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Faces of coffee
TheNestlécoffee report
Contentsii
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1Fa
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The changing world of coffee
From cherry to cup
The future of the coffee world
2Fa
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The changingworld of coffee
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The changing world of coffeeii4
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Take any morning in London, Brussels or Paris. Millionsof people start their day with a cup of coffee. For some,a day without coffee is worse than a day filled with rain.From Western Europe to the Middle East, from Asia to Latin America, in busy urban cultures and in remoterural villages, this ritual is repeated throughout the day,providing enjoyment and sustenance. Today’sinternational coffee culture transcends the globe,transforming an ancient commodity into aphenomenon of the consumer age. Coffee brands,including the number one brand, Nescafé, arebecoming global icons.
Meanwhile in Africa, Latin America and Asia, manycoffee farmers wake up to a starker reality. Green coffeeprices have plummeted so steadily over the past yearsthat what used to represent hope for a better life hasturned, for some, into a living nightmare. The slump incoffee prices has plunged many farmers into poverty.For some, the blow is partially shielded by income from other crops. Some may work on large, modern,efficient farms, or may be making a decent living selling high quality speciality coffee to the coffeeboutiques and companies like Nestlé Nespresso. But today, they are the minority.
Why are so many coffee farmers in such a situationwhich is not of their making?
Price volatilityUntil the late 1980s, the green coffee market wasprotected from wide price swings by the InternationalCoffee Agreement (ICA), through which consumingand producing countries agreed on export quotas andprice bands for coffee. It had been established in the1970s after wide swings in prices. However, theeconomic clauses of the ICA collapsed in 1989 due to systemic shortcomings, mainly as a result of thewithdrawal of support by the United States. Theconsequence was a more volatile market, in whichprices, after initially collapsing, reached levels well above production costs by the mid-1990s.
This was worsened by severe frost and droughtdamage to the Brazilian coffee crop in 1994, and theresulting shortage of supply pushed Arabica prices to over USD 3 per pound by 1997.
But by the end of the decade, export earnings hadbegun to slide – from USD 12.9 billion in 1997 to just
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150
200
250
300
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
100
Post -ICA trend50-year trendReal price
US cents/lb
Source: McKinsey/Technoserve Study, 2004
Coffee price 1900–2003
1992-1993
Brazil19
Rest of the world44.3
10
20
30
40
50
60
70
2002-2003
Brazil32.4
Rest of the world40.2
Source: Nestlé Purchasing Department
Millions of bags
Worldwide Arabica production
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USD 5 billion in 2002. Large parts of the Brazilian coffeesector had already begun to innovate with modernmethods of agriculture, producing at costs significantlybelow those of many small coffee farmers, and by thelate 1990s the supply of coffee had greatly increased.
On the other side of the world, another major changewas taking place. In the 1990s, Vietnam transformeditself from a new entrant in the coffee market into theworld’s second biggest coffee producer, all in the spaceof less than ten years. While oversupply had taken aheavy toll on its rivals, the World Bank’s earlier forecaststhat Vietnam could become a mass exporter of coffeehad proved to be correct. Even its small cooperativesappear to be able to produce at lower cost than theircounterparts in much of Central America and Africa.
This is by no means the first time the world has seenwide swings in coffee prices. The policy makers whoencourage coffee farming in Vietnam are as eager forforeign exchange as the Guatemalan government of the 1820s, which offered cash prizes to reward bumperharvests. The catalyst for industrialisation in nineteenthcentury Brazil was the collapse of its dynastic coffeetrading families, hurt by tumbling prices.
However, the ability of large Brazilian farms, andother new entrants such as Vietnam, to grow coffee at lower prices may have altered the economicfundamentals of coffee growing. This raises doubts as to whether many small coffee farmers will be able to compete in the coffee marketplace.
The role of large coffee companies The contrast between the flourishing profits of coffeecompanies and the rising poverty among farmers hasmade headlines around the world. These arecontrasting aspects of the same global industry –disparate players linked in most cases only by theirdependence on the international coffee market.
