Poor Farmer

Starbucks buys its first coffee farm

2013-03-18T20:00:00.002-07:00

By Julie Jargon

March 18, 2013

Starbucks Corp. SBUX -1.27% has bought its first farm, with plans to use the 600-acre property in Costa Rica to develop new coffee varieties and test methods to eradicate a fungal disease known as coffee rust that is vexing the industry.

The Seattle-based coffee giant, which closed on the purchase Friday, decided to buy the farm in part because its location will allow testing of different growing methods, in order to understand what makes coffee plants thrive at different elevations. The land ranges from 3,600 to 5,500 feet above sea level.

"We are talking about doing innovative things we would not be able to do without this farm," said Starbucks Chief Executive Howard Schultz, adding that he won't rule out the acquisition of more such research farms. He wouldn't disclose the purchase price, but a person familiar with the matter said farms of that size in Costa Rica generally fetch $5 million to $10 million.

The new farm will enable Starbucks to develop proprietary new coffee varieties through hybridization—but not genetic modification—and different processing techniques. The farm will complement five centers Starbucks operates around the world where agronomists work with local farmers to increase their yields.

The purchase comes amid growing concern about coffee rust in Latin America, where Starbucks buys the majority of its coffee. The fungus's impact has reduced forecasts for coffee production for the next growing season in much of the region, and caused Guatemala's president last month to declare a national emergency.

Craig Russell, a Starbucks senior vice president, said the company has secured a sufficient supply of coffee unaffected by the fungus from its farmers in the region for the latest harvest and the next one. "It's a dynamic situation and we will absolutely use this farm for testing different methodologies and ways to use new types of coffee trees we've developed that have become more disease- and rust-resistant," he said.

Starbucks said it will share what it learns with other farmers that aren't suppliers.

Coffee rust attacks coffee-tree leaves, starving them of nutrients and eventually causing them to wither and fall off. In the late 19th century the fungus devastated coffee production in Sri Lanka, India, Sumatra and Java, but it hasn't been a huge nuisance to Latin American farmers until this year and scientists aren't exactly sure why, according to John Vandermeer, an ecology professor at the University of Michigan.

Mr. Russell said drier than normal weather this season in Latin America could be partly to blame.

Starbucks has long had agronomists working with farmers around the globe to address ways to ensure viable crops amid changes in climate, and this will help company researchers study the topic further.

"What Starbucks is doing is taking a proactive approach to understanding the impact of climate shifts on production and disease," says Peter Seligmann, Chief Executive of Conservation International, a non-profit that has helped Starbucks develop criteria for growing coffee in socially, environmentally and economically responsible ways.

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Write to Julie Jargon at julie.jargon@wsj.com

Coffee prices hit a 33-month low

2013-03-17T10:02:00.001-07:00

Coffee-bean prices sag

By Leslie Josephs

The Wall Street Journal

March 17, 2013

NEW YORK—Mounting stockpiles of arabica coffee around the world have soured traders' outlook on the commodity, pushing prices down to a 33-month low.

Arabica coffee in 60-kilogram (132-pound) sacks stored in exchange-certified warehouses rose to more than 2.74 million bags Friday, up 6.7% from the start of the year.

Beans are also accumulating in Brazil, the source of about one-third of the world's coffee. Growers there have been holding back some of their crop, waiting for higher prices. According to Safras & Mercado, a Brazilian consulting firm, farmers there had sold 71% of their 2012 crop by the end of February, down from 87% at the same point last year.

"There's too much Brazilian [coffee], too much arabica," said Thiago Cazarini, a coffee broker based in Varginha, Brazil. He estimated prices will drop to $1.30-$1.35 a pound.

Arabica coffee for delivery in May on the ICE Futures U.S. exchange fell 2.15 cents, or 1.5%, to $1.375 a pound, the lowest settlement for the active-month contract since June 10, 2010. The thinly traded March-delivery contract lost 2.4 cents, or 1.7%, to end at $1.365 a pound. The front-month contract fell 4.8% for the week.

"The market is just death warmed over," Jack Scoville, a vice president at Price Futures Group, said about futures prices.

The market has been struggling with heavy supplies for some time. Global supplies of coffee in the 2012-13 crop year, which started in October, are expected to outpace demand by 2.2 million bags, largely due to increased output from Colombia, the International Coffee Organization said.

Colombia is the largest producer of mild, washed arabica beans, a variety coveted by gourmet roasters.

Tens of thousands of coffee growers there went on strike for close to two weeks in late February and early March to protest dropping prices, blocking roadways to demand more aid from the government.

The quasigovernmental Colombian Federation of Coffee Growers, which oversees the industry, said Friday it would more than double the subsidy for each 125-kilogram bag of parchment coffee—unroasted coffee with a thin layer of skin on the bean—to 145,000 pesos ($80.44).

The move is expected to spur sales of beans from the country, where production rose 9.5% last month from a year earlier.

"Sales were delayed," said Hernando de la Roche, a senior vice president at brokerage INTL FCStone. "I think [the subsidy] is a factor that [traders] are looking at."

On top of Colombia's bright forecast, Brazil is expected to produce another large harvest following record 50.83 million bags harvested in 2012.

Sterling Smith, a futures specialist at Citigroup, C -0.42% called the oversupply "an anchor on the market."

"There's not a lot of reason to be aggressively buying arabica right now," he said.

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Jeffrey T. Lewis in São Paulo contributed to this article.

Write to Leslie Josephs at leslie.josephs@dowjones.com

J.C. Penney loses Caribou Coffee cafes for revamped stores

2013-03-16T20:48:00.001-07:00

By Leslie Patton & Sapna Maheshwari

Bloomberg

March 15, 2013

Caribou Coffee Co. will no longer pursue plans to open shops inside J.C. Penney Co. (JCP) stores, about six months after Chief Executive Officer Ron Johnson cited the company as a potential partner.

The Minneapolis-based coffee seller won’t be opening stores in J.C. Penney locations and “does not have plans to move forward with a partnership at this time,” Caribou Chief Executive Officer Mike Tattersfield said in an e-mailed statement today. Johnson discussed the cafes during a September tour of a prototype store for analysts and investors. Tattersfield declined to say why Caribou was pulling out.

The loss of the cafes comes as Johnson struggles to transform most of J.C. Penney’s stores into collections of boutiques peppered with eateries, or a kind of mall within a mall. The department store chain reported an annual sales decline of 25 percent to $13 billion about two weeks ago. In September it said Caribou cafes would provide a place for customers to relax and help the coffee company expand.

Daphne Avila, a spokeswoman for Plano, Texas-based J.C. Penney, didn’t immediately return a voicemail and e-mail seeking comment.

Caribou Coffee, acquired by Joh. A. Benckiser Group earlier this year for about $340 million, has put locations in other retail stores, including Jewel-Osco, the grocery chain that Supervalu Inc. (SVU) agreed to sell to Cerberus Capital Management LP in January. Caribou also has shops in Lunds and Byerly’s grocery stores in Minnesota and at Hy-Vee markets in the Midwest.

Caribou had 610 coffee shops, including 202 franchised locations, as of Sept. 30. The chain has said it’s targeting 10 percent to 20 percent unit growth this year in cities including Washington and Chicago.

J.C. Penney, which has 1,100 stores, gained 0.6 percent to $15.48 at the close in New York. The retailer has lost 21 percent this year, compared with a 9.4 percent advance for the Standard & Poor’s 500 Index.

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To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net; Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

JCPenney's Plan To Sell Caribou Coffee In Its Stores Is Dead

Kim Bhasin

Business Insider

March 15, 2013

JCPenney won't have Caribou Coffee shops inside its stores, Leslie Patton and Sapna Maheshwari at Bloomberg reported.

Caribou CEO Mike Tattersfield told Bloomberg that his company “does not have plans to move forward with a partnership at this time."

Why didn't the partnership work out?

Tattersfield declined to comment to Bloomberg, while JCPenney and Caribou didn't immediately respond to our requests for comment.

But a JCPenney insider with knowledge of the situation, who requested anonymity, shed some light on what happened.

Back in February, JCPenney announced internally that Caribou Coffee would not be offered in stores, and that it was searching for a vendor that would "offer more options in food and beverage," according to the insider.

"No word yet on who will replace them," he added.

JCPenney first talked about adding Caribou cafes in its stores back in September while showing analysts and investors around a prototype store which included a Caribou stand.

The department store was planning to add coffee and juice bars in place of cash registers, which are being eliminated entirely in favor of mobile and self checkout.

Coffee’s Economics, Rewritten by Farmers

2013-03-16T13:28:00.005-07:00

The New York Times

March 16, 2013

IN 2005, Kenneth Lander, a lawyer in Monroe, Ga., moved with his wife, stepdaughter and the youngest three of his seven children to a coffee farm in San Rafael de Abangares, Costa Rica. He always “had a heart,” he said, for Latin America, and after a vacation to the lush cloud forests near Monteverde in 2004, he was determined to return on a more permanent basis.

He was also looking for more balance in his work-driven life. And so, after buying a coffee farm from a farmer he’d met on his earlier trip, he packed up his life and moved.

“It was like Swiss Family Robinson,” Mr. Lander jokes. “We just left.”

In Costa Rica, Mr. Lander, who is now 46, didn’t have to worry about making money. He had received a cash windfall from selling a portion of a residential subdivision he had helped develop in Georgia; the plan was to keep selling more lots and live off the proceeds. So he grew coffee for fun.

Then, in 2008, the financial crisis hit. The value of his subdivision plummeted. Suddenly, he had to support himself as a coffee farmer. Very quickly, he realized how difficult that was going to be. He had just 12 acres that produced 6,000 pounds of specialty-grade coffee beans a year.

He belonged to a “fair trade” co-op, which guarantees farmers a minimum price, but was making only $1.30 a pound on coffee that retailed in the United States for $12 a pound. His net profit was so low that at one point he was down to $120 that had to last two weeks.

“I was at the register debating whether or not to buy shampoo or a bag of rice,” Mr. Lander recalls.

Why wasn’t he seeing more of that final price?

That question has been asked by farmers throughout history, particularly in developing countries, where growers of commodity crops like coffee and cocoa often live in poverty. Over the last few decades, a worldwide movement under the broad banner of fair trade has tried to rectify that imbalance.

In exchange for receiving “fair” prices for their products, fair trade farmers must adhere to environmental and labor standards set by certification groups, the largest of which is Fairtrade International, a nonprofit organization based in Bonn, Germany. It represents 1.24 million farmers and workers in industries including coffee, bananas and honey.

But Mr. Lander started to think that he might improve on the idea. He began to experiment. Using a roaster he had bought in better times, he started roasting his beans and selling them on Facebook to friends in the United States. He also opened a coffee shop, called the Common Cup, in Monteverde, and sold his coffee to tourists.

When he ran out of beans, he teamed up with two other area coffee farmers, Jorge Fonseca and Alejandro Garcia — who also had a coffee shop, the Colibri — and began shipping greater volumes. Suddenly, he was making money.

This D.I.Y. enterprise led to the creation in 2011 of Thrive Farmers Coffee, which Mr. Lander started with Mr. Garcia and Michael Jones, an entrepreneur based in Atlanta. The company is still largely untested, but is built on the idea that farmers can “participate in the added value as coffee moves downstream to the consumer,” Mr. Lander said.

TYPICALLY, farmers sell their green, or unroasted, beans. At that stage, the beans generally fetch a price based on the commodity market price, which in February averaged $1.53 a pound for Arabica coffee, according to the International Coffee Organization.

The fair trade concept offers an improvement on that model. It will pay the market price for beans, but, importantly, it guarantees a minimum price — now $1.40 for Arabica coffee. In addition, the local co-op that collects and processes the beans keeps a premium, now 20 cents, which is used for social services like scholarships and health care for farmers and their families.

Theoretically, a fair trade farmer never loses, because when the commodity market price is higher than the fair trade price, the farmer receives the market price, and the co-op still receives the premium. But fair trade buyers purchase unroasted beans, and the processes that add to the price and value of the coffee come later.

In the system that Thrive is trying to develop, farmers are paid only after their coffee has been exported, packaged and sold — at a much higher price — to retailers. If coffee is sold for, say, $7.25 a pound, Thrive splits the proceeds 50-50 with the farmers, who end up, in that example, with about $3.60 a pound.

The farmers working with Thrive must pay the higher costs of processing and exporting, but Mr. Lander says they net about four times as much as they would through fair trade, once production costs and co-op fees are factored in. And Thrive helps farmers by establishing relationships for the farmers with local coffee processing mills and co-ops. Then, once the beans are shipped to the United States, Thrive takes over, handling packaging, roasting and sales. In some cases, Thrive sells green coffee beans to roasters, in which case the farmer receives 75 percent of the proceeds.

“We’re teaching a farmer that you don’t have to relinquish control of your coffee,” Mr. Lander said. “You can see it all the way through the value chain.”

Thrive’s system is among a growing number of innovative business models in the coffee and cocoa industries that are allowing farmers to increase their ownership and profit margins. Divine Chocolate, based in London, is partly owned by cocoa farmers in Ghana, who get a percentage of company profits. Pachamama Coffee Cooperative, based in Davis, Calif., is owned by farmers in Latin America and Africa. After the coffee is roasted in the United States and sold, all profits go back to the farmers.

All of these initiatives have sprung out of fair trade and aim to send the movement in a more significant for-profit direction.

Fair trade “can be part of a fairer deal for farmers,” says Christopher Bacon, an environmental studies professor at Santa Clara University. “Small-scale farmers have historically used fair trade as one of several strategies, including grass-roots organizing, to build stronger cooperatives” that allow farmers “to become active players in the global coffee industry.”

But, he added, the fair trade idea “is more about making a living than rocketing coffee farmers out of poverty.”

Paul Rice, president and C.E.O. of Fair Trade USA, the nonprofit organization that certifies transactions between United States companies and their suppliers, said that the fair trade price “is a floor, not a cap,” and that co-ops with reputations for delivering high-quality coffee have commanded prices of more than $3 a pound. In 2011, a strong year for coffee, the average price for fair trade coffee was $2.84 a pound, according to the organization.

Mr. Rice applauded companies like Thrive, but asked: “Is that model really scalable? Is it going to reach millions of farmers?”

