#84 | A Two Part Arc About the C Market and the Future of Specialty | Expo Lectures 2019

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Last April, much of the discussion - at Expo and Re:co Symposium - was centered on the Coffee Price Crisis and the future of specialty. In a special episode to kick off the new year, we’re releasing a two-part lecture on the C market that sought to provide clarity and actionable data for the specialty industry. 

Over the past few years, many began to question coffee’s ability to provide a sustainable household income to smallholder producers. Although there’s still much to learn about the full cost of producing specialty coffee around the world, a widely-acknowledged hypothetical benchmark of US$1.40 per pound demonstrates how current levels of productivity and market pressures continue to fail smallholder producers. Throughout all of 2018 and 2019, the C market, the main price discovery mechanism and clearing house for coffee, has been below this hypothetical price of US$1.40. As a result, our industry has been questioning the value and existence of the C market as well as expressing concern over the multi-dimensional costs to producers, countries, and the environment. 

Special Thanks to Softengine Coffee One, Powered by SAP 

This episode of the Expo 2019 Lectures podcast is supported by Softengine Coffee One, Powered by SAP.  Built upon SAP's business-leading Enterprise Resource Planning solution, Softengine Coffee One is designed specifically to quickly and easily take your small-to-medium coffee company working at any point along the coffee chain to the next level of success. Learn more about Softengine Coffee One atsoftengine.com, with special pricing available for SCA Members. Softengine: the most intelligent way to grow your business.

Related Links 

• Listen to other episodes of the SCA Podcast

• Learn more about the upcoming 2020 Lecture Series at the Specialty Coffee Expo

Episode Table of Contents: Part 1

0:00 Introduction
2:30 Colleen Anunu introducing the speakers, anti-trust considerations and the issue of low prices for coffee producers
10:30 Ed Canty on how specialty coffee buyers can support producers with contractual floor prices while offsetting risks with futures and options contracts
28:15 Rene Leon Gomez of Promecafe on the human and environmental costs of low prices in ten coffee producing countries
43:45 Juan Esteban Orduz of the Colombian Coffee Federation on the World Producer Forum, its mission and its role on the international scene and the relationship between costs and low prices for World Coffee Producer Forum members
1:06:15 Outro

Episode Table of Contents: Part 2

0:00 Introduction
1:40 Colleen Anunu introducing the panel speakers
6:15 Kim Elena Ionescu on the SCA’s response to the coffee price crisis
23:30 Juan Esteban Orduz of the Colombian Coffee Federation on the response he received when asking coffee chain actors for help addressing the coffee price crisis
32:15 Ben Zwerling Baltrushes on how Fair Trade USA is trying to address coffee price crisis
35:50 Audience questions
1:03:30 Outro

Full Episode Transcript – Part 1

0:00 Introduction

Heather Ward: Hello everyone! I’m Heather Ward, the SCA’s Senior Director of Content Strategy, and you’re listening to the SCA Podcast. Today’s episode is part of our Expo Lecture Series, dedicated to showcasing a curated selection of the extensive live lectures offered at our Specialty Coffee Expo. Check out the show notes for relevant links and a full transcript of today’s lecture.

This episode of the Expo 2019 Lectures podcast is supported by Softengine Coffee One, Powered by SAP.  Built upon SAP’s business-leading Enterprise Resource Planning solution, Softengine Coffee One is designed to quickly and easily take your small-to-medium coffee company working at any point along the coffee chain to the next level of success. Learn more about Softengine Coffee One at softengine.com, with special pricing available for SCA Members. Softengine: the most intelligent way to grow your business.

The episode you’re about to hear was recorded live at the 2019 Specialty Coffee Expo in Boston. Don’t miss next year’s lecture series in Portland – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements, including ways to get involved in next year’s Expo and early-bird ticket release!

Last April, much of the discussion – at Expo and Re:co Symposium – was centered on the Coffee Price Crisis and the future of specialty. In a special episode to kick off the new year, we’re releasing a two-part lecture on the C market that sought to provide clarity and actionable data for the specialty industry. Welcome to part one!

Over the past few years, many began to question coffee’s ability to provide a sustainable household income to smallholder producers. Although there’s still much to learn about the full cost of producing specialty coffee around the world, there is a widely acknowledged hypothetical benchmark of US$1.40 per pound. This benchmark demonstrates how current levels of productivity and market pressures continue to fail smallholder producers. Throughout all of 2018 and 2019, the C market, which is the main price discovery mechanism and clearing house for coffee, has been below this hypothetical price of US$1.40. As a result, our industry has been questioning the value and existence of the C market as well as expressing concern over the multi-dimensional costs to producers, countries, and the environment.

Alright, let’s dive in!

2:30 Colleen Anunu introducing the speakers, anti-trust considerations and the issue of low prices for coffee producers

Colleen Anunu: Welcome to what has been called the two-part, or the three-part, lecture story arc of the current coffee C market crisis, price crisis. We can call it a number of things. We’re going to be looking at sort of part one the current state of the marketplace, the C market. Then we’ll be looking at the social and environmental costs of the current price crisis, and then moving into the future of specialty coffee within this sort of dominant marketplace. So it will be a two lecture session, but we’ll be covering three aspects of the total topic.

So the first aspect today that we’re going to be jumping into is looking into the marketplace the current market or the trends and what to do in terms of shared value, given the dominant position of the commodities market. Then we’ll be jumping into the human costs of what this means for coffee producers, particularly in Latin America, but extended beyond and then we’ll be looking at, what coffee organizations in producing countries are doing to change this dynamic.

My name is Colleen Anunu. I’m on the Board of Directors of the SCA and I work for Fair Trade USA and was part of the organizing committee for this particular lecture. I won’t be speaking, but I will be introducing our esteemed panel for the first session.

We’re going to start with Ed Canty. Ed Canty is the General Manager of Co-op Coffees, which is a business that imports and supports 23 coffee roasters in the United States and Canada. He has over 19 years of experience in the coffee industry. He’s a former coffee buyer for Green Mountain Coffee Roasters now known as Keurig Dr Pepper. He is on the Board of Food For Farmers and he will be presenting that aspect of the market.

Following that, we’ll have René León who is the Executive Secretary of Promecafe, which is a regional collaborative program that promotes technical development and modernization related to coffee production with 10 producing countries, along with the support of agricultural research and technology institutions such as IICA and CATIE. Rene has graduated as an Agronomical Engineer and he has a BA in finance from Central American Business University. He’s been working in coffee for over 15 years.

Following that, we’ll have Juan Esteban Orduz. He is the CEO and President of the Colombian Coffee Federation, which is the FNC North American branch. He’s on the Board of Directors for the Rainforest Alliance, Global Coffee Platform and CQI, and he is one of the founding members and the main coordinator for the World Coffee Producers Forum.

So we are in a really good company up here and we’re going to kick things off to talk a little bit about the issues around talking about pricing, first and foremost. So I need to read to you the SCA Antitrust Statement, which is not necessarily a statement. It’s more of guidelines that the association is committed to full compliance with the letter and spirit of European Union, United States, and other applicable antitrust and trade regulation laws. All members, including Board Members and members in this room shall at times avoid words and actions which may restrict or appear to restrict competition in our industry.

The following activities, whether by formal or informal agreement are recognized by the association as either being legal, illegal, or having the potential to result in illegal conduct and are therefore prohibited, such as agreeing to set minimum, maximum or fixed prices. This is not what we are going to be doing in this lecture.

We are not going to agree to allocation of markets by competitors. And we are not agreeing to deal, to not deal with any other parties, such as in the instance of a boycott, agreements on prices between competitors – so looking specifically at the price issue – between competitors, sometimes called price-fixing, are per se violations of antitrust laws and are prohibited by the Association’s policy. Please note that any attempts by competitors to set minimum or maximum prices are illegal.

What we can talk about are markets, and so that will be one of the main points of this morning’s lecture. We can talk about how to understand and analyze pricing and prices. We can talk about how to determine prices for your own company, which Ed will discuss a little bit. We can talk about education for educational purposes, how to analyze and determine pricing, and we can institute surveys that meet safe harbor or that sort of act in accordance with these antitrust policies.

So now that that’s out of the way and you know what we can and cannot do, I want to talk, I want to sort of set the stage a little bit and say that competition law while it’s important, while it protects what is predominantly known as the free market, it’s very important and the regulators that are protecting this policy don’t care how we feel about that policy. However, I do want to say that there’s been a lot of interesting research and actions done particularly in the EU and the UK that have looked at expanding or challenging.

The Predominant Competition Law or Antitrust Law.

So whereas you will predominantly think of the antitrust or competition law in terms of support for consumer welfare based on lower prices and product availability in support of Margaret market equilibrium in the free marketplace, there’s been a lot of changes in thought on how competition law has shaped modern-day.

Food.

A global food supply chain to be characterized by these massive imbalances of power and something that we’re facing today in which we’ll talk about on this panel and the one afterwards. So the point is that when we’re talking about Antitrust Law and how important it is to protect consumer welfare, we’re only talking on an economic basis.

We’re not necessarily talking about environmental benefits to consumers or citizen and we’re not necessarily talking about the social constraints that these laws also in impact on both citizens and consumers but also citizens and producers. So while we’re talking about these concepts today and hearing the examples from the panelists, I want you to consider that we’re not allowed to talk about prices.

There’s specific reasons why, but ultimately is it in the best interest of all of our supply chain beyond economic benefits. So think about that as we move forward. So I want to introduce Ed Canty to come and talk about his perspective.

10:30 Ed Canty on how specialty coffee buyers can support producers with contractual floor prices while offsetting risks with futures and options contracts

Ed Canty: I’m here to talk about a minimum price, but to be clear I think what they talked about in there, what I want to talk about is the concept of setting in minimum price which is different than us saying the minimum price is going to be X, but as you were saying that, I’m like well, that’s my presentation.

How many producers, organizations are in the room? I’m just curious. All right. Exporters included, say let’s get exporters, importers, great and buyers, roasters and buyers. Good. I wrote this presentation for you, the buyers. I’m glad there’s someone in the room. So, I’m going to talk a little bit about, the history of coffee, but really go into commodities and the difference between commodities and specialty coffee. This is just the snapshot of where the market’s been and you can see these dips.

I joined started working in coffee around 2000 right before I can’t remember if it was 2002 or 2001 where the market went down in October to 43 cents I think was the lowest low. So I really cut my teeth on a low market learning coffee.

My background is really working within Fairtrade, and the concept of minimum price there, and also with negotiating producers out of that and even going up into a higher market. The one thing I want people to notice is this is the crisis isn’t just about a low market. The crisis is about volatility and you can see when the market’s down and it shoots up that really puts producer organizations, co-ops. and associations mostly for me in a really interesting position because they might, those markets go up, they have to pay those producers, those higher prices producers deserve it, but sometimes that puts their businesses at jeopardy.

So it’s not just low markets, it’s the volatility of going to a high market that also can have a lot of cause, a lot of problems in our, in our supply chains. So when we talk about the commodity price of coffee, it’s a future it’s you, you go to the exchange, you see the price change in about six different market positions throughout the year.

Everyone I’m assuming knows pretty much how the market works. I was really shocked at a certain point to find out “oh I can actually buy coffee off the exchange”. And some people do. You can buy these low-grade coffees, this is the requirement basically for coffee. You buy off the exchange, there’s a lot of stuff in there really. I think somewhere it says it can be 15 full imperfections in the coffee. It’s a low-quality standard.

It doesn’t specify country. They specify Columbia because they have set up different standards, but pretty much when you buy a future, and you’re working on the exchange, you’re just promised coffee and that’s all it is. And that is very different from the value of specialty coffee, which we all work in.

So, I grabbed a quote from Ric Reinhart a few years ago, which was the most recent official definition I could find where they talk about green coffee. It’s going to be free of primary defects. No quakers go through this. I could go through this all but I think we all know that specialty coffee is supposed to be of a certain quality, but it also, if you read a lot of the writing on it, it’s specific to country or microclimates. It’s specific to producer organization’s specific on quality and a lot of the work all of us do.

It also includes that engagement with a producer organization, as well as there’s investments through people’s sustainability departments as well as their purchases as investments into those producer organizations. So this is the value of where we were which is quite different than the commodity market.

So a lot of people, over and over you hear this is a little market, we should stop using the C and I actually am not a proponent of that. At some point, I think it would be great. Yes, but I don’t I’m not smart enough to understand how an entire industry moves away from this. When producers’ reality is when the market goes up, they should be going after those higher prices and then they naturally will.

So even if we set a minimum price for or I’m sorry just a fixed price, I’m going to make one up of US$2.50, that’s great. Until the market goes up to US$3 and then they’re losing money through that volatility. So I’m not a big fan of when people just say, we should remove ourselves from the marketing, smarter people to meet and get an entire industry to do that.

Great. But the producers right now will and do need to compete in the higher market. And also when we talk about moving away from the C market, it’s an excuse. It’s an excuse. Well, the problem is bigger than me somebody needs to change the market. Well, if no one does I guess I’ll keep paying low prices in a low market.

I’m not a huge proponent of that, but I do realize the C market as a tool. It doesn’t represent the value of specialty coffee in a low market. That’s why it’s a tool or an index, but it’s not representing the value of the coffees that we buy. It doesn’t value producers or the investments that you’ve made and to the supply chains as it adjusts these macro levels supplies, rainfall in Brazil supplies low, supplies high, the market’s going to adjust itself.

Well, that doesn’t take into consideration the value of our specialty supply chain at all and the market does not react to higher valued specialty coffees. I remember when we started in fair trade, there were a lot of C market folks or traders who’d say this is going to go bad, we’re setting prices, the market’s gonna adjust.

A lot of times the market doesn’t even know that we have minimum prices on contracts. They don’t react to those things. So I disagree with the fact that when we set standards or place pricing on our contracts that are above where the commodity market is that there’s a knee jerk reaction from that market.

So what is the solution to low prices? I took an Uber. There’s a whole other conversation there, last night, and he was very excited about the coffee had a lot of coffee. People said, “coffee prices are low “and I said “yes, they really are,” like and he goes “well, why don’t people just pay more?”

I said “well, that’s really an excellent question.” I’m going to say this in a presentation. It’s a really interesting, it’s what’s the solution to low prices. When you talk about the commodity market, it’s just the saying solution to low prices is low prices, and that’s great when you want to balance a market and the commodity. Absolutely, but when you talk about the value of specialty coffee, that doesn’t work because those investments go away. Your roads are supply chains. So really for us, the solution to low prices is paying your producer partners more. I went to school for a long time to come up with that opinion.

All specialty coffee contract should include a minimum price. It’s just to be fair, everyone accepts to know what their wage will be now that’s very easy to say and notice I’m not saying Coleen what that minimum price should be. I’m not saying, I think there are tons of different types of coffees, relationships at the volumes you’re buying, the time frame of purchase. There’s a lot of different variables, but the concept still is that there should be a minimum price and it starts opening that conversation to what’s a fair price?

It’s an intimate conversation between buyer and seller to figure out what that minimum price should be. So how do you do this? How do you do this when there’s just, I’m saying the market should go away and we need to have a minimum price. I’ll give credit where credit’s due. Fair Trade has had this figured out for about 15 years they have certain prices set, but the concept is producers need to meet the cost of production in a lower market. That’s the minimum price, but roasters need to be competitive and that higher market when the market’s at $3 roasters are like, oh how much can I pay? And that’s really what’s defining that differential in a higher market. So when we were negotiating our contracts, those are the two values that are in my head in working with the market. What’s the minimum price and what is the differential we should be putting on this contract?

