ASEAN Coffee Industry: Brewing Sustainability through Differentiated Coffees Learning Team Project for ABS (ASEAN 2015) 25 NOVEMBER 2013 CARLOS | LEONADO | MARTIREZ | PANDA | PILIKULI | PONNUSWAMI LEARNING TEAM B3

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World Coffee Situationer Coffee is one of the most commonly traded commodities in the world, second to petroleum. The International Coffee Organization (ICO) reported that in the crop year 2011/12, total global coffee production reached 8.7 million metric tons. Exhibit 1 provides a summary of world coffee production from crop years commencing 2008 to 2011. Though originally indigenous to Africa, coffee today is grown in seventy countries, with Brazil, Vietnam, Colombia, Indonesia and Ethiopia as the top five coffee producers in the world (see Exhibit 2). The coffee sector employs around 25 million farmers and workers.

Two varieties of coffee crops namely Coffea arabica (accounting for 60%- 70% of world production), and Coffea robusta (30%-40% of world production) are of major economic importance. Coffea liberica and Coffea excelsa are two other traded varieties of coffee, but only to a limited extent.

Global consumption of coffee has experienced an average growth of 1.2% per annum since the 1980s. Japan, the third largest importer of coffee, has an average annual growth is 3.5% over the same period, which plateaued over the last decade. Consumption in Europe remained constant, even showing decline, over the last five years. Further, in the United States, the largest importer of coffee, growth has also remained constant despite increasing awareness about specialty coffee. It has been estimated that by the end of 2020 coffee will be in short supply to the tune of 30 million bags per year.

Coffee is traded as a commodity by international trade houses, dealers and traders. Prices are determined by the following factors:

• Physicals (prices for green or physical coffee, daily volatility affected by

real-time supply and demand) • Indicators (based on broad groups of comparable coffees) • Futures (projected prices for standard qualities) • Differentials (system linking physical prices to futures prices)

The International Coffee Organization (ICO) was established in the early 1960s as an intergovernmental organization of importing and exporting nations working to tackle challenges faced by the global coffee sector through international cooperation. Its Member Governments represent 97% of global coffee production and over 80% of global coffee consumption. The ICO tracks the prices of the four main types of coffee available in the international market:

• Colombian mild arabicas • Other mild arabicas • Brazilian and other natural arabicas • Robustas

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Exhibit 3 shows the supply chain of coffee from farm to end-consumers.

Differentiated Coffees Differentiated coffees are unique contributions to the coffee industry. They bring with them new products, flavors, and stories. Differentiated coffees keep people interested by appealing to the increasing public interest in social and ecological values. They represent the main growth areas in the mature coffee industry. There are many ways differentiated coffees are classified. Various standards are set by which coffee farmers comply with to produce differentiated coffee. Two common subsets of differentiated coffees are described below:

Sustainable coffee (organic, eco-friendly and fair-trade coffees) fill a market niche that is rewarded with premium price while providing other superior benefits that help producers improve their sustainability. The number of certifications of sustainable coffee has been increasing and it constitutes one of the fastest growing market segments. One reason for this is the increase in awareness among consumers regarding sustainability and about the environment in general which has increased the demand for sustainable coffee. The second reason is that companies feel the need to differentiate themselves in light of growing competition. Given the future prospects of this segment, and the long term benefits of sustainable coffee, there has been an increase in the adoption of these practices by the coffee farmers and associations.

Specialty coffee is the term used to refer to premium coffee. The increasing income of the middle class and the need for differentiation among the companies has led to a growth in the specialty coffee segment and is now the most rapidly growing segment of the coffee industry. Increasing number of retailers and associations have been working on developing blends and specialty coffees with the intent of catering to the growing demand in major markets.

ASEAN Coffee Federation

Established in 2011, the ASEAN Coffee Federation (ACF) aims to raise the standards of the ASEAN coffee industry to as high as possible, and foster collaboration among ASEAN coffee sector stakeholders through events and other knowledge and experience exchange initiatives. The main outcomes the Federation wishes to achieve are (1) the improvement of life of coffee producers, and (2) the assurance of quality of ASEAN specialty coffees.

