The Coffee Connection Team USA. Background Coffee is the second most traded commodity in the world....
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Transcript of The Coffee Connection Team USA. Background Coffee is the second most traded commodity in the world....
The Coffee Connection
Team USA
BackgroundCoffee is the second most traded commodity in the world.
There are as many as 15 parties between grower and consumer of coffee products.
More than 2/3rds of the worlds coffee comes from small family farms in Latin America and the Caribbean.
The most vulnerable segment of the supply chain are the small family farmers.
Supply and Demand of Coffee Market
The current demand for coffee is declining and being replaced by beverages that are perceived to be healthier.
Decaffeinated coffee is the only segment to grow over the last five years.
Supply of coffee is globally increasing.
History of Coffee Prices
Over the last five years the commodity price of coffee has fallen nearly 75 %.
During this same period consumer retail prices have remained relatively the same or increased in some segments.
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Coffee Price Trends
Current Coffee Distribution
Coyotes
Exporters
Im porters/ Brokers
Roaster W holesalers
Roaster Retailers
Coffee Retailers
Consum ers
Growers
Identified Issues
The farmers can not make enough money to stay in business.
Farmers lack basic business skills.
Numerous “coyotes” escalate product cost with inconsistent value contributions.
Numerous supply regions inhibit ability to create policies to benefit identified problems.
Resulting in …
The bottom line is that the farmer gets
$ .35 /lb while Starbucks can sell for $10.00 per pound.
Who adds value?
The farmer does with the quality of the product.
Most participants in distribution chain offer little value to the process.
The objective would be to eliminate as many middlemen as possible.
The Emergence of Fair Trade Coffee Consortium
Concepts of fair trade emerged in Holland in 1988 as producers were loosing more money each year.
Intended to redistribute profits more equitably to the family farmers that will ultimately increase small scale growers efficiencies.
Fair Trade System
Started with 300 small family farmers.Determined how much money to support family of five.Guarantees that farmers can sell at that price.Companies buy direct from farmers at these agreed prices.
Fair Trade StrategiesThe target market for Starbucks is upscale coffee drinkers, price is relatively inelastic with these consumers.Sell exclusively Fair Trade grown coffee to differentiate products.Support the ability to buy directly from the farmers.Ultimately should provide money for community development and technical assistance.
Imperfections in Fair Trade Strategies
Fair Trade Coffee has had quality issues with it’s products resulting in some sympathetic supporters to not purchase.Eliminating non value added members of the value chain.Vertical integration opportunity for larger companies may lead to threat of elimination to small producers.
Consequences of current conditions.
Social Issues: Growers do not get fair share of product profits creating severe poverty conditions for many countries.Increases illicit drug trade.Increases pressure to immigrate to other countries.Stunts economic development.Contributes to political instability.