Ed Canty: So some examples. These are examples, and I’m going to use wildly different numbers in my different examples so people don’t say, “wow Ed said that this US$1.50 is the price of coffee”. But why I’m putting these examples up here is there’s one that it’s New York C plus 40 cents differential. That’s the premium above or US$1.50, whichever is higher. So what this is saying is in a market of  US$1.00 in a market of a US$1.50, minus 40 cents, so you’re bringing that down to a US$1.10 is kind of that market floor. When the price goes above that, there’s the ability to fix to that higher market. When it’s below that, it’s a US$1.50.

Now, I wrote it out a little more complicated below for some roasters in the room, which contract does the producer get more money on, or the producer organization? Anyone? I mean a US$1.25 FOB on the bottom, that’s lower than US$1.50 but the top contracts not actually calling out what the import fee is and a lot of times in these conversations we get stuck in that because we think oh I’m paying $3 well, how much is your importer making? and then even if we’re defining it by FOB price, how much is your export are making? And we could go all the way to farm game for purposes of brevity.

I’m going to say FOB is where I really stop on the negotiation. But a lot of times there’s a big difference between that and you can be having your import fee in that differential in the top unless it’s specified on your contract. So I’m going to deal with this. We’ve done all that work on our contracts and we have our FOB price.

Here’s some other examples. I was lazy. I took this from another presentation. These prices are a little higher. They’re not the same numbers as before. But the thing that I noticed was really hard for people to understand and sometimes traders to understand, is when I say a pay a minimum of say,  US$1.90 on a contract, they’re like oh, great.

When the market’s above a US$1.90 producer gets more. It’s the differential so it’s a US$1.00 minus sorry minus 60 cents so it’s the  US$1.30 is that market floor. So after this, when I do slides, I’m not talking about the premium. I’m not talking about the differential which is specialty coffee.

We’re going to go back to how does the work we do in special coffee, how does it relate back to the market? We’re really talking about that market floor, which could be a US$1.30 you could also have a minute, a contract where the minimum price is a US$1.90 but you’ve chosen an 80 cent differential.

It’s a higher quality and a higher market. I need to pay more money. Where your floor price would be, or I’m sorry, your market floor would be a US$1.10 and so on. So these are just some different examples. Every negotiation should be a little bit different to where they should be.

Futures. I’m going to one slide on futures where this is from a buyer’s perspective and really a future is a promise to buy at a future date and agree to prom price today.  I look at the market in September. It’s a US$1.01. I am saying I’m going to sign on that. I will pay that price. Producers on the other side are selling and at the same market, but they have the ability to realize the market price when they want to in whatever time frame. For us, it’s really a financial product used to offset that volatility of the physical product going up and down and it’s still useful.

Midsize roasters, they have a wholesale account. They have to sign on that price for say, six months or a year. They’re going to need to decide when they want to discover the price in the market. So it’s not just the single point. These tools yes they could allow someone to speculate but more importantly, they allow them to discover the price at the time that makes sense for their business and that’s very useful in a higher market, but futures are risky because you really got to have the integrity of the contract. If you buy a future and you have a physical contract and the coffee doesn’t come in, guess what coffee you’re buying that first slide, you’re buying that low grade, whatever’s available or you’re trying to find some other coffee to use for that. So keeping in integrity of a contract becomes even more important when you’re using futures.

Another tool to using to manage all of this is derivatives or calls. There are or options. There’s a call option, which is, I like using the word option, because you don’t have to a future you have to pay. An option is about, while I have the option to participate in this higher market, so if the market goes over a certain price, I actually can say I’ve got this insurance and I used to get certain cents per pound. If it’s above that price that I bought the option so that’s a Call. So it’s protecting the price going up and then there’s put options which do the same thing, but if it goes below a price, and these two can be very useful in different scenarios for the market. So what’s the market mechanics with a minimum price? We have three scenarios. We’re in a high market.

A market above wherever that floor price we’ve said is, we’re in that negotiation, we’re going to sign a contract. You need to use a combination of that put option for that to protect against that floor or going below that floor and a future is a buyer. So you have to buy those two tools.

Now, in today’s world, we’re in a low market. We’re below where we think that price should be. So it’s a lot simpler. We have to buy a call option and that call option is that insurance in our back pocket. So if the market goes over a certain price and the producer says, I would like to fix my contract, the market’s at a US$1.60 as a buyer, you don’t actually have to pay more. You’ve already got your price discovery. You agreed you would never go below a certain price and you have that option as insurance to cover if it goes over a certain price. The third way of doing this is, when we’re right at, so say we have that market price of, let’s say you set it at a US$1.40.

And if the market’s at US$1.35 or US$1.45 or right around there, everything’s expensive. These options are so close to where that place is that all the people who are weighing in that it’s not going to hit that price, it’s not a good bet. So you could be paying 10, 20 cents per pound compared to 1 to 5 cents per pound for if you’re close to the market. You have to get creative work with your supply chain, come up with some other solutions. Good news here is it means the market’s not that there’s not a lot of volatility. So there’s normally some time to work through some things. So I’m just going to quickly walk you through. I don’t how many folks, we have a use these tools in here, but this is that first one.

If the market’s high, you can see over here it’s a $2 market. When the business was signed on and the buyer said, I want to fix it a $2 market, and that’s future at the bottom with $2 the price goes down, the price goes below the floor, which should I set here at a $1.40 right?

“Paid 5 cents per pound, kind of pricey for a Put to protect against going down below that floor. The price is going below the floor, the producer’s like,” I don’t have to do anything as a seller, I’m guaranteed this minimum price, so I’m not going to do anything,” but the buyer’s going,” wow this is getting further and further away from that floor, and I owe that money.”

“So if I’m down from a US$1.40 to a US$1.10, that’s 30 cents that I don’t have,” so you have to sell your option to get that 30 cents, and you can see this where the future, you lost 90 cents of the physical. You’re actually gaining 60 cents. There’s that 30 cents Delta which is paid to buy the option.

I am not expecting everyone to understand this stuff. I’m trying to show that I understand it and that people have been doing this for 20 years. This is the exact opposite situation. We’re in a low market, I’m never going to get this coffee cheaper than that floor price. Again, I’m just saying there are premiums above that of a US$1.40 so all I have to do is go out and get an option at a US$1.40. I priced this out, just before I came in here.  September if I wanted to get an option at a US1.40, it’s half a cent to protect against it going over that US$1.40 plus whatever the premium I have. So that would cost say half a cent.

The example’s a little high. And again if I… if my physical product, I’m buying at US$1.40, but I’m actually giving the producer a US$1.80, that extra 40 cents is coming from the sale of that call option. If the market stays down, you paid half a cent for insurance and you never lose it. You are never losing it.

Last, who pays for these tools? I always laugh at this question because who’s gonna pay for this? Well, the buyers pay for everything. At the end of the day, this is paid for from the buyers and a lot of times I think this gets hidden in a differential or where there’s not an understanding of well this is a buyer really going to pay for this. Buyers have to be open to this there’s the cost of an option can only be discovered at the time of that negotiation. So it’s part of the negotiation. You figure out your contract, read before for you sign on that contract, that liability.  It’s easy to find online. You go in and say,” okay, well here’s the cost of that option.”

Let’s add it to the differential and since it’s indexed it’s online. It’s easily referenced. It’s something both buyer and seller can look at a d it’s an absolute, it’s not something that can be negotiated around, but what we have to agree to is it’s important to have. A minimum price, and it’s important to use these tools to protect the risk of both the seller and the buyer.

The point I’m trying to make is there’s nothing inherent in the coffee commodity market that stops buyers from paying more and a lot of times if you’re talking to someone who just manages futures, they’re going to say “well, you don’t understand the market.” That’s impossible. If you talk to someone who just buys, I put US$3, I buy the best coffee, I’m a direct trader.

I don’t need the market. These two need to come together and realize like the market is there, we have to deal with it, but there’s nothing about it that stops us from paying a minimum price and paying more and it’s tough because you look around this room and I think we all agree, but where are the buyers that don’t agree with this conversation. Getting them to understand that this is good business, these are good tools and this is a way to manage our investments in our supply chains in the future. Have very principled negotiations and really create some win-win situations and as we go into a lower market, I can’t believe I’m up here saying this again. So yes hopefully we’ll do some movement and as an industry, we can move past this.

28:15 Rene Leon Gomez of Promecafe on the human and environmental costs of low prices in ten coffee producing countries

René León Gómez: Buenos días, buenos días a todos. Gracias a los organizadores por el espacio para participar. [Good morning, good morning everyone. Thanks to the organizers for the space to participate.]

Digo a todos, a los que no entiendan el español, porque vamos a hacer la presentación en español, así que su ayuda con la traducción es importante en este momento. [I would like to say to everyone… to those who do not understand Spanish, because we are going to give the presentation in Spanish, so your help with the translation is important at this moment.]

Me toca a mí, lo que fui solicitado y lo que voy a hacer es presentar información, contarles un poquito más sobre la situación que están viviendo los productores de café en la región de Promecafé, que es la región que nosotros representamos, pero creo que es una realidad mundial; así que me toca quejarme, no me gusta hacerlo, pero pareciera que ya es lo poco que nos está quedando a los productores de café. Así que vamos al grano… [It is my turn – what I was asked for and what I am going to do is present information, tell you a little more about the situation that coffee producers are experiencing in the Promecafé region, which is the region we represent, but I think it is a worldwide reality; so I am going to have to complain, I don’t like doing it, but it would seem that that is all that remains for us coffee producers. So let’s get to the point…]

Venimos de la región de Promecafé, Promecafé es una región que incluye diez países productores. En suma, estamos produciendo alrededor de 34 millones de sacos de café – sacos de cien libras; una gran porción de nuestro territorio está dedicado al café – aproximadamente 2.3 millones de hectáreas; y viven directamente de la caficultura se estima que alrededor de 1.1 millones de familias productoras. Es un cultivo muy importante para nuestra región. Estimamos que alrededor de 5 millones de personas dependen directamente de este cultivo. Nos referimos al productor y a su familia. Estamos produciendo alrededor del 25% del café arábica que se consume en el mundo, y – siempre nos gusta decirlo – el café es parte de nuestra cultura. No es una actividad en la que entramos solo para hacer negocio, si no que – o buscando a hacer negocio – pero es una actividad con la que el productor nace y crece. Desde el punto de vista económico, es muy importante para nuestro país: genera alrededor de 5 billones de dólares el producto y la exportación del café, mucho empleo… 2.3 millones de empleos generados durante la cosecha en la región de Promecafé. La mayoría de nuestros productores son pequeños – productores entre dos o tres hectáreas – así que, desde el punto de vista social, muy importante; y, también, ambientalmente importante – el café en nuestros países está sembrado en sub mayoria bajo sombra, lo cual es importante para la generación… para la producción de agua, para la conservación de flora, y de distintas especies de animales. [We come from the Promecafé region. Promecafé is a region that includes ten producing countries. Basically, we are producing around 34 million bags of coffee – one hundred pound bags; a large proportion of our territory is dedicated to coffee – approximately 2.3 million hectares; and it is estimated that around 1.1 million producing families live directly from coffee growing. It is a very important crop for our region. We estimate that around 5 million people depend directly on this crop. We are referring to the producer and his family. We produce around 25% of the Arabica coffee consumed in the world, and – as we always like to say – coffee is part of our culture. It is not an activity into which one enters only to do business – or seeking to do business – but rather it is an activity with which the producer is born and grows. From an economic point of view, it is very important for our country: the production and export of coffee generates around 5 billion dollars, along with a lot of employment… 2.3 million jobs are generated during the harvest in the Promecafé region. Most of our producers are small – producers that have between two to three hectares – so, from the social point of view, it is very important; and, also, it is environmentally important – the sub … majority of coffee in our countries is planted under shade, which is important for the production of water, for the conservation of flora, and of different species of animals.]

Estamos en un momento, como todos saben, de crisis – viviendo momentos muy difíciles, grandes retos para el sector cafetalero – y queremos poner en primer lugar el reto económico, la falta de sostenibilidad económica que viven los productores. Queremos destacar la pérdida de valor, que ha tenido la cosecha cafetalera a través del tiempo. Es decir, el productor del café hoy necesita alrededor de 30 o 40 veces el volumen de café que necesitaba allá por 1970 para conseguir pagar o comprar algunos de sus insumos que él necesita. Utilizábamos allí el ejemplo, que es un aporte que nos ha hecho Anacafé, de la adquisición un vehículo de trabajo, y un productor en los años 70, lo compraba con alrededor de 55… con la venta de 55 sacos de café; y ahora para lograr a hacer… para comprar un vehículo como ese tendría que invertir alrededor de 1500 sacos de café para lograr el mismo propósito. Y ese es el ejemplo de un vehículo de trabajo, que ya se volvió casi incomprable para los productores de café. Este es la misma realidad para la educación de sus hijos, para salud y alimentación, para su vivienda. Todo esto está relacionado – la pérdida de valor – con la inflación o sea que no solo los precios nominales tienden a ir para abajo si no que el poder adquisitivo del productor se ha ido cayendo a través del tiempo. Y por el contrario, como para complicar el asunto, las demandas que se vienen hacia el productor son cada vez más altas. Los costos de producción se incrementan, y las demandas que hace el mercado y las exigencias de lo que se espera del productor son cada vez mayores. Allí vemos una ecuación sencilla de la rentabilidad que nos indica lo que deberíamos de estar haciendo – tratando de incrementar los ingresos y bajar los costos – pero en la finca del café, en la vida del productor sucede lo opuesto. [We are in a moment, as everyone knows, of crisis – living through very difficult times, with great challenges for the coffee sector – and we want to bring the economic challenge to the foreground, the lack of economic sustainability that producers live. We want to highlight the loss of value which the coffee harvest has suffered over time. That is, the coffee producer today needs about 30 or 40 times the volume of coffee he needed in 1970 to get, pay for or buy some of the supplies he needs. We used the example, brought to us by Anacafé, of the acquisition of a work vehicle: a producer in the’70s, would have been able to buy it with the sale of around 55 bags of coffee; whereas now to manage to buy a vehicle like that he would have to invest around 1500 bags of coffee just to reach the same end. And that is the example of a work vehicle, which has already become almost impossible to buy for coffee producers. This same reality applies to the education of their children, to healthcare and food, to their home. All this is related – the loss of value – with inflation: that is to say, not only do the nominal prices tend to go down, but the producer’s purchasing power has also been falling over time. And on the other hand, as if to complicate the matter, the demands that are coming at the producer are increasingly high. Production costs are rising, and the demands made by the market – what is expected of the producer – are increasing all the time. There we see a simple equation of profitability that tells us what we should be doing – trying to increase revenues and lower costs – but on the coffee plantation and in the producer’s life the opposite is happening.]