Yet the precise relationship between the boomingretailers of the developed world to the catastrophe ingrowing countries is difficult to trace. Blaming bigcompanies for the predicament of poor farmers is arecurring feature of campaigns highlighting the coffeecrisis – but it is a difficult argument to sustain. To a significant extent, the forces which weigh on thecoffee market are the same now as ten or even twenty years ago. Prices reflect the balance of supply
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80
100
120
40
Invention of soluble coffee by NestléCoffee production Coffee consumption
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
US cents/lb
Source: McKinsey/Technoserve Study, 2004
Coffee production vs consumption
1992-1993
Vietnam 2.4
Brazil6.5
Rest of the world17
2002-2003
Vietnam11
Brazil9.3
Rest of the world18.8
10
20
30
40
50
60
70
Millions of bags
Source: Nestlé Purchasing Department
Worldwide Robusta production
The changing world of coffeeii6
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and demand, adjusted for variations in quality andclimate, the estimated size of stockpiles and the impactof regulation. Companies have realised that they aresitting with a commodities crisis and there is only somuch that they can do.
As a positive step, producer countries are beingencouraged to add value by processing green beans at home. Better still, some soluble coffee makers are manufacturing at source – highlighting the divergent interests of countries with the potential to export and those dependent solely on primary crops. For example, Nestlé currentlyproduces about 55% of its soluble coffee in developing countries despite escalating tariffs in industrialised countries, thus contributing to theindustrialisation of local economies. This is the most valuable economic contribution a multinationalcan make in developing countries, whatever the coffee price.
But the most direct positive impact of coffeecompanies is to promote consumption. In particular, a combination of new technology and innovativemarketing has fostered a vast diversity of solublecoffees. Over the past decade, industry-wide sales of soluble coffee have risen 35% – twice the rate for other coffee types. Nescafé alone has increasedsales by 40%, with over 128 varieties.
Eliminating trade barriers for other commoditiesThe increase in consumption of coffee provides somegood news for the farmers, but it is not enough to solve the crisis. Some 111 million bags of greencoffee were produced in 2002/2003 but only 109 millionbags were consumed. Existing stockpiles alreadycorrespond to half a year’s production and somethingclearly needs to be done at production level.
Coffee has a good claim to be the world’s secondmost important agricultural commodity. Up to 25 million people depend on it, the vast majority being smallholders in developing countries. Exportearnings play a vital part in servicing foreign debt: on the International Monetary Fund’s list of HighlyIndebted Poor Countries, 24 are significant coffeeproducers. Because these exports go to middle or high-income countries, coffee facilitates the transferof wealth.
Average production cost (US cents/lb) 1996-2001
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80
100
Bra
zil 3
2.4
m
Indi
a 1.
7 m
Peru
2.8
m
Hon
dura
s 2.
7 m
Ethi
opia
3.0
mM
exic
o 3.
9 m
Gua
tem
ala
4.1
mCol
ombi
a 11
.3 m
Cos
ta R
ica
2.0
m
El S
alva
dor 1.
4 m
20
40
Source: Nestlé Purchasing Department and McKinsey/Technoserve Study, 2004
2002 -2003 production(millions of bags)
Production costs for Arabica coffee
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Much of this geo-political significance has been acquired by default. If tariff barriers and subsidies, which distort trade in other goods such as sugar or manufactured items, were removed, coffee would matter less. Instead, protectionist trade policies in the United States and Europe havebeen entrenched.
Given these subsidies, it is not economically viable for farmers to produce sugar or soya bean: theprices on the world markets are way below productioncosts, even for developing countries. Liberalisation inthat sector is urgently needed if farmers are to be ableto make decent incomes.
Proposed alternative mechanismsSome non-governmental organisations (NGO)advocate the destruction of existing coffee stocks.Several Latin American countries have alreadydestroyed low-grade coffees, hoping to create a short-term stimulus in a sinking market. Such anartificial approach lacks a long-term view. Destroyingstocks will certainly drive prices up. But it will do sowithout improving the market balance. Farmers willkeep producing too much coffee – and will evenproduce more as the prices are higher – and more stockdestructions will be needed over following years. Such a mechanism would give the wrong message to the farmers. It is necessary to tackle the cause of the problem, not tinker with its symptoms.
Shortening the supply chain is a way of helpingcoffee farmers. Fair trade coffee, for example, setssocial criteria and secures a guaranteed minimum pricefor the farmers’ cooperatives while encouragingsolidarity between small farmers and coffee drinkers in the developed world. However, over the longer term,such guaranteed minimum prices could have thecounterproductive effect of drawing farmers back intothe market. This would lead to increased production,pushing commercial prices lower.
In fact, the most efficient way of shortening thesupply chain is for roasters to buy directly from thefarmers, who can then retain more of the price thosecoffee companies pay for green coffee. This solutionhas the advantage of not distorting the marketmechanisms, and is therefore applicable to themainstream. In the industry, the largest direct buyer
Average production cost (US cents/lb) 1996-2001
Bra
zil 9
.3 m
Viet
nam
11.