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ACF is composed of eight producer and consumer ASEAN nations, including Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, and Vietnam. An eight-point mission was adopted by the Federation, as follows:

1. Act as the platform for the collaboration between ASEAN coffee

organizations. 2. Provide knowledge for the coffee producers to build coffee quality and

internationally recognized standard. 3. Provide knowledge for the consumers to create good perspective

towards quality coffee. 4. Increase the share in the world market. 5. Motivate coffee producers to use ASEAN-GAP standard growing

method. 6. Lift ASEAN coffee manufacturing up to the GMP standard. 7. Act as a source for funding. 8. Act as the mean to publicize ASEAN to the world.

Vietnamese Coffee Industry The French introduced coffee to Vietnam in 1857 after which it steadily became one of Asia’s coffee-growing nations. As coffee production grew during the 20th century, small-scale production started shifting towards large plantations.

The governing body for coffee industry in Vietnam is known as Vietnam Coffee and Cocoa Association (VICOFA). It is responsible for bringing improvements in coffee quality, marketing and promotion of coffee products within the country, development of sustainable coffee practices, and diversification into other coffee products. Other players include Government of Vietnam (GOV), Ministry of Agricultural and Rural Development (MARD), farmers, coffee companies, processors & exporters.

Good market returns have increased coffee plantations by 12% over the last five years (see Exhibit 4). Further, coffee prices remain high and relatively stable, which provides a strong incentive for farmers to increase production. Although Vietnam’s coffee consumption has increased significantly in the recent years, it still remains low compared to other coffee producing and importing countries around the world. As a result of increased coffee consumption, many coffee shops proliferated throughout the country. Vietnam exports coffee beans to 78 countries worldwide. The top fourteen markets accounted for about 71 percent of total Vietnamese coffee bean exports. Germany is the largest importer of Vietnamese green coffee beans, and followed by the United States.

The varieties of coffee that are grown in Vietnam include Arabica, Robusta, Chari (Excelsa) and Catimor, and some indigenous varieties of Arabica such as the Arabica SE.

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Present trends in the Vietnamese coffee industry Arabica coffee production. Although Arabica coffee production (see Exhibit 5) has been increasing in the recent years it still accounts for only 4% of the total coffee production in the country.

Sustainable coffee production practices. With the public-private partnership model, the GOV, through the MARD, is taking steps to encourage sustainable coffee production methods.

Drop in productivity. There has been a drop in productivity in the industry due to ageing/old coffee trees. Industry experts have forecasted that within the next ten years half of the coffee plants will age and would have to be replaced with new plants.

Best practices in the Vietnam coffee industry

Unique watering methods. Vietnamese growers have been able to develop unique watering methods to develop their coffee plantation during the dry season. The coffee growers have been able to figure out the appropriate period of watering while also adjusting the frequency and the amount of water used so that the Robusta coffee can maintain good development.

Favorable government policies. The GOV has introduced certain favorable policies to improve coffee production in the country. Some important polices introduced by GOV include (a) multi-section economy orientation and shifting; (b) allowing households and small farm-owners to have their own coffee plantations; (c) handling land usage right to farmers; and (d) many new investment and loan policies along with national socio-economic programs such as accommodation and cultivation settlement. Furthermore, foreign investors have been encouraged to invest in production and trading facilities in the country. The GOV, along with the MARD, has come out with a Vision 2020 program that plans to increase the production of sustainable coffee and also plans to invest in industrial scale coffee processing.

Philippine Coffee Industry

Lying in the “coffee belt” (see Exhibit 6), the Philippines is one of the few countries in the world which can commercially produces four varieties of coffee: Arabica, Liberica (Barako), Excelsa and Robusta. Robusta accounts for seventy percent (70%) of the country’s total production and five to ten percent (5-10%) for Arabica. Excelsa and Liberica account for the rest. The first coffee tree was planted in 1740 in Lipa, Batangas. Neighboring municipalities, including Amadeo, Cavite, soon followed suit in growing coffee. By the 1860s, the Philippines exported coffee to San Francisco and, when the Suez Canal opened, to Europe.