After all, fair trade’s partnerships with major coffee companies — like Starbucks and Green Mountain Coffee Roasters, which together imported 84.6 million pounds of fair trade certified coffee in 2011 — are central to keeping fair trade farmers in business. And he said those companies were accustomed to the quality and reliability that come with the fair trade label.

Moreover, exporting creates risks that farmers selling raw beans don’t face. “There are aspects around flavor and quality, and the changes in flavor that can happen during export,” says Dennis Macray, the former director of ethical sourcing and global responsibility at Starbucks, who is now an independent specialty coffee and cocoa consultant. “Most coffee producers don’t have the capacity to manage that risk."

Mr. Lander acknowledges challenges in the Thrive model and says that there have been glitches as he and his partners figured out the business. Two groups of Thrive farmers who did not process their coffee up to standards set by the Specialty Coffee Association of America, for example, had to reprocess the coffee, leading to a delay in sales — and their payment. “It’s the first time that farmers are being asked to think about quality,” Mr. Lander said. “Now they’re selling to the end user. So that’s something we have to teach them.”

Carlos Vargas, chief financial officer at CoopeTarrazú R.L., a coffee co-op in Costa Rica, said Thrive’s payment model, in which farmers have to wait until their coffee is sold in grocery stores before being paid, could be a hardship for small farmers.

“In the end, the farmer will get a good price, but the problem is there’s not the right balance between when the farmer needs the money and when the farmer receives the money,” Mr. Vargas said, explaining that farmers depend on money they receive from selling beans during the coffee season to cover their production costs. Waiting for the coffee to be processed and roasted and reach stores can take several months. He said that some farmers he knows, who have been working with Thrive, have had to wait 6 to 12 months to be paid.

“That’s a very long time, and they have to invest in the next crop. For a small farmer that’s very difficult.”

“Farmers do have to wait,” said Mr. Lander, who added that 6 to 12 months is a typical time frame for getting paid. For this reason, farmers are asked to put in only a small percentage of their crop the first year and to increase the portion over time.

Still, fair-trade-certified co-ops — which similarly rely on sales from beans early in the season — are free to work with Thrive.

According to Mr. Jones, who has invested more than $1 million in Thrive, it is committed to high-quality farming and environmental standards. Eventually, he said, he would “love to have a third-party agency to help us validate things,” but “we have to crawl before we walk, and walk before we run.”

Mr. Rice of Fair Trade USA agreed that “there are a lot of different doors into this sustainability space that consumers can take.” He added that “if a consumer discovers a great product that also makes the world a better place through Thrive, that’s great.”

IN 2012, Thrive sold 328,000 pounds of coffee over the Internet, to churches and through specialty stores like Golden Harvest Produce Market in Kittery, Me., and Earth Fare, a chain based in Fletcher, N.C. The coffee sells for $9.95 to $12.25 a pound. Mr. Lander said that of Thrive’s 625 farmers in Costa Rica, Honduras and Guatemala, 480 had received their share of coffee sales. The remainder consigned their coffee to Thrive later in the season, so their coffee has not yet hit the market.

As for his own well-being, he said that since Thrive brought on angel investors last fall, he is taking a “conservative salary.”

But, he added, “I’ve never been more happy or more fulfilled.” And he has no trouble buying shampoo.

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A version of this article appeared in print on March 17, 2013, on page BU1 of the New York edition with the headline: Coffee’s Economics, Rewritten by Farmers .

Portland's coffee cup dilemma: Hold the foam?

2013-03-10T22:06:00.000-07:00

The answer depends on the Joe.

By Ray Routhier
Portland Press Herald

Coffee tastes better in a Styrofoam cup.

Really?

Really, say some folks concerned about Portland's proposed ban on Styrofoam containers. But is it a fact these folks can prove? Or is it all in their heads?

The answer, according to a trio of scientists with lots of initials after their names, is yes -- and yes.

What most of us think of as the "taste" of something is really a combination of sensory reactions in our brain, says Gordon M. Shepherd, professor of neurobiology at the Yale School of Medicine in Connecticut and author of the book "Neurogastronomy: How The Brain Creates Flavor and Why It Matters."

Shepherd says how a cup of coffee feels and looks affects your sense of how it tastes, as does the aroma, your past experiences with that cup, your cup-handling habits, and your expectations of all that cup might offer.

That's not to say Styrofoam doesn't add anything to coffee, because it can. Styrofoam is made from petrochemicals, and some of those can be "extracted" by hot coffee, said Mary Ellen Camire, professor of food science and human nutrition at the University of Maine in Orono.

Mmmmm, chemicals.

The question of why we taste what we taste was raised last week during public reaction to an impending city of Portland ban on the sale of food and beverages in Styrofoam containers. A group working to craft a city ordinance outlining the ban is scheduled to meet at 5 p.m. Monday in Room 24 at City Hall. Any ordinance would have to go to the full City Council for approval.

The ban would likely result in coffee sellers using paper cups instead of Styrofoam for a cup to go. Some coffee drinkers who heard about the coming ban proclaimed they preferred Styrofoam for coffee because it retains heat better and because paper cups make coffee taste differently.

But looking more closely at the science, and how our brains process taste, it's likely folks who say coffee tastes better in Styrofoam cups have always had coffee in Styrofoam. Or at least have had very positive experiences with Styrofoam.

"When we're judging the taste of something, we're basing some of it on expectations, on what it looks like, what we're familiar with. So if somebody has drunk from a Styrofoam cup their whole life and has liked the experience, to them the Styrofoam cup will probably taste better," said Gary Beauchamp, director of the Monell Chemical Senses Center in Philadelphia, Pa., a research institute focusing on the science of taste and smell.

"They've learned that coffee in that kind of cup is something they're going to like."

So yes, a cup of coffee in Styrofoam can taste better to you than coffee in a paper cup, depending on your extensive personal history and personal preferences ... and because people's brains -- after compiling all sorts of sensory data -- are the final arbiter of what tastes good. So yes, it's all in their heads.

Folks at three Portland coffee spots Friday confirmed that taste is a very personal matter, affected by a lot more than what goes in your mouth. In fact, of the half-dozen folks asked about the taste of coffee in a Styrofoam cup versus a paper one, most gave answers that had little to do with taste.

"I don't like the Styrofoam because it keeps the coffee too hot and I can't drink it right away. I have to order the coffee 20 minutes before I want to drink it," said Isaac Turner, 33, a commercial photographer from Portland who now lives in Philadelphia, as he sat near the back of Arabica on Free Street. "When I order coffee, I usually needed it 10 minutes ago. But I don't think the taste is any different."

The idea that people's past experiences and expectations affect taste seemed to fit the scenario described by Kevin Sturtevant of Portland, as he sat correcting papers near the front of Arabica on Friday.

"I really dislike the idea of Styrofoam intently, so I very rarely drink coffee from it. But when I have, it was because it was the only thing available and it was pretty crappy coffee," said Sturtevant, 30, an English instructor at Southern Maine Community College.

While the science tells us taste is about a lot of different sensory experiences, Beauchamp says he knows of no studies that have been done about the way coffee tastes in a Styrofoam cup versus a paper one.

"I imagine if someone came to us and said this was a very important issue we'd probably study it, but so far I don't think anyone has," Beauchamp said.

Surprising, shocking really, when you think of how important a cup of joe is to your average Joe.

In fact, coffee is so important that some folks would likely drink it out of a boot as long as they can get it into their mouths. For them, a Styrofoam versus paper taste debate is irrelevant.

"I just love coffee so it doesn't matter to me at all what cup it comes in, I'll drink it," said Maryellen O'Toole, a school nurse from Scarborough, as she carried a Styrofoam cup of coffee out of Dunkin' Donuts at One City Center. "For water, I'm fussy, it has to be in a bottle."

With coffee, the sense of smell probably has the second greatest impact on taste.

"When you swallow aromatic foods, the aroma goes up your throat to the back of your nose while you're tasting it. All your tongue can measure is how sweet, sour, bitter or salty it is, so a lot of the taste comes from the smell," said Camire, the UMaine professor.

That's why people who have bad head colds say they can't taste food anymore.

Of course, the container can add things to coffee you hadn't planned on, even if you don't necessarily taste them.

Styrofoam has chemical components called styrenes, which Camire says can leak when subjected to heat.

"I personally go for paper cups because plastics and Styrofoam both have material that can leak out into the beverage. And that doesn't sound that good to me," she said.

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Staff Writer Ray Routhier can be contacted at 791-6454 or at: rrouthier@pressherald.com

Coffee fungus seen cutting up to 25% of Central America output

2013-02-15T18:35:00.000-08:00

By Marvin G. Perez

Bloomberg

February 15, 2013

Coffee farms in Central America may lose 25 percent of exportable production next year because of a crop disease known as leaf rust, providing a “little bit” of a boost to slumping prices, an industry group said.

In the 12 months starting Oct. 1, about 3.45 million bags of exportable coffee will be lost from the 13.8 million expected in Honduras, Guatemala, Nicaragua, El Salvador and Costa Rica, said Jose Angel Buitrago, the president of the Central American Organization of Coffee Exporters, or Orceca, citing figures compiled from the region’s main grower groups.

“Irregular, heavy rains in August, followed by an extended period of sunshine and high winds, created the perfect humid conditions for the disease to spread at unprecedented rates,” Buitrago said yesterday in a telephone interview from Managua, Nicaragua. The situation was exacerbated when this year’s harvest began in October, because coffee pickers carry the spores from the fungus on their clothes, undermining attempts to curb the disease with fungicides, he said.

Through yesterday, arabica coffee plunged 54 percent to $1.4075 a pound from a 14-year high in May 2011 on ICE Futures U.S. in New York after the rally encouraged producers to boost output, led by top grower Brazil. Lower prices mean less revenue to spend on controlling the disease and replacing infected trees, because most of the region’s farmers harvest 5 hectares (12.4 acres) or less and lack financing, Buitrago said.

Combined Shipments

In 2012, combined shipments from the five Central American countries totaled 13.65 million bags, or 12 percent of the world’s total of 113.14 million, data from the London-based International Coffee Organization show. A bag weighs 60 kilograms, or 132 pounds.

First found in Latin America in the 1970s, the disease, also known as Roya, is caused by the fungus Hemileia vastatrix, which attacks plants’ foliage, interferes with their ability to photosynthesize, and prevents beans from reaching full maturity.

An aging tree population, with plants over 25 years old, has made plantations more susceptible, said Buitrago, who is also the president of Excan, Nicaragua’s main exporter group.

Growers planted more beans favored by specialty companies such as Starbucks Corp., and those varieties are more susceptible to fungus, he said.

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To contact the reporter on this story: Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

Guatemala declares national coffee emergency

2013-02-08T20:15:00.002-08:00

AP via CBSNEWS

February 8, 2013

GUATEMALA CITY - Guatemala's president declared a national emergency Friday over the spread of coffee rust, saying the fungus that has hit other Central American countries is affecting 70 percent of this nation's crop.

President Otto Molina Perez ordered the release of more than $14 million to aid coffee growers. He said the funds would help 60,000 small farmers buy pesticides and also finance instruction to teach them how to prevent the disease and stop it from spreading.

"If we don't take the needed measures, in 2013-2014 our production could drop by 40 percent," Molina said in making his country the third in the region to decree emergencies in recent weeks.

Coffee rust, which can kill plants by withering their leaves, also is affecting plantations in El Salvador, Honduras, Panama and Costa Rica. Mexico's agriculture authorities said the fungus has been detected there but so far has not damaged plants.

Molina said the pesticides will start being applied to coffee plants in April and two more applications will be needed during the year.

Nils Leporowsky, president of the National Coffee Association of Guatemala, or Anacafe, said coffee is grown in 206 of the country's 333 municipalities.

"We have planted 667,000 acres (270,000 hectares) of coffee and of that 477,000 acres (193,000 hectares) have rust, affecting 70 percent of the total," he added.

Leporowsky said coffee growing generates 500,000 direct jobs as well as 700,000 additional jobs in related businesses each year.

"We have lost 100,000 direct jobs already and that will affect millions of people," he said.

Experts say the fungus has been present in Central American since the 1970s but production hadn't previously been affected so severely as what is feared this year.

Otto Cabrera, an adviser with Anacafe, said coffee rust arrived in Guatemala in the 1980s.

"The fungus directly affects coffee leaves, initially with yellow spots that later turn orange and reaches around the foliage of coffee, then makes the leaves fall," he said. "The plant loses its foliage. It's not able to breathe, so it ceases producing and it eventually dies."

Cabrera said climate change has brought a rise in average temperatures of about 2 degrees Celsius in Central American areas where the fungus was present, encouraging its growth and increasing the threat of severe damage.

Honduras and Costa Rica declared national emergencies over coffee rust last month. In Panama, the sixth largest producer of coffee in the region, the fungus has affected about 60 percent of the crop this year, according to industry estimates.

Carlos Fuentes, spokesman for the association of coffee producers in Panama's Chiriqui province, which borders Costa Rica, said coffee yields per acre have fallen 45 percent. Chiriqui is the largest coffee producer in Panama.

"Of the 8,650 acres (3,500 hectares) we planted, more than half have been affected," Fuentes said, adding that he wants his country to also declare a state of emergency.

In El Salvador, the Salvadoran Coffee Council said the impact of coffee rust is the worst in 30 years. The council estimates the fungus has affected 100 percent of the country's coffee plants.

Honduras also declared a national emergency in January seeking to curb the fungus and save its coffee, which is its main export, with about $1.4 billion in sales in 2012.

"Until now, we estimate that about 10 percent of the crops in the country have been affected," said Victor Hugo Molina, director of the Honduran Coffee Institute.

In Mexico, which borders Guatemala, agriculture officials said the fungus is present but it has not hurt production.

Javier Trujillo Arriaga, director of vegetable health for Mexico's pest-control agency, said the government has a contingency plan to fight the fungus in case it starts killings plants like it is doing in Guatemala.

Coffee producers in Guatemala, El Salvador, Honduras and Costa Rica plan a Feb. 27-28 meeting in San Pedro Sula, Honduras, to discuss common strategies for combatting coffee rust.