0 m
Indo
nesi
a 5.
8 m
Thai
land
0.9
mCam
eroo
n 1.
0 m
Indi
a 2.
9 m
Uga
nda
2.7
m
Côt
e d’
Ivoi
re 2
.5 m
60
80
100
40
20
Source: Nestlé Purchasing Department and McKinsey/Technoserve Study, 2004
2002 -2003 production(millions of bags)
Production costs for Robusta coffee
The changing world of coffeeii
of green coffee is Nestlé. With 110 000 tonnes boughtvia this channel, it covers 14% of Nestlé’s needs. But it is unrealistic to believe that this model could be applied to a significantly larger proportion of a roaster’s purchases, as it is only possible in coffeegrowing countries where there are already largeprocessing plants.
Quality improvement is an efficient approachOne reform strongly advocated by the InternationalCoffee Organisation and by a number of roastersincluding Nestlé is to drive up prices by improvingquality. The ICO has passed a resolution (407) to thiseffect. It sets quality levels below which green coffeeshould not be exported. Carefully and well preparedcoffee that is presented for purchasing with thedefective beans removed, and free of foreign material,will result in a higher price for the farmer due to itssuperior quality. It is a good first step, but further workon quality should be done.
Farmers sometimes need support to improve quality.This is an area in which governments, internationalorganisations, companies and NGOs can collaborate.Initiatives are already in place, in particular amongindustry members and development agencies. Butmore work needs to be done on that level, in particularby governments in producing countries which shoulduniformly adopt the same methodology and processwhen determining these quality standards. This is alsoan area in which companies can play a positive rolethrough technical assistance to the farmers.
The futureToday, producers are grappling with the rigours of a new coffee growing revolution. More aggressivemanagement has transformed traditional estates intolarge scale, low cost agribusinesses. These have a role to play in alleviating poverty and creating new kinds of jobs – many of them in offices and distribution, rather than fields. The trend cannot be reversed.
New industry means new opportunities for some,but not for all. The modernising coffee business will no longer support 25 million small farmers. In the main,they have relied on coffee for so long only becausemany are barred from finding livelihoods elsewhere by tariff barriers and agricultural subsidies in the
developed world. International organisations,companies and NGOs must work together to helpgovernments and politicians understand that the brunt of famine and poverty will fall most heavily onthose who depend most on growing low-grade cropsunless, and until, a more liberalised system of worldtrade allows them a viable alternative.
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From cherryto cup
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From cherry to cup: the process
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the sun on the ground or ontables. (7) In wet processing,the skin and the pulp of thecherries are removed by asuccession of mechanical and watery treatments,producing parchment coffee.(8) After the coffee is dried, the parchment which remains
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(1) In order to get a goodquality coffee, it is important togrow the appropriate varieties.Researchers around the globeare working on improving thecharacteristics of coffeevarieties. (2) Seedlings of new improved varieties arethen mass-produced to be
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bought by or given to farmers. (3) It takes on average three tofour years for a coffee tree toreach maturity and bear fruit. (4) The cherries develop slowly, turning light green to bright red as they ripen over a period of about nine months.The coffee is usually picked
by hand. (5) Inside each cherry are two coffee beans.Once harvested, the beansmust be separated from theskin, pulp and parchment thatsurround them. This is done by one of two alternativemethods. (6) In dry processing,the cherries are first dried by
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on the bean is removed by a hulling machine. Finally, thehulled coffee beans are sorted by hand or machine toremove stones or other foreignmatter, and defective beans. (9) This results in what is calledgreen coffee. (10) A strictcontrol of the green coffee
helps to monitor the quality of the exported beans. (11) The coffee is then storedand (12) traded in futuresmarkets. (13) Once purchased,it is shipped to the factory. (14) There it is roasted. (15) That is the end of theprocess for roast and ground
coffees. (16) In the case of soluble coffees, a longermanufacturing processinvolves an extraction anddrying process to obtain(17) soluble coffee powder.(18) After a final quality control, (19) the coffee is filledin jars and (20) distributed
to (21) coffee shops andretailers. (22) Then only, it can be consumed by millions of people around the world.
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�19 �20 �21
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Coffee is enjoyed all around the world. The “dailycup” is a ritual for many, the first thing we doevery morning. In fact, it would be hard to find ahome or an office that doesn’t own a jar ofcoffee. Drinking coffee is a truly global pastime.