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While Cavite and Batangas provinces were once hailed as the coffee capital of the Philippines, plantations in the Cordilleras, Western Visayas and in Mindanao have also increased their shares in the total coffee production (see Exhibit 7).

The Philippine Coffee Board, Inc. (PCB) is a non-government organization promoting the redevelopment of the local coffee industry. It was established in May 2002 with a goal to promote the coffee industry by providing technical assistance and credit programs to coffee growers. It is also responsible for marketing and promotion activities for the industry. Furthermore, the board is also responsible for training and verification programs in association with the Cavite State University. The board also promotes the Philippine quality coffee seal, which is known as Kape Isla.

The exotic coffee blends include the “civet coffee” that is made from beans eaten and excreted by civet cats. Another exotic coffee is the Batangas Barako coffee.

Present trends in the Philippine coffee industry

Increase in volume sales. There was a 7% increase in volume sales for coffee in the year 2011. This figure is slightly lower than the 8% increase posted in the year 2010 due to inflation, which pushed up the prices of other necessity items.

Revival attempts by the PCB. The Philippine Coffee Board is aiming at niche markets by promoting a large variety of exotic coffees that is produced in the country.

Rising coffee imports. The total production of coffee within the country has not been able to fulfill the growing demand of coffee amongst the local population of the country. PCB estimates that annual production of Philippine coffees amounts to 25,000 metric tons, not enough to cover the demand of 100,000 metric tons. The situation has forced Philippines to import coffee from other coffee growing nations such as Vietnam and Indonesia.

Roadmap for progress. The PCB, in partnership with the National Competiveness Council, is drafting a roadmap to put the Philippine coffee industry in the world map again. Their main aim is to make Philippine a net coffee exporter in the next ten to fifteen years.

Best practices in the Philippine coffee industry

Public-Private Partnerships. A few provinces in the Philippines have the potential to become top coffee producers within the country. Looking at this as an opportunity, Nestle Philippines, Inc. has partnered with Northern Mindanao Agricultural Research Centre (NOMIARC) to provide 1000 small

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farmers in the region with plantlet and cuttings of high yielding coffee plants. Furthermore, a Nestle R&D facility within NOMIARC with a demonstration farm helps in development of high yielding coffee varieties. Nestle is also sharing its technical expertise by implementing various coffee training programs that gives farmers hands-on experience on better ways to plant coffee.

Indonesian Coffee Industry

Indonesia is the world’s fourth largest coffee producer. Coffee is not prevalent in Indonesia yet. However, with its geographic location and climate, the country is highly suitable for coffee production.

Indonesia’s coffee industry dates back to as early as 17th century during the Dutch occupation. The Dutch colonial government initially introduced coffee farming in the provinces of Java, Sumatra and Sulawesi then later extended it to East Indonesia, East Timor and Flores.

Indonesia has several key players working towards a more favorable Indonesian coffee industry. One of which is the Association of Indonesian Coffee Exporters (AICE or AIKE), which provides technical and financial assistance as well as up-to-date knowledge regarding the coffee industry.1

Another is the Specialty Coffee Association of Indonesia (SCAI), which promotes and improves the varieties of coffee grown in different parts of Indonesia.2 The topography of each of Indonesia’s main island produces a different type and flavor of coffee bean inherent to the region it was grown.

At present, small landowners and small-scale farmers comprise 90% of Indonesia’s coffee production.3 Alternatively, Indonesian coffee consumption constitutes of 70% roasted and grounded coffee and thirty percent (30%) on soluble instant coffee.4 The increasing number of local as well as international coffee chains further drives coffee consumption in Indonesia. However, Indonesia’s domestic coffee consumption remained low through the years; hence coffee producers are looking at expanding coffee trade internationally. Currently, coffee exports are expected to increase to 8.1 million bags in 2013 from 7.18 million bags in 2012 (see Exhibit 8).