Coffee exports from India set to drop as European demand slows

2013-02-05T19:43:00.002-08:00

By Swansy Afonso

Bloomberg News

February 05, 2013

Coffee exports from India, Asia’s third-biggest supplier, may decline for a second straight year as an economic slowdown in Europe cuts demand and as damage from pest attacks reduces the harvest.

Shipments may drop below 300,000 metric tons this year from 310,886 tons in 2012, Ramesh Rajah, president of the Coffee Exporters Association of India, said by phone from Bangalore. Exports fell 9.4 percent last year, the first annual drop in three years, according to data from the Coffee Board of India.

A drop in Indian supplies may help limit a 34 percent slump in arabica prices in the past year in New York and cut costs for Starbucks Corp. and Nestle SA. Stockpiles monitored by ICE Futures U.S. reached 2.63 million bags of 60 kilograms each on Feb. 1, the highest since March 2010. Slowdowns in Italy, Russia and Spain, India’s main buyers, curbed demand for the commodity brewed by specialty coffee makers.

“The order book is thinner this year because the economies of the main markets aren’t faring well and buyers are aggressively searching for cheaper coffee,” Rajah said. “Arabica exports from India will be lower as prices have come down sharply and shippers don’t want to sell at these prices.”

The euro-area economy shrank 0.1 percent in the third quarter after a 0.2 percent contraction in the three previous months. Gross domestic product probably fell another 0.4 percent from October to December and will stagnate in the first quarter of 2013, according to a Bloomberg survey. Europe accounted for 38.3 percent of the global green coffee consumption in 2012, according to the United States Department of Agriculture.

Pest Attacks

Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks. Robusta beans, used in instant coffee, are harvested in Asia and parts of Africa. India produces both the varieties.

The arabica contract for March delivery rose 0.5 percent to $1.451 a pound in New York by 4:54 p.m. in Mumbai yesterday, while robusta for delivery in the same month gained 0.9 percent to $2,054 a ton in London.

The coffee crop in India may decline this year because of pest attacks caused by dry weather during the flowering period and rains during the harvest, Rajah said. Output may drop to 310,000 tons in the year started Oct. 1 from a record of 314,000 tons a year earlier, he said.

“The weather was very unusual last year,” he said. “Late rains has led to the delay in arrival of the new crop by three- four weeks and the crop is just coming into the market.”

Pest attacks like the white stem borer due to dry weather after blossoming reduced productivity, he said.

India shipped 21,557 tons of coffee in January, comprising of 6,689 tons of arabica, 6,257 tons of robusta beans and 8,611 tons of instant coffee, data from the board showed.

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To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

ECX, US to strengthen coffee trading, marketing

2013-02-01T23:44:00.002-08:00

Note from Wondwossen: The MoU that is signed between ECX and USAID appears to be signaling an introduction of an electronic coding and marking system along with yet another attempt, after the failed Direct Specialty Trade (DST) platform, to routing farmers' cooperatives to ECX. If this is confirmed, it will be more problematic and needing serious scrutiny and monitoring.

It is to be recalled that the new coffee law, which has mandated the trading of all coffee at ECX, exempts cooperatives and commercial farms from the ECX platform and grants them the right to directly trade with buyers and exporters. What would these cooperatives now get by trading through ECX that they couldn't find in direct trade with ultimate buyers? This and related questions call for a closer look at what the ECX/USAID plan is about.

As such, the subtitle of this article, "smallholder farmers are going to directly participate in ECX's trading system" is misleading. Under the current law and ECX's prohibitive requirements, the coffee produced by smallholder farmers can be traded at ECX only if it flows in through cooperatives or the collectors-suppliers channel. Smallholder farmers cannot participate directly in ECX's trading.

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ECX, US to strengthen coffee trading, marketing

Smallholder farmers to directly participate in ECX's trading system

By Dawit Taye

The Reporter

February 2, 2013

The Ethiopia Commodities Exchange (ECX) signed a Memorandum of Understanding (MoU) with the United States government, through the United States Agency for International Development (USAID), to collaborate on increasing the quality, traceability and marketing of coffee on Thursday . Under this agreement, which was signed at the Ghion Hotel, USAID’s Agricultural Growth Program-Agriculture Market Development Project (AGP-AMDe) will collaborate with ECX to improve the ability of sellers and buyers to track the origin of coffee through electronic coding and marking, certify labs and coffee quality graders, increase the number of farmers’ cooperatives, and improve ECX warehouse efficiency. These joint efforts will ensure the integrity and marketability of the coffee trading system in Ethiopia.

ECX, the first modern market in Ethiopia, commenced trading operation in April 2008, with contracts traded in coffee, sesame, maize, wheat, and pea beans. ECX is a market place where buyers and sellers come together to trade based on warehouse receipts, assured quality, delivery and payments. It is a national multi-commodity exchange that provides market integrity, enhances market efficiency, ensures market transparency and allows risk management.

The United States was among the first donors who supported the establishment of ECX. USAID funded four technical advisors and supported the coffee Direct Specialty Trade (DST) linking smallholder farmers with international buyers, warehouse equipment, and the Warehouse Receipt System (WRS).

“We are extremely happy to see the renewal of our cooperation with the Ethiopia Commodities Exchange,” Dennis Weller, Mission Director, USAID Ethiopia said. “We believe in the ECX mission to be a structured trading platform for buyers and sellers that addresses the fundamentals of commodity transactions: quality, quantity, payment and delivery.”

“This MoU demonstrates our commitment to enable smallholder farmers to reap the benefits of their produce by enhancing their direct participation in ECX’s trading system”, ECX CEO Anteneh Assefa said. “ECX is undertaking various efforts to grow the number of full member farmers’ cooperatives from the current number of 15. This is only one of many improvements to come with the support of this partnership.”

In that regard, ECX has allocated 30 membership seats which will be up for grabs by farmers cooperatives in the upcoming auction that is scheduled to be held in a month's time.

USAID’s AGP-AMDe project is a flagship project under the US President’s Feed the Future (FtF) Initiative in Ethiopia and its implementation is led by ACDI-VOCA.
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RELATED

Below is the full text of the press release

U.S. GOVERNMENT AND ETHIOPIAN COMMODITIES EXCHANGE TO STRENGTHEN COFFEE TRADING AND MARKETING

Embassy of the United States of America

Addis Ababa, Ethiopia

2013/02

Addis Ababa, Ethiopia, January 31, 2013 – The U.S. government, through the United States Agency for International Development (USAID), signed a Memorandum of Understanding (MoU) with the Ethiopia Commodities Exchange (ECX) to collaborate on increasing the quality, traceability and marketing of coffee. Under this agreement, USAID’s Agricultural Growth Program-Agriculture Market Development Project (AGP-AMDe) will collaborate with ECX to improve the ability of sellers and buyers to track the origin of coffee through electronic coding and marking, to certify labs and coffee quality graders, to increase the number of farmers’ cooperatives, and to improve ECX warehouse efficiency. These joint efforts will improve the integrity and marketability of the coffee trading system in Ethiopia.

ECX commenced trading operation in April 2008, with contracts traded in coffee, sesame, maize, wheat, and pea beans. ECX is a market place where buyers and sellers come together to trade based on warehouse receipts, assured quality, delivery and payments. It is a national multi-commodity exchange that provides market integrity, efficiency and transparency.

The United States was among the first donors to support the ECX. USAID funded four technical advisors and supported the coffee Direct Specialty Trade (DST) program linking smallholder farmers with international buyers, supported the establishment of the Warehouse Receipt System (WRS) and provided warehouse equipment.

“We are extremely happy to see the renewal of our cooperation with the Ethiopia Commodities Exchange,” says Mr. Dennis Weller, Mission Director, USAID Ethiopia. “We believe in the ECX mission to be a structured trading platform for buyers and sellers that addresses the fundamentals of commodity transactions: quality, quantity, payment and delivery.”

“This MoU demonstrates our commitment to enable smallholder farmers to reap the benefits of their produce by enhancing their direct participation in ECX’s trading system,” said ECX CEO Anteneh Assefa. “ECX is undertaking various efforts to double the number of full member farmers’ cooperatives. This is only one of many improvements to come with the support of this partnership.”

USAID’s AGP-AMDe is a flagship project under the U.S. President’s Feed the Future (FtF) Initiative in Ethiopia and its implementation is led by ACDI-VOCA.

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As aid to Haiti slows, a private coffee co-op scores loans and turns heads

2013-02-01T22:31:00.001-08:00

COOPCAB, a Haitian coffee co-op that now includes 5,000 members, markets its products internationally while investing money in local reforestation efforts.

By Daniel Jensen

Global Envision

February 1, 2013

On the third anniversary of the quake that killed nearly 300,000, a growing coffee co-op is writing its own success story with loans and homegrown management.

Haiti can seem like a place where relief efforts lead only to more disasters, especially in the agricultural sector. Though 70 percent of Haitians are farmers, 60 to 70 percent of the country’s food is imported due to reduced tariffs designed to lower food prices. Meanwhile, further natural disasters have hindered recovery efforts and the Clinton Bush Haiti Fund has announced that it is winding down operations, removing an important source of funding.

At the same time, American lawmakers recently extended farm legislation, including subsidies that allow U.S. agricultural imports to undercut the prices of local Haitian products, which are often produced using centuries-old farming techniques.

This is why agricultural lender Root Capital is providing loans and consulting expertise to COOPCAB, a Haitian coffee co-op that markets its products internationally while investing money in local reforestation efforts that improve its own production. The cooperative, which has expanded six-fold under Root Capital’s guidance, now includes 5,000 members and has attracted the attention of dignitaries such as Paul Altidor, U.S. ambassador to Haiti.

Managing COOPCAB comes with its own set of challenges. Meeting them requires a model that creates local business leaders rather than simply employing foreign relief workers. Root Capital’s Willy Foote explains:

"COOPCAB ... is managed by local Haitian farmers with little formal training in financial management and accounting. ... As a consequence, we’ve had to innovate and hone our business model in Haiti, slowing our lending in the short term while accelerating and deepening our financial advisory services program."

Perhaps it is this emphasis on training that has made COOPCAB more successful than similar efforts. Critics complain that Haitian farmers focus too heavily on short-term projects, preventing long-term success. They point to the Federation des Associations Cafetieres Natives, a coffee co-op that received $10 million in investment but failed to produce sustainable profits. The brand now exists on paper only.

Government bureaucracy and outdated farming methods also stand between Haitians and their success. There is the story of Steeve Khawly, a rice importer who tried to bring commercial rice milling to Haiti. Because Haitian farming is less efficient than modern practices in developed countries, local farms did not produce enough local rice to make Khawly's effort profitable, so he packed up his mill and sent it back to Guyana.

He still believes that rice production in Haiti could exceed 160,000 tons per season if agricultural practices were modernized, but this would require large inflows of capital and the strengthening of supply chains. However, when commercial producers Riceland Foods tried to move production to Haiti, they ran up against impenetrable red tape, foreign policy reports, and eventually gave up.

There are signs of hope, however. Soon, Haitian entrepreneurs may find new opportunities to replicate COOPCAB’s model, as Ambassador Altidor has asked Foote to help advise formal policy decisions. Haitian minister of agriculture Thomas Jacques also plans to create a rice commission focused on increasing domestic production through the creation of "technology packages” for farmers.

Without further access to capital and a government that simplifies the investment process, agriculture in Haiti can’t succeed. However, to transform Haiti from an aid-dependent economy to a market-driven one, startups also need to have good business sense. COOPCAB’s emphasis on training producers to be businessmen and letting local Haitians take the lead points to a model that other startups and social enterprises could emulate.

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Learn more about COOPCAB at its website.

This article originally appeared at Global Envision, a blog published by Mercy Corps on January 22, 2013.

Coffee rust regains foothold

2013-01-29T20:15:00.003-08:00

Researchers marshal technology in bid to thwart fungal outbreak in Central America.

Daniel Cressey

Nature

January 29, 2013

Coffee growers are worried that a fungal outbreak will affect the next harvest of coffee berries. HECTOR RETAMAL/AFP/GETTY IMAGES

Where there is coffee, there is ‘coffee rust’. But the long stalemate between growers and the fungus behind the devastating disease has broken — with the fungus taking the advantage. As one of the most severe outbreaks ever rages through Central America, researchers are reaching for the latest tools in an effort to combat the pest, from sequencing its genome to cross-breeding coffee plants with resistant strains.

Caused by the fungus Hemileia vastatrix, coffee rust generally does not kill plants, but the Institute of Coffee of Costa Rica estimates that the latest outbreak may halve the 2013–14 harvest in the worst affected areas of the nation. This outbreak is “the worst we’ve seen in Central America and Mexico since the rust arrived” in the region more than 40 years ago, says John Vandermeer, an ecologist at the University of Michigan in Ann Arbor, who has received “reports of devastation in Nicaragua, El Salvador and Mexico”.

At his research plot in Mexico, Vandermeer says that the situation is so bad that the leaves are simply dropping off the plants. More than 60% of the trees have at least 80% defoliation, and 30% have no leaves at all.

On 22 January, Costa Rica enacted emergency legislation to speed up the flow of government money towards fighting the fungus. Other nations are also stepping up the fight. Last week, the Nicaraguan government reportedly declared that it would include coffee rust on a list of special research projects designed to safeguard the country’s agriculture.

The fungusfirst emerged as a significant problem by 1869 in Ceylon — now Sri Lanka — before spreading around the world. Stuart McCook, a historian at the University of Guelph in Canada who studies the rust, says that the wet weather in some areas of Ceylon was ideal for the spread of the fungus, and more than 90% of coffee crops were wiped out in those regions. Faced with an economic catastrophe, the country abandoned coffee for the tea it is associated with today. The disease is so universal that it “is not going to be eradicated; or the only way to eradicate the disease in practice is to eradicate all of the coffee”, says McCook.

By 1970, the fungus had been detected in Brazil, and severe outbreaks were seen in Costa Rica in 1980 and Nicaragua in 1995, says Jacques Avelino, a plant pathologist at Costa Rica’s Tropical Agricultural Research and Higher Education Center, based in San José.

But changes to management practices had brought the disease mostly under control. “Coffee rust was considered a solved problem by most of the coffee growers and coffee institutes of the region”, says Avelino. “People didn’t fear the disease.” The outbreak may have taken hold because of patchy use and effectiveness of fungicides.