But how much do you know about this most important drink? Have you ever wondered how the coffee in your cup came to be there?
This is the story of the chain of events that turns coffee cherries into a beverage that is enjoyed by millions of people throughout the world.
It is also the story of the people – and thecommunities – behind that process, and howNestlé works with them to improve their results.Around the world an estimated 25 millionfarmers make all or part of their income fromgrowing coffee. In addition to them, millions ofother people depend on the global coffeeindustry for their livelihoods. These are theindividuals who link the coffee chain together.
What can be done to help coffeefarmers improve their incomes?
Nestlé’s coffees are sourced inimost growing-countriesi
Coffee – the world’s second mostimportant agricultural commodity –has its origins in Africa.
It grows best in the “coffee belt”, a region of the world that straddlesthe equator between the tropics ofCancer and Capricorn.
For many of the countries in thebelt, coffee is a valuable export. For some of the communities withinthese countries, producing coffee is the primary economic activity.
The vast majority of coffeefarmers – some 80% – aresmallholders owning a few hectaresof land or less. For many of thesefarmers, growing coffee representstheir only source of income.
Nestlé is a regular buyer of coffeeproduced in most of the coffee-growing countries.
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A high yield of quality coffeecherries depends on having diseaseresistant, healthy coffee plants.
Scientific research into theimprovement of these plants ishelping farmers to secure a greateryield and a higher quality crop,which means they can earn morefrom growing coffee.
Research has developedmultiplication techniques – such as somatic embryogenesis – thatenable specific high quality coffeevarieties to be reproduced in bulk.
Dr. Alfredo ZamarripaiINIFAP InstituteiChiapas, Mexicoi
Alfredo Zamarripa is responsible for industrial crops at the INIFAPInstitute in Chiapas, Mexico.
“I carried out practical researchfor my PhD in France with the Nestlé Research Centre. It was my supervisor who suggested thatwe might start a project based onmy research here in Mexico. We had a meeting and very quickly weagreed on the different areas ofresearch for this project.
“The result of those years ofcollaboration is that we obtainedeight selected clones that have a very high industrial quality, areresistant to disease, and have theability to produce a yield four timesin excess of normal production.
“It makes me very happy to beinvolved in this line of work. I knowthat this project is going to be animportant contribution to helpingthe coffee farmers of Mexicoovercome the current crisis. Thetechniques we have developed herewill enable farmers to produce ahigher quality crop and earn more.
“I am a coffee farmer myself. I think this is important. If you are just a scientist, it’s possible to losetrack of the full picture of the coffee cycle. But when you are afarmer yourself, and you know theproblems they experience, it’smuch, much easier to understandjust what the farmer needs and how technology can support him.”
Improving the quality of coffee trees through research
Nestlé supports researchion coffeei
The Nestlé Research Centre in Tours, France, has pioneeredresearch to improve coffeecultivation around the world.
Working alongside partnerinstitutes in coffee producingcountries, it has developedtechniques to cultivate coffee plantsthat are adapted to particularenvironments and soils.
It also conducts studies to controlthe diseases and pests that destroyfarmers’ crops and livelihoods.
Working in collaboration withseveral coffee producing countries,Nestlé has established a collectionof 250 proven high quality coffeevarieties from around the world.
These are offered free of chargeto the countries that have partici-pated in the project, enabling themto conduct plant improvementprogrammes using the best varietiesfor their climate and conditions.
In Mexico, for example, INIFAP,an agency of the Mexican govern-ment specialised in agriculturaldevelopment and partly funded byNestlé, has set up a multiplicationprogramme for the large scaleproduction of high quality andproductive Robusta coffee plants.
These are supplied free of chargeto Mexican coffee farmers, helpingthem to become more competitiveand to produce coffees thatcorrespond to Nestlé’s factoryneeds. This guarantees a buyer for their harvest.
The improvementof coffee plantshelps farmers to produce betterquality coffee
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“When you are a farmeryourself, it is much, much easierto understand what the farmerneeds and how technologycan support him.”Dr. Alfredo Zamarripa
From cherry to cupii
Bayetta BellachewiCoffee and Tea ResearchiProgramme Co-ordinatoriJimma Research CentreiEthiopiai
Bayetta Bellachew has beenworking at the Jimma ResearchCentre for 23 years. He obtained his PhD in Plant Breeding at Imperial College at Wye, Universityof London. He developed thepromising Aba Buna coffee varietyat the Jimma Research Centre.
