-up expenses total just $370,170.
The majority of these funds-roughly $300,000-will be used to build the first facility, pay deposits, and provide capital for six months of operating expenses. Another $35,000 will be used for the initial inventory and other one-time expenses. The company anticipates the need for roughly $30,000 in operating capital for the first few months of operation

As the world coffee market is a quite developed one, the company should use the adaptation strategy when entering the market to coordination the company’s operation with the existing market environment.

Advantages of Using an EMC/ETC

• Faster entry into the overseas market in terms of first recorded sales.
• Better focus on exporting, because most firms give priority to their domestic problems.
• Lower out-of-pocket expenses.
• An opportunity to study the methods and potential of exporting.
• Expertise in dealing with the special details involved in exporting, as well as its strategies.

Organizing for Exporting

The company must retain the international divisions or to organize along product or geographic lines. For example, it may form a division for Germany and another for the US. Good marketing skills can help the firm operate in an unfamiliar market. The company’s success in foreign markets depends less on the unique attributes of its products than on its marketing methods.

Once the company is organized to handle exporting, a proper channel of distribution needs to be carefully chosen for each market. These channels include sales representatives, agents, distributors, retailers, and end users.

Contracting

Agreements with coffee supplying companies are an easy foreign market entry method when the manufacturer is already producing coffee for the domestic market. It is also an initial instrument to create a subsidiary company in a foreign country. It is a method of indirect distribution to foreign markets.

Sales Representatives

The representative uses the company's product literature and samples to present the product to potential buyers. The sales representative works on a commission basis, assumes no risk or responsibility, and is under contract for a definite period of time (renewable by mutual agreement). The contract defines territory, terms of sale, method of compensation, reasons and procedures for terminating the agreement, and other details. The sales representative may operate on either an exclusive or a nonexclusive basis.

Foreign Retailers

A company may also sell directly to foreign retailers. The growth of major retail chains in markets such as Canada and Japan has created new opportunities for this type of direct sale. This method relies mainly on traveling sales representatives who directly contact foreign retailers, although results might also be achieved by mailing catalogues, brochures, or other literature. The direct mail approach has the benefits of eliminating commissions, reducing traveling expenses, and reaching a broader audience.

The firm should investigate potential representatives carefully before entering into an agreement. Besides that the firm also needs to know the following points about the representative firm:

• Current status and history, including background on principal officers;
• Methods of introducing new products into the sales territory;
• Trade and bank references;
• Data on whether the firm’s special requirements can be met.

Marketing strategy

 Use low service charges to attract suppliers and retailers. Once our organization, via our low cost service, has established a relationship with suppliers and retailers, our organization will operate on a commission basis, then – sell higher-margin coffee products and services. This is also the way to come to vertical integration in future.

The EMC would be profitable for there are several ways for it to charge:

1. EMC operating on a commission basis will usually want a commission that equals - or even exceeds - the best domestic commission. This might range from 10% to 15% or more.
2. EMC functioning on a buy-sell basis will ask for the best discount plus an extra discount. EMC that do accept the manufacturer’s best price will usually have to mark up the product more than a distributor in order to make a profit.
3. In addition to commissions or discounts, the EMC may charge for other items, for example, for “special event” contribution such as a 50/50 sharing of costs to exhibit in a foreign trade show. EMC may require a contribution for advertising and other promotional activities, usually on a shared basis.

Cultural Factors

Understanding and respecting cultural, social, and business customs will prepare the company for the flexibility needed to adapt to profitable international business ethics and practices. Lack of cultural awareness can be detrimental to the success of a company’s position in the foreign market. Wells (Exporting from Start To Finance, 1995) suggests a quick, in-flight review of the Culture Grams, developed by Brigham State University’s Center for International Trade. Over 100 countries and their special cultural considerations are identified in separate leaflets. Bookstores and libraries are also an excellent resource for historical and cultural information.

References

Baker, P.S. (Editor). 2001. Coffee Futures: A Source Book of Some Critical Issues Confronting the Coffee Industry. Commodities Press: CABI Commodities.

Clarke, R. J. and Macrae, R. (Editors). 1987. Coffee Vol. 2: Technology. London: Elsevier Applied Science Publishers.

Clay, J. 2004. World Agriculture and the Environment: A Commodity-by-Commodity Guide to Impacts and Practices. World Wildlife Fund: Island Press.

Clifford, M.N. and Wilson, K.C. 1985. Coffee: botany, biochemistry and production of beans and beverage. 457p. London, Croom Helm.

Dicum, G., and Luttinger, N. 1999. The Coffee Book: Anatomy of an industry from crop to the last drop. The New Press: New York, USA.

Fitter, R., Kaplinsky, R. 2001. Who Gains from Product Rents as the Coffee Market Becomes More Differentiated? A Value Chain Analysis. IDS Bulletin Paper, May 2001.

Giovannucci, D., and Koekoek, F.J. 2003. The State of Sustainable Coffee: A Study of Twelve Major Markets. International Coffee Organization: London; International Institute of Sustainable Development

International Trade Centre, UNCTAD & WTO. 2002. Coffee: An exporter's guide. Geneva: Switzerland.

Lingle, T.R. 1986. The coffee cupper's handbook: A systematic guide to the sensory evaluation of coffee's flavor. Washington. Coffee Development Group.

Norris, C.P. 2001. Mechanisation of the Harvesting of Coffee, in Baker, P.S. (Editor). 2001. Coffee Futures: A Source Book of Some Critical Issues Confronting the Coffee Industry. Commodities Press: CABI Commodities.

Oxfam. 2002. Mugged, Poverty In Your Coffee Cup. Oxfam: Oxford.

Pendergrast, M. 1999. Uncommon Grounds: The History of Coffee and How it Transformed our World. New York: Basic Books.

Pitt, J.I. 1996. What are mycotoxins? Australian Mycotoxin Newsletter. 7(4).

Ponte, S. 2002. Standards, Trade and Equity: Lessons from the Specialty Coffee Industry. CDR Working Papers, 02.13. Centre for Development Research, Copenhagen.

Talbot, J.M. 1997. Where does your coffee dollar go? The division of income and surplus along the coffee commodity chain. Stud Comp Int Dev. 32(1): 56-91.

USDA Foreign Agricultural Service, "World Coffee Supply and Distribution for Producing Countries," 2001/2002 data

Van Dijk, J.B., van Doesburg, D.H.M., Heijbroak, A.M.A., Wazir, M.R.I.A., and de Wolff, G.S.M. 1998. The World Coffee Market. Utrecht: Rabobank International.

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