Indonesia is known for its special species of Arabica coffee especially Mandheling coffee. Mandheling coffee is mainly produced in Sumatra, one of

1 Association of Indonesia Coffee Exporters. http://aeki-jatim.awardspace.com/production.php. 24 June 2013.

2 The Diverse Coffees of Indonesia. http://www.sca-indo.org/. 24 June 24, 2013. 3 Coffee Production in Indonesia. http://en.wikipedia.org/wiki/Coffee_production_in_Indonesia. 24

June 2013. 4 Coffee Semi-Annual Jakarta Indonesia. http://usdaindonesia.org/wp-

content/uploads/2012/12/Coffee-Semi-annual_Jakarta_Indonesia_11-27-2012.pdf. 24 June 2013.

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the country’s westernmost-islands. This variety of Arabica coffee is known for its unique and rich flavor.

Best practices in Indonesian coffee industry

Unique Processing Techniques. Indonesian farmers that are perceived to produce the best quality coffee apply unique processing techniques compared to the conventional coffee processing performed by the majority coffee farmers. More specifically, farmers apply selected picking instead of strip picking, where entire crop is harvested at the same time irrespective whether some cherries are rip or not. Selected picking is the process of harvesting ripe cherries individually by hand.6 Further, farmers separate good cherries from bad by floating so that only the best coffee is processed.

Private Sectors / NGO’s Regulatory Systems. There are several private institutions and governing bodies, which helps foster and promote a more sustainable coffee industry. Hereunder are some of these regulatory systems Indonesian coffee farmers follow in their production:

a.)Coffee and Farmer Equity (CAFÉ) Practices. Previously known as

the Coffee Sourcing Guidelines of Starbucks, CAFÉ sets the environmental and social standards for Starbucks’ preferred supplier program.

b.)Sustainable Agriculture Information (SAI) Platform. These are specific commodity guidelines for sustainable agriculture along the supply chain.7

c.) Third Party Certification Organizations. Several of these certification organizations are UTZ Kapeh, Organic, Fair Trade, and Shade-grown, which aims to improve socio-economic and environmental condition of coffee farming and trade.8

Research Institutes. Indonesia has several research institutes as well as on-going studies regarding the country’s overall coffee industry. Some of the country’s primary research initiatives are as follows:

a.)Indonesian Coffee and Cocoa Research Institute (ICCRI). The ICCRI is a government funded research institute, which conducts studies to produce the best possible crop while offering training to coffee farmers across Indonesia.

b.)Agribusiness Market and Support Activity (AMARTA). AMARTA is a research body, which tests the effectiveness of the Brocap Trap technology. Brocap Trap is designed to trap Coffee Cherry Borer (CCB) insect, a major coffee pest.9

6 Coffee Production. http://en.wikipedia.org/wiki/Coffee_production. 24 June 2013. 7 Global Sustainability Regulation and Coffee Supply Chains in Lampung Province, Indonesia.

searca.org/ajad/files/060612151523_5_Arifin%207.2.pdf. 24 June 2013. 8 Ibid.

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Sustainable Coffee Project. Sustainable Coffee Project’s main objective is to make every key player to work together in order to tackle pressing sustainability issues confronted by the coffee industry. Part of this Sustainable Coffee Project is the 4C Association, which is composed of coffee farmers, traders, industry players (roasters and retailers), NGO’s and private individuals who aim to improve economic, social, and environmental conditions of everyone who make a living from coffee.10

Current Problems in the ASEAN Coffee Industry Lack of Research

Traditionally, the ASEAN countries have lacked in research regarding coffee growing. Scope can be seen for research on coffee genome, biodiversity conservation and development of new varieties of coffee which are more resistant to diseases and weather fluctuations and/or with higher yield.

Lack of Cooperation in ASEAN

Coffee producing nations in ASEAN have not explored options of working together towards a common goal that would benefit them all. Cooperation through knowledge sharing and in exploring options would guarantee higher bargaining power while ensuring economies of scale for multiple activities.

Effect of Climate Change

Temperature and rainfall conditions are important factors to be considered in defining the potential yield of coffee. Continuous exposure to high temperatures could affect the plant growth while decreasing yield. Furthermore, unsustainable cultivation practices also make coffee plantations and farmers highly vulnerable to climate change. The change in yields and quality of coffee would have adverse impact not only on the farmers but also on all the actors in the coffee value chain.