“Here, at the research centre, we have launched a programmeaimed at gathering and describingthe various Ethiopian coffee typesand develop improved varieties.Arabica coffee comes from Ethiopiaand grows wild in our forests. Whatwe aim at doing is to identify thevarieties that are best for cultivation.
“Ethiopian growers cannot affordpesticides and fungicides. It istherefore vital for them that weprovide them with coffee varietiesthat are pest and disease resistant.Another crucial aspect for ourfarmers is productivity. As they areall smallholders, they need to havehigh yielding plants that will enablethem to have a sufficient income.
“But with the low coffee prices,we have realised how important it isthat we put an emphasis on thequality of the coffee that isproduced. A high quality coffee willhave a better market value and will enable farmers to improve theirrevenue. So we are now alsofocussing our research on thisaspect.”
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Developing disease resistant and productive coffee trees
Coffee needs to be adapted to itsenvironment, and this needs to betaken into account in the researchcarried out by the research centre. “A variety that performs well inHarar might be less productive inSidamo or here in Jimma. That iswhy we have opened sub-centreselsewhere in the country in order totest the coffee varieties in otherenvironments. That way, theadaptability, productivity and qualityat each location can be monitored.”
The Jimma Research Centre hasachieved a number of scientificsuccesses over time. One of them isthe development, over the pasttwenty years, of the Aba Bunacoffee variety, a hybrid obtainedfrom two Ethiopian varieties. “Aba Buna is a very productivecoffee that also has a goodresistance to coffee diseases andtoday the multiplication process willbegin as soon as the appropriatetechnology is put in place, in orderto supply it to the Ethiopiangrowers.
“Now that we have started acollaboration with Nestlé’s researchcentre in Tours, we believe that wewill be able to perform better in ourresearch. Their experience in thatfield, as well as their financialcontribution will be a great supportfor us. By improving the Ethiopianfarmers’ planting material andprocessing practices, we will helpthem to perform better in the worldmarket.”
The JimmaResearch Centrefocuses ondeveloping highquality coffeeplants
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“By improving the Ethiopian farmers’ planting material and processing practices, we will help them to perform better in the world market.”Bayetta Bellachew
From cherry to cupii
Nestlé provides best qualityicoffee plantsi
Nestlé provides high quality coffeeplants free of charge or at cost to coffee growers through projectsin a number of countries.
This allows farmers to growvarieties adapted to theirenvironments and soils. It helpsthem improve the quality and yieldof their coffee.
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Two main types of coffee are growncommercially: Robusta, whichoriginates from Central and WesternAfrica, is now mainly grown inVietnam, Brazil, Indonesia, Uganda,Côte d’Ivoire and India.
Arabica, which derives fromEthiopia, is today principally grownin Brazil, Colombia, Mexico, CentralAmerica, Peru and East Africa.
World supply is currently about60% Arabica and 40% Robusta.
The different varieties of coffeeare each suited to certain climaticand soil conditions. Even within aparticular country or region, certaincoffee plants will produce greaterquality and yields than others.
Micaela Sanchez FloresiFarmeriLa Victoria, Mexicoi
Micaela Sanchez Flores is a farmerat La Victoria communal coffee treenursery in the Tezonapa region ofMexico, where Nestlé has initiated a number of projects to supportcoffee farmers.
At the nursery, Micaela SanchezFlores and other local coffee farmersare tending Robusta coffee saplingsto prepare them for transfer to theirfields. The saplings were grownfrom seeds from the INIFAP Institutein Chiapas, Mexico, and werespecially selected for planting in theTezonapa region.
Nestlé funded the construction of La Victoria nursery. In return fortheir work in tending the coffeesaplings, the farmers receive themature plants free of charge. Theyare also paid a small salary by themunicipal authority.
“I have already replaced half a hectare of my coffee plantation with plants from this nursery. I understand that these plants areexpected to produce better qualitycoffee cherries. Obviously, that will be a help to us during thesedifficult times.
“I am optimistic about thisproject. It’s a positive thing for usright now.”
Providing farmers with better coffee plants
SomjadeSimchaluen isone of the Nestléagronomists whoprovide seedlingsto coffee farmers in Thailand
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“We hope to see an increase in the quality of the cherries and therefore a higher price.”Micaela Sanchez Flores
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For many coffee farmers, theagricultural techniques they usehave been passed on fromgeneration to generation. Thesefarmers may not have had anopportunity to benefit frominstruction in more advancedfarming skills.
