CoffeeValue

Chain: ablend of

upgrading

Outline

• Basic facts about coffee• Coffee GVC• Who’s capturing the gain?• Economic, environmental, social

upgrading: what does it mean forcoffee VC and local development?

• Deliverables (presentation, wordfile, working files)

Basic Facts About Coffee

• Until 1990, the world trade of coffee wassubject to a quota system controled byICO;

• After the quota system was abolished,the prices have been going up and downreflecting supply and demand trends;

• Being a primary commodity, coffee pricesare inherently unstable. One source ofprice instability is the vulnerability ofcoffee plants to unfavorable weatherconditions and climate changes;

• Despite falling prices in the 1990s,the world production and exports ofcoffee increased;

• Vietan emerged as a big exporter inthe 1990s, when the countryplanted over a million acresbetween 1990 and 2000 of coffeeand flooded the market with cheapRobusta beans;

Basic Facts About Coffee(2)

Price Trend – 1980-2009

Source: International Coffee Organization

Coffee World Exports

1980 1985 1990 2000 2007

Brazil 15.626.545 19.156.605 16.971.237 18.016.261 28.116.006

Costa Rica 1.182.521 2.040.422 2.265.644 1.964.980 1.363.850

Ethiopia 1.257.739 1.133.277 1.074.101 1.981.856 2.604.008

Uganda 1.823.592 2.537.582 2.352.680 2.513.272 2.693.187

Vietnam - 156.667 1.145.234 11.618.376 17.936.219

Germany 1.234.021 2.133.116 3.291.689 4.824.659,00 10.696.972

TOTAL 60.247.690 71.360.000 80.561.589 89.562.101 96.367.286

Source: International Coffee Organization

Coffee: the main actors

• Brazil, Vietnam, Colombia andGermany are the main exporters;

• More than 50 developing countriesare highly dependent on coffeeexports; 25 of them are in Africa

• The two most important producersand exporters of coffee in Africa areEthiopia and Uganda.

Two Different ExportModels

African Model

• Production occurs insmallholder farmers;

• Involve millions ofcheap laborers;

• Exports of non-processed coffee;

• Exports depends on themiddle men and globalbuyers;

Germany Model• no production:

Germany re-exportsprocessed coffee atprices up to five timesmore than what it paysfor the product;

• Exports are controlledby domestic brands;

• Belgium, Italy and USAfollows the Germanymodel.

Facilitate trade

Irrigation

Seed

Land

Fertilizer

Labor

Harvesting

Processing(i.e., wet method,

dry method)

Mass Retail

Grinding

Inputs Growing/Processing Mediators Roasters Retail

Roasting

Blending

Supermarket

Food Service

Coffeeshops

Machinery

Parchment Coffee(seed coat removed)

Brewing

Consuming CountriesDeveloped Countries(U.S., Italy, Germany)

Producing CountriesDeveloping Countries(Brazil, Vietnam, Ethiopia, Costa Rica)

Coffee Global Value ChainInput – Output Stages

International Trader

Branded Blends(i.e., Starbucks)

Inputs Growing/Processing Mediators Roasters Retail

Marketing Board

Exporters

BrandedManufacturers

i.e., Nestle, Sara Lee

Independent Roasters

Consuming CountriesDeveloped Countries

Producing CountriesDeveloping Countries

Small and Medium Producers

Estates/Plantations

Drivers

Cooperatives

Coffee Global ValueChain Actors

GVC Structure OpenQuestions

• What are the differences between globalvalue chains and local value chains inshaping upgrading? (social,environmental, economic)

• Does concentration of the industry alongthe International Traders and Roasterssegments make upgrading easier, harder?

• Do mediating bodies help growers? Arethere differences between large andsmall?

Environmental upgrading:Coffee Life Cycle

Source:Salomone, 2003

Exportingcountries

Importingcountries

Developingcountries

Main environmental issues& upgrading

• Cultivation– Pollution and eutrophication

(pesticide and fertilizer use)

– Water consumption andpollution

– Depletion of soil

– Deforestation (shadow vs.sun)

– Biodiversity (shadow vs. sun)

• Processing (wet vs. dry)– Water consumption and

pollution

– Energy consumption

– Air pollution

• Open questions– What pesticides and

fertilizers are used?• measures of water

pollution/eutrophication– Differences between big and

small farms approaches andimpacts?

– Is the shade grown coffeemore environmentallyfriendly?

• what are the differences inproductivity?

– Is it possible to reduce thequantity of water used in thewet processing?

– Reduction of impactsthrough corporation?

• how to promote it?– Is water treatment in place in

the wet process?

Main environmental issues& upgrading

• Consumption– Water use

– Waste production(e.g. through awaycups)

– Energyconsumption

– Air pollution

• Open questions

– How much waterand energy areused?

– Technologies toreduce the use ofwater and energy inthe coffee machine?

– How to promote thereduction of waste?

Is it possible to combine environmentalupgrading with social and economic?

Social upgrading incoffee chains

• Who are the workers and differentdynamics (Regular vs. irregular, ethnicminorities, gender composition and childlabor, seasonal)

• Output standards on quantity(employment creation) and quality oflabor (wages, hour, benefits, contracts)

• Enabling rights (freedom of association,discrimination, force labor)

Social upgrading incoffee chains (2)

• What’s the role of global buyers onlabor and environmental upgrading?

• Do smaller producers’ workers haverights compared toexporters/marketing boards?

• Do the pickers have organizingrights?

Economic Upgrading:making money out of a

commodity

• Product upgrading:– Specialty blending

– Sustainable coffee

• Process upgrading:– Wet vs. dry processing (?)

• Functional upgrading:– From harvesting to branding and roasting

Branding anddifferentiating

• New way and loci of consumption

• Local tastes and culture

• New blends

• Brands: values and sense-making

• Role of distribution

• Crisis

Illy: upgrading, branding& sense making

Labels for a better world

Labels for a better world

• Sustainability and quality• Private vs. Public, global vs. national,

coffee specific vs. general• Costs to put in place the certification as

barrier to entry?• Crisis?• Collective actions?• Who benefits?• Real value of certifications?

Overall questions

• How does the structure of the chain affect the types ofupgrading?

• Driving players, mediators & upgrading strategies?• Cooperatives? Better relations with international

traders?• What are the conditions to (functional) upgrade?• Is there upgrading potential more through domestic or

international market and impact on chain dynamic?• Who’s capturing the gains?• Can economic upgrading comes along with social and

evironmental ?• Why are some developing countries not upgrading?• Is there a local development driven by upgrading

strategies?

Methodology

• Case studies: Brazil, Costa Rica, Ethiopiaand Vietnam.

• Two main research questions:(1) how producers in developingcountries were able or not able toupgrade and improve labor andenvironmental standards?(2) under what circumstances producersin developing countries succeeded inpursuing (functional) upgrading?

• We will use historical narratives todevelop causal explanation and patternmatching (comparisons between differentcases).

• The focus of the research will be tounderstand the sequence of events thatleads to economic, environmental andsocial upgrading;

• We will use the existing typologies of theGVC literature to classify the case ofupgrading.

Methodology (2)

Strategy of the research

• Analyze many papers and data avalible from secondarysources;

• Identify the independent and dependent variables(upgrading) and develop typologies of upgrading based onthe GVC literature;

• Interview bussiness associations, small producers,international traders, and government representatives ineach one of the four countries;

• Interview global buyers (branded manufactures) in somedeveloped coutries.

• Revise the intial hypotheses, develop conditionalgeneralizations and write the paper.