Low Productivity

Low adoption of high technology cultivation techniques, especially harvesting techniques, has led to low labor productivity. The high percentage of ageing tree population has also contributed to such while casting uncertainty on future coffee yield.

9 Coffee Production in Indonesia. http://en.wikipedia.org/wiki/Coffee_production_in_Indonesia. 24 June 2013.

10 The 4C Association: Mainstreaming Sustainability In Coffee. http://www.thecoffeeguide.org. 24 June 2013.

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Lack of Incentives for Producers Unstable low price for coffee has affected the production as it becomes hard to follow best practices. Farmers switch to more profitable crops instead of coffee. Unstable low coffee prices combined with productivity issues have contributed to the low production of coffee.

Lack of Value Addition

The countries have not, to a large extent, explored options of value addition such as maintaining high quality, gaining global certifications and experimenting with new blends.

ASEAN Differentiated Coffees: Moving Forward

Taking the product lifecycle point of view, the coffee industry can be considered mature, having been established centuries ago, where very little opportunities for profit maximization exist for small-scale producers. Differentiation is then key for ASEAN coffee producers to sustain a living from coffee production.

It is suggested that the ASEAN focus on developing the commercialization of its specialty coffee varieties and blends, seizing opportunities in the growing awareness of and trends toward differentiated coffees and organic agriculture. Exhibit 9 shows a SWOT matrix for the differentiated coffee industry.

In particular, the differentiated coffee market offers greater margins for coffee producers in the long term since produce are sold through long-term contracts with traders or roasters at prices typically at or above the prevailing commodity price. Also, the structure of the differentiated coffee market reduces the influence of intermediating traders (exporters and importers, commonly referred to as “coffee coyotes”)which buy from producers at low prices and sell to the market at higher commodity prices.

The PARTS framework was utilized to determine which strategies can be pursued by ASEAN to develop the ASEAN coffee industry. Figure 1 shows various strategies formulated using the PARTS framework:

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Figure 1: PARTS Framework for the ASEAN Differentiated Coffee Industry

The end goal of the strategies presented is to make the ASEAN coffee industry sustainable and uplifting the lives of coffee producers through market development and putting in place adequate incentives for farmers. The activities aimed to reach this goal are presented in Figure 2.

It was observed that the design for the platform for co-opetition can support the implementation of other strategies such as reduction of the influence of intermediaries (partial/full vertical integration), changing perceptions (through international marketing), and fostering innovation (carbonated coffee, coffee tourism).

The mission of ACF to be a platform for the collaboration between ASEAN coffee-producing nations is deemed crucial in this endeavor. Active involvement of other players is also needed. As such, a hub-and-spokes model, with ACF as hub and various other industry stakeholders and ad hoc groups as spokes, is proposed for tasks such as research and development, knowledge sharing, network building and global marketing.

Looking at the value net of the differentiated coffee industry (see Exhibit 10), it can be observed that the strategies proposed affect all the legs in the specialty coffee industry value net. Reduction of the influence of intermediaries effectively change the industry’s customer portfolio, thereby affecting margins as well since the producers can now sell at higher margins to coffee companies and roasters, and even directly to retailers and end- consumers.

Focusing on differentiated coffees would effectively make commodity coffee a substitutor, along with other beverages. Suppliers would also have to make

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arrangements in line with changes in practices and requirements anticipated by the implementation of certification/ASEAN guidelines. Finally, complementors would be needed should the innovation initiatives finally work out a plan for coffee tourism in the ASEAN region.

The main goal of the hub-and-spoke structure is to facilitate cooperation among ASEAN coffee-producing nations. The model features disintegration of support activities among governments and other stakeholders based on inherent advantages of each participant. Exhibit 11 shows a responsibility assignment matrix to show distribution of tasks among stakeholders.