And in Africa, Noah Phiri, a plant pathologist working in Nairobi for the not-for-profit development organization CABI, says that rust has been causing ever-greater problems, although in Kenya, varieties resistant to the rust have held it at bay.

Colombia could be the closest to a solution. Marco Aurelio Cristancho, a researcher at Cenicafé, the National Centre for the Investigation of Coffee in Chinchiná, says that the government has supported research into developing resistant strains of coffee through crossbreeding. The introduction of resistant strains, together with improved weather monitoring to help predict rust outbreaks, has meant that fewer than 10% of plants now need to be treated with fungicide, down from 60% four years ago, Cristancho says. The government has also supported work on the genetics of both the fungus and the plant.

Research programmes have started in other countries, too. At the Federal Rural University of Rio de Janeiro in Brazil, Valdir Diola is working to isolate resistance genes in coffee and to find molecular markers that distinguish between different strains of the pathogen and that could be used to develop tailored strategies for its control. And in the United Kingdom, Harry Evans is working on the genome of H. vastatrix at CABI in Egham. In Nairobi, Phiri is using money from the intergovernmental agency the Common Fund for Commodities, as well as from Kenya, India, Rwanda, Uganda and Zimbabwe, to screen for resistant coffee plants and to analyse varieties of the pathogen.

“Scientists need to continuously develop resistant varieties in order to keep coffee leaf rust disease at bay,” Phiri says. “Governments in coffee-growing countries need to take coffee research as a priority and provide necessary resources.”

Cristancho says that other nations need to adopt an integrated approach similar to that of Colombia. “Unfortunately this effort is not mirrored in other regions of the world, where it is required to provide local solutions to the epidemics,” he says.

As Coffee leaf rust threatens production in Central America, Costa Rica passes a decree to fight fungus

2013-01-24T19:44:00.002-08:00

Coffee output in Central America and Mexico may tumble as a disease affecting foliage spreads, prompting governments to take emergency measures to protect farms responsible for 14 percent of global production.

In Costa Rica, Vice President Luis Liberman and Minister of Agriculture and Livestock Gloria Abraham on Wednesday signed an emergency decree to combat a highly destructive fungus known as “roya,” which has devastated coffee crops, particularly in the southern region of Costa Rica.

Coffee leaf rust threatens production in Central America

By Andres R. Martinez, Andrew J. Barden & Adam Williams

Bloomberg

January 24, 2013

Guatemala, Central America’s second-biggest coffee grower, may lose a third of its crop because of leaf rust, President Otto Perez Molina said yesterday in Davos, Switzerland. The crop in Costa Rica may be 30 percent to 40 percent smaller because of the fungus, President Laura Chinchilla said in a separate interview in Davos. Coffee exports from Honduras, the region’s biggest grower, will be down 767,000 bags due to leaf rust, also called roya, the Honduras Coffee Institute said.

Coffee production in Mexico and Central America will be 19.7 million bags in the 2012-13 season that started Oct. 1, the International Coffee Organization estimated in a report on Jan. 9. That is 2.8 percent lower than the previous forecast of 20.3 million bags, data from the London-based group showed. Farmers around the world will harvest 144.1 million bags, the ICO estimates. A bag of coffee weighs 132 pounds.

“In the next few months when demand increases, the market will realize that the countries south of Mexico to Peru do not have the amounts of coffee expected and that there will be less availability of high-quality coffee,” said Ronald Peters, executive director of the Costa Rican Coffee Institute, adding that higher temperatures and below normal rainfall may have helped fuel the outbreak.

Coffee Futures

Arabica coffee futures traded on ICE Futures U.S. in New York declined 37 percent last year, the most in more than a decade, partly because of a bigger crop in Brazil, the world’s largest grower, and rising stockpiles. The beans favored by Starbucks Corp. (SBUX) were the worst performing commodity in the Standard & Poor’s GSCI gauge of 24 raw materials last year. Prices are up 1.9 percent this year.

“The roya situation and the potential that next season’s crops may be impacted is certainly a current focus of the market,” Keith Flury, an analyst at Rabobank International in London, said by e-mail yesterday. “If the Central American crop is lower this will support coffee prices.”

Guatemala’s government will help growers cope with losses from the foliage-attacking disease, Perez Molina said. Costa Rica will provide aid to farmers affected, said Chinchilla. The disease will probably spread throughout the region as last year’s slump in prices reduced farmers’ income, limiting their ability to pay for chemicals to treat crops, said Stefan Uhlenbrock, an analyst at F.O. Licht GmbH in Ratzeburg, Germany.

Government Aid

“The minister of agriculture briefed us at the last meeting and told us about the impact, which could be very big,” Perez Molina of Guatemala said. “The government will help farmers, especially small-and medium-sized ones.”

About 17,000 farmers in El Salvador, or 65 percent of producers, will receive aid from the government to fight the outbreak, newspaper El Diario de Hoy reported Jan. 23.

The damage in Costa Rica may be “very high,” Chinchilla said. The Costa Rican Coffee Institute, known as Icafe, cut the nation’s production estimate to 1.648 million bags from a previous forecast of 1.714 million bags, it said on Jan. 4. Some farmers have already lost as much as 20 percent of their crop, said Peters.

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To contact the reporters on this story: Andres R. Martinez in Davos, Switzerland atamartinez28@bloomberg.net; Andrew J. Barden in Ottawa at barden@bloomberg.net; Adam Williams in San Jose, Costa Rica at awilliams111@bloomberg.net

To contact the editors responsible for this story: Claudia Carpenter atccarpenter2@bloomberg.net; James Attwood at jattwood3@bloomberg.net

Decree helps fight coffee fungus

Thousands of hectares of Costa Rican coffee plantations have been damaged by a plant fungus known as “roya.”

By Alberto Font

Tico Times

January 25, 2013

Abnormally warm and dry climates throughout Central America

have fueled the spread of a fungus that is destroying coffee crops.

This week, the Costa Rica government issued an emergency decree to

help farmers. Photo: Courtesy of Alberto Font, Tico Times

Vice President Luis Liberman and Minister of Agriculture and Livestock Gloria Abraham on Wednesday signed an emergency decree to combat a highly destructive fungus known as “roya,” which has devastated coffee crops, particularly in the southern region of Costa Rica.

Roya is caused by the fungus Hemileia vastatrix, and has destroyed more than 7,000 hectares of coffee in the Southern Zone canton of Pérez Zeledón, and 3,000 hectares in Coto Brus. It also has been detected in several other regions throughout the country.

The emergency decree sets in motion a two-year response plan that can be extended.

The fungus affects coffee leaves and causes fruit to prematurely fall off the plant. Farmers must completely prune affected plants to restore their ability to produce. Roya was first detected in Costa Rica in 1983, but an unusually dry climate has caused roya to become more widespread.

The decree sets the framework to allow public and private institutions to provide financial resources and other assistance to the Plant Health Department, which will distribute aid and supervise response programs in coordination with the Coffee Institute of Costa Rica, or ICAFE.

Abraham told The Tico Times that the decree allows officials to access emergency funds from the Plant Health Department and ICAFE to finance the purchase of agrochemicals to distribute to farmers.

She said that a decrease in rainfall and hotter temperatures caused the fungus to spread more this year than in the past.

According to Jorge Ramírez, ICAFE’s technical director, officials will respond to “all of the requests from farmers in order to protect their harvests.” He said aid packages of fungicides would be distributed in March or April, as seasonal rains set in.

Officials estimate that up to 50 percent of Costa Rica’s 2013-2014 coffee crop could be affected in regions hardest hit by roya – about 10 percent of the national harvest.

Pablo Jiménez, owner Café de Altura de Pérez Zeledón S.A., who lost 15 percent of his crop this year to roya, told The Tico Times he thinks the problem is manageable.

“It’s certainly true that climate has favored the spread of the fungus and damaged many crops, but with regular attention, the problem doesn’t get too much out of hand. The real problem is that in the Southern Zone, farmers have limited resources, and their crops are more easily affected.”

He recommended a broad program of pruning, shade control and constant application of fungicides.

Marvin Barrantes, owner of Café Lila in Coto Brus, said preventive action helped save most of his crops. However, he said heavy fungicide use is expensive.

“Farmers who didn’t have the resources [to respond to roya] throughout the year lost everything. Those of us whose coffee plantations are in good shape were able to respond because we took out loans to support our businesses. Small producers don’t have that access to credit.”

For Barrantes, last year’s coffee prices were too low to sustain production.

Ramírez, disagreed, saying that although coffee prices have dropped in the last year, revenue is sufficient to cover production costs.

“The cost of production ranges from $92-$100 per fanega [256 kilograms of coffee], which leaves $55 profit per fanega for producers,” Ramírez said.

According to the daily La Nación, the fungus also has destroyed at least 1.7 million quintales in Nicaragua, Honduras and El Salvador (Central American coffee is generally sold in 46-kilogram quintales).

Abraham said that since 2010, officials have implemented a program to replace aging coffee plants to increase production. Part of that program is an effort to use plants that are more resistant to roya, the minister said.

Fertile grounds: Sustainable coffee and consumer activism

2013-01-20T09:32:00.001-08:00

By Jessica Percifield

IVN (Independent Voter News)

January 20, 2013

Photo: Walter Rodriguez / Creative Commons

When people talk about sustainability, they often favor a top-down approach. Traditional avenues for change, such as writing your congressperson, starting a petition or rallying around new legislation that sets new standards for businesses to follow comes to mind. However, real change often comes when there are certain prerequisites that give it natural momentum. Where is momentum building naturally and poised to yield the most returns if you add in today’s most powerful tool for change; consumer activism? The answer lies in the cup of coffee you may be sipping on right now. Sustainable coffee growing practices and consumer activism go hand in hand.

America’s Largest Food Import

Not many people realize that the crude they pour into their cup everyday is the second most traded commodity, beat out only by petroleum. In fact, coffee is the largest U.S. food import. It is estimated by GlobalExchange.org that over 130 million consumers in the US are coffee drinkers. All coffee is grown between the Tropic of Cancer and the Tropic of Capricorn on some 11 million hectares of land and growing.

Shade Grown vs Sun Grown Coffee

A few decades ago a hybrid of the coffee tree was developed that yielded twice as many coffee beans per crop because of extreme demand for the bean. The thought was that this would equal more money for farmers, but these sun grown trees have half the life span and require expensive pesticides, fertilizers, and herbicides to grow. These chemicals destroy the soil over time as well as the natural habitats of local birds, insects and reptiles. The result of favoring sun grown coffee: mass deforestation, pollution of natural water sources, and as stated above loss in biodiversity. Shade grown coffee is grown under tropical canopies, which helps preserve the land and environment of coffee growing regions. It yields less coffee per crop and is slower growing, but many believe it makes up for it in taste.

Unsustainable Soil Loss

Aside from extensive environmental degradation and grave losses in biodiversity, the larger concern is top soil depletion. U.S. farming practices that favor conventional monoculture farming currently deplete topsoil at 1% per year. And According to the National Academy of Sciences, cropland in the U.S. is being eroded at least 10 times faster than it can be replaced. The highest percentage of degradation is occurring in Central America although every country is facing this crisis. The Earth’s natural systems simply cannot replace the lost soil fast enough, and this is why local movements for organically grown or sustainably grown foods have taken off.

The Human Impact

There are millions of people living in the environments being depleted and polluted. 25 million farmers and their families in these tropical farm zones live in a cycle of poverty and debt designed to keep prices artificially low on coffee as well as other exports cherished by US Consumers, such as chocolate. Alongside sustainable growing practices toward a safer environment, Farmer’s CoOps, Fair Trade and Direct Trade modes of compensating farmer’s have grown up around addressing this issue.

Agitators: Climate Change & Population Growth

Whether you believe in Global Warming, cooling, or simply that the Earth’s weather patterns have changed in the past and will change again, we only have so much topsoil. It seems almost redundant to discuss the effects of projected world population growth on the Earth’s limited topsoil. Given the present conditions, without the added complications of climate change and population growth, we’re still depleting our soil 10 times faster than it can be replaced.

Fertile Grounds for Change

While visible chains like Starbucks make up 30% of the Coffee Industry, Independent Coffee Roasters and Cafes still make up the other 70%. Many of these local coffee alternatives already buy sustainably grown coffee. Wherever you see labels, such as Organic, Shade Grown, Fair Trade, Direct Trade, or Farmer’s CoOps, you can be sure that the Cafe Owner or Roaster considered the environmental, social and economic impact of buying these coffee beans. Could creating subsidies, or legislative bills that continue to motivate businesses in this direction be helpful, sure, but the rationality and desire are pre-existing, so it may not be necessary. Café Virtuoso, just one such Coffee Roaster, prides itself on choosing organically grown fairly traded beans and defines sustainability as,

“A process that can go on indefinitely; environmentally, socially and economically.”

In fact, the world’s largest coffee trade association, the Specialty Coffee Association of America (SCAA), believes that

“Coffee is uniquely positioned to drive globally sustainable concepts that produce positive outcomes across multiple industries and points on the supply chain.”

The SCAA also contends through its Low Impact Café program that the more common these sustainable farming practices become, the lower the cost will be for all those in the industry, which translates to lower long term costs for the consumer.

The Power of Consumer Activism

Consumers can buy the change they want to see. U.S. consumers are strategically positioned as the largest consumers of coffee to support this already “organic” trend towards sustainability.

Since the Citizens United decision in 2010, consumer activism has taken center stage as one of the most effective tools for change. Consumers en mass realized for the first time that how they spent their hard earned dollars had direct political, social and economic ramifications. Remember the $5 dollar debit card fee that was going to be implemented by Bank of America in 2011, and the resulting “Bank Transfer Day”? And GoDaddy’s back pedaling on its support of SOPA in 2012? GoDaddy not only dropped its support, but also began to take action against the bill.

By buying into this already “organic” trend in the coffee industry, US consumers are uniquely positioned to amplify the impact on topsoil erosion taking one giant leap for mankind in the direction of sustainability. The cost of ignoring this ripe opportunity will be far greater than buying a sustainably sourced cup of coffee.