Algunos otros retos que enfrentan los productores del café, además del económico: estamos viviendo un momento importante en el tema del cambio climático, cada vez más adversas las condiciones climáticas, más variables, épocas de sequía, épocas de lluvia extrema, cada vez más presencia de fenómenos naturales… Asociado a eso, las plagas y enfermedades son cada vez más complicadas de manejar: las plagas comunes con las que hemos lidiado – la roya, la broca – pero aparecen también muchas plagas nuevas en que el productor está teniendo que invertir para manejar. La demanda del mercado, cada vez más exigente, cada vez se habla de que el productor debe de cuidar la mano de obra, las condiciones en la finca… Pero en todo eso, el peso cae al productor. Nadie más le ayuda, a ver como suporta esas demandas, que el mismo mercado establece. Tenemos un reto importante que debe de ser considerado y que la industria debería estarlo pensando mucho: hay poco interés de parte de los jóvenes para continuar en el café. Ningún joven quiere continuar en esa actividad donde observa y vive en carne propia la pobreza con sus padres. Así que el joven está pensando en otro tipo de actividades, y me pregunto yo, y se lo debería de preguntar la industria, ¿quién va a estar produciendo ese café que se necesita en los próximos años?  [Some other challenges that coffee producers face, in addition to the economic one: we are experiencing an important moment in terms of climate change – increasingly adverse and more variable weather conditions, times of drought, times of extreme rain, increased presence of natural phenomena… Associated with that, pests and diseases are increasingly complicated to manage: the common ones we are used to dealing with – rust, borers – but also many new pests causing the producer to have to invest in order to manage them. The demands of the market are increasing – increasingly we hear that the producer must take care of the workforce, the conditions on the plantation… But the burden of all that falls to the producer. No one else helps him, to see how he might bear those demands, which are established by the market. We have an important challenge to consider, and that the industry should be thinking about a lot: there is little interest from young people in continuing in coffee. No young person wants to continue in this activity where he observes firsthand a life of poverty, where he is living it with his parents. So the young person is thinking about other types of activities – and I wonder, and the industry should wonder too – who is going to be producing the coffee that is needed in the coming years?]

El productor está altamente endeudado: quedó muy endeudado después de la crisis de la roya, donde consiguió financiamiento para renovar fincas, para hacer manejos, para mejorar; pero después de esos años, del 2012, 2013, lo que le vino fue esta crisis del precio, una crisis económica, de donde no ha podido salir, y por lo tanto está altamente endeudado. [The producer is highly indebted: he was left heavily indebted after the rust crisis, when he secured financing to renovate farms, to improve; but after those years, after 2012 – 2013, he was hit by this price crisis, an economic crisis, which he has not been able to get out of, and therefore he has huge debts.]

Ese… Pues… Al final todo esto resuelta en que el productor del café no está teniendo rentabilidad. Los productores del café en términos generales, en nuestra región y en el mundo… prácticamente es una actividad que solo les permite subsistir. No es la visión que creo que tenemos, ni lo que queríamos como productores del café: nos imaginábamos un pequeño empresario, con rentabilidad, con prosperidad, pudiendo mantener bien a su familia. Sin embargo, se ha vuelto una actividad de subsistencia, es de, comer y vivir y no morirse de hambre. [So… Well… In the end, this all results in the coffee producer not making a profit. Coffee producers in general terms, in our region and in the world… it is basically an activity that only just allows them to survive. It is not the vision that I think we have, nor that which we wanted as coffee producers: we had imagined a small business owner, profitable, enjoying a certain prosperity and being able to support his family well. However, it has become a subsistence activity, just about eating and living and not dying of hunger.]

Algunos ejemplos de inequidad en la cadena del café – que ya sabemos que es muy dispare en la forma en que distribuye los recursos: por un lado, una actividad muy lucrativa y por el extremo de los productores, una actividad de mucha pobreza. Aquí algunos ejemplos que queremos compartir con Ustedes: en un país consumidor, en Estados Unidos, la comercialización del café generó impuestos que son superiores – el valor que se generó el producto de los impuestos de la industria cafetalera en Estados Unidos – son superiores a los ingresos que captaron todos los productores en el mundo por la venta del café. En un solo país consumidor, el producto de los impuestos. 28 millones generados en Estados Unidos versus 19.5 millones que captaron los productores por la comercialización de su café. Eso es un ejemplo que ilustra la disparidad. Las re-exportaciónes del café de países consumidores duplicaron el valor que los productores recibieron por la comercialización del café. O sea, en los países consumidores el solo hecho de estar re-vendiendo el café les genera más ingresos que todo lo que los productores en el mundo reciben al vender su cosecha. Y, un ejemplo un tanto triste, pero es parte de la realidad: muchas veces cuando vamos a una cafetería en cualquiera de los países donde… países desarrollados donde compramos café, tiramos… lanzamos una monedita, una moneda de 25 centavos, un quarter, como propina al barista, y eso puede representar más de diez veces lo que el productor está recibiendo por esta taza de café que nos estamos tomando. Es increíble los valores que percibe el productor. [Some examples of inequality in the coffee chain – which we already know is very uneven in the way it distributes resources: on the one hand, a very lucrative activity and at the producers’ end of the spectrum, an activity of immense poverty. Here are some examples we want to share with you: in a consumer country, in the United States, the commercialization of coffee generated taxes that are higher – or in other words, the value generated by the tax revenues of the coffee industry in the United States – are higher than the income that all the producers of the world obtained via the sale of their coffee. In a single consumer country – the tax revenue: 28 million generated in the United States versus 19.5 million that the producers obtained from the commercialization of their coffee. That is an example that illustrates the disparity. Re-exports of coffee from consumer countries doubled the value that producers received for the commercialization of the coffee. That is to say, in the consuming countries the mere fact of re-selling coffee generates more income than everything that producers of the world receive when they sell their crops. And – a somewhat sad example, but it is part of the reality – many times when we go to a cafeteria in any of the countries where … developed countries where we buy coffee, we throw… we flick a coin, a 25 cent coin, a quarter, as a tip for the barista, and that can represent more than ten times what the producer is receiving for the cup of coffee that we are drinking. The values that the producer perceives are unbelievable.]

¿Qué impacto ha tenido eso en nuestras comunidades? ¿Qué estamos viendo en la realidad en nuestras comunidades? Y a veces, me gusta hacérselos notar, no nos basemos en los productores que vemos en estos eventos, porque los que vienen acá son uno de 5000, uno de 5000 logra venir acá. La realidad de nuestros productores es más o menos como esos que vemos en la fotografía – gente muy pobre, muy humilde, batallando para subsistir. Y ves que condiciones podemos ver en nuestros países, que impactos económicos ha tenido… Bueno, nos gusta llamar la atención al impacto que está teniendo en la migración – la migración se ha duplicado en los últimos años. No dudamos que tiene mucho que ver con estas crisis de café. Hemos escuchado en las noticias recientemente mucho sobre las migraciones de Centroamérica, y está clarísimo cual es el origen: los principalmente países altamente productores, el caso de Honduras, Guatemala, y El Salvador, son mucho de la fuente de esos migrantes. Las condiciones de sus hogares están altamente deterioradas, existe el riesgo de que estos productores al abandonar el café buscan otras actividades que muchas veces son actividades ilícitas, el tema del narcotráfico está a la orden del día, dispuesto para estos jóvenes para ofrecerles alternativas. Así que también nos debe de preocupar esto, en estos países del Norte, donde migración y narcotráfico seguramente se potencializa en la medida que el café no está funcionando bien, la economía del café en los países productores. Alto nivel de pobreza, bajos niveles de educación, imposibilidad de los productores en invertir en su familia, en sus hogares, es parte de lo que están viviendo. Vemos – no es difícil ver – en las zonas cafetaleras ya fincas abandonadas, fincas en venta, un riesgo ambiental importante; los productores están abandonando estas fincas, buscando otras alternativas, muchas veces se transforman en zonas productoras de maíz y de frijol, y allí tenemos un impacto ambiental muy fuerte. El bosque cafetalero se pierde, y eso se transforma en un cultivo de maíz o frijol, en laderas con alta erosión, con alto problema ambiental. [What impact has that had on our communities? What are we seeing in reality in our communities? And sometimes – I like to point this out – we must not base our impressions on the producers we see in these events, because those who come here are one in 5000, one in 5000 might manage to come here. The reality of our producers is more or less like those we see in photos – very poor people, very humble, struggling to survive. So you see what conditions we can see in our countries, what economic impact it has had… We’d like to draw attention to the impact it is having on migration – migration has doubled in recent years. We have no doubt that it has a lot to do with these coffee crises. We have heard a lot in the news recently about migration in Central America, and it is very clear what the origin is: the main high-producing countries, such as Honduras, Guatemala, and El Salvador, represent the source of many of these migrants. The conditions of their homes are highly deteriorated, and there is a risk that these producers, in leaving the coffee business, look for other activities that are often illegal – the issue of drug trafficking is the order of the day, presenting ready alternatives to these young people. So we should also be concerned about this, in these countries of the North, where migration and drug trafficking are surely becoming bigger issues owing to the problems in the coffee economy of producing countries. High levels of poverty, low levels of education, the impossibility for producers to invest in their family, in their homes – this is part of what they are living. We see – it is not hard to see – in the coffee-producing areas, plantations that have been abandoned, plantations that are for sale… This represents an important environmental risk factor: producers are abandoning these plantations in the search for other alternatives, and much of the time they are transformed into corn and bean producing areas, and there we see a very strong environmental impact. The coffee-growing forest is lost, and it becomes a crop of corn or beans, leaving hillsides that suffer high erosion, with significant environmental problems.]

¿Qué impacto puede esperar la industria de todo eso, qué creemos nosotros como productores que la industria puede esperar al futuro? Pues creemos que van a ver limitaciones para cumplir con la demanda, que, que… o con la oferta que la industria necesita de café. Ya es evidente en nuestros países como la infraestructura del procesamiento del café está subutilizada: ejemplos en El Salvador donde la subutilización es del 70% –  apenas un 30% de la infraestructura de procesamiento se está utilizando; Costa Rica – cifras que nos compartieron del Icafé de Costa Rica – aproximadamente el 50% de la infraestructura es la que está en uso, la demás está parado, generando costos; y tenemos información que Honduras está reevaluando sus pronósticos de cosecha; o sea inclusive países que estaban creciendo, que han hecho un importante fuerzo, por ser más eficientes, por mejorar muchísimo su productividad ya han llegado a un momento en que no pueden continuar y están considerando – ya están evidenciando – que su cosecha empieza a caerse también. [What impact can the industry expect from all that, what do we believe as producers that the industry can expect in the future? Well, we believe that they will see limitations with regard to meeting demand, that… or to the supply of coffee that the industry needs. It is already evident in our countries to what extent the coffee processing infrastructure is underutilized. Examples are found in El Salvador, where underutilization is 70% – only 30% of the processing infrastructure is being used; in Costa Rica – figures provided by Icafé of Costa Rica – approximately 50% of the infrastructure is in use, with the rest having ground to a halt, still generating costs; and we have information that Honduras is reassessing its harvest forecasts. That is to say that even countries that were growing, that made a significant effort to be more efficient, and to greatly improve their productivity, have reached a point beyond which they cannot continue and consider – indeed it is already showing – that their harvest is beginning to fall as well.]

La calidad seguramente va a sufrir un deterioro: el productor que no puede invertir en su cosecha, que no puede hacer una cosecha selectiva – que ha sido lo que nos ha caracterizado a los países centroamericanos y Mesoamérica, esa cosecha a mano, seleccionada, resulta muy cara y no se puede hacer – así que nos podemos esperar a una caída en la calidad. Y este último punto me gusta llamar la atención, y desde el punto de vista de los productores, nos interesa y estamos cada vez más convencidos de que debemos de hacerlo, es llamar la atención del consumidor final. Creemos que hemos intentado conversar, hemos intentado cambiar las opiniones de los lideres de las empresas en industrias y esto no ocurre – después de muchos años todo sigue igual o peor. Así que estamos cada vez más interesados en que el consumidor final se entere de donde viene su taza de café. Qué condiciones son las que vive el productor que está produciendo este grano que se está tomando. Estamos seguros de que el consumidor del café está buscando que haya sostenibilidad integral de la caficultura, y eso involucra la sostenibilidad económica. Si el productor (consumidor? -Ed.) del café supiera, si tan solo supiera de donde viene ese café, el sufrimiento, la dificultad, la pobreza que está asociada a esa industria tan lucrativa, seguramente no estaría tan dispuesto a estar apoyando y consumiendo ese tipo de café. [Quality is surely going to suffer: the producer cannot invest in his harvest, cannot make a selective harvest – which after all is what has characterized us, the Central American and Mesoamerican countries – that hand-picked, select harvest, which is very expensive to do and therefore can no longer be done, such that we can expect a drop in quality. And to this last point I would like to attract attention: from the producers’ point of view, we are interested in and we are increasingly convinced that we must attract the attention of the final consumer. We believe that we have tried to talk, we have tried to change the opinions of business leaders in industries and this does not happen – after many years everything remains the same or worse. So we are increasingly interested in the end consumer finding out where his cup of coffee comes from. What are the conditions experienced by the producer who is producing the coffee bean they are consuming. We are sure that the coffee consumer is looking for comprehensive sustainability in coffee growing, and that involves economic sustainability. If the producer (consumer? -Ed.) of the coffee knew, if they only knew where that coffee comes from – the suffering, the difficulty, the poverty that is associated with this very lucrative industry, surely they would not be so willing to support and consume that type of coffee.]

Para cerrar, tres ideas que quisiera que les queden de nuestra región: el café es muy importante para nosotros, desde todos puntos de vista – económico, social, y ambiental; dependemos grandemente de él – de la producción de café me refiero; estamos enfrentando grandes retos – el más importante el tema económico… Todo lo demás, todo lo demás se puede resolver si hay suficientes ingresos. Escuchamos muchas veces discusión, desde que hacer entorno al cambio climático, entre manejo de sus productos, del café y deshechos… Todo eso se compone si el productor tiene con que pagar ese tipo de manejo. Y, finalmente, el tercer punto, es que quiero destacar la cadena del valor del café, no puede subsistir si no hay productor. Es decir, si no tenemos productores, pues no existirá esa industria lucrativa, rentable, tan grande de la cual todos somo parte, al futuro. Con eso, cierro mi presentación, muchas gracias. [To close, I would like to leave you with three ideas from our region: coffee is very important for us, from all points of view – economic, social, and environmental; we rely heavily on it – I mean coffee production; we are facing great challenges – the most important being the economic issue… Everything else, everything else can be resolved if there is enough income. We often hear discussion, from what to do about climate change, to managing products, coffee and waste… All that will get better if the producer has the wherewithal to pay for such things. And finally, the third point is that I want to highlight is that the chain of value in the coffee market cannot survive if there is no producer. That is to say, if we do not have producers, then in the future this huge industry that we are all a part of – that is so lucrative and so profitable – will not exist. With that, I end my presentation – thank you very much.]

43:45 Juan Esteban Orduz of the Colombian Coffee Federation on the World Producer Forum, its mission and its role on the international scene and the relationship between costs and low prices for World Coffee Producer Forum members

Juan Esteban Orduz: Good morning everyone. Thank you very much for the invitation to SCA. I’m going to speak in Spanish to make it easier for most of everybody. And I’m going to discuss a little bit… some of things I’m presenting here are very similar to what Rene said.