By learning new harvesting andprocessing techniques, farmers canimprove the quality of their coffee.One example is the use of waterflotation to separate good and badquality cherries. This leaves farmerswith a crop of a consistently highquality, which can then be sold for a higher price.
Farmers can also benefit frominstruction in the use of compost toreplace fertiliser. This reduces theircosts whilst protecting their land and promoting sustainableagriculture.
Nestlé works closely withicoffee farmers to help themiimprove their cropsi
Nestlé runs three Experimental andDemonstration Farms, in China, the Philippines and Thailand. On each of these farms,agronomists from Nestlé’sAgricultural Services Departmentprovide technical assistance andadvice to farmers. Their advice helps the farmers to farm moreproductively, and it helps Nestlé to secure a future supply of highquality coffee for its factories around the world.
Nestlé also supports a CoffeeTraining Centre in Ethiopia.
Advice provided by Nestléagronomists is free and there is no obligation on the farmer to thensell his coffee to Nestlé.
Offering free assistance to coffee farmers
Using compost is an efficient wayto reduce costs
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Mheuyhi AbegooiNestlé Experimental andiDemonstration FarmiDoi Tung, Thailandi
Mheuyhi Abegoo has been workingin Nestlé’s Doi Tung Experimentaland Demonstration Farm (E&DFarm) since its creation fourteenyears ago. She looks after the Farm’scoffee plantation and garden. Forher, working at the Farm is a goodway of supplementing the incomeshe gets from her coffee and lychee farm.
“By working here, I also gainknowledge of how to grow mycoffee more productively.”
The Doi Tung E&D Farm assistsfarmers to improve their techniquesfor growing Arabica coffee. Up to600 coffee growers receive practicaltraining and tuition at the Farm each year.
“I really like the concept of thisFarm, it gives people from the hilltribes of northern Thailand anopportunity to improve their coffeecultivation. This way, they can derivemore income from coffee and havea more comfortable life.”
“Coffee farmers can derive moreincome from coffee and have a more comfortable life.”Mheuyhi Abegoo
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Orn-lamai SiriporniFreelance JournalistiChumphon, Thailandi
Orn-lamai Siriporn is 35 years old.She is a freelance radio presenterand journalist.
Once a week on the ChumphonMeteorological Radio Station she presents a radio programmeproviding technical assistance to the area’s coffee farmers.
“It’s a real challenge for me topresent this programme, but I accepted the job because I knowthat it helps the farmers in myregion. If they apply the advice given in my programme, they canimprove the quality of their coffeeand earn more.”
Nestlé founded and funds thisradio programme. The company’sagronomists help Orn-lamai Siripornto prepare the broadcasts and areregularly interviewed on the show.
“Every week we broadcast adiscussion interspersed with music.The combination of music anddiscussion makes the programmeentertaining and informative. Our one-hour long programme is broadcast weekly throughout the year.”
For the last six years, theprogramme has been broadcast on two radio channels, reachingsome 5000 farmers. However, in June 2003, a third radio stationagreed to broadcast the show and it now reaches all of Nestlé’s16 000 suppliers and other farmersin the region.
“The great thing about thisprogramme is the response itgenerates from farmers. Every weekfarmers call the radio stations to get advice, or simply to inquireabout something we discussed on the show. Some farmers just callto thank us.”
Once a week a programme oncoffee growing is broadcast onradios in southernThailand
Somjade Simchaluenis a Nestlé agronomistwho providestechnical advice on the ChumphonMeteorological RadioStation
Informing farmers on better coffee cultivation
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“Every week, farmers call the radio station to get more informationon coffee cultivation.”Orn-lamai Siriporn
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Women outside buying centreiGagnoa, Côte d’Ivoirei
“During the buying season, whichusually begins in December andfinishes in May, I clean coffeeoutside the Nestlé Buying Centre inGagnoa. I work in a team with otherwomen. We are friends.
“Sometimes there are up to 250 women cleaning coffee outside the buying centre. It is veryanimated and very busy.
“I can clean about ten 90 kg bagsof coffee in a day, depending on howdirty the coffee is. I sift the coffeewith a wicker pan to separate anystones, dust and dirt from the greencoffee beans.
“It is hard work, but I am in good company. We earn between CFA 200-300 for each bag of coffeewe clean.” In Côte d’Ivoire, farmworkers earn CFA 90 000-120 000per year plus food and housing.
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Coffee needs to go through anumber of post-harvest processesto convert it from fresh coffeecherries to green coffee beans.