Coffee in Retrospect: "Decaffeinated coffee tied to cholesterol rise"

2013-01-19T19:32:00.000-08:00

"Dr. H. Robert Superko, who directed the research at the Stanford Lipid Research Clinic, said he doubted that the process of taking out caffeine changes the coffee so that it raises cholesterol. Instead, he said, the difference may result from the kinds of beans that go into various types of coffee.In general, he said, mild arabica beans are used to make regular coffee, while most decaffeinated brands use more strongly flavored robusta beans."

AP via New York Times

Published: November 15, 1989

Middle-aged coffee drinkers who switched to decaffeinated coffee increased their blood levels of a form of cholesterol that contributes to heart attacks, a study has found.

Dr. H. Robert Superko, who directed the research at the Stanford Lipid Research Clinic, said he doubted that the process of taking out caffeine changes the coffee so that it raises cholesterol. Instead, he said, the difference may result from the kinds of beans that go into various types of coffee.

In general, he said, mild arabica beans are used to make regular coffee, while most decaffeinated brands use more strongly flavored robusta beans.

Researchers have long suspected but never proved that caffeine, the chemical that gives coffee its jolt, is somehow involved in heart disease. But the researchers found that people who went from regular coffee to decaffeinated coffee increased their levels of low-density lipoprotein, the so-called bad cholesterol, an average of 7 percent.

''It's not like going out and eating cheesecake, but the overall impact could be great,'' considering the popularity of decaffeinated coffee, said Dr. Superko, who presented the findings on Monday at the annual scientific meeting of the American Heart Association.

Dr. Superko calculated that the average 7 percent increase in bad cholesterol in his subjects could translate into about a 12 percent jump in the risk of heart disease. 'Causes Cholesterol Changes'

''Does coffee cause heart disease?'' he asked. ''I don't know. We can only say that coffee causes cholesterol changes.''

The researchers said their study was not enough to prove that decaffeinated coffee was harmful. ''I'm not saying everyone should stop drinking decaf,'' Dr. Superko said, ''but if people are worried, they might experiment on themselves by having their cholesterol levels checked.''

He cautioned that the study does not entirely exonerate ordinary coffee, because it could contribute to heart disease in other ways, such as by triggering rhythm abnormalities or spasms in heart arteries.

Officials of the National Coffee Association said they were interested in Dr. Superko's findings but were unwilling to comment in detail without seeing the full report.

George Boecklin, president of the New York-based association, said: ''Coffee and cholesterol have been investigated in many studies with conflicting results. We agree with researchers that it is too soon to make any definite choices.''

The Stanford study used 188 healthy, middle-age coffee drinkers. At the start, the volunteers drank three to six cups a day of ordinary brewed coffee for two months.

One of Three Groups

Then their cholesterol levels were checked, and they were randomly assigned to one of three groups - more regular coffee, brewed decaffeinated or no coffee.

Cholesterol levels remained steady in those who stayed on caffeinated coffee or gave up coffee entirely. But bad cholesterol levels rose nine milligrams per deciliter, or 7 percent, in the decaf drinkers.

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Researchers discover how coffee raises cholesterol

Baylor College of Medicine

June 13, 2007

HOUSTON -- (June 13, 2007) -- Drinking your coffee black or decaffeinated to keep cholesterol in check? Think again.

Cafestol, a compound found in coffee, elevates cholesterol by hijacking a receptor in an intestinal pathway critical to its regulation, said researchers from Baylor College of Medicine in a report that appears in the July issue of the journal Molecular Endocrinology.

In fact, cafestol is the most potent dietary cholesterol-elevating agent known, said Dr. David Moore, professor of molecular and cellular biology at BCM, and Dr. Marie-Louise Ricketts, a postdoctoral student and first author of the report. Cafetiere, or French press coffee, boiled Scandinavian brew and espresso contain the highest levels of the compound, which is removed by paper filters used in most other brewing processes. Removing caffeine does not remove cafestol, however.

Studies by a co-author – Dr. Martijn B. Katan of Vriye Univeriteit Amsterdam, Institute for Health Sciences, The Netherlands – indicate that consuming five cups of French press coffee per day (10 to 13 milligrams of cafestol) for four weeks raises cholesterol in the blood 6 to 8 percent.

However, while the cholesterol increase associated with cafestol had been identified previously, mainly through the work of Katan and his colleagues, the mechanism by which it acted remained a mystery. It was a mystery that Moore and Ricketts decided to address in the laboratory.

For a long time, Ricketts said she was stymied because of paradoxical effects of cafestol in the liver. However, the discovery of a gene called fibroblast growth factor 15 or FGF 15 opened the door to understanding how cafestol affects farsenoid X receptor or FXR in the intestine. FXR was first identified as a bile acid receptor in studies in several laboratories, including Moore’s.

“It is part of the body’s own way of regulating levels of cholesterol,” said Ricketts.

Through research in the test tube and in mice, she and Moore found that in the intestine, cafestol activates FXR and induces FGF15, which reduces the effects of three liver genes that regulate cholesterol levels. While it is still unclear whether cafestol itself reaches the liver, the finding does confirm that the effect of the compound is in the intestine, which is directly involved in the transport of bile acids.

Moore’s interest in cafestol began several years ago when his wife read an article on coffee’s effect on cholesterol. She suggested that he might change his brewing method, which involved a permanent coffee filter. The paper filters, the article suggested, removed the coffee oils, which contain cafestol.

Moore researched the problem, and found papers by co-author Katan. He was already working on FXR, and began to think about whether cafestol might be affecting that signal in the cholesterol pathway.

Others who took part in the work include: Mark V. Boekschoten, Guido J.E.J. Hooiveld and Michael Müller of Wageningen University, Division of Human Nutrition, The Netherlands; Arja J. Kreeft, Corina J.A. Moen, Rune R. Frants of Center for Human and Clinical Genetics, LUMC, Leiden, The Netherlands; Soemini Kasanmoentalib of the Department of Medical Statistics, LUMC, Leiden, The Netherlands; Sabine M. Post and Hans MG Princen of TNO Pharma in Leiden, The Netherlands; J. Gordon Porter of Incyte Corporation, Palo Alto, CA.; and Marten H. Hofker of the Department of Pathology and Laboratory Medicine, University Medical Center in Groningen, The Netherlands.

Funding for this study came from the U.S. Department of Agriculture, National Institutes of Health, Wageningen Centre for Food Sciences, the Dutch Organization for Scientific Research and the Netherlands Heart Foundation.

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Dipali Pathak 713-798-4710 pathak@bcm.edu

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Ed's Note: Coffee in Retrospect is a reprint column prepared by Coffee Monitor and Poor Farmer blog to provide context for the current global coffee trade by republishing news articles from the past. In this column, we intend to reprint archived prints by converting images into electronic file formats with careful conformity to originals and, whenever applicable and possible, we provide links to the sources of the information. Meanwhile, responsibility for the contents lies solely with the authors and the views expressed in the articles do not necessarily reflect our opinions.

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To be a Coffee Buyer

2013-01-18T16:27:00.001-08:00

By Adam Pesce, Director, Coffee at Reunion Island Coffee

Huffington Post

January 18, 2013

Since I started in coffee over eight years ago, I would have to say that my main message to the non-coffee world would be one of respect towards the product they consume every day. I've said it before, and I'll say it again, and again, and again: coffee is one of, if not the most, labour-intensive agricultural products in the world. And we don't, as consumers, pay not even remotely enough for it, given the amount of work that goes into its production.

As far as we in the first world go, I would place myself in a small, yet growing cadre of coffee professionals who regularly watch coffee develop, from seed to cherry to roasted bean to beverage. Strangely enough, most coffee farm workers don't actually drink coffee, let alone the coffee that their hard work produced. Almost, but not all, farmers are woefully unaware of what is done with the fruits of their labour once it has left the farm, including the fervour with which we seek it and how much we're willing to pay for it by the cup. So it is we, the (mostly) scrappy band of traveling coffee roasters and buyers, who have had the unique experience of observing coffee on a tree, roasting the beans months later, and finally enjoying it in the cup.

I know that the majority of people who hear about my trips, through friends, Facebook, Twitter, and so on, believe that "coffee buying trip" is industry code for exotic vacation on the company tab. And I have no interest in trying to garner pity for what I do -- it's truly an amazing way to make a living. Coffee is only grown between the tropics and it's certainly not our fault that a lot of coffee comes to maturity at the same time as our cold, Canadian winters. But the buying trips are not the Indiana Jones-esque adventures they may seem to be on the surface (or that I was personally hoping for). They are, in fact, almost entirely glamourless and devoid of accidental treasure hunts, Nazis, or damsels in distress. Yet they still remain infinitely interesting and filled with incredible people, places, and experiences.

When I'm asked what I do and my response is 'coffee buyer,' it is often met with varying degrees of curiosity and confusion. Because the new school of coffee buying that I so luckily belong to is a completely new way of approaching the occupation. Long have coffee buyers travelled to origin (as we call a coffee-producing country) to secure deals with producers and establish supply-chain security. But it's no longer that utilitarian anymore. The new guard, led by smaller roasters, now visit farms to develop connections and relationships with farmers, to ensure quality, and encourage the prosperity of coffee farmers and roasters alike. Large-scale roasters/buyers have since changed their outlook on origin travel to mirror that of smaller roasters.

To be clear, it is functionally unnecessary -- we could all buy our coffee based on price lists and samples sent to us from exporters at origin or importers in our respective countries. But not only is that no fun, it doesn't give us any apparatus to communicate with the producers and learn of their processes, financial needs (what is a truly fair price to pay), and social concerns. And in recent years, it's fair to say that this romanticized approach to coffee buying has become much more about the producer than it is about the roaster.

From personal experience, I can say all parties truly do benefit from such dealings. I'm writing this post from Central America where I not only was able to secure both short and long-term deals for small and large amounts of coffee, but I was also able to discuss things that I have learned on previous trips with producers I met for the first time. In this instance, I was able to share information about a mushroom-growing-with-coffee-waste project that has been successful in Colombia and East Africa, a worm-compost project in Guatemala, and success stories of Rainforest Alliance certification, with producers here in El Salvador and Honduras. These are connections that never would have been made had I not been here to see the needs, limitations, and capabilities of the producers or had I not seen those other successful projects. I can't even fathom the multitude of similar connections, opportunities, and prosperity that has been created by others that share my position, many of whom have seen more producers, buy more coffee, and speak better Spanish, Portuguese, Kiswahili, Indonesia, etc., than I do.

So yes, being employed as a coffee buyer is good, rewarding work if you can get it. And I find it heartening to hear the 17 different "can I come with you" requests every time I'm about to leave, because I believe that the interest isn't in just the exotic locations and temptation of adventure, but in a general, growing interest in where coffee comes from, and how it gets from seed to cup.

NCA to create online coffeehouse

2013-01-15T19:30:00.002-08:00

NEWS RELEASE
National Coffee Association USA

January 15, 2013

New York (January 15, 2013) - The National Coffee Association (NCA) is about to launch a dynamic new website as part of a new NCA consumption promotion campaign kicking off this year. The site - MyVirtualCoffeehouse.com© - celebrates coffee lifestyle and culture within a first-of-its-kind concept of an online coffeehouse.

MyVirtualCoffeehouse.com is designed to capture and celebrate the many ways coffee enhances life within the interactive frame of a coffeehouse experience. As such, it reflects the multi-faceted theme of the NCA consumption promotion campaign - that coffee is a well-rounded beverage that improves life in many distinct and complementary ways.

Consumption Promotion Campaign

The NCA consumption promotion campaign is designed to promote coffee across the category on a non-proprietary, pre-competitive basis. Its objectives are to give coffee consumers reason to drink more, further cultivate strong market segments such as Hispanic-Americans and younger consumers, and reinforce a positive coffee image. The campaign emerged from NCA's strategic plan, which includes an initiative to expand consumption promotion efforts during a time when there is ever-increasing competition in the beverage sector.

There are many facets of coffee's life-enhancing role, which are at the heart of the campaign and help structure the MyVirtualCoffeehouse design and content. Major topical areas feeding into coffee's overall role will correspond to five sections: Coffee and Your Health; Cookin' with Coffee©, For the Good Earth, Games & Contests, and Steals & Deals. Select pages of the site will be available in Spanish.

Website

MyVirtualCoffeehouse.com will be a participatory website that brings the coffeehouse to your desktop and mobile device The site is designed to evoke the atmosphere and activities that make up the coffeehouse experience - the coffee, the company, the occasion - and includes the kinds of conversation, shared interests, leisure pursuits like health and fitness, coffee-centric quizzes and contests, steals and deals on coffee-related paraphernalia, cause-related information and discussion, and all types of "coffeeana©"-- like blend and flavor favorites, recipes, facts and figures on coffee research, coffee history and trivia, brewing techniques and equipment, cultural icons, and much more. In short, the site reflects the many aspects of an active, committed, fulfilled and enjoyable life that echo in the coffee culture.

Presented in a crisp, compelling writing style, the site will link coffee with some of the best things in life: health, music, dance, good times, fitness, relationships, games, the environment, etc. Among site activities, visitors will be able to: take fun, coffee-related surveys; upload photos and videos; share personal coffee experiences and preferences on embedded social media links; post and download favorite "cookin' with coffee" recipes and techniques; participate in national contests; offer suggestions for adding more coffeehouse features to the site for their enjoyment; and find surprising unique content every month.

Other Campaign Elements

Other elements of the NCA consumption promotion campaign include market research, editor outreach and social media engagement. The completed market research component revealed that "coffee and your health" still resonates most strongly with consumers, echoing the highly successful thrust of NCA's Coffee Delivers! consumption promotion campaign in 2003-08.

Editors are being contacted regularly with breaking news and background relevant to campaign messages and MyVirtualCoffeehouse.com features. Comprehensive social media engagement will further support all aspects of the campaign.

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Contact:
Joe DeRupo
212-766-4007
National Coffee Association

Judge upholds Dempsey group's bid for Tully's

2013-01-14T23:15:00.002-08:00

A bankruptcy court judge reviews Tully’s decision to sell its stores to an investment group led by actor Patrick Dempsey.

By Melissa Allison

Seattle Times

January 11, 2013

A group of investors led by actor Patrick Dempsey can buy Tully's Coffee out of bankruptcy, a federal judge said Friday.