…todo es más o menos similar a lo que René acaba de decir en la presentación de Promecafé. Y es un poco… Y arranco, arranco la conversación contando que es el foro de productores, porque todos yo creo los que estamos sentados aquí hemos oído hablar del foro de productores que es eso de donde salió etcétera etcétera… Y esto es una historia, tiene una historia común e  interesante. En el año 2015, estábamos reunidos con delegados de varios países en Costa Rica, la donde es Intercafé. Estábamos discutiendo cuales son los problemas que tenemos en común. Todos tenemos los mismos, no hay ninguna sorpresa en América Latina incluido Brasil en muchas de sus regiones. Brasil es un mundo un poquito a parte, pero en muchas de sus regiones tiene problemas similares. Y otra de las cosas que reflexionamos allí es que la industria se reúne todo el tiempo en todas partes. Siempre hay reuniones, en Asia, en América, en Estados Unidos, en Europa, esta reunión… Toda la industria siempre está reunida y viéndose y los productores nunca se ven. Yo no conocía los productores africanos, personalmente. Y yo, a ver, 16 años con la Federación en los Estados Unidos. Yo nunca he conversado con la gente de African Fine Coffees Association, con Afca, con Acram, con Yaku, con Vicofa, jamás. Entonces dijimos, reunamos, y conversamos nuestros problemas, entre nosotros, y que es lo que vamos a hacer al respecto. Y como consecuencia de esto, terminamos esta reunión en Sinter, me fui yo para… tenía una reunión en Etiopía, tenía una reunión con los etiopianos, citamos a todas nuestras contrapartes africanas – las asociaciones tanto nacionales como regionales – para comparar notas come hicimos en Colombia. Bueno, Ustedes que tienen todos sus problemas por eso sus debilidades sus fortalezas etcétera etcétera… La conclusión, que era más o menos, digamos era evidente desde el principio, pero había que sentarse a ver… digamos a clarificarla y documentarla, es que todos tenemos los mismos problemas. Lo mismo hicimos en la India, lo mismo hicimos en Vietnam, entonces nos fuimos país por país a discutir con todos cuales son los temas que… ¿dónde es que nos aprieta el zapato y como hacemos para que no nos apriete tanto? Y en esa, en esa, digamos… todas esas discusiones terminaron en que Colombia organizó, a instancias del grupo – y subrayo que no es una cosa colombiana si no que lo hicimos en Colombia, pero a instancias del grupo – el foro mundial de productores, donde por primera vez, nos sentamos los productores de todas partes del mundo, y dijimos bueno, vamos a discutir entre nosotros cuales son los temas y vamos a estudiarlos con seriedad, y a ver a que conclusiones podemos llegar. Una primera conclusión, digamos no solo ante el foro sino previa, y que parece evidente en este momento, pero hace tres años no era evidente, es que cuando uno habla de sostenibilidad todo el mundo piensa en pájaros y en arboles y en una quebrada y en un rio y etcétera. Nadie piensa si el productor tiene con qué comer, con qué mandar a sus hijos a la escuela. Eso no se le ocurre a nadie. Ahora diría que sí, pero hace tres años no se hablaba del tema. Sostenibilidad económica no era un tema de conversación en ningún foro. Entonces al final dijimos bueno, ¿cómo es esto? …que, de las tres patas de sostenibilidad, la parte ambiental… a todos nos preocupa si el pajarito migra o no migra, si se muere o si no se muere y a nadie le preocupa si el campesino se muere o no se muere. ¿Cómo es esto? …que claro que los temas del trabajo infantil hay que manejarlos, los temas de educación, todos los temas de sostenibilidad social – claro que hay que manejarlos y que son importantes, pero son tan importantes como el ingreso del cafetero, como la sostenibilidad económica. Y la gran conclusión digamos, una conclusión que resumiría esto es que la pobreza es el mayor despojadora del medio ambiente. Nadie que no tenga con que comer, se va a preocupar por el pajarito. Es la realidad. Eso fue una campana de alarma, y nos sentamos a estudiar los temas con muchas ideas y llegamos a cuatro grandes temas, cuatro grandes grupos de temas. [… Everything is more or less similar to what René just said in the Promecafé presentation of. And it’s a bit… I’ll begin the conversation telling you about the producers forum, because I think that all of us who are sitting here have heard about the producers forum – well what is it and where did it come from etc etc… And it has an interesting and communal history. In 2015, we were at a meeting with delegates from several countries in Costa Rica, home of Intercafé. We were debating the problems we have in common. We all have the same – Latin America holds no surprises – including Brazil in many of its regions. Brazil is a world a little bit apart, but in many of its regions it has similar problems. And another of the things we reflected on there is that the industry meets up all the time, everywhere. There are always meetings – in Asia, in America, in the United States, in Europe, even this meeting… The entire industry is always getting together and seeing each other and the producers never see each other. I did not know the African producers, personally. Me, who has been with the Federation for – let’s see – 16 years in the United States. I have never talked with the guys from the African Fine Coffees Association, with Afca, with Acram, with Yaku, with Vicofa, ever. So we said, let’s get together and talk, among ourselves, about our problems and what we are going to do about them. And as a consequence of this, we finished this meeting in Sinter, I left for… I had a meeting in Ethiopia, I had a meeting with the Ethiopians, we called on all our African counterparts – both national and regional associations – to compare notes just like we did in Colombia. Well, you who all have your problems, your weaknesses, your strengths and so on and so on… The conclusion – which was more or less… let’s say it was evident from the beginning – but that we had to sit down and to clarify and document it, is that we all have the same problems. We did the same in India, we did the same in Vietnam, we went country by country to discuss with everyone the issues that… where is it that the shoe is too tight and how do we get it not to rub so much. And all those discussions led to Colombia organizing, at the request of the group – and I emphasize that it is not a Colombian thing, we did it in Colombia, but at the request of the group – the world producer forum, where for the first time, we sat down, producers from all over the world, and we said, let’s discuss among ourselves what the issues are and study them seriously and see what conclusions we can reach. A first conclusion, not just from the forum but also prior to it, that seems obvious at this time, but that three years ago was not obvious, is that when you talk about sustainability everyone thinks of birds and trees and a creek and a river and so on. No one thinks about whether the producer has the wherewithal to eat, or to send their children to school. That does not occur to anyone. Nowadays I would say yes, but three years ago it wasn’t talked about.  Economic sustainability was not a topic of conversation in any forum. So, in the end, we said well, how can this be, that of the three legs of sustainability, the environmental part… we all worry about the bird migrating or not migrating, about whether it dies or not and nobody worries about whether the farmer dies or does not die. How can this be – I mean, it is obvious that issues of child labor have to be dealt with, education issues… all social sustainability issues – of course, they have to be dealt with and are important, but they are as important as the coffee maker’s income, as economic sustainability. And the big conclusion, let’s say one conclusion that would sum this up is that poverty is the greatest enemy of the environment. If you do not have anything to eat, you are not going to worry about the little bird. That’s the reality. That represented an alarm bell, and we sat down to study the issues with lots of ideas and we arrived at four big topics, four big groups of topics.]

Hay dos tipos de producción y de productividad. Hay unos países que son productivos, son los países que son muy eficientes, y hay otros países que son menos eficientes, y entonces bueno, hay que trabajar en el tema de producción y productividad, sobre todo para los países más débiles en esa materia, y pensamos que – y en este instante no estamos hablando de la Federación de Cafeteros, no estamos hablando de Colombia, sino que estamos hablando del foro de productores… Entonces ¿cómo hacemos para tratar que aquellos que están resacados puedan mantener la calidad, puedan mantener la productividad, puedan mantener el trabajo? El tema relacionado René lo mencionó, y es un tema que es …todo el planeta. Nadie se quiere quedar las fincas. Por un montón de razones, pero la más importante, la más determinante es ingreso. Los jóvenes ven a sus padres y a Ustedes, los que son productores y los que van a países aborigen… los jóvenes ven a sus padres trabajar y trabajar y trabajar y les toca trabajar hasta que se caen muertos en la finca. No hay forma de retirarse, no hay forma de pensionarse, no hay forma de tener nada de ese tipo, que caerse muerto con el azadón en la mano. Eso no tiene sentido. ¿Qué joven hoy en día quiere eso? Es más… Yo creo que un detonante muy interesante esto ha sido la tecnología en el sentido en que posiblemente hace 40 años los jóvenes no se enteraban de lo que estaba pasando en el mundo. Hoy en día un joven parado en el pueblo más remoto, en Uganda, o en Colombia o en Honduras, sabe exactamente lo que está pasando en el mundo y aspira a más. Y no ha aspirado por irse como sus papas, si por retirarse… [There are two types of production and productivity. There are some countries that are productive, they are the countries that are very efficient, and there are other countries that are less efficient, and so we have to work on the issue of production and productivity, especially for the countries that are weakest in that area, and we think that – and right now we are not talking about the Federation of Coffee Growers, we are not talking about Colombia, but rather we are talking about the producers forum… So what can we do to ensure that those who are really hard up are able to maintain quality, to maintain productivity, to keep working? The related topic is one that René mentioned, and it is an issue that is … common to the whole planet. Nobody wants to keep the plantations. For a lot of reasons, but the most important – the most determining factor – is income. Young people see their parents, they see you, those of you who are producers and are native to your countries… young people see their parents work and work and work and that they have to work until they fall dead on the plantation. There is no way to retire, there is no way of having a pension, there is no way to have anything of that kind – nothing other than to fall dead with the hoe in your hand. That makes no sense. What young person of today wants that? And what is more… I think that a very interesting trigger has been technology, in the sense that possibly 40 years ago young people did not find out about what was happening in the world. Today, an unemployed young person in the most remote town, in Uganda, or in Colombia or in Honduras, knows exactly what is happening in the world and aspires to more. And he does not aspire to end up like his parents, unable to retire..]

Y eso es parte de la discusión. ¿Hasta dónde vamos a llevar a los caficultores, o sea cuál es el límite en el cual el caficultor va a pulverizar, en qué punto empieza a pulverizar? Porque parte de la conversación ha sido también que es que hay que llevar el precio para que el caficultor no pierda plata. No señores, hay que llevarlo al punto en el cual el caficultor progrese. Es que, estar uno… piensen Ustedes todos en sus trabajos y en sus vidas, breakeven o sea estar uno pare en todo y no tener nunca la forma de progresar. Eso no tiene lógica, eso no tiene sentido ninguno en ningún mercado. Y no estamos desconociendo un poquito a hablar del C, del mercado en sí mismo, en toda esa discusión. El tema del cambio climático. A mí me sorprende un estudio que vi ha sido mucho, donde aparecieron unos gráficos con esto, que hizo la Universidad de Hawaii hace unos años. La Universidad de Hawaii hizo un estudio sobre… Ustedes saben que el cambio climático realmente donde más se manifiesta es en el cinturón tropical del mundo. Y de todos los cafés, el arábico mucho más sensible que el roast. El cambio climático… esto se estudió en la Universidad Hawaii, os lo comento porque cuando lo vean… tiene unos años ya… hicieron un estudio de cuando iba a suceder lo que llaman ellos el día digamos de partida climática del planeta. The climate departure date lo llaman ellos. Ese es el día en cada sitio en el cual la temperatura más alta se convierte en la más baja. Y ya no baja de ella. Entonces aquí si la temperatura más alta eran 20 grados, llega un punto en que no iba a bajar más de 20 grados. Eso hizo una trama interesante porque en el tema de la producción del café, y la sensibilidad de la producción, todos los cargos de… todo el tema que apasiona del cambio climático, el tema más bien del trauma del cambio climático si bien hay iniciativas bien intencionadas y bien trabajadas sin duda, colectivamente en la industria, pero esa carga le está cayendo al productor también. [And this is part of the discussion. How far we are going to push the coffee growers, or rather, what is the limit at which the coffee grower is going to pulverize… at what point does he begin to crack? Because part of the conversation has also been that we must get the price to a point where the coffee grower does not lose money. No sir, you have to get it to the point at which the coffee grower makes progress. It’s that, if you… all of you – think about your work and your lives – breakeven, or for everything to cancel out and to never have a way to progress… That makes no sense, that makes no sense in any market. And are we not failing to talk a bit about C about the market itself, in all that discussion. The issue of climate change. I am surprised by a study that I saw a fairly long time ago which included some graphs about this, which the University of Hawaii did a few years ago. The University of Hawaii carried out a study on… You all know that where climate change really manifests itself the most is in the tropical belt of the world. And out of all the coffees, Arabic is much more sensitive than roast. Climate change… this is research from the University of Hawaii, I mention it because when you see it… it’s been around for a few years already… they made a study of what was going to happen on what they call the day of the planet’s climatic departure. The climate departure date they call it. That is the day, for each place, where the highest temperature becomes the lowest. And it no longer falls below that temperature. So here if the highest temperature was 20 degrees, there comes a point at which it is not going to fall below 20 degrees. That makes the plot very interesting because on the issue of coffee production, and the sensitivity of production, all the burden of… the whole issue of climate change that gets people fired up, or rather the trauma of climate change – whilst there are initiatives that are very well intentioned and well elaborated without doubt, collectively in the industry – however that burden is falling on the producer as well.]