Figure 2: Inputs-Process-Outputs-Outcomes Framework for the ASEAN Differentiated Coffee Industry

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Application Of Redding Framework

MEANING

Fragmented agriculture sector. Both the Philippines and Indonesia are archipelagic countries. This is one of the reasons why the agriculture sector in these countries has remained fragmented over the years. A great deal of effort will be required to implement forward looking policies that target to uplift the agricultural sector. Specifically, the ASEAN Coffee Federation (ACF) should not only act as a common platform for dialogue to promote coffee from the ASEAN region but should also formulate policies that can be implemented across a very diverse range of geographies. Another point of concern is that due to fragmented land holdings it becomes very difficult for the Department of Agriculture in the aforementioned countries to implement support activities due to absence of farming communities. The ACF should promote differentiated coffee blends from the ASEAN region by introducing community farming. Community farming offers many benefits to farmers who want to practice sustainable agriculture and to communities, who want fresh, healthy, locally produced food.1 An additional advantage would be that it would become easier for farmer communities to gain international certifications for their specialty coffee. Impact of colonization. All the three countries, the Philippines, Vietnam and Indonesia share a similar history where they were under colonial rule for a considerable period of time. Coffee production spread in the Philippines after a Spanish monk introduced the first tree in Lipa, Batangas. In Indonesia, the Dutch introduced coffee. As coffee planation spread across the country the Dutch colonialists established large coffee plantations. Similarly, coffee originated in Vietnam during the French rule. All the three countries achieved new heights in coffee production during the colonial period but eventually coffee production waned in these countries due to various factors, most specifically climate changes. It is however important to note that the distinctive coffee blends for which these countries are known found its roots during the colonial rule. High power distance and collectivism. All the three countries score high on power distance, a dimension that deals with the fact that all individuals in the society are not seen as equals. People in these countries follow a hierarchical order. Additionally, the three countries believe in the collectivistic form of society, in which people belong to ‘groups’ that take care of them in exchange for loyalty. Furthermore, in collectivistic society, employer/employee relationships are perceived in moral terms (like a family link), hiring and promotion take account of the employees in-group. Management is the management of groups.2 The ACF will find it easy to implement rules and policies when a society has high power distance and collectivism.

1 http://www.communityfarms.ca/people/communFarm.shtml 2 http://geert-hofstede.com/vietnam.html!

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Impact of corruption. Corrupt governments mark all the three countries. Any form of reforms that has to be introduced in the agricultural sector can be affected by corrupt practices that are present within government organizations. Also, there is a high degree of bureaucracy within the government organizations. Hence, implementation of reforms may take longer time to fructify than usual. Long-term vs. Short-term Orientation. The Philippines has a short-term orientation culture while the Vietnam has a long-term orientation culture. This means that while in Vietnam the society has a practical and future oriented perspective in the Philippines the society has a more short-term view about the future. In perspective of the coffee industry within the ASEAN in Vietnam, farmers and farming communities could plan a new work culture, in which cooperation and competition are healthy for the industry looking at the long term positive effects. On the other hand, in the Philippines such a strategy would require more effort to implement.

ORDER Loans from bank and other institutions. The land holdings in Indonesia, Vietnam and Philippines are fragmented and coffee plantations are typically owned by small farmers. Hence, it is difficult for banks to lend to the agricultural sector due to the higher cost involved in lending many small loans. But, in order to implement sustainable practices and to develop specialty coffee, there is a need for credit, which can be accessed easily. Together this has contributed to a large financial gap in the agricultural sector. The presence of various rural banks and cooperatives has helped to some extent in making credit available to the farmers. In light of our recommendation of coopetition, though the ACF would facilitate the sharing of best practices and provide support to the farmers and member organizations, without the credit facilities, the farmers would not be able to implement the plans. Hence, along with implementing this model, it is important that microfinance institutions and agricultural credit providers are encouraged by the ACF. This would facilitate better implementation of plans by the ACF and also economies of scale. Loans/grants from international organizations. Another source of funds are the loans or grants from international organizations. For example, in the Philippines, the World Bank provides funds for agricultural sector through the Land Bank of the Philippines. There are similar organizations present in Vietnam and Indonesia. ACF will need to make the farmers and people involved in the coffee industry aware of such facilities and also create partnerships to encourage the industry. Impact of FDI. FDI is another important source of capital for developing the coffee industry. The ACF can help the local coffee industries boost their competitiveness by attracting foreign direct investments. These investments may include coffee processing facilities so that the coffee industries in the Philippines, Vietnam and