The decision came after Dempsey's group, coffee giant Starbucks and other bidders sparred before U.S. Bankruptcy Court Judge Karen Overstreet for the 47-shop chain.

"We have a lot to accomplish over the next few months and years and I am excited to now call Seattle my second home," Dempsey said in an emailed statement.

The deal is expected to close by Jan. 26.

Bidders in court Friday had participated in a private auction for beleaguered Tully's last week, when the chain's management and creditors chose the Dempsey group's $9.15 million bid. Starbucks and a Filipino company called AgriNurture cried foul, saying their combined bids of $10.56 million should have been selected.

The judge sided with Dempsey's group. While other bidders may feel the result to be unfair, she said, "It is what it is, and we do the best we can."

Tully's CEO Scott Pearson said he's glad the judge supported their choice.

"The important thing is that we got to the end of this process before we had to do something that may have been tragic to Tully's brand, shops and employees," Pearson said.

Although Dempsey, best known as "McDreamy" from TV's "Grey's Anatomy," which is set in a fictional Seattle hospital, was on a set and not in court Friday, the hearing had plenty of drama.

Two lawyers likened the losing bidders' complaints to Monday-morning quarterbacking. Another called it whining.

Last week's auction was compared to the TV show "Survivor," and Judge Overstreet agreed that it was "not your typical Chapter 11."

Larry Ream, an attorney who spoke for the committee of unsecured creditors, reminded the judge that "the patient is dying."

In making her ruling, Overstreet noted that Tully's has been operating "from interim operating agreement to interim operating agreement" since it filed for bankruptcy protection in October. The most recent financing, the judge said, would run out this month.

In contesting the selection of Dempsey's group, Starbucks and AgriNurture argued that their bids were not chosen because of concerns about whether Green Mountain Coffee Roasters, which owns Tully's naming rights, would work with AgriNurture if it bought only some Tully's shops.

Starbucks wanted 25 Tully's sites, which generate about 70 percent of its sales, including 12 Boeing sites. AgriNurture bid for the rest of the shops.

Green Mountain, which does business with Starbucks, subsequently said that it would work with AgriNurture or Dempsey's group.

However, other factors played into the selection of Dempsey's group: It promised to retain Tully's about 480 employees, whereas Starbucks promised only to consider their applications.

Dempsey's investors also agreed to assume Tully's prepaid coffee-card obligations, whereas Starbucks would not, even for the Boeing sites. Boeing has a payroll-deduction program for Tully's cards, and about 40 percent of card activity occurs at those shops.

Although a lawyer for Starbucks said it would look after customers, the unsecured creditors' Ream said Starbucks "could give them a $100 card, and they could still file a complaint against this estate."

After Friday's ruling, Starbucks spokesman Jim Olson said, "We respect Judge Overstreet's decision and appreciate the time she spent hearing our point of view."

With the Dempsey deal, creditors are repaid with interest, and employees and leases are kept. Even some shareholders might receive money, which in bankruptcy cases is rare.

Overstreet went a step further in her comments: "Was it (the auction) complicated? Yes. Did it produce a fantastic result in this case? Yes, it did."

She explained in detail why she found the auction to be fair, saying it is not her job to second guess Tully's and its creditors' decision, but to make sure they followed correct procedures.

But to founder Tom O'Keefe's filing, which requested that the auction be reopened, she said such a move might make sense for a shareholder like him to get more money: "So why not roll the dice? Mr. O'Keefe does not stand to lose his job."

But hundreds of employees could have if the process took too long and Tully's could not stay open.

"I cannot gamble a sure result," Overstreet said.

O'Keefe said in a tweet after the hearing Friday: "The judge did a thoughtful job. Gave it all for the shareholders & I'm at peace! Congrats Patrick!"

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Melissa Allison: 206-464-3312 or mallison@seattletimes.com. On Twitter @AllisonSeattle

Related:

Judge approves Patrick Dempsey's bid to buy Seattle coffee chain Tully's

The 'Grey's Anatomy' actor outbid Starbucks to buy the smaller chain's 47 shops across Washington and California. Starbucks and its bidding partner had filed an objection over Dempsey's earlier victory at a bankruptcy auction.

By Tracy Miller

New York Daily News

January 14, 2013

It's official - McDreamy is Seattle's newest coffee king.

A federal judge on Friday approved actor Patrick Dempsey's bid to buy the regional coffee chain Tully's, over another bid made by coffee behemoth Starbucks.

The "Grey's Anatomy" star won a bankruptcy auction earlier this month, but AgriNurture Inc., which had teamed up with Starbucks for a combined bid of $10.6 million, filed an objection. Dempsey's company, Global Baristas LLC, put in a bid for $9.2 million.

Judge Karen Overstreet ruled that the initial auction was fair and no mistakes had been made.

Dempsey said he was "thrilled that we prevailed."

"I've been deeply humbled by the outpouring of support from the city of Seattle and am very proud to be a new business owner in this amazing city," he said in a statement. "We have a lot to accomplish over the next few months and years, and I am excited to now call Seattle my second home."

Tully's founder Tom "Tully" O'Keefe said the move means current Tully's baristas and other employees will be keeping their jobs. The parent company, TC Global, filed for Chapter 11 bankruptcy protection in October.

Starbucks had planned to turn half of the 47 Tully's stores into Starbucks, while the other half would have kept the Tully's name.

Dempsey celebrated on Twitter after first winning the bankruptcy auction earlier this month, saying, "We met the green monster, looked her in the eye, and...SHE BLINKED! We got it! Thank you Seattle!"

Judge: Tully's Coffee to go to Dempsey's group

2013-01-11T20:48:00.000-08:00

Associated Press via CBS News

January 11, 2013

SEATTLE - The auction for the beleaguered Tully's Coffee chain concluded Friday in federal bankruptcy court, with a judge approving the sale to an ownership group led by actor Patrick Dempsey.

Dempsey — dubbed "McDreamy" in the hospital drama "Grey's Anatomy" — had claimed victory last week after an auction, but a company that teamed up with Starbucks to bid for Tully's filed an objection.

AgriNurture Inc. had said it was still willing to proceed with its combined bid with Starbucks of about $10.6 million. The bid from Dempsey's company, Global Baristas LLC, which planned to keep Tully's intact, was for $9.2 million.

At a hearing Friday afternoon, Judge Karen Overstreet said the Jan. 4 auction was fair and no mistakes had been made.

Dempsey said he was "thrilled that we prevailed."

Zack Hutson, a spokesman for Starbucks Corp., said the company respected the judge's decision.

At the conclusion of a hearing Friday that lasted several hours, Overstreet said the auction and the arguments presented by all sides were intricate, but it was not her job to second-guess the decision made by Tully's executives to accept Dempsey's bid.

"Was it complicated? Yes. Did it produce a fantastic result for this case? Yes it did," Overstreet said.

Tully's has 47 shops in Washington and California with more than 500 employees. It filed for Chapter 11 bankruptcy protection in October, citing lease obligations and underperforming stores.

Tully's wholesale business, which includes Tully's Coffee in bags and single serve K-cup packs that are sold in supermarkets and other stores, is owned separately by Green Mountain Coffee Roasters Inc.

Scott Pearson, CEO of Tully's parent company, TC Global Inc., said the sale was a "step forward."

"I think the best part of it is we're taking care of our creditors and our employees and actually giving something back to our shareholders," Pearson said.

Dempsey has said he believed there is room in Seattle for Tully's and the much larger Starbucks, which is also based there.

After winning the auction last week, Dempsey made an appearance at a Tully's near Pike Place Market, shaking hands with workers and greeting customers before visiting other stores.

Other bidders contest sale of Tully’s Coffee chain to actor Patrick Dempsey’s company

2013-01-09T22:08:00.002-08:00

By Associated Press via Washington Post

January 9, 2013

SEATTLE — A company that teamed up with Starbucks Corp. to bid for the Tully’s Coffee chain filed an objection Wednesday challenging the winning offer made by “Grey’s Anatomy” star Patrick Dempsey.

AgriNurture Inc. said it’s still willing to proceed with its combined bid with Starbucks of about $10.6 million. The bid from Dempsey’s company, Global Baristas LLC, was for $9.2 million.

The proposed sale goes before a bankruptcy judge in Seattle on Friday.

Starbucks has said it wants to convert some of Tully’s cafes to its own brand. AgriNurture, based in the Philippines, would run the rest under the Tully’s name.

Cliff Burrows, who heads Starbucks’ Americas business, said he’s confident the company put forth the best bid with its companion bidder to give shareholders the most value.

Dempsey said he’s confident the court will decide that Global Baristas submitted “the highest and best bid.”

AgriNurture, which also does business in the U.S. as Earthright Holdings Inc., already operates Tully’s franchises in Asia.

Another bidder has also filed an objection to the sale, saying the rules changed in the middle of the auction.

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Related

Bidders contest sale of coffee shop chain to 'Grey's Anatomy' star Patrick Dempsey

FOX NEWS

January 09, 2013

SEATTLE – A company that teamed up with Starbucks Corp. to bid for the Tully's Coffee chain is challenging the winning offer made by "Grey's Anatomy" star Patrick Dempsey.

AgriNurture Inc. says it's still willing to proceed with its combined bid with Starbucks of about $10.6 million. The bid from Dempsey's company, Global Baristas LLC, was for $9.2 million.

The proposed sale goes before a bankruptcy judge in Seattle on Friday.

Starbucks has said it wants to convert some of Tully's cafes to its own brand, with AgriNurture running the rest under the Tully's name.

AgriNurture, based in the Philippines, also does business in the U.S. as Earthright Holdings Inc.

Another bidder has also filed an objection to the sale, saying the rules changed in the middle of the auction.

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Patrick Dempsey Outbids Starbucks for Tully’s Coffee

Food World News

January 9, 2013

"Grey's Anatomy" star Patrick Dempsey won a private bankruptcy auction to buy Tully's Coffee, a struggling small coffee chain based in Seattle.

Dempsey's company beat out six other bidders, including Starbucks, and will pay $9.15 million for Tully's Coffee.

Ahead of his winning in auction, Dempsey updated his fans via Twitter. "We met the green monster, looked her in the eye, and...SHE BLINKED!" Dempsey declared his victory. "We got it! Thank you Seattle!"

However, Starbucks said that a final determination certifying the winning bid for Tully’s will not be made until a court hearing set for Jan 11. Starbucks made an offer only for 13 of Tully's company-owned stores in the area of Puget Sound and 12 locations within Boeing Co. offices, while another bidder made an offer for all assets.

Currently, Tully's Coffee operates 47 locations in Washington and California and has other franchises across the country. Tully's filed for Chapter 11 bankruptcy protection on Oct. 10 and closed 19 locations.

Now Dempsey plans to spend more time in Seattle, being involved in the running of the company, although he lives in Los Angeles.

“I'm thrilled that we won and I'm even more excited about saving Tully's Coffee and its hundreds of jobs. Tully's is a great company with committed employees, and with its base in Seattle, one of the world's greatest cities,” Demsey said in the statement on his winning bid. "I'm confident we will be able to successfully build the brand and help grow the economy. Seattle has been very good to me over my career, and I am honored to have the privilege to own Tully's and work closely with the company's employees.”

Coffee deal wave sparks Krispy Kreme-to-Jamba appetite

2013-01-06T15:41:00.001-08:00

By Leslie Patton & Tara Lachapelle

Bloomberg

January 6, 2013

Following the biggest surge in takeovers of restaurant and coffee companies since the last recession, Krispy Kreme Doughnuts Inc. (KKD) and Jamba Inc. could be next on the menu.

Acquisitions of U.S. restaurant, tea and coffee companies from Peet’s Coffee & Tea Inc. to Teavana Holdings Inc. reached $6.1 billion last year, the highest level since 2008, according to data compiled by Bloomberg. Deals are on the rise as sales growth at coffee and snack shops are forecast to outpace fast- food chains through 2017, data from IBISWorld Inc. show. Since Joh. A. Benckiser Group announced plans Dec. 17 to buy Caribou Coffee Co., Krispy Kreme shares have climbed 21 percent to the highest in more than five years as Jamba rose 19 percent.

Krispy Kreme, which introduced a new coffee lineup in 2011, and Jamba (JMBA), the smoothie maker projected to post its first profit since 2005 this year, may be targeted for their well-known brand names and the chance to expand into grocery and mass retail stores, said B. Riley & Co. and Pacific Management Consulting Group. Even after Krispy Kreme shares climbed 43 percent in a year, the doughnut seller still trades at a lower earnings multiple than 97 percent of U.S. restaurants valued at more than $100 million, data compiled by Bloomberg show.

“They’re iconic brands and it takes forever to build that brand equity,” Conrad Lyon, an analyst at Los Angeles-based B. Riley, said in a telephone interview. “To be able to write a check and add that to your portfolio is probably pretty attractive.”

Takeover Wave

Brian Little, a spokesman for Winston-Salem, North Carolina-based Krispy Kreme, and Matt Lindberg, a spokesman for Emeryville, California-based Jamba, declined to comment on takeover speculation.

In addition to its pending $340 million purchase of Caribou, Benckiser also acquired Peet’s last year for about $1 billion. Starbucks (SBUX) Corp.’s approximately $620 million takeover of Teavana was disclosed in November and completed last week.

Those acquisitions helped push industry takeovers last year to the highest since 2008, when deals peaked at $7.5 billion before consumers curbed spending amid the longest U.S. recession since the Great Depression, data compiled by Bloomberg show.

Sales at coffee, hot-beverage and doughnut chains are outpacing fast-food revenue as on-the-go consumers shift to snacks instead of full restaurant meals, according to June and July reports from IBISWorld. Coffee and snack shop sales are forecast to increase 4 percent annually to $33.9 billion in 2017, compared with growth of 1.9 percent a year for fast-food chains, the Santa Monica, California-based researcher said.

Jamba Juice

Acquirers may be interested in a coffee or beverage chain with a brand that is “strong in the consumer mind,” Lyon at B. Riley said. The profit margin for selling beverages is higher than for food, he said.

“Two brands out there that are largely the strongest in their category are Krispy Kreme for doughnuts and Jamba for smoothies,” Lyon said.