Y eso nos lleva al último tema que miramos en el foro, el tema de la volatilidad de los precios. El tema digamos de precios, de precios muy bajos y tema de la volatilidad. La volatilidad no le sirve a nadie. Y esta discusión que hemos venido teniendo a lo largo del tiempo, y uso una gráfica similar a la que usó René para el foro de productores, es, primero, ¿cómo se ha comportado el precio? Entonces, el precio se ha comportado, se está viendo allí, pues uno promedio de 1.30 en el año 1982. ¿Por qué escogí el 82? Porque fue el último año de negociación del… en el siguiente trato de cuotas que arrancó en el 83. Y usamos ese ejemplo, del Jeep, usamos los Willys que se usan en Colombia – cuantas libras de café le costaba a un señor un Jeep básico, el CJ7, que es el mismo Willys que hemos usado en Colombia toda la vida. En el año ‘82 le costaba 8200 libras de café. Y el mismo Jeep, que ahora se llama Wrangler, básico, hoy en día le cuesta 29000 libras de café. El caficultor está cada día más pobre. Ahora, como dice, el mercado es el mercado, y alguien me dijo recientemente, un analista, dijo ‘es que los productores son muy emocionales con el tema del precio’. ¡Pues claro! Si es que con eso comemos. Recién leí un artículo que decía que la diferencia entre los ricos y los pobres es que los pobres son emocionales con el dinero. El rico, el dinero es un recurso que le va bien, y si se pierde pues se hará más. Para el pobre, es un tema de supervivencia. O para quien no es rico por lo menos. Pues eso, esta situación, lo que quiero ilustrar es la pauperización, el proceso de pauperización de los países productores de café, es absolutamente dramático. En unos más que en otros. Y la situación no está sino empeorando cada día. Entonces esto debate lo hemos tenido con la bolsa, con traders… ¿qué hacemos para mejorar el precio? Colombia tiene una cosa que no tiene ningún otro país que es la garantía de compra. La Federación de Cafeteros de Colombia les garantiza a todos los productores que les compre el café, no importa la situación. Todo el café que le llega a la Federación, la Federación lo compra, con una formula basada en el mercado, y paga un precio X. Eso le pone un piso al mercado en Colombia. Si la Federación dijera, en vez de comprar a 700000 pesos la carga de 100 kilos y lo va a comprar a 900000, le pone un piso al mercado. Y todo lo que quiere exportar el café, tiene que pagar este precio, o, todo el café lo lleva a la Federación. La pregunta es, eso, ¿cuánto aguanta? Naturalmente eso es un tema que puedes apoyar culturalmente, pero es un tema que no se puede sostener indefinidamente en el tiempo. Pero eso lo que hace es poner la llaga en exclusión. Y vuelvo al tema de que la sostenibilidad económica no era un tema de conversación hace dos o tres años, y ahora no se habla sino de eso. ¿Y porque no se habla sino de eso? Porque eso es una realidad que la gente se está empobreciendo cada día más. Y es una realidad que me dijo, como me dijo el otro día alguien, en chiste digo, es que el dialogo cambió porque los pobres se juntaron. ¿Porque no se juntaron antes? Entonces ahora se juntan, y se hablan todo el tiempo. Entonces con los de África, con los de Asia… yo personalmente con René, con Centroamérica, todo el tiempo estamos hablando, comparando notas, Ustedes cómo están, que problemas tienen, problemas económicos, temas políticos, hay una cantidad de cosas que estamos comparando y estamos… lo que los productores están diciendo no es ‘vamos en contra al mercado, vamos a car…’, eso no es el punto. El punto es como hacemos para que el mercado responda a estas necesidades y no reviente al primer eslabón de la cadena. Todo lo demás eslabones están haciendo mucho dinero y no es un tema repito de los productores quejándose. ¿Cómo hacemos para que eso suceda? La discusión del contrato C… hay tantas respuestas, como preguntas haya o como gente haya en el auditórium. Cuando hablo con esto es una cosa, cuando hablo con otro es otra cosa… Pero digamos en lo que todo el mundo coincide es que esto como está hoy no le sirve a nadie. Eso le da un margen, a los tostadores, grande – hasta están ganando un montón de dinero, pero ¿a qué costo? Y lo entienden. La cadena no sabe cómo moverse, nosotros lo que propusimos a la cadena como foro es que actuamos en corresponsabilidad, y este concepto lo desarrollé yo en Colombia cuando hicimos el programa con Estados Unidos, el plan Colombia, para construir el consenso y parte de eso progreso americano es que somos corresponsables del problema de las drogas, esto no es que la culpa es suya porque Usted consuma, o que la culpa es de Usted porque Usted produce. Todos somos corresponsables del problema. Aquí todos somos corresponsables del problema. René lo puso en muy buenas palabras, si no hay productores no hay industria. Si se lleva al extremo en cual terminamos en manos de dos orígenes Brasil, Vietnam, unos pequeños…¿Qué pasa si hay un incidente climático en unos de esos orígenes? ¿Entonces qué le pasa a la industria? Esto no es bueno para nadie. Ni para el consumidor, que pierda capacidad adquisitiva, y que pierda capacidad de tener diversidad y que pierda capacidad de tener calidad, porque la calidad va a bajar, la diversidad va a bajar etc. etc. Esta discusión lo hicimos en el foro y por eso arranqué con los cuatro pedazos… sucedieron dos cosas curiosas en el foro productores al cual os invito todos a que vayan al foro productores en Brasil en julio. Sales pitch? [And that brings us to the last topic that we looked at in the forum, the issue of price volatility. The issue of prices, of prices being very low, and the issue of volatility. Volatility is of no use to anyone. And this discussion that we have been having over time, and I use a graph similar to the one René used for the producers forum, is, first, how has the price behaved? Then, the price has behaved – you can see it there – it was at an average of 1.30 in the year 1982. Why did I choose ’82? Because it was the last year of negotiation of… in the next quotas deal that started in’83. And we’ll use that example of the Jeep, the Willys that are used in Colombia – how many pounds of coffee does it cost a man to buy a basic Jeep, the CJ7, which is the same Willys that we have used in Colombia all our lives. In the year 1982 it cost him 8200 pounds of coffee. And the same Jeep, now called Wrangler, the basic model, today costs 29,000 pounds of coffee. The coffee farmer is getting poorer every day. Now… the market is the market, and someone recently said to me – an analyst – said ‘it’s that producers are very emotional with the issue of price’. Of course! That’s how we get to eat. I recently read an article that said the difference between the rich and the poor is that the poor are emotional with money. For the rich, money is a resource that, if lost, well then more will be made. For the poor, it is a matter of survival. Or for those who are not rich at least. Well, with this situation, what I want to illustrate is pauperization – the process of pauperization of the coffee producing countries is absolutely dramatic. In some more than in others. And the situation is getting worse every day. So we have had this debate with the stock exchange, with traders… what do we do to improve the price? Colombia has one thing that no other country has, which is the purchase guarantee. The Federation of Coffee Growers of Colombia guarantees all producers that it will buy their coffee, no matter what the situation. All the coffee that reaches the Federation, the Federation will buy, with a market-based formula, paying price X. That gives the market in Colombia a floor. If the Federation said, instead of buying 100 kilos at 700,000 pesos and it buys at 900,000 pesos, it gives the market a floor. And everyone who wants to export coffee has to pay this price, or take all the coffee to the Federation. The question is, how much long can this situation endure? Naturally that is an issue that you can support culturally, but it is an issue that cannot be sustained indefinitely in time. But what it does is isolate the wound. And I return to the issue that economic sustainability was not a topic of conversation two or three years ago, and now it is all we talk about.  And why is it all we talk about? Because it is a reality that people are getting poorer every day. And it is a reality, as someone said to me the other day, jokingly, that the dialogue changed because the poor got together. Why didn’t they get together before? So now they get together, and they talk all the time. So with those from Africa, with those from Asia… me personally with René, with Central America – all the time we are talking, comparing notes, how are you doing, what problems do you have, about economic problems, political issues – there are a number of things that we are comparing and we are… what the producers are saying is not ‘let’s oppose the market’, that is not the point. The point is what can we do to make the market respond to these needs and not break the first link in the chain. All the other links are making a lot of money … and I repeat it’s not about the producers complaining. How do we make that happen? The C contract debate… there are as many answers, as there are questions or people in the auditorium. When I talk to one person it’s one thing, when I talk to another it’s another… But let’s say what everyone agrees on is that this as it stands today is no good for anyone. It gives a big margin to the roasters – they are earning a lot of money even – but at what cost? And they understand.The chain does not know how to move: what we proposed to the chain as a forum is that we act in co-responsibility. I developed this concept in Colombia when we did the program with the United States – the Colombia plan – to build consensus, and part of that American progress is the idea that we are jointly responsible for the drug problem: it is not your fault because you consume, or your fault because you produce. We are all co-responsible for the problem. Here, we are all co-responsible for the problem. René expressed it perfectly: if there are no producers there is no industry. If you take it to the extreme where we end up in the hands of two origins – Brazil, Vietnam, some small producing areas… What happens if there is a climate incident in one of those origins? Then what happens to the industry? It is no good for anybody. Not for the consumer, who loses purchasing power, and who loses the capacity for diversity and who loses capacity for quality – because quality is going to go down, diversity is going to go down etc. etc. We had this discussion in the forum and that’s why I started with the four building blocks… two curious things happened in the producers forum – to which I invite you all to go – to the producers forum in Brazil in July. Sales pitch?]

Sucede una cosa curiosa, y es que, en dos momentos, hubo dos … digamos vaya llamémoslos incidentes menores, en que los productores le dijeron a algún panelista ‘es que Usted nos está oprimiendo, Usted nos está explotando, esto es esclavitud económica’. Y la contraparte de la industria contestó ‘es que Usted es ineficiente, y como es ineficiente tiene que aparejarse’. Esta discusión, sí es emocional. Entonces dijimos, esta discusión no va a conducir a nada. Cuando la discusión arranca con ‘es que Usted me explota, es que Usted es ineficiente’, entonces en el foro nos sentamos, y dijimos bueno, hagamos una cosa, pongamos aquí a un tercero, que todo el mundo esté de acuerdo, que es respetable, haga un análisis de este problema, y nos ayude a tener un dialogo más estructurado, de… Entonces allí viene – es un tema interesante – allí viene el profesor Jeffery Sachs de la Universidad de Columbia nosotros le llamamos y dijimos pues venga, sentémonos y hagamos un estudio completo de cómo es la estructura de precios y cuáles serían las alternativas para mejorar el ingreso especialmente de los pequeños productores. Ese estudio lo va a presentar el Professor Sachs en julio, en Brasil. Él estuvo en el foro en Colombia, lo invitamos y nos hizo una presentación etc. y dijimos bueno, repito, tengamos nuestra discusión en un territorio neutro, con un actor intermedio neutro, que no sea la emocionalidad de la industria que Usted es un ineficiente, Usted me está explotando etc. etc. ¿Qué tiene el C? El C… yo cuando me contestan ‘es que el mercado es un mercado y eso, y es lo que es’ – eso es cierto. Digamos que el mercado es el mercado y eso es lo que es, y uno podría discutir si los subsidios se valen o no se valen. Los países en desarrollo tendemos a ser más papistas que el papa, como decimos en Colombia – no sé cómo eso se traduciría en inglés – ‘more popish than the Pope himself’, algo de este estilo. Entonces decimos, subsidios no puede ser, apoyo al caficultor no puede ser. Aquí hay subsidios para todo el mundo. En Europa hay subsidios para todo el mundo. Ha habido un presidente en Colombia que decía era mejor negocio ser vaca en Holanda que campesino en Colombia, ¿no? Ese tipo de cosa digamos… por eso quiero decir, hay que tener la mente abierta, del lado de los productores y del lado del mercado. [A curious thing happened, and that is, that on two occasions, there were two … let’s call them minor incidents… in which the producers told one of the panelists “it’s that you are oppressing us, you are exploiting us, this is economic slavery.” And the industry counterpart replied, ‘it’s that you are inefficient, and since you are inefficient you have to deal with it’. This discussion certainly is emotional. Then we said, this discussion is not going lead to anything. When the discussion starts with “it’s that you exploit me, it’s that you are inefficient…” so in the forum we sat down, and we said well, let’s do something, let’s put a third party in here, that everyone agrees on, who is respectable – let’s get them to analyse this problem, and to help us to have a more structured dialogue, one of…. So – it’s an interesting topic – we called Professor Jeffery Sachs from Columbia University and we said right, let’s sit down and do a complete study of what the price structure is like and what the alternatives would be in order to improve income, especially that of small producers. That study will be presented by Professor Sachs in July, in Brazil. He was at the forum in Colombia, we invited him and he gave a presentation etc. and we said well – I repeat – let’s have our discussion in neutral territory, with a neutral intermediary, so as to move away from the industry’s excess of emotion – that you are inefficient, you are exploiting me etc. etc. What is going on with the C? The C… when people answer “it’s that the market is a market and so on, and it is what it is” – sure, that is true. Let’s say the market is the market and that is what it is, and one could discuss whether subsidies are worthwhile or not. Developing countries tend to be “más papistas que el papa,” as we say in Colombia – I don’t know how that would translate into English – “more popish than the Pope himself,” something of this style. So we said it can’t be about subsidies, it can’t be about support to the coffee grower. Here there are subsidies for everyone. In Europe there are subsidies for everyone. There was a president in Colombia who said it was a better deal to be a cow in Holland than a farmer in Colombia, right? That kind of thing, let’s say… that’s why I want to say – you have to be open-minded, both with regard to the producers and with regard to the market.]

¿Qué pasa con el mercado? El contrato C eso se inventó originalmente… basar una canasta digamos de cafés C, centrales, de calidad similar. La confiabilidad, se uno lo quiere mirar como mecanismo de descubrimiento del precio, uno, o como herramienta financiera – digamos que el producto subyacente, que respalda el contrato, sea confiable o que sea más o menos homogéneo, es fundamental. ¿Qué le pasó al contrato C? El contrato C dejó de ser un mecanismo de descubrimiento de precios adecuado. No lo digo yo, yo no soy trader, lo dicen los traders – te dicen mire, hoy en día, puedo adquirir en largo plazo, si logra mantener, estable, pero en el corto plazo entre el 60 y el 70% de las transacciones – repito que los traders que me corrijan – yo solo estoy repetiendo lo que me han dicho varios traders – entre el 60 y el 70% de las transacciones de contrato de futuros en la bolsa de Nueva York las hacen los black boxes, que son simple computadores, de fondos de cobertura, que están especulando y con los algoritmos X o Z compran y venden. Entonces aquí no estamos hablando de un mecanismo de descubrimiento de precios de café físico, aquí estamos hablando de una herramienta financiera de especulación. ¿Qué la especulación? Yo no contesto a la pregunta, no lo sé yo porque nadie lo sabe. Todo el mundo especula lo que es este tema, lo que todo el mundo sí que consigue decir es que tiene un impacto al precio – un impacto hacia abajo. Y que en esos picos, y la especulación no le sirve a nadie. A los traders, en esta discusión que estamos teniendo, del contrato C, hemos hablado mucho con los traders porque los traders están en la discusión, dicen mire, hay que quitar el contrato y hay que reformarlo de una manera. [What about the market? The C contract that was originally invented… based on a basket let’s say of C coffees – central, of similar quality. Reliability, whether one wants to look at it as a mechanism of price discovery, one, or as a financial tool… that the underlying product – the one which supports the contract – is reliable or that it is more or less homogeneous, is fundamental. What happened to the C contract? The C Contract ceased to be an suitable price discovery mechanism. It’s not me saying this, I am not a trader, it’s the traders themselves saying – they tell you look, today, I can acquire in the long term, if you manage to keep stable; but in the short term, between 60 and 70 % of transactions – traders, correct me if I’m wrong, I’m only repeating what several traders have told me – between 60 and 70% of the futures contract transactions in the New York Stock Exchange are made by black boxes – which are simple computers – in the hedge funds, which speculate, buy and sell using algorithm X or Z. So here we are not talking about a price discovery mechanism for physical coffee, here we are talking about a financial speculation tool. What…speculation? I can’t answer the question, I don’t know because nobody knows. Everyone speculates about this issue, what everyone can say with certainty is that it has an impact on the price – a downward impact. And that in those peaks… and speculation is of no use to anyone. We have talked a lot with the C contract traders because the traders are part of the discussion – they say look, you have to remove the contract and you have to reform somehow.]