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Indonesia can move up the value chain and produce higher value products. This would increase the income of the farmers. Further, setting up processing facilities for communities of coffee growers would also make decrease their reliance on other businesses for the facilities required to process and pack specialty coffee. Human Capital. Farmers in the three countries lack the proper training and skills to manage the coffee farms as business enterprises. The ACF can help increase the sustainability of coffee farming by empowering the farmers through education. With the promotion of research and finding sponsors for the education of the farmers and their families, so they can manage their farms better and find ways to innovate their practices and products. There is also a pattern noted that as the young ones get better educated, they tend to look for jobs in the city. The ACF can change the aspirational goals of the youth in coffee farms in such a way that the youth would stay in the farms and be the next generation of coffee entrepreneurs.

CORDINATION Family Owned. As discussed above, coffee estates and plantations within Philippines, Indonesia and Vietnam are largely family owned. This is deemed to be one of the primary reasons of the coffee industry’s fragmented structure. The small and fragmented ownership structure of the local coffee industry makes coordination a challenge. The ACF should be able to overcome this challenge in order to successfully promote its initiatives and in the future be able to establish a strong ASEAN brand. Consensus Decision Making. Most ASEAN countries, specifically Indonesia, Philippines and Vietnam, vie for consensus in most and major business decision. This can be a two-pronged characteristic of Asian industries. While a decision borne out of consensus is believed to be more implementable as the support of the organization is already at hand, consensus decision making can also be seen as a disadvantage as it can also slow down the decision making process. ACF should then find a proper balance between taking advantage of these three countries’ consensus decision making while encouraging a quick and efficient decision-making process. Role of a Key Person in Decision Making. Though most of coffee estates in the region are family owned and consensus decision making has been the accepted norm in the decision making process, it has also been observed that there is usually a key person who is usually the most influential of all decision makers. Most often than not, this key person does not only have power or control over his/her own coffee plantation but his/her control sometimes extends over a particular region. As local networks, friendship and trust dictate the undertakings of a local coffee industry, it is crucial to be able to connect and establish good relationships with these key persons so as to hasten the implementation of various ACF initiatives.

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MATERIALS LOGICS Technological know-how. In Vietnam, VICOFA is responsible for improving the coffee quality and developing sustainable coffee practices. The VICOFA along with Vietnam government and MARD have taken steps to encourage sustainable coffee production methods. VICOFA assists the coffee farmers with the latest technologies, which help them to measure fertilizing, watering, pruning, pest control and the quality of coffee. However, the dry weather conditions and abnormal area of old coffee trees with low productivity have brought down the overall production level. In the Philippines, Philippine Coffee Board (PCB), which is a non-government organization, is responsible for providing technical assistance and credit programs to coffee growers. PCB also provides training for farmers and verification programs for coffee quality. But PCB faces a challenge to implement the new technologies across the entire agriculture sector due to the fragmented geography. As a result, all coffee growers find difficulty in adopting the new technologies that are available. Indonesia faces a similar concern because of its fragmented geographical location. But there are lot of best practices, techniques, research institutes and latest technology available. The coffee farmers apply unique processing techniques compared to conventional coffee processing methods followed by other coffee growers in the world. Each of the three countries is not able to utilize the available technology fully and still lack research on coffee genome and development of new varieties. Goals of ACF and that of individual countries. ACF’s objectives are to improve the life of coffee producers and to come up with quality specialty coffee that represents the ASEAN region. The interest of ACF has to be communicated across the three coffee boards of Indonesia, Philippines and Vietnam. The common goals of ACF have to be in accordance with the goals of the individual countries. The challenge for these three countries is to meet the productivity levels, sustainable farming practices and to maintain the international standard in producing differentiated coffee. The application of the Redding framework to study the business systems of the three countries shows that there are both factors which would support as well as prove a hindrance to the implementation of our recommendations. ACF will need to implement policies and strategies which could leverage and also overcome these factors.