Each coffee cherry contains twobeans that must be separated fromthe skin, pulp and parchment thatsurround them.
In dry processing, the cherries arefirst dried by the sun. This can alsobe done in special machines. Oncedry, the cherries are fed into hullingmachines to remove the husk andleave just the bean.
In wet processing, the skin andthe pulp of the cherries are removedby abrasive disks as the cherriesmove past in running water. Theremaining sticky pulp on the beans,still surrounded by a fine layer ofparchment, is removed either byfermentation or by mechanicalmeans. When the coffee is dried,the parchment is removed by a hulling machine. This results in what is called green coffee.
Dry processing is easier and moreeconomical than wet processing.However, wet processing producesbetter quality coffee.
Finally, the hulled coffee beansare sorted by hand or machine to remove stones or other foreignmatter, and defective beans. Thepresence of these reduces thequality of coffee and, consequently,the price for which it can be sold.
Depending on the resourcesavailable to them, coffee farmerswill be able to carry out some ofthese processes themselves. Themore they do, the higher the pricethey can command for their crop.
Improving post-harvestprocesses
Nestlé encourages farmersito invest in better processingi
Nestlé supports projects that givefinancial support to farmingcommunities and enables them toacquire the equipment that isneeded to process coffee cherries.
This means that the farmers retain more of the value of the coffeebeans they grow.
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“I sift the coffee with a wickerpan to separate any stones, dust and dirt from the coffee beans.“
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Nestlé Nespresso paysipremium prices for the qualityicoffee it buysi
The quality premiums paid by Nestlé Nespresso, the fastgrowing portioned coffee business,reward farmers for the high quality products they produce to meet the expectations of Nespressoconsumers.
At the same time, NestléNespresso is committed to theprogressive implementation ofsustainable quality coffee practices.This will not only ensure that thegreen coffee Nestlé Nespresso buys meets its premium qualitystandards, but also that itsproduction conforms to the long-term economic, environmental andsocial principles required forsustainable development in thecoffee producing countries.
Through its AAA coffeeprogramme initiated in Costa Rica,Nestlé Nespresso seeks to establishand promote high quality to assurethat its AAA system is properlyimplemented. The AAA programmeaims at building capacity forprofessional assessments ofsustainable high quality at the farmor mill level and to improve thetraceability of its coffee origins.
AAA coffeeprogrammes will soon begin in Colombia and Ethiopia
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Ildiberto Escobar ValdiviaiAssociation of TezonapaiCoffee GrowersiTezonapa, Mexicoi
Ildiberto Escobar Valdivia isPresident of the TezonapaAssociation of Coffee Farmers.There are 8000 coffee farmersin this region of Mexico.
“Local farmers united to form the Tezonapa Association of CoffeeFarmers and established their ownmill in Limonestitla in 1997.
“Most of our coffee is sold directlyto Nestlé, and what remains is used for local consumption.
“Proprietorship of a mill enables us to carry out nearly all ofthe processing of green coffeeourselves.
“We feel more secure nowadays,because we are an association andbecause of our relationship withNestlé. Our farmers are guaranteedpayment on time by Nestlé. Theyalso benefit from advice from Jesúsand Martín, Nestlé agronomists who visit the mill regularly.
“Our culture here is coffee. It’ssomething we have inherited from our parents. These are hardtimes, it is true, and we know thatsuccess will only come through hard work and organisation. That is why we are workingcollaboratively.
“Our farmers greatly welcomeNestlé’s involvement.”
Supporting co-operatives
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”The farmers establishedtheir own mill and this hasenabled them to sell theircoffee at a higher price.”Ildiberto Escobar Valdivia
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Post-harvest treatments form an important link between coffeefarmers and roasters, turning coffee cherries into coffee beans.Their quality is critical in determiningthe price that the green coffee can be sold for.
In a minority of cases, farmers ortheir associations will own themilling machinery. In most cases,however, farmers will rely on smallcontractors to hull their driedcherries or on large mills in theirlocal town or village.
The mills charge a fee to processthe coffee. They then pack it andarrange delivery to the roaster.
Nestlé considers that the milliplays a key role for qualityi
For washed coffee, the mill plays a key role in the quality of the coffee.This is why, in some countries,Nestlé has close relationships with the mills that supply its Nescafé factories.
In Mexico, for example, Nestléagronomists will regularly visit themills to ensure that high standardsof food safety are applied. They alsoinspect the financial records of themills to check that farmers havebeen paid according to the price thatNestlé paid when it purchased fromthe mill.