Nosotros no estamos diciendo, hay que acabar el mercado – eso no tiene… y volver a las cuotas, y a esas cosas… Eso sabemos que no es factible. Era un mundo feliz, pero no es factible. El tema es, ese es el momento que lamentablemente haya, porque eso es el negocio del café, a diferencia de cobre, o de oro, o de otras commodities agrícolas como la soya, el azúcar, y el jugo de naranja. No es un negocio de grandes empresas, ni de terratenientes, y no hubo terratenientes en – gente que tiene mucha tierra. Es un negocio que tiene debajo 25 millones de familias y su mayor parte es gente muy pequeña y con recursos muy limitados. Esto hace que el café como commodity sea único. Claro, hacer más cafés especiales. Digamos los cafés especiales deberían sacarse del C  – que son de muy alta calidad porque tienen unas condiciones muy especiales etc. etc. Pero el grueso del café no es cafés especiales. Y el grueso de la gente produce cafés que no se pueden meter con cafés especiales. Y Ustedes que han estado en las fincas, Ustedes que son productores tienen clarísimo que, al continuar las fincas en Colombia, en Centroamérica, en África son fincas muy pequeñas, muchos en sitios muy remotos, sin ninguna infraestructura, manejadas por familias muy pobres. Entonces estas discusiones que hablamos aquí de la volatilidad… y entonces no hay sino enseñar a los campesinos que hagan coberturas. eso es en Angola, no se puede. O en ciertos sitios en Colombia o en Centroamérica o en otras partes, y enséñale a un caficultor que en su casa casi no puede sobrevivir, que está ocupado educando y sobreviviendo con sus hijos, a que haga coberturas, incluso herramientas financieras. Entonces es otra forma de decir, mira esos problemas te los vea ya, las ocupaciones de los cafeteros. Enséñale a esa gente lo de las coberturas y a ver cómo les va bien. Eso no es práctico, eso no funciona. Entonces ¿cuál es el digamos el… si nos fuera a hacer un mensaje? Eso es la responsabilidad de toda la cadena, eso es el tema de corresponsabilidad que tenemos que trabajar todos en la cadena en su conjunto. Las consecuencias son malísimas para todos, si esto sigue como va. Para la industria, para los productores, para los traders, para todo el mundo. Los traders tienen un margen de riesgo pequeño y entonces estaban nerviosísimos con este tema, con el tema del contrato. Qué pasa… tampoco sirve, tampoco le sirve a nadie que el mercado tenga unos picos y luego cae redondo a la de tres… Porque todas las previsiones de un tostador… pues también se va al traste, y seguramente luego los traders se quiebran. Y los caficultores duran felices quince días, y luego se caen, y entonces tenemos otros problemas. Entonces, el mensaje es, aquí tenemos que tener la mente abierta, yo creo que aquí tenemos acciones, reacciones, agresivas – agresivo en el sentido digamos de pensar fuera de lo ordinario – y eso incluye, incluye el contrato C. Y eso del problema que hemos tenido con la bolsa, hemos tenido con los CEO de las compañías – la realidad de las, digamos del mundo de la torrefacción, varios de ellos están aquí, es, hoy en día la torrefacción, el 60% de la torrefacción del mundo está en mano a tres compañías, o tres grupos de compañías. Eso hace que el juego sea un poco distinto. Para el productor es distinto, el trader está en la mitad financiera de la operación y el resto es unas operaciones monstruosamente grandes que no son buenos o malos en si mismas pero que tienen que tener en cuenta que aquí abajo hay una gente que tiene que sobrevivir. Si no, es malo para el negocio, no solamente un tema de… Estos son los temas que – y aquí vuelvo a mi sales pitch porque parece interesante que… con el resultado del foro de Colombia, también es interesante que… hubo una presencia de la industria más o menos limitado, porque el primero etc pero me parece importante que todo el mundo esté allí. Y eso es la discusión de los temas del punto de vista de los productores, y yo creo que eso es un tema que vale la pena tener. Yo creo que la discusión sobre la sostenibilidad económica no está terminada, que solo se termine cuando haya sostenibilidad económica, y creo que no solamente los productores sino toda la cadena tiene que hablar y buscar la forma de darles sostenibilidad económica a los productores que no es calidad – es sostenibilidad económica en el negocio. Y empezar a trabajar en todos estos aspectos. Esto es… ah bueno lo del tema del foro productores. Espero veros allá en Brasil – ya me acaban de decir que dejase de hablar y entonces no voy a hablar más. [We are not saying, you have to finish with the market and return to the quotas, and to such things… We know that is not feasible. It was a happy world, but it is not feasible. The issue is, this is the moment that unfortunately we are faced with, because this is the coffee business – unlike copper, or gold, or other agricultural commodities such as soy, sugar, and orange juice. It is not a business of large companies, nor of landowners, and there were no landowners in.… people who have a lot of land. It is a business that has underlying it 25 million families, and for the most part we are dealing with people who lead a simple lifestyle with very limited resources. As a commodity, this makes coffee unique. Sure, make more specialty coffees. Let’s say specialty coffees should be taken out of C – which are of very high quality because they have very special conditions etc. etc. But the bulk of coffee is not made up of specialty coffees. And the bulk of people produce coffees that cannot be mixed with specialty coffees. And those of you who have been in the plantations, those of you who are producers understand very well that the plantations in Colombia, in Central America, in Africa – they are very small plantations, many in very remote places, without any infrastructure, run by very poor families. So in these discussions, we talked about volatility… and so all you have to do is teach the peasants to hedge …this is in Angola, it’s not possible. Or in certain places in Colombia or in Central America or elsewhere, and teach a coffee grower who at home can barely survive, who is busy educating and surviving with his children, to hedge, or use financial tools. So it’s another way of saying, sort this problem out, the concerns of the coffee growers. Teach them about hedging and see how well they do. That isn’t practical, that doesn’t work. So what is the… if we had to convey one message? This is the responsibility of the entire chain, this is the issue of co-responsibility – that all of us in the chain have to work on it as a whole. The consequences are very bad for everyone, if things continue as they are at present. For the industry, for producers, for traders, for everyone. Traders have a small risk margin and so they were very nervous about this issue – with the issue of the contract. What happens… it is of no use to anyone that the market has some spikes and then falls on the count of three… Because all the forecasts of a toaster… because that too will go pear-shaped, and then the traders are sure to go bankrupt. And the coffee farmers are happy for fifteen days, and then they fall, and then we have other problems. So, the message is, here we have to have an open mind, I think that here we have actions, reactions – aggressive… aggressive in the sense let’s say of thinking outside the box – and that includes the C contract. And that of the problem we have had with the stock market and with the company CEOs – the reality of the world of coffee roasting – several of them are here – is that today 60% of the world’s roasting is in the hands of three companies, or three groups of companies. That makes the game a little different. For the producer it is different… the trader is on the financial side of the operation and the rest is monstrously large operations that are not good or bad in themselves, but that have to take into account that beneath them there are people who have to survive. If not, it is bad for the business, not just a matter of… These are the issues that – and here I return to my sales pitch because it seems interesting that with the result of the Colombia forum… it would also be interesting to… there was an industry presence, more or less limited, because it was the first etc etc… but I think it is important for everyone to be there. And that is the discussion of the issues from the producers’ point of view, and I believe that this is worth having. I believe that the discussion on economic sustainability is not over, that it will only end when there is economic sustainability, and I believe that not only the producers but the whole chain has to talk and look for ways to give economic sustainability to producers: that is not quality – it is economic sustainability in business. And start working on all these aspects. This is… oh yes, the topic of the producers forum. I hope to see you there in Brazil – I have just been told to stop talking and so I will not talk anymore.]

1:06:15 Outro

Heather Ward: That was the end of part one of “A Two Part Arc About the C Market and the Future of Specialty” at Specialty Coffee Expo in April 2019. Remember to check our show notes for a full episode transcript of this lecture, a link to part two, and a link to coffeeexpo.org for more information about this year’s event.

This has been an episode of the SCA Podcast’s Expo Lecture Series, brought to you by the members of the Specialty Coffee Association, and supported by SAP’s Softengine Coffee One. Thanks for listening!

Full Episode Transcript – Part 2

0:00 Introduction

Heather Ward: Hello everyone! I’m Heather Ward, the SCA’s Senior Director of Content Strategy, and you’re listening to the SCA Podcast. Today’s episode is part of our Expo Lecture Series, dedicated to showcasing a curated selection of the extensive live lectures offered at our Specialty Coffee Expo. Check out the show notes for relevant links and a full transcript of today’s lecture.

This episode of the Expo 2019 Lectures podcast is supported by Softengine Coffee One, Powered by SAP.  Built upon SAP’s business-leading Enterprise Resource Planning solution, Softengine Coffee One is designed to quickly and easily take your small-to-medium coffee company working at any point along the coffee chain to the next level of success. Learn more about Softengine Coffee One at softengine.com, with special pricing available for SCA Members. Softengine: the most intelligent way to grow your business.

The episode you’re about to hear was recorded live at the 2019 Specialty Coffee Expo in Boston. Don’t miss next year’s lecture series in Portland – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements, including ways to get involved in next year’s Expo and early-bird ticket release!

Last April, much of the discussion – at Expo and Re:co Symposium – was centered on the Coffee Price Crisis and the future of specialty coffee. In a special episode to kick off the new year, we’re releasing a two-part lecture on the C market that sought to provide clarity and actionable data for the specialty industry. This is part two – if you haven’t already listened to part one, we strongly recommend going back to listen before continuing on with this episode.

1:40 Colleen Anunu introducing the panel speakers

Colleen Anunu:  Thanks everyone for coming, staying, attending Part Two of the two-part arc on the coffee price crisis. If you weren’t here in the room for the last hour, we discussed a little bit about the overview of the last 18 months of price declines, how the C market can create shared value. We talked about the overview of an organization called Promecafe, which is an organization of 10 producing countries in Latin America, the human and environmental costs of low prices.

We discussed a little bit about the World Producer Forum, its mission and its role on the international scene as well as the relationship, between costs and low prices for world coffee producer forum members.

The second part of this story, we’ll focus on sort of seeing forward on what the current price crisis means for the future of specialty coffee.  We have a couple we’re going to do this session a little bit differently. It’s going to be focused more around a panel rather than, individual presentations.

Let me introduce our esteemed panelists today. So first of all, our panel is going to be moderated by Vera Rafael Espíndola. She is a the Sustainable Advisor for  SADER and since 2016, Vera has been working with the Secretary of Agriculture, Livestock, and Rural Development, fisheries and food in Mexico, now called SADER.

On the plan to create care for coffee she focused on harmonizing the elements of sustainable coffee production in the national coffee program, which has a goal to   Mexican coffee sector by increasing productivity in a sustainable manner whereby she also oversaw its market strategy.

We also have a presentation today from Kim Elena Ionescu, who is the Chief Sustainability Officer for the Specialty Coffee Association. In her role as Chief Sustainability Officer of the SCA, Kim raises awareness develop strategy and leads action to address the biggest social, environmental and economic challenges facing the coffee industry.

Prior to joining the SCA in 2015, Kim spent a decade buying coffee and directing sustainability for Counterculture Coffee in North Carolina, USA, where she still resides today with her husband and two daughters.

We will also have Juan Esteban Orduz who is just presenting in part one of this lecture. Juan Esteban is the CEO and President of the Colombian Coffee Federation, which is the FNC North America branch. He is on the Board of Directors for Rainforest Alliance, the Global Coffee Platform and CQI, and he’s one of the founding members and a general coordinator for the World Coffee Producer Forum, who a few are just in the room, he told us a lot about.

We have Chad Trewick, who is the founder of Reciprocafé. After more than two decades working on the roaster side in the specialty coffee industry as a Director of coffee, Chad Trewick, formed Reciprocafe LLC, a consulting group, prioritizing mutual benefit in the coffee value chain.

Chad has spent time gaining deeper understanding of the financial side of the coffee market. His goal is to broaden industry understanding of supply and challenges, and his focus is to maintain access to green coffee as a raw material while strengthening the entire value chain and encouraging scalable mutual benefit relationships.

Then last but not least, we have Ben Zwerling Baltrushes who is the Vice President of coffee for Fair Trade USA. Ben joined Fair Trade USA in late 2012 to strengthen FT USA’s role as a platform for sustainable supply chain management in service of the needs of farmers and their buyers alike.

As Vice President of coffee, Ben leads the organization’s business development and supply chain services in coffee. His career began in 2003 when he joined Thanksgiving Coffee Company, a pioneering specialty roaster and early Fair trade innovator. While at Thanksgiving, Ben managed coffee, buying and supply chain development operations, working with farmers and co-operatives throughout Latin America, Asia, and Africa.

So we’re going to start first by introducing Kim to talk a little bit more about the SCA’s coffee price crisis response initiative, and then we’ll move into the panel.

6:15 Kim Elena Lonescu on the SCA’s response to the coffee price crisis

Kim Elena Lonescu: Thank you Colleen for the introduction. My name is Kim Elena. I’m the Chief Sustainability Officer for the SCA, and building on the presentations that were just made, I think most of you were in the room for those, so I’m not going to show a graph of the coffee price over the course of the past few years and talk about how we got into the situation that we’re in. I’m onstage in this particular moment to talk about what the SCA is doing because I believe that when we move into the panel, that would probably be an early question.

What’s the SCA’s role in all of this? We are all here gathered at an SCA event, that’s what’s connecting us. Shouldn’t we be talking about what the SCA can do or what we can do as SCA members and stakeholders through the Association?   that’s the first thing that I want to talk about is, what are we talking about? What are we doing?

So around December, what was it? 13th, 14th, these articles started appearing about the SCA launching a price crisis response initiative, and I think that the word crisis can be a polarizing one, or we could spend the rest of our time today arguing over whether or not this is a crisis. I think on the positive side, a crisis implies that there’s a need for action. I think it’s true. The argument against it would be that crisis implies that it’s new, which I think the presentations that you just saw would suggest, or it would argue that this is not at all new, in fact, that we’ve been in crisis for a long time and maybe just haven’t been paying attention.

We launched this initiative to mark this moment as different, and there was the psychological component of that when the commodity futures market price went below a US$1.00 in August and September. It’s still there, not going up, generally going down since that moment.

So to take advantage of the fact that there’s a different feeling about whether it’s been a crisis or not. It feels different at this moment and there’s also a kind of  political will to do something different, and part of that has to do with organizations like the World Coffee Producer Forum.

So the last time we were in a crisis where the price of coffee on that market was below a US$1.00, there was no World Coffee Producer Forum, no unified voice saying this is the agenda. We didn’t have the same sort of urgency around climate change.  Studies demonstrating that or suggesting that 50% of the land suitable for coffee will not be suitable in 2050, that wasn’t so much a part of the public consciousness that wasn’t so much a part of the industry consciousness and the specialty coffee industry was at a very different place also. It was not a gathering 14,000 people for conferences, or communicating with an even larger audience through social media. It didn’t have the kind of international reach that we have now, or diversity in terms of who we as an association represent.

All of these are reasons for taking this confluence of circumstances and launching an initiative to address the current price crisis that we’re in. The initiative consists of very sort of specific or logistical terms of four staff members, two of members of the SCA, Board of Directors, both of whom are here, and part of this panel today and then a couple of people who are putting time in through their organization.

So we have a team that’s been working on this through the SCA Sustainability Center, which is the center that I am the Chief Officer of and until December was the sole employee or sole member of, so it was the center of one. In doing this work, I believe that in many ways this is the Sustainability Center realizing its potential or when we unified the American and European associations and created a Sustainability Center, it was with the promise of being able to do more than we had ever been able to do in sustainability prior.

To move from raising awareness about issues that are affecting specialty coffee and recognizing leadership like we do through sustainability awards of good examples or examples of best practices in different areas of the coffee value stream,  and to bringing those actors together and doing something different.

That’s the price crisis response aiming to move us from raising awareness and talking and then identifying what it is that we can be doing collectively and what it is that we can and need to be doing individually also.

So why are we doing it?  This is the background for it is the fall of the commodity futures price downward slope, the World Coffee Producer Forum, and how decent coffee will be hard to find by 2050.  This is an article from Popular Press. This is not an industry facing article. I highlighted that because to me it speaks to the fact that when we’re talking about the future of coffee in the role of specialty coffee, there’s a high likelihood that coffee will continue in some form.

When we’re talking about suitability for coffee, and when we look at the supply and demand of coffee, there is coffee available. There is in the world. There is coffee being planted still now all the time, in fewer countries maybe than it was planted 10 or 15 years ago, but there is still a market for coffee, but the question the coffee that we want to drink? Is that the coffee that we want to buy and present to our customers? Is that specialty coffee?

So, when we’re talking about why the Specialty Coffee Association has a role to play in this it’s that specialty coffee is arguably more threatened.

This is more risky, higher risk to us, those of us who care about the way that coffee tastes, those of us who have built our businesses and livelihoods on specialty coffee, that’s the coffee that’s at the most risk right now. So we have an obligation to act in the interest of the partnerships that we have made and built our businesses and marketing strategies on and in the interest of our future and the future of our businesses.

So that’s the why. And then I’m also putting up this slide about who, because one of the things that the SCA cannot do is to tell you all, what to pay for coffee. That’s something a trade association can’t do and another thing that we can’t do is to buy coffee ourselves.

So when people will ask, what’s the SCA doing about low prices? We’re not doing any… we’re not active in the market, but we talked to all of you and many of you are active in some way in this market and many of the… because we are an association made up of members, many of our members who are not… many of our members are value stream actors, and then we also have many members and stakeholders who are other initiatives. Seeing this same moment and reading the same writing on the wall and beginning initiatives of their own. So some of those include, certification organizations that have many many years working with producer organizations.

Many of the… some of those are other nonprofit organizations that are questioning the role that they play in perpetuating the market dynamics and power dynamics in the industry as they have existed for so long and so to date, between December and whatever month we’re in now, April, a lot of the work of the  price crisis response team has been around understanding what kind of work has been done to date, what kind of work is to be done in the future and how to coordinate that so that we don’t duplicate efforts, because I think that sometimes the urgency around acting now can send people running off in a bunch of directions without understanding who is doing what and where there might be opportunities to collaborate and also without understanding where we have the chance to reach different audiences.