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Exhibit 1: Summary of World Coffee Production (2008-2011) Source: International Coffee Organization, Annual Review 2011-2012. London 2013

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Exhibit 2: Largest Coffee Producers

Source: Fairtrade Foundation. Fairtrade and Coffee: Commodity Briefing (May 2012). London, 2012. Exhibit 3: Coffee Supply Chain Source: Adapted from: http://financesonline.com/heres-how-you-make-coffee-a-billion-dollar- business/

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Exhibit 4: Vietnam’s Coffee Growing Areas and Production Source: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Coffee%20Annual_Hanoi_Vietnam_ 5-24-2012.pdf Exhibit 5: Vietnam’s Coffee Production (2001 – 2013)

Source: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Coffee%20Annual_Hanoi_Vietnam_ 5-24-2012.pdf

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Exhibit 6: The Coffee Belt

Source: http://www.cornerofthecafe.com/coffee-101/the-coffee-belt/ Exhibit 7: Coffee Production in the Philippines

Source: http://novicecartography197.wordpress.com/student-projects/cant-get-enough- coffee-coffee-production-in-the-philippines/

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Exhibit 8: Indonesian Coffee Exports

Source: Coffee Semi-Annual Jakarta Indonesia. http://usdaindonesia.org/wp- content/uploads/2012/12/CoffeeSemi-annual_Jakarta_Indonesia_11-27-2012.pdf. 24 June 2013 Exhibit 9: Differentiated Coffee SWOT Matrix

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Exhibit 10: ASEAN Differentiated Coffee Value Net

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Exhibit 11: ASEAN Differentiated Coffee Value Net

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References ASEAN COFFEE FEDERATION: Another step to the stability of ASEAN coffee industry. Coffee T&I Mar-Apr 2011: 16-17. Print.

Association of Indonesia Coffee Exporters. http://aeki- jatim.awardspace.com/production.php. 24 June 2013.

The Diverse Coffees of Indonesia. http://www.sca-indo.org/. 24 June 24, 2013.

Coffee Production in Indonesia. http://en.wikipedia.org/wiki/Coffee_production_in_Indonesia. 24 June 2013.

Coffee Semi-Annual Jakarta Indonesia. http://usdaindonesia.org/wp- content/uploads/2012/12/Coffee-Semi-annual_Jakarta_Indonesia_11-27- 2012.pdf. 24 June 2013.

Coffee in Indonesia. http://www.expat.or.id/info/coffeeinindonesia.html. 24 June 2013.

Coffee Production. http://en.wikipedia.org/wiki/Coffee_production. 24 June 2013.

Global Sustainability Regulation and Coffee Supply Chains in Lampung Province, Indonesia. http://searca.org/ajad/files/060612151523_5_Arifin%207.2.pdf. 24 June 2013.

Coffee Production in Indonesia. http://en.wikipedia.org/wiki/Coffee_production_in_Indonesia. 24 June 2013.

The 4C Association: Mainstreaming Sustainability In Coffee. http://www.thecoffeeguide.org. 24 June 2013.

Creating Synergy in the Value Chain: Packaging. http://www.gmcr.com/csr/WorkingTogetherForChange/ValueChain/Packaging .aspx. 24 June 2013.

The Coffee Belt. http://www.cornerofthecafe.com/coffee-101/the-coffee- belt/. 24 June 2013.

Can’t Get Enough Coffee: Coffee Production in the Philippines. http://novicecartography197.wordpress.com/student-projects/cant-get- enough-coffee-coffee-production-in-the-philippines/. 24 June 2013.

Coffee Semi-Annual Jakarta Indonesia. http://usdaindonesia.org/wp- content/uploads/2012/12/CoffeeSemi-annual_Jakarta_Indonesia_11-27- 2012.pdf. 24 June 2013

Coffee and Climate Change. http://www.nri.org/docs/promotional/D5930- 11_NRI_Coffee_Climate_Change_WEB.pdf. 24 June 2013.

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