Jamba, operator of the Jamba Juice chain, sells hummus-and- cheese wraps, flatbreads and frozen yogurt alongside its signature fruit smoothies. The juice maker, founded in 1990, also sells smoothie kits and 90-calorie energy drinks at Wal- Mart Stores Inc. and Target Corp. (TGT) locations in the U.S.

While Jamba shares rose 71 percent last year as the company announced new store openings and started selling more food, the closing price of $2.48 last week was still 80 percent below its 2006 peak. The company has a market value of $192 million.

Starbucks Interest

“Jamba juice could be pick-up-able,” said John Gordon, a San Diego-based principal at restaurant adviser Pacific Management Consulting, with clients including Dunkin’ Donuts franchisees. “It would be relatively cheap from a strategic acquisition standpoint. They already have a very large store presence. It’s already a brand name.”

The company could fetch about a 15 percent premium in a sale, Gordon estimated.

Jamba is projected to post a profit of $7.3 million this year following losses since 2005, analyst estimates compiled by Bloomberg show. After three consecutive years of declining sales, the company also may report revenue gains of 2 percent for 2012 and 6.3 percent this year, the estimates show.

Starbucks may seek to buy Jamba if its Evolution Fresh juice brand, purchased in 2011 for $30 million, doesn’t catch on fast enough, said Lyon. There are four Evolution Fresh shops that sell items including spiced carrot juice, mango smoothies and eggs scrambled with brown wild rice. Jamba has about 755 stores in the U.S., of which 301 are company owned, according to the company’s November earnings statement.

Breakfast Foods

“It’s maybe a great opportunity for Starbucks if they really want to get into that smoothie business and juice business more,” he said.

Zack Hutson, a spokesman for Seattle-based Starbucks, declined to comment on whether it’s interested in buying Jamba.

Krispy Kreme, founded in 1937, may lure bids from other eateries looking to boost morning food and drinks sales with its cult-like following, Lyon said.

Wendy’s Co. (WEN) may look at Krispy Kreme as a way to boost its breakfast sales, Lyon said. The Dublin, Ohio-based chain, which sells chicken biscuits and home-style potatoes at some locations, has struggled to compete with McDonald’s Corp.’s morning menu. The $1.86 billion company backed off testing breakfast in some U.S. markets last year after a disappointing financial performance.

Coffee Appeal

“Most fast-food restaurants in the burger category have a huge opportunity in the breakfast arena,” Lyon said. Krispy Kreme is a “great way to expose customers to products in the morning -- and then later in the afternoon, the burgers take over.”

Bob Bertini, a spokesman for Wendy’s, said the company doesn’t comment on speculation.

Krispy Kreme, which began selling a new line of “signature” coffees in 2011, has said it plans to increase coffee to about 12 percent of sales by the end of fiscal 2015. Coffee currently accounts for about 4 percent of sales, the company said in August.

Part of the allure of purchasing coffee companies now is that coffee-bean prices have been falling, Sharon Zackfia, an analyst at William Blair & Co. in Chicago, said in a phone interview. Coffee prices dropped 37 percent in 2012, the biggest annual decrease since 2000, according to data compiled by Bloomberg.

Profit Return

Krispy Kreme returned to profit in fiscal 2011 after six straight years of losses, data compiled by Bloomberg show. Earnings for the third quarter topped analysts’ estimates, and the company said that in the fiscal year ending Jan. 31 it will earn more than previously thought. Krispy Kreme has a net cash position of $24 million, the data show.

“It’s still a very recognized brand,” Gary Bradshaw, a Dallas-based money manager at Hodges Capital Management Inc., which oversees about $800 million including Krispy Kreme shares, said in a phone interview. “The company has returned to profitability. They really cleaned up their balance sheet. It could certainly be bought.”

While the improvements sparked a 48 percent stock gain since the Nov. 19 earnings report, Krispy Kreme still trades for 5 times its trailing 12-month profit. That’s a lower price- earnings ratio than 97 percent of U.S. restaurants larger than $100 million, the data show. Only Denny’s Corp. (DENN) is cheaper at 4.5 times.

Doughnut Calories

“It’s not dirt cheap, but it’s an improving picture that we think will continue to get better,” Bradshaw said. “There’s not a lot you can do if someone comes in and offers $15 a share for the company, but we think if they continue to grow, it could be worth a lot more than that a couple of years out.”

Krispy Kreme shares rose almost 11 percent to $11.15 on Jan. 4, giving the company a market value of $727 million, after Alton Stump, an analyst at Longbow Research, initiated coverage with a buy rating and $15 stock price estimate.

Still, the iconic doughnut’s nutritional drawbacks may give a possible buyer pause, said Jason Moser, an Alexandria, Virginia-based analyst at the Motley Fool. A glazed doughnut with creme filling has 350 calories, according to the company’s website. That’s why Krispy Kreme has recently introduced oatmeal and fruit juice to its menu.

While Nick Setyan, a Los Angeles-based analyst at Wedbush Inc., says strategic buyers may be lacking for Krispy Kreme, he also said the company is a potential buyout candidate for a private-equity firm at as much as $13 a share. That would be a 17 percent premium.

“You can capture the future growth at this point,” Setyan said. “A lot of the sort of bad news is behind them now.”

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To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net; Tara Lachapelle in New York at tlachapelle@bloomberg.net.

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net; Robin Ajello at rajello@bloomberg.net.

Tully's confirms Patrick Dempsey won bid for coffee firm

2013-01-04T08:53:00.004-08:00

By Susana Kim

ABC News

Jan. 4, 2013

Actor Patrick Dempsey's $9.15 million bid for Seattle-based Tully's Coffee beat that of industry leader Starbucks, Tully's confirmed Thursday morning.

Dempsey is a member of Global Baristas, the investment group that includes the "Grey's Anatomy" star.

On Thursday night, Dempsey, whose fans call him "McDreamy," tweeted: "We met the green monster, looked her in the eye, and...SHE BLINKED! We got it! Thank you Seattle!"

A private auction process on Thursday included competitors Starbucks, also based in Seattle, and Baristas Coffee, which operates a chain of drive-thru espresso stands with female employees in revealing clothing.

Dempsey had previously said he hoped to save Tully's 500 workers from unemployment. He said the success of "Grey's Anatomy," which is set in Seattle but filmed in Los Angeles, has created a "fondness" for the Seattle community.

"I think some of the players involved in this deal want to take those jobs away, and you're looking at an economy that's rough to get jobs,"Dempsey told ABC's KOMO-TV in Seattle. "I went by one of the stores yesterday and the employees are deeply concerned. That's one thing we care deeply about."

His publicist didn't immediately respond to a request for comment.

A spokesman for Starbucks told the Associated Press the coffee giant offered to buy 13 of Tully's company-owned stores in the area of Puget Sound plus 12 locations within Boeing Co. offices.

Ever-growing Starbucks announced on Thursday that it is moving beyond its 3,300 stores in 12 countries and will open its first store in Ho Chi Minh City, Vietnam in February.

In November, Starbucks announced that it acquired tea retailer, Teavana, which has 300 mall-based stores, for $620 million. Teavana CEO and co-founder Andrew Mack said the company will continue to operate from its headquarters in Atlanta.

Tully's filed for Chapter 11 bankruptcy protection on Oct. 10 and closed 19 locations. The company operates 47 company-owned stores in Washington and California and has franchisees and grocery chain coffee shops in the U.S. and Asia.

"We are very encouraged and excited that Patrick Dempsey's commitment to Tully's, to the company, the stores and perhaps most importantly, in keeping the members of Tully's family in place as they are today," Scott Pearson, CEO and President of TC Global, Inc., said in a statement. "This is a big win for Seattle."

The sale is expected to be finalized on Jan. 11 at a hearing in Seattle.

Tully's said the sale of TC Global Inc. "does not impact" the wholesale and online Tully's Coffee business and brand, which were purchased by Green Mountain Coffee Roasters, Inc. in 2009.

Coffee in Retrospect: Naturally decaffeinated coffee plant discovered in Ethiopia

2013-01-03T15:56:00.004-08:00

"So far, caffeine-free natural coffees have been Madagascan species which are outside the mainstream, and not easy to breed from....Mazzafera and his colleagues discovered three naturally decaffeinated varieties after screening 3000 Ethiopian coffee trees, representing 300 strains. Experiments on the plants demonstrated that they lacked caffeine synthase, the enzyme in leaves that converts a compound called theobromine into caffeine.

"This should be a step forward in terms of getting high quality decaffeinated coffee, not least because extraction of caffeine with solvents would no longer be necessary. There's always a risk of losing flavour compounds, although there are examples of very good flavour in today's decaffeinated products."

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Naturally decaffeinated coffee plant discovered

By Andy Coghlan

New Scientist

June 23, 2004

A naturally decaffeinated coffee plant has been discovered. Coffee from the new strain could be tastier than existing decaf brews, which can lose flavour compounds when caffeine is extracted with solvents.

Other caffeine-free plants have been reported, but the latest comes from the same genetic stock as today's elite commercial strains. This means the decaffeinated trait should be relatively easy to breed into popular types of coffee.

"This is the first report of a decaffeinated variety of Coffea arabica," says Paulo Mazzafera, head of the team at the University of Campinas, Brazil, which isolated the strains. "This species is the most cultivated species in the world, responsible for more than 75 per cent of traded coffee," he says.

The discovery is welcome news for an industry which has struggled to cross elite varieties with more distantly related decaffeinated species.

"So far, caffeine-free natural coffees have been Madagascan species which are outside the mainstream, and not easy to breed from," says Pablo Dubois, head of operations at the International Coffee Organization, in London, UK.

"This should be a step forward in terms of getting high quality decaffeinated coffee," says Dubois, not least because extraction of caffeine with solvents would no longer be necessary. "There's always a risk of losing flavour compounds, although there are examples of very good flavour in today's decaffeinated products."

Tree screening

Mazzafera and his colleagues discovered three naturally decaffeinated varieties after screening 3000 Ethiopian coffee trees, representing 300 strains. Experiments on the plants demonstrated that they lacked caffeine synthase, the enzyme in leaves that converts a compound called theobromine into caffeine.

As well as eliminating the need for solvent extraction, the discovery could also be an alternative to decaffeinated plants created by knocking out the gene for the same enzyme via genetic engineering (New Scientist, 18 June 2003). Some consumers are unlikely to accept these.

Mazzafera says that it might be possible to produce commercial decaffeinated coffee directly from the newly discovered strains within five years.

"I haven't tasted them yet, but in general, C. arabica tastes OK," he says. Programmes to breed the trait into existing elite strains could take longer, perhaps 15 years, he says.

"It would also provide a way for developing countries to compete with big companies which produce industrially decaffeinated coffee," says Mazzafera.

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Journal reference: Nature (vol 429, p826)

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Starbucks, actor Dempsey compete for coffee chain

2013-01-03T13:11:00.003-08:00

AP via The Miami Herald

January 03, 2013

NEW YORK -- The competition to buy a small coffee chain is getting steamy, with Starbucks and actor Patrick Dempsey among those vying to become its new owners.

Starbucks Corp. confirmed that it is participating in a bankruptcy auction Thursday to buy Tully's Coffee, which has 47 company-owned locations in Washington and California. Tully's filed for Chapter 11 bankruptcy protection in October.

Dempsey, who gained the nickname "McDreamy" on the TV show "Grey's Anatomy" set in a fictional Seattle hospital, also said last week that he wants to rescue the chain. Also in the running is Baristas Coffee, which operates a chain of drive-thru espresso stands featuring female employees in skimpy outfits.

A representative for Starbucks declined to provide details of the company's bid, citing the court's confidentiality orders. But last week, the Seattle Times reported that Starbucks only wants to buy about half of Tully's chains. Both chains are based in Seattle.

The auction process is not public. The outcome is expected to be filed in court Friday.

Coffee in Colombia: Waking up to an opportunity

2013-01-02T19:55:00.000-08:00

Source: Knowledge@Wharton

(Written by members of the Lauder Class of 2014*)

January 02, 2013

Every day, more than 500,000 coffee growers throughout Colombia fulfill a family tradition, one that has been passed down from generation to generation. Growing premium-quality coffee beans across nearly 2.2 million acres of Colombian highlands is an important part of their heritage. For Colombians, coffee is not merely a bean, but a part of their national identity. In fact, coffee growing is the largest source of rural employment in the country. The centrality of coffee to Colombian society and to its international image is exemplified by the nation's president, Juan Manuel Santos, who spent much of his career representing the Colombian Coffee Growers Federation (FNC) at the International Coffee Organization.

Colombians pride themselves on their reputation for high-quality coffee beans, which result from rich volcanic soil and predominantly shade-grown cultivation. In addition, the alternation of wet and dry seasons supports two harvests, one running from September to December and the other running from April to June. Coffee is grown in the highlands of the Sierra Nevada of Santa Marta as well as on the slopes of the three sections of the Andes mountains that traverse the country. It can be planted at altitudes of up to 6,400 feet, where the climate creates superior beans by favoring increased acidity. Because the terrain precludes the possibility of significant mechanization, Colombian coffee is harvested by hand at its optimal ripeness and cleaned to prevent mucilage from permeating the beans. This process differs from that of other major coffee-growing countries, such as Brazil, where coffee is produced on a massive scale at altitudes below 3,200 feet and is often not cleaned immediately. In addition, Brazilian coffee is harvested mechanically, yielding what many believe to be a lower-quality product.

Harvesting coffee by hand in Colombia results in not only a higher-quality product, but also the broader involvement of coffee growers in the industry, which, by necessity, employs a large number of small-scale farmers. Some 95% of Colombian coffee-growing families operate on small plots of land, averaging five acres each. This characteristic distinguishes Colombian coffee production as essentially a family-run operation, in which all of the harvesting and post-harvest processing is carried out by the growers themselves.

In 2010, Colombia produced 8.9 million 60-kilo bags of green coffee, which represents the first stage of coffee production. This crop was valued at US$2.3 billion. In economic terms, this means that coffee production represents 16% of the national agricultural GDP. Green coffee beans are then shipped throughout the world to different companies that roast, package and distribute the finished product under a variety of brand names. According to the FNC, in the past five years, at least 37% of Colombian coffee exports were shipped to the U.S., while Germany received more than 10%.