So some of these organizations have stakeholders, audiences in common to the specialty coffee association, and some of them are different. So, where can we have different messages, and develop different approaches.? and then another reason I put this slide up is because when people come to the association asking, as I mentioned earlier, what are we doing?  Often the next question after, what’s the SCA doing is, well, what else is happening in the industry?  A lot of specialty coffee stakeholders are small.  It could be small roasting companies or retailers or small producers, they don’t necessarily participate in the dialogue or

Invest the time, feel like that they have the time to invest in understanding all the whole landscape of different programs and partnerships that exist out in the wider world of coffee and then beyond coffee also. So I believe that the SCA has a responsibility if we are to represent that and inform and educate and involve the smaller actors in coffee. In the coffee sector as I think we historically have to be a resource, not only for individual action for those unique people and companies, but also a repository of knowledge or a place to find information about what else might be happening beyond the boundaries of your understanding of coffee. So that’s what’s happened.

That’s where we are to date, we just finished a Rico program that was exclusively focused on the price crisis and had a lot of conversations and challenges that I think will continue to galvanize people toward greater action in the future. But I think that there’s still an enormous opportunity and I would challenge everyone in this room to think about as you’re listening to the panel, what is our role as specialty coffee? what’s the role that you would like to see the association play?

Then also to think about the role that you play as an individual. What you’re committed to doing differently in the future. And also, what role you have, what role, your position, whatever it is that you play, whether you’re a barista or a coffee buyer or an NGO to think about what role that position has played in getting us to the point that we are because I think that there’s no amount of self-reflection that’s too much that we’d benefit a lot from thinking about, how we individually in that years that we have been in coffee, whether that’s one or 21, and how we’ve gotten to where we are today. Thank you.

Vera Espíndola Rafael: Good morning. I think for us, and listening to this morning’s presentation, it’s become clear that although there are some structures that just work as it works, there are elements to what we see happening actually to these mechanism that supposedly work. We can see  for example with an ace Promacafe presentation that although certain things work there are negative implications to what we see the coffee farmers that most of us work with, and I think it’s based on that.

I really think it’s our responsibility to also call that out, what we see, but also really called out certain action, what we can do. Yesterday at Rico, we finished a day and in announcing certain pledges and commitments that we wanted to see in these changes, I think we all are here to also wanting to be informed.

Wanting to also see what we all can do in our own circle of influence. So, this conversation of we’re starting here with these four individuals is something that I really want to include you in the conversation. So we are looking also over, whoever has a question or even a comment. I think all of us here pretend do not have all the answers, but we really would like to give some more clarification on what we’re doing on what we’re seeing.

So feel free. I’m going to start actually with just I’m posing a question I have for Kim. One of the things that we are here, we work in a specialty coffee industry. We work especially coffee actor, so to say, but we are just a small part of this whole sector. Kim, regarding the initiative that the SCA has started, do you think that in the foreseen future, it is necessary for the SCA to also actively interact with the larger players of the industry?

Kim Elena Ionescu: Yes. Just get it out of such a quick, I’ll say point in a minute. That is the answer though. I think that I mentioned the sort of last price crisis moment or the last time we used that language being about 17 years ago and that the specialty coffee industry was in a very different place for the specialty coffee segment. If the industry was in a very different place, I wonder at the time whether we might have said no or we might’ve said that specialty needed to separate itself or the specialty was the solution.

To the crisis, I think  that’s an interesting subject for another lecture is what role has specialty played in the years since, but I think that  I look at specialty coffee now and I see what a broad range of companies and interpretations that is enveloped in it.  I feel like while specialty is at a higher risk because our existence depends on having a differentiated product. So if coffee only came from one place, if coffee only tasted one way, there would be all sorts of economic reasons not to want to have a singular supplier, but that would be true for anyone, but for specialty that’s compounded by the fact that, for coffee to be special it implies that there’s a difference. So, you know, we have to keep that in mind that diversity is our friend and I think that we see that in all other areas  of the industry as the industry has grown and embraced diversity.

I think that we need to keep that in mind for our supply also. so while on one hand, we’re sort of more under threat. I also feel like the idea that we could kind of exist without a commercial market to support it. I can’t imagine what that would look like from an infrastructure perspective in a coffee producing country.

If there was only specialty coffee coming out of Guatemala or coming out of Ethiopia and no commercial coffee then how much more expensive would that coffee be for the lack of a commercial market to kind of increase the economies of scale?  So I don’t feel like trying to separate and create specialty only zones and commercial only zones is something that we are going to succeed in doing without an acceptance of much higher costs.

I would encourage us to work and think about what are the different approaches that are going to be better adapted for commercial coffee and better adapted for specialty coffee, but sort of stay in close communication as we do that.

23:30 Juan Esteban Orduz of the Colombian Coffee Federation on the response he received when asking coffee chain actors for help addressing the coffee price crisis

Vera Espíndola Rafael: Thank you, Kim. Juan Estaban, you also had, interaction with, these larger actors who want to call it that way. During an action that you guys did as the World Produce’s Forum, I think it was last year with sending out the letters to several CEOs Could you share with more, the attention behind the letters and then the reaction to the letters?

Juan Esteban Orduz: Yes. thank you. Thank you. Yes we’ve been doing lots of actions in the World Coffee Producers Forum in terms of reaching out to the rest of the industry, the rest of the value chain. As I mentioned in my brief presentation under the principle of core responsibility, we’re all responsible for the health of the chain that has included. Last May we got together with Colombia and Brazil and we issued a very strong statement. Brazil CNC, which represents the co-ops where the unions, Brazil specialty coffee, almost all the government and this agriculture, the place on our side of the Federation, which is kind of the unified leadership in coffee growing Columbia and last September during ICO, we had the meeting of ICO. We had a meeting and the producers association were present there some on the telephone  and some present. We said if we are advocating for dialogue, a constructive dialogue, we need to have the dialogue at the decision making level.

We sent a letter to some of the most significant CEOs of the most significant companies in the business. Some responded some didn’t. With some we met, and let’s say they in general, I would say that there was between cold and warm answer.

No real hot answer I would say. Among other speakers on one hand, if you are making a lot of money, you don’t want them to stop making a lot of money. That’s one thing. In the end, you’re being judged by your balance sheet and your P and L and that’s how you get your bonus. I’m being a little graphic here, but this is how business works. On the other hand, this is in some cases of the CEO level, although they’re the decision makers, the is not an issue that has been brought to their attention with enough urgency. So they know there’s a problem there  with the growers somewhere, but they don’t really know what’s going on.

They’re looking at the numbers and they’ll look at the supply chain and so by not really looking at what’s happening with the farmers. So it was there was a couple of interesting responses saying,  “okay guys, so decide the solution and bring it to me.” This is the easiest way to do nothing.  Just come back to something and come and show it to me and see what we do that just. “Come up with something and come and show it to me and see what we do”. So that’s a kind of a nonstarter for a conversation. It was everybody very kind and very polite but no real action was happened because of that. Even after the meetings there was a lot of always saying we feel your pain, which I don’t get exactly how can you feel the pain of the grower but we feel your pain and we support you and yes sure. I don’t know how you feel my pain and I don’t know you are going to support me? So I guess this to say, I’m being a little graphic only, but we need to continue building this dialogue among the whole chain I guess.

I keep saying that just to finish the thought is, everybody’s doing what they’re supposed to be doing and roasters, traders, I mean, all the place in… there supposed to have profitable operations. The question is at what expense, at what cost and the more producers and it’s something that Kim mentioned is for the first time, that’s a unified voice for producers. So I, for lack of a better word, I think we have become an annoyance for a lot of people and between becoming an annoyance and a bigger annoyance and the reputational risk thus they’re not that many steps. So this is building up. Let’s see what happens in Brazil because the situation is very difficult, very complicated.

I don’t know how much persons the industry is going to have. I have the impression that a lot of people are coming, but even if not, the message will go loud and clear and not just in the form of all the panels and the studies and experts, but also in form of the study that Jeffrey Sachs is putting together, what he will say there. This will not be a custom made answers for producers.

I’m sure there will be some things we will not like but then it’s going to be an interesting way for others voice that will lead to in my personal opinion is that we have to have an informed and serious and mature conversation in this and calm down conversation.

So the answer to your point is, some responses not very active let’s say, but at least it’s up there because there were some meetings, in some cases they put someone in charge  so see what these people want cause it’s [inaudible]… I don’t recall, it was like 12 or 14 associations represented like 90% of the current production of the world so it was not insignificant. So they are at least they have some expectation and some intrigue to  see how this is going to evolve.

Vera Espíndola Rafael: I just want to add that Mexico is part of Promecafe and we  have meetings among the countries in Promecafe and what I wanted to share and add to what  Juan Esteban just mentioned is that our frustration to the reaction has been simply we  here our fellow neighboring country, Colombia, which has much more of a leverage when it comes to being producing country than the other countries. They are smaller even some people say that they are also small little Mexican countries, by some people. But what our frustration was that if Columbia is not able to call them out and invite them to have a dialogue and us supporting that initiative and action with our signature but led by Columbia. When and how much louder do we as producing countries need to act and say something before they will enter into a dialogue with us. So I thinking also to other ways of actors within our sector engage in order to let them know that this is a serious situation. I think that from our side at Promecafe that has been one of the responses of our side of why are they not reacting and entering into a dialogue.

32:15 Ben Zwerling Baltrushes on how Fair Trade USA is trying to address coffee price crisis

Vera Espíndola Rafael: Right. Moving on to that, one of the things that and again, looking for supporters that will help us finding a certain solution. Ben you work at a Fair Trade USA and your program has developed a mechanism specifically for that in these types of situations farmers can be slightly protected in some sense, but of course, there are many other farmers that are simply not part of this program for several reasons, several barriers that they have within their livelihood.  What from your point of view would be an action in order to ensure that these producers are also included in these types of mechanisms or other types of re-insurances?

Ben Zwerling Baltrushes: Thanks Vera. So just to level set, one of the things that’s unique about fair trade is that it has a minimum price of a US$1.40 per pound for washed Arabica that price went from a US$1.20 to a US$1.40 in 2010, 2011.  So, while we recognize that it’s truly a minimum price, we’ve done research throughout coffee producing landscapes to understand that it’s truly a baseline short term break even FOB price. It’s not perfect.

Costs of production vary from origin to origin, but considering the market conditions, it’s, really an essential price. It’s not high enough to guarantee long term sustainability, but again, considering market conditions, it’s the best way we’ve been able to do so far.

Fair Trade historically and to this day is a market that’s composed mostly of small holder production organized in co-operatives. In 2012, Fair Trade USA began to expand the scope of that certification to include coffee priests on large farms with the preponderance of hired labor as well as by small holders who are not organized in co-operatives. Today, 98.5% of the coffee that Fair Trade USA certifies, 2018 members 175 million pounds into the US market, 98.5% of that coffee is from small holder co-operatives.

So while theoretically we have the ability to certify any producer in the world, we certify very few producers who are not co-operatives. Why is that? I think is the essential question, and unfortunately, market demand for Fair Trade certified coffee, is not sufficient to create opportunities for more producers who would benefit from those minimum prices in times of price crisis, which are cyclical and we find ourselves in the midst of a very acute moment in terms of price crisis.

Less than 2% of last year’s global supply was bought as fair trade certified. So when it comes to expanding the benefit of fair trade, when it comes to addressing the current price crisis when it comes to looking for solutions, I think it’s great. Applaud that the SCA is taking initiative, it’s been really inspiring to watch, the leadership of the world, Coffee Producer Forum and producer countries. But there is a solution at play. We can talk about how imperfect fair trade might be, but as a short term safety net security blanket for producers, it is in place, it has been in place for decades, but it’s a market based mechanism and it requires demand, it requires buyers to buy the coffee in order to pay that price and less than 2% of global supply purchased on fair trade certified terms. That’s going to have to change if the benefits of the model are going to expand to include other producers.

35:50 Audience questions

Vera Espíndola Rafael: Thank you, Ben. Anybody from the audience have a specific questions or comments? Go ahead.

Audience member 1: Leslie. Thanks for your time this morning. With regards to the work of the SCA and sustainability, have you had a chance to look at accepting contextuality of other industries, whether it’s commodities or further away from us that are actually getting good results, doing well that we can learn from or things that you’ve found interesting? Just if you could speak to that.

Kim Elena Ionescu: Yes, that is, I think that’s one of those like, always been of interest, but now we have more resources to put toward that and probably the ones that we have the closest relationships to now are cocoa, chocolate, fine chocolate especially, but the World Cocoa Forum also bigger chocolate and  then maybe a little bit into cotton and there are when all the work that I’ve done and maybe even into we heard from someone with the banana forum at Rico, and even into like  textiles when it comes to labor.

All of these, there are similarities and some of them have different strengths and how they’ve addressed specific aspects of it. But nobody’s cracked the nut here. Nobody, when we say like, who’s done this really well? I think that I would love to be wrong about this, but the answer is nobody’s really figured this one out yet and I hope, and maybe it’s because I’m romantic about coffee, but that coffee has the potential to do that in a way, and that these other commodities and agricultural sectors don’t because of the relationship that people have with coffee because of the nature of our industry some of the things that make it strong and unique and give us that opportunity, I think also make it harder when it comes but yes.

Vera Espíndola Rafael: Any comments so far or questions.

Audience member 2: Hi Juan Esteban, at the end of your presentation you mentioned that there’s a large percentage of speculation going on in the C market. Would you be able to estimate to what extent. The speculation issue and to what extent there’s like a fundamental oversupply issue with producing countries.?

And then kind of as a corollary to that, to what extent have you all looked at the international coffee agreement that died in the late 90s and as a framework for a new solution? Is the ground being set for something like that as a solution not only to the low price but also to the volatility.?

Juan Esteban Orduz: Yes. Thank you there are a few things one what  we get from  the exchange and from traders is a… They do not say how much speculation is there, but they can say it is there. The estimated 60 to 70% of all the transactions are done by the call black boxes that’s one thing. On the other hand, remember that there’s an interesting structure in the exchange where if you are a commercial player, you can do up… there were like 500 lots. If you are non-commercial, you have no limitation. So the non-commercials can do whatever they want because it’s not foreseen that they will be regulated have no limitations. Should the exchange do something about it? yes or no and how? We’d have to measure, and The Exchange is the one who could be able to measure that. You have different situations. One, there’s an over supply and that’s at least a huge production.

Mostly from Brazil there’s Vietnam as well, but mostly from Brazil, so that’s there and something that we will have to live with it in the sense that they’re efficient they produce very good coffee and lots of it. Second, but you are at the same time have a C contract, which was designed with a basket of origins that was supposed to be homogeneous, let’s say the centrals, and at some point in 20… we have this discussion in 2004, and I did it myself with  NIBOT[?] at the time which interestingly enough, some of the roasters and lots of the traders were on this side and SCA at the time, was also very active on this, in having the discussion by saying, if you’re going to start having coffee delivered, tender the exchanges that’s different, significantly different to the one that is supposed to compose the basket, you will make the financial mechanism, let’s say that the futures contract, it will use the financial tool, it will not be as trustworthy because the base of the contract will not be there. The asset supporting the contract will not be homogeneous. Interestingly enough, it was the public who had a discussion. Folgers was a very very active proponent against this initiative. They tabled it until 2009 when ICE was …

So the discussion with ICE is a whole different ball game. For those of you who don’t know, ICE is the owner of the exchange of the futures. And ICE futures is the one where coffee is traded, Arabica is traded.

But ICE is a company that owns the New York stock exchange, The Commodities Exchange in New York, the Chicago Exchange, the London Exchange, the Energy Exchange. It’s the biggest, trading house and company in the world. It’s a private company with shareholders and they are entitled to do good business but businesses, and they’re entitled to increase their margins, to have as much liquidity as they can so they can make as much money as they can.

As we said before the promise that the more that is done, the more people starve. So that we have to find the balance, and open discussion in a very positive and very creative way. I think they are starting to be open to this discussion because as I said before small annoyance become big annoyance and big annoyance becomes a reputational risk. and that is starting to happen and people are starting to say okay great guys what is it that you want. It’s difficult to say how much speculation there is I said, well, what about other transactions and lets clear the speculation that’s not coffee charging accounts, and at the same time is that a short term impact or a long term impact?

Would that bring the C contract to Brazil is already deliverable. So in fact, they are discussing they changed the subject a little bit. Now the coffee committee is discussing, if not only semi-wash coffees are available the rule but also naturals. So now you’re going have a basket that includes the highest quality Arabicas and the unwashed results in the same basket and that’s something for the traders even roasters.

Changing the regulation of coffee that can be tenderly there it’s very simple. The Exchange staff don’t have a problem because if there goes wrong, they just correct it back. It’s a private company, they can do whatever they want and they’re entitled to do bad business and then correct them.

So it’s not like any of the companies. So with the ICO the other day, I heard our CEO, who’s a very funny guy, gave an answer to this kind of question. Why don’t coffee producers create the cartel? Because only rich people can create cartels.

You’re going to have a cartel with the Saudis and all the Arabs and all the people producing oil, but the cartel between, let’s say Brazil being the big guy, but Colombia, Honduras, Angola, Uganda Tanzania. That’s not going fly. Everybody’s going to end up in jail in Miami because it’s illegal, it’s criminal law in the U S to have those cartels.

So it will be much more of a problem than a possibility, so the answer is I don’t see it happening.  As you know the U S government, is not a member anymore of ICO. Since the new administration came in, they decided to cut them on the four organizations not being members. The ICO being one of those. The private sector goes there. You will see Ric Rhinehart and you have Bill Murray.  They always attend. But they have no voice, no vote, and there’s no one from the US administration that you can talk to.

So in a summary, speculation you’re going to measure, but we know it’s the  estimate 60%, 70% of the trades are by black boxes. The impact, we don’t know how much it is. The basket is not homogeneous and they’re looking to make it even less homogeneous now. And creating a cartel is not viable.

Vera Espíndola Rafael: Thank you, Juan.

I think that was a very relevant question in order to see, okay, so what is going on? Especially when it comes to coffee as a commodity. There are also other initiatives that are trying to find or give  or develop certain mechanisms that could actually help those producers that are focused on specialty coffee or have that, as an opportunity to sell off their coffee, as specialty. Chad, could you briefly first explain a bit on the efforts that you’re doing on with Transparent Trade, and what has been the first response from, the producers that haven’t been using it as a guidance.

Chad Trewick: Great, thanks, Vera. So the Specialty Coffee Transaction Guide is a research project in partnership with Emory University. A real nutshell explanation here. It’s a project that takes data related to FOB pricing from a variety of data donors who are roasters, importers, exporters of coffee and what the researchers are doing is organizing that information in tables to give producers and buyers of coffee alike a different price references so that we don’t have to look at or care about the C market as a reference price. We know, all of us in this room probably know that it’s an absolute inappropriate price discovery point for the kind of coffee that we need to differentiate in our industry, as Kim said.

And so what we’re doing is creating a different set of reference points for people to start their negotiation processes from.

In response to your question, Vera, producers as we socialize the guide, as we were getting ready to release the pilot, we met with producing communities in a number of countries to learn and understand their perspectives on what it was we were doing. We’re we creating a tool that was going to be useful and helpful, and something that would give them information they previously did not have access to. And I would say by and large, the response was overwhelmingly positive.

At the same time, we received interesting questions which are exactly what we’re supposed to start asking. And those are questions like, An FOB price is an FOB price, but I’m a farmer and I need to understand this magic that occurs between my farm and the porch that gets someone else that much more money than I got from my coffee. So it’s causing this situation where information out there is leading people to ask questions and seek efficiencies in this value stream that we have today where there are lots of inefficiencies, let’s say, and with as little money going into coffee.

As little money being given coffee as a valued product, we have to be as efficient as we can and identify where we might be having losses and ensuring that the most amount of money that can do gets to producers. Now, on the other side of the value stream, I would say we’ve been received, embraced and welcomed by the roasting community who, guess what, also need, want, and crave an alternative price discovery tool so that they can be held accountable, not to prices on the commodity market that they know are inappropriate for their business models and the quality they need to achieve, but also that they can kind of compare to their peers in the market and understand if an 84 to me means this price, what does it mean to the rest of the market? And so we’re starting to create a series of different benchmarks.

Again, right now it’s just information. It’s not, more or less correct than anything else, but it’s information that gives us a different, let’s say, starting point from a negotiations perspective then does the C, which again, I will say we know is utterly inappropriate for our business segment as a price discovery tool.

Vera Espíndola Rafael: Thank you, Chad. there’s a question over there, right? Kelly? Go ahead.

Audience member 3: Hi everyone. Thanks for having me here. My name is Kelly Stein. I’m an independent journalist from Brazil, write about coffee for nine years. And I have actually one comment and one question. First comment is, when you talk Brazil, everybody thinks about the big guys, but 81% of coffee farming is family, small families with farms with two to eight hectares. So when you start maybe mention about Brazil or make jokes or just comparing, just think about families. They are the big guys. Like we have record harvest because we have more than 130 years dedicated to technology and innovation.

That’s why. So we are talking about families and most of these families don’t have enough money to pay for fair trade. So what do you go? We are already doing a homework, like investing in the domestic markets. 2018 we consumed 21 million bags. My question to the table, is there any insights, of promoting domestic market in these producing countries just for sure that those producers have at least some income?

Kim Elena Ionescu: Thank you. I think that’s a question for the moderator.

Vera Espíndola Rafael: Okay. So, I think we all here are consumers at the end of the day, and I think, it’s really depending on, how we want to, be informed. Correct. I, for example, Well, not just clothing in this case, but, I, for example, care more about certain elements in my life which I buy than versus others.

And I think it’s one of the most difficult, things to, include consumers in this discussion as we also do not have the full answers. Correct? when it comes to more for me, on. consumption in general, and consumption that could support, part of the solution. I definitely think that we as consumers in drinking coffee can ask certain questions when we consume it.

And it’s there where you sometimes know and mark a difference. for example, will not, I’ll call it brands here because I don’t think it’s relevant. I think it’s a more safe for me and me buying a cup of coffee. Above the other said a certain price. I know that it’s being searched in a certain manner, sourced in a certain manner.

Many of our producing countries and in Brazil is a perfect example where, we are seeing that it’s increases around 3% to 4% in consumption and now reaching a consumption level of 21, 22 million bags is causing a certain certain shift in the domestic markets, that is creating a certain group of middle class people to consume coffee, and to consume and even pay more than on average is being paid for in coffee and those mechanism that’s are happening in these countries.

And that added value that is being created is first of all left within the country itself. And that’s a good indicator here Rene presented in this presentation, you know, it’s outrageous to see that. Do US is receiving more in taxes when it comes to importing coffee, then what is being received by all the producing countries as mind blowing for me and if we can add value at the end of the day for me is more important to add value.

For the producers, then perhaps he has, we also need to think as producing countries, our shifts or mindsets who consuming countries. And look into the fact that we ourselves can add value to that cup of coffee for our producers. I think that’s a very valuable lessons for us. I know for a fact, I mean, Columbia has actively promoted drinking coffee, throughout  the whole day on whatever occasion.

And that’s very important because at the end of the day, between 2009 and 2015 you increase from 1.2 million bags all the way to 1.6 million bags. And those changes in the society are important at the end of the day for our own producers. So I very much welcome also everybody that also visits, origin and visit these producing countries don’t only look from a production point of view to these countries. Look also in the consumption point of view. Look for that specific cup of coffee within the city itself. Within the village itself. I guarantee you that there are many cafe owners outside the metropolitan areas of these countries that actually are actively making sure that everybody is drinking coffee. So do so very much.  And that’s for me from my side.

Juan Esteban Orduz: I want to address something about consumption because it’s also interesting and Brazil is doing a great job and  what we’ve been doing It’s been advising Brazil. However, one of the main topics in the past forum and in all the declaration including  in the meeting that we had with all  the big players in Brazil with CNC, with the unions, with BSCA.

Was we need to increase consumption promising countries because there’s a lot of coffee and we need to, the coffee has to be consumed and we do increase it at a faster pace. The ICO, we brought this issue to the ICO. The ICO has been very active. Mostly Colombia and Brazil has been pushing for this.

But interestingly enough, the Indian, not just the coffee board, but also the coffee trust, which is the private sector. They are pushing in they are right now. looking at how to increase consumption in India. In the meeting that we have for the forum producing countries, we told India to create… they’re doing a study of where’s consumption in India and where they see it can grow.

And this is going to be one of the topics. India is an example we try to create like a pilot project for India, with the Producer’s Forum funded, hopefully by the, as you will help fund the funded and the Indian government and maybe some other players to  develop something that can be replicable.

The Indians claim, they have 450 million people in the middle class. It could be good. Some of those could be consuming coffee. So I’m very interested in the forum and the ICO there. Everybody’s moving. This is one of the other key elements that we’re working on because we’re producers, we’re not that good of coffee drinkers. Everybody over Brazil we’re not good coffee drinkers and even Brazil is half of Norway and some other countries. You’re five to six kilos per person per year and they are like 11 or 12 so we even Brazil, which is a huge, is going to be the first consumer very soon first producer and for consumer can grow more. And in our case, we’re very small too, and we’re better than most. So ICO was working on that, India is working on that in the Producers Forum we’re working on how to increase consumption and Brazil is helping a lot, the Brazilian authorities.

Vera Espíndola Rafael: So, thank you, Kim. Good luck with your meeting. Any other questions that there are from the floor and we’re wrapping up with 1230. Is that correct? There’s nothing after this. Yes, go ahead, Stephanie.

Audience member 4: Thanks everyone. Stephanie Daniels from the sustainable food lab. It just to someone’s question about what’s happening in other sectors, I think one of the unique opportunities of the SCA price response, task force or whatever you call yourselves, is to gather those experience and two specific ones. I think the vanilla and the cocoa sector are looking at ways to use, nonprofit reports around referenced crisis and some of those, that’s a legal way for the commercial sector to talk about those prices. The other one is competition law. So a number of European countries are getting together to say. What’s the precedent in the courts for companies to come together to talk about sustainability goals and how price feeds into that and so hopefully SCA can be a conduit to your members for those other efforts that could have some relevance for the coffee price.

Vera Espíndola Rafael: Thank you, Stephanie for that. We will definitely look into and how we can learn from vanilla and cocoa on that matter. Any other questions from the floor? Before my panel leaves please.

Audience member 5: I have a question regarding like with the coffee tree crop cycle in terms of during Rene’s presentation, we see like all of the symptoms is like an overproduction, and then prices are low, people are abandoning their farms, they’re unable to cover the cost. So logically we would think that in the next few years there will be, and they’re saying that there’s like underproduction or under-utilization at some of the mills or the infrastructure.

So production would go down in response to these lower prices, which will lower supply. Then we would think that prices would begin to go back up. Is that fair to say? And could you contextualize like the crisis within like a larger time frame?

Juan Esteban Orduz: I will answer partially and I will ask Rene to give the Central American perspective. I think it’s accurate. I think that people don’t have enough income. They will fertilize less, cleaning the farm or all the practices they need to have in place will deteriorate somehow and that will have an impact in coffee of course.

In the case of Colombia, we have had to, as Federation and, in many areas with support of the government, we’ve had to create incentives and credits and lots of things so people can continue doing what they’re doing ,but it’s financed by why a third party being either information or the government, Bridging the government some resources, which was his flow to producers. But I don’t think many countries, I would say most countries do not have the institutional structure that will allow them to do these kinds of things or don’t have the governments, don’t have the resources, to do that just to give an example, which is very small amount for the size of the problem, but we recently agree with the government we’re receiving about US$50 million support to support the income of the farmers. It’s where we’re seeing the price going.

It’s going way beyond that and at the same time, we have credit programs and incentives for fertilizing and so on. So that’s the case of Columbia. But I think we’re the exception more than the rule.  Maybe Rene can tell us a little bit about Central America.

Rene: Bueno, como mencionamos en la presentación en la mañana, ya es evidente el cambio en los niveles de producción que están viendo los países mesoamericanos. Por eso utilizamos el ejemplo de la utilización, del porcentaje de la utilización de la infraestructura. Ya es bastante bajo en algunos países, inclusive países que venían creciendo como el caso de Honduras, que ha estado creciendo, creciendo que sabemos que han hecho un esfuerzo muy grande institucionalmente los productores para financiar ese crecimiento aun cuando no estaba pagando el café ya están proyectando que se les empieza a caer la producción. Eso fue una realidad interna, que están revisando el pronóstico de cosecha que tenían porque tienen expectativas de una caída quizás de hasta un 25% en su producción: el quinto país productor del mundo que estaba creciendo que bueno, ya va para abajo. Así que si las cosas continúan como están, y el productor sigue sin tener la rentabilidad necesaria, seguro empieza con mal manejo en la finca, tratan de hacerlo por un tiempo con la expectativa y con la esperanza de que pueda mejorar pero al no ocurrir, les ocurre el abandono total de la finca, migración, remplazo, sustitución del cultivo, pérdida de calidad; así que yo sí creo que de continuar este problema en el largo plazo va a ocurrir y con él, lo importante a tener en cuenta es vendrá la perdida de mucho de esos orígenes que nos dan esa taza interesante que nos gusta, que buscamos en las cafeterías especiales, nos quedaremos con aquel café común, de volumen, que quizás no nos da esas tazas especiales que es la que hemos estado impulsando y que las olas, y las tendencias novedosas, en el procesamiento y la preparación del café nos están motivando y nos están enseñando a consumir. [So, as we mentioned in the presentation in the morning, the change in production levels that Mesoamerican countries are seeing is already evident. That is why we used the example of utilization – of the percentage of the infrastructure that is utilized. It is already quite low in some countries, including countries that have been growing, as in the case of Honduras which has been growing and growing, and we know that producers have made a very large effort institutionally to finance that growth even when coffee didn’t pay, and they are already projecting that production is beginning to fall. That was an internal reality – they are reviewing their harvest forecast because they have expectations of a drop of perhaps 25% in their production: the fifth producing country in the world that was growing and now, well, it is already taking a downward turn. So if things continue as they are, and the producer still does not have the necessary profitability, the running of the plantation will take a turn for the worse – they try to manage for a while with the expectation and with the hope that it will improve but when this does not happen, this eventually leads to the  total abandonment of the farm, migration, crop replacement or substitution, loss of quality…; so I do believe that if this problem continues in the long term these things will happen and with them, the important thing to keep in mind is that it will bring about the loss of many of those origins that give us that interesting cup of coffee that we really like, that we seek out in the special coffee shops. We will end up with that commonplace high-volume coffee, that perhaps does not give us those special cups that we have been pushing forward and that fashions and the novel trends in processing and preparation of coffee are motivating and teaching us to consume.]

Vera Espíndola Rafael: I would like to thank you everybody for your attention.

1:03:30 Outro

Heather Ward: That was the end of the second part of “A Two Part Arc About the C Market and the Future of Specialty”  at Specialty Coffee Expo in April 2019. Remember to check our show notes for a full episode transcript of this lecture and a link to coffeeexpo.org for more information about this year’s event.

This has been an episode of the SCA Podcast’s Expo Lecture Series, brought to you by the members of the Specialty Coffee Association, and supported by SAP’s Softengine Coffee One. Thanks for listening!