The FNC: A Unique Model

The FNC is the largest rural non-profit organization in the world and was created in 1927 to represent and defend the coffee growers' interests. Its members, elected by the growers, communicate with their constituents and meet annually to carry out important duties, including budget creation. They also design and implement the various social programs requested by coffee-producing families. According to Alejandra Londoño, vice president of international business at Juan Valdez, one of the FNC's current priorities is developing strategies for adapting to global climate change. This phenomenon has resulted in more intense periods of rain, which have a significant impact on coffee production.

Distributing profits in a manner that promotes a minimum standard of living for growers is difficult because most of Colombian coffee's added value is achieved at the retail level. To address this challenge, the FNC established a National Coffee Fund in the early 1940s. This fund supports the Purchase Guarantee Policy, which offers farmers a transparent minimum price for their product based on a formula that accounts for the current international market price and the exchange rate, among other factors. However, coffee growers may achieve higher prices for products with special characteristics, such as organic coffee.

The growers have the option, but not the obligation, to sell as much of their output as they choose at the established minimum price, and may do so at any time at one of more than 500 locations around the country. Thus, each grower is able to obtain, on average, approximately 95% of the value of the coffee he produces. According to Marcela Jaramillo Asmar, marketing and advertising coordinator for the FNC, "what this structure guarantees ... is that the coffee grower will always have the best option -- either he receives the price assured by the FNC or he receives more. In many [countries], the producer receives much less because he is subject to the market." Through the FNC, growers are aware of the price at the time of planting, enabling them to more effectively plan their production and better manage their cash flow.

The FNC exports approximately 30% of Colombian coffee, making it the largest exporter of coffee in the nation. The National Coffee Fund is financed through a contribution of US$0.06 per pound of green exported coffee. Jaramillo Asmar noted that "the work of the FNC, among many other tasks, is to administer these resources to assure the well-being of the coffee growers." Through the fund, the FNC provides technical assistance to coffee producers, scientific research, quality-control programs, living-condition improvements and international advertising for Colombian coffee. The fund invested a total of US$365 million in these endeavors in 2011 alone.

Responding to a Changing Coffee Market

In an ongoing effort to significantly increase value for Colombian coffee growers, the FNC works to distinguish the Colombian product based on its superior quality. According to Jaramillo Asmar, it became necessary to develop marketing strategies to ensure that consumers would "recognize and specifically seek out Colombian coffee." To this end, the FNC began an international marketing campaign in 1959, creating the legendary Juan Valdez character. In addition, the familiar triangular logo representing Colombian coffee was introduced in 1982 and used in marketing efforts to signify coffee of 100% Colombian origin. As a result of both endeavors, consumers began to select coffee based on its geographic origin rather than simply by brand.

According to Londoño, the Starbucks phenomenon of the 1990s led to rapid and significant changes in the retail coffee market. Previously, most consumers purchased coffee in grocery stores, where the process of differentiating Colombian coffee was relatively straightforward. However, with the emergence of Starbucks, coffee originating in countries around the world, including Costa Rica, Nicaragua, Honduras and Ethiopia, became well known to consumers. Jaramillo Asmar added that "the consumer began to see many more options, not only in terms of origin, but also in the coffee experience." As premium beverages, including cappuccinos and espressos, became more popular, consumers began to value coffee differently. Colombia's existing brand positioning became a liability because it was closely associated with Folgers, Maxwell House and other mainstream brands found in supermarkets -- brands Jaramillo Asmar referred to as the "safe choice."

To access the higher-value premium segment, the FNC in 2002 created the company Procafecol, which operates Juan Valdez retail outlets, paying approximately 5% of its sales in royalties to the FNC. Procafecol sought to position itself at the high end of the value chain by marketing Colombian coffee and selling it through Juan Valdez-branded retail stores. Jaramillo Asmar explained that, unlike coffee sold through other outlets, the FNC controls the entire chain of production for coffee sold at its stores, thereby ensuring that the highest-quality standards are maintained "from farm to cup." Procafecol's stores are intended to be viewed as personally endorsed by the Juan Valdez character.

The FNC owns 83% of Procafecol, small independent coffee growers own 4% and the International Finance Corporation (IFC) owns the remainder. The fact that 18,000 coffee growers currently own shares in Procafecol reflects their confidence in it and the ownership they feel toward the company. Colombia also continues to sell coffee in other segments of the value chain because the large volume of its production requires that it extend beyond the premium segment to access a sufficiently large market for its output. As a result, and despite recent changes in the coffee industry, Colombia is still the nation that consumers associate most closely with coffee production.

Currently, both in Colombia and internationally, Juan Valdez is prominently positioned in the highly competitive market of retail coffee sales. In Colombia, Oma and Dunkin Donuts are its principal competitors, although more niche brands are beginning to emerge. Juan Valdez focuses on competing not only by delivering a high-quality product, but also by investing in extensive training for sales associates. These associates must be able to represent the brand effectively to consumers, explaining the value proposition of a company that enables small growers to reap the rewards of access to the retail coffee market. Juan Valdez envisions its customers as modern and socially conscious individuals who are willing to purchase high-quality products from companies whose brands align with their personal values.

By leveraging the popularity of the internationally recognized Juan Valdez character, the coffee shops managed by Procafecol have expanded into eight countries. A number of new products and innovation models are tested under the Juan Valdez brand, while the connection to the product's origin and its high quality are consistentlyemphasized to consumers. The overall objective of each marketing campaign is to remind consumers that behind the coffee they buy, there are more than half a million producers operating small family businesses. Procafecol expects to break even by the end of fiscal year 2012, at which point dividend distribution will be considered.

Using Coffee to Build a Better Tomorrow

Colombia's system of coffee production and sales is oriented not only toward profit generation, but also toward the creation of a positive social impact. Through research and training, community and personal development, and environmental protection, the FNC creates a healthy, continuous cycle of sustainability among all involved. The strategy for improving the quality of Colombian coffee is driven by the idea that if families are able to obtain higher prices for their coffee, they will also improve their quality of life. To achieve this goal, the FNC in 1938 founded Cenicafé, its coffee research center for the development and innovation of competitive and sustainable technologies. With 66 researchers, Cenicafé focuses on projects ranging from quality optimization to environmental protection practices to agricultural disease control.

However, the research findings would not be as valuable without a system that shares the knowledge gained at Cenicafé and offers a training method that reaches small business owners in the remote coffee regions of Colombia. To meet this challenge, the FNC founded the Extension Service, its communication and training arm. Comprising over 1,500 technicians, this agency communicates with the more than 500,000 Colombian coffee producers on a regular basis. Contact is facilitated through a plethora of methods, including face-to-face individual or group meetings, mass media and the Internet.

The FNC offers a wide range of programs that support its goal of improving the well-being and social development of coffee producers. These programs vary in focus from education to health care to infrastructure. Over the past five years, the FNC has invested more than US$38 million in education for Colombian coffee growers. For example, the School and Coffee program was launched in 1996 to incorporate coffee-related topics into the curriculum of primary and secondary schools, with the aim of educating the next generation of coffee growers. The FNC also invests in education through training programs that focus on coffee-production analysis and business-administration topics aimed at increasing profit margins.

To combat the lack of health care available to these small coffee-growing families, the FNC teamed up with other entities to create the Social Security Through Health Care program, under which families receive health care through a government-subsidized system. Since 2004, this program has aided over 110,000 individuals. In addition, infrastructure is an important challenge in Colombia due to the country's mountainous terrain and its historic lack of investment. Improvements in infrastructure help connect rural families to the societal network and also facilitate the transport of harvested coffee. The FNC continues to promote projects in diverse sectors, including electricity, roads and housing.

Finally, environmental protection and sustainability are vital to the success of the coffee-growing industry. As a result, much of the work of the FNC, Cenicafé and the Extension Service is dedicated to understanding the relationship between coffee growing and the environment and finding techniques to minimize the environmental impact at each stage of coffee production. This includes active participation in the conservation of water, soil and forests, in addition to biodiversity projects and waste-management practices.

Future Challenges and Opportunities

As the international coffee market evolves, the FNC will play an ever-increasing role in securing a positive future for Colombian coffee growers and their families. Because of the emergence of the premium-coffee culture, as well as developing consumer tastes, coffee has become a highly competitive industry, one with increased potential rewards and added value. In order for Colombian coffee to remain prized by consumers, thereby improving the quality of life for its more than 500,000 growers, the FNC must continue to reinvent and strengthen the Juan Valdez brand.

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* This article was written by Rafaela Andrade, Dawn Overby, Jessica Rice and Samantha Weisz, members of the Lauder Class of 2014.

Chinese tea farmers are switching to coffee

2012-12-29T09:42:00.004-08:00

More lucrative than growing tea, coffee enjoys a new popularity among China's younger generation with a thirst for Starbucks and Nestle.

By David Pierson

Los Angeles Times

December 29, 2012

Fu Xiafeng harvests red coffee berries at a plantation. Farmers

are finding that growing coffee is more lucrative than tea.

(David Pierson, Los Angeles Times / December 29, 2012

PU'ER, China — This remote southwestern city near the borders of Laos and Myanmar is named after one of China's most famous teas, grown on mountain terraces painstakingly carved out of the region's rich red soil.

But in recent years, pu'er tea has surrendered prime real estate for a more lucrative brew: coffee. Chinese farmers have taken to the new crop, which thrives in high-altitude areas of Yunnan province and commands up to three times as much money as tea.

"My sole income depends on coffee now," said Ma Jiaying, a farmer from a dab-sized hamlet in Pu'er called Tea Tree Village.

Behind the change are major foreign producers, including Seattle's Starbucks Corp. and Switzerland's Nestle. Those multinationals are training farmers and buying beans from the region to meet the world's growing thirst for coffee.

More important, Yunnan has the potential to thrive as a production base in a country that is becoming increasingly hooked on the caffeine-loaded beverage. Long dismissed by many Chinese as being too bitter, coffee has enjoyed a surge in popularity among the country's young, urban elite.

Few pairings denote upward mobility more than an iPhone in one hand and a white-and-green Starbucks cup in the other. In central Beijing, the company's smallest cappuccino costs about $4.33, making a Chinese Starbucks habit one of the most expensive in the world.

"Starbucks in China for the young generation is almost like religion," said Liu Minghui, head of Pu'er-based Ai Ni Coffee, China's largest coffee production and exporting company. "They want to be seen drinking their coffee. A lot of these Chinese kids have come back from studying overseas where they've been introduced to this new lifestyle."

At 120,000 tons last year, China's coffee consumption was only 6% that of the U.S., the world's top consumer of hot joe. Meanwhile, about 1 million tons of tea was consumed in China last year.

Still, analysts for Barclays expect Chinese coffee demand to grow nearly 40% each year until about 2015.

More stores and shops are stocking instant coffee. Nestle's Nescafe brand has captured more than two-thirds of the Chinese market, thanks in part to blends mixed with powdered milk and sugar to make it more appealing to local palates.

Coffeehouses are percolating too; sales are projected to expand 23.5% annually on average to about $1.6 billion by 2016, according to Euromonitor, a global research group. Much of that growth is expected to come from Starbucks, which plans to more than double its Chinese stores to 1,500 by 2015. That would make China its second-biggest market, following the U.S.

"This is a long-term commitment," said John Culver, president of Starbucks Coffee China and Asia Pacific.

Part of that effort will be raising the profile of Yunnan coffee. Starbucks released a special blend in 2009 for Chinese consumers called South of the Clouds, which includes beans from Baoshan, a city northeast of Pu'er in Yunnan. A year later, the company partnered with Ai Ni Coffee to grow and test four coffee varietals on a plantation in Pu'er. Those beans could reach domestic and global markets in a few years.

Yunnan, considered one of the most bio-diverse regions in the world, is responsible for almost all of the roughly 60,000 tons of coffee grown in China. The provincial government has plans to increase coffee production to 200,000 tons by 2020.

But growers will have to invest heavily to guarantee consistent quality, experts said.

"It's still very messy," said Safi Malik, co-founder of Shangrila Farms, a boutique coffee brand that carries beans from Yunnan. "A lot of farmers don't have training. There's great coffee there, it just needs to be found and worked on."

A big test is whether Chinese farmers will remain committed to the crop through price fluctuations. This year, growers are being offered about $1.20 a pound, half of what they earned two years ago.

"The best I can do this year is break even," said Ma Xinwen, 40, who grows five acres of coffee on a hillside in Tea Tree Village about 4,000 feet above sea level.

Neighbor Ma Jiaying also worries about the lower prices, but he's confident they will bounce back.

The 48-year-old father of two has grown coffee beans for nine years, primarily for Nestle. Every Monday and Tuesday, the company sends Ma and other farmers a text message alerting them of prices. They are free to decide whether to sell their beans.

When coffee prices surged in 2010, Ma made nearly $15,000 for the year, more money than he had ever seen in his life. He used his extra cash to build a new home.

"This year, tea may be more profitable than coffee," said Ma, wearing flip-flops and rolled-up gray slacks. "But I don't want to switch back. You can't predict where prices are going to go."

Few have profited more from Yunnan coffee than Liu, the founder of Ai Ni Coffee.

The son of subsistence farmers, Liu grew up 300 miles from Pu'er in a remote mountain village with no electricity or running water. Two of his siblings died of malnutrition. No one thought to brew the coffee that grew nearby. Instead, they ate the berries as a sweet snack.

After earning a university degree in agricultural studies in 1986, Liu joined a United Nations program in Yunnan aimed at developing coffee farming. The crop had helped Vietnamese farmers earn a living after the Vietnam War. Organizers hoped it would have a similar effect in Yunnan, which remains the second-poorest province in China.

The experience helped launch Liu's export business, which he briefly headquartered in Bay Shore, N.Y. Now a millionaire, Liu speaks halting English in a city largely isolated from the outside world, except for a small, single-runway airport.

That's where Starbucks CEO Howard Schultz landed in 2010 to negotiate a deal with Liu to produce coffee in Pu'er. Liu likes to show off a photo of the American executive visiting his processing plant.

"My parents were growing rice, corn and sweet potato to survive," said Liu, a stout, highly energetic man. "They never would have believed that I would one day grow luxury coffee."

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david.pierson@latimes.com

Nicole Liu in The Times' Beijing bureau contributed to this report.