Jorge VarelaiExportadora de Granos yiOleaginosas del SuresteiMexicoi
Jorge Varela is the manager ofExportadora de Granos yOleaginosas del Sureste, a coffeemill in Tapachula, Mexico. For thepast twelve years, this mill hassupplied the Toluca Nescafé factoryoutside Mexico City.
“When buying coffee from thefarmers, we are in daily contact withNestlé by phone. Based on the realtime prices of coffee, we placecontracts with Nestlé. The price the farmer receives is the price onthe international market that day.
“The reality is that the farmersalready know which price to expectwhen they bring their coffee to themill. They have access to thisinformation through theirassociations, newspapers, radio,and the internet of course.
“What we are doing is giving anadded value to the coffee. In doingso, we are helping the farmers to sell their coffee.
“We regularly receive advancecontracts from Nestlé. The pricesmay go down between the contractbeing made and Nestlé takingpossession of the coffee, but Nestléalways gives us the price that wasagreed at the time. Of course, itcouldn’t be any other way as we will have already paid the farmers at that price.
“I’ve had this job for 12 years now.I like the fact that I deal directly withthe farmers. We try hard to givethem an excellent service and tohelp them to sell their product.”
Ensuring quality post-harvest treatments
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“The farmers already know what price to expect when they bring their coffee to the mill.”Jorge Varela
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In many countries, middlemenfeature in the coffee supply chain. These middlemen enablecoffee farmers to sell their crop.However, when the supply chain isinefficient and involves too manyintermediaries, it is to the detrimentof the farmers, who then receive a lower price for their coffee.
Direct purchasing of green coffee– where the roaster buys directlyfrom the farmers or theirorganisations – is a way to improvethe farmers’ revenue when thecoffee chain is inefficient. It helpsthe farmers retain a greater part of their coffee’s value.
In addition to that, it has otheradvantages. It promotes qualityimprovement, as payment is basedon strict quality criteria, and itprovides farmers with an alternativesales channel.
Tatrit KunasoliNestlé AgronomistiSawi Buying Station, Thailandi
Tatrit Kunasol is 31 years old. Hestarted working for Nestlé four and a half years ago after graduating from university with a degree inagronomy. He is now in charge of the Sawi buying station in theChumphon Province of Thailand and supervises the six satellitebuying stations in the area.
After the harvest, Tatrit Kunasoland his team of Nestlé agronomistsprovide agricultural advice to the16 000 local farmers who supply the buying stations. Through acombination of farm visits andorganised seminars, they explaincultivation techniques to improveboth quality and yield.
“During the harvest season, we draw up a calendar so that thefarmers know when to bring theircoffee. Before we started thissystem, we often had a queueseveral kilometres long thatdisrupted the traffic on the main road nearby.
“Today, with our computerisedsystem, we know in advance roughlyhow much coffee each farmer willbring. This allows us to forecastdeliveries and we display in advancethe dates when every farmer has to bring his coffee.
“To make sure that thosedelivering coffee are genuinelyfarmers, we have a system of identitycards. These also provide details ofthe size of the farm, the averagequantity of coffee produced and thebank details of the farmer.
“As soon as the farmers bringtheir coffee, the first thing we do ischeck the quality to see if it meetsNestlé standards. Assuming it does,the farmer immediately receives adate of payment for the coffee. Theorder is transmitted via satellite toour headquarters in Bangkok andthe transaction is made within days.We make bank transfers. Cash is nolonger used. It is safer for everybody.
“The price of coffee is defined inagreement with our management in Bangkok. It is significantly higherthan that offered by the localtraders, and the pricing istransparent. The price of the day is displayed on the main street, in front of the road leading to ourbuying station. Last year theaverage price was between THB 35and THB 40 per kilogram, which is a lot more than the local traders.”
Buying coffee directly from farmers
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Nestlé is the world’s largestidirect buyer of coffeei
In 2002 Nestlé purchased 110 000tonnes – or 14% of its needs – ofgreen coffee directly from farmers.The company currently engages indirect procurement in six countries.
In Thailand, where directprocurement has been in placesince 1991, 34 000 tonnes of greencoffee were purchased directly fromfarmers in 2002/2003.
Nestlé has opened six buyingstations in the coffee growing areas in the south of the country. These provide a selling point for 16 000 coffee farmers.
In these buying stations, farmersare the only ones allowed to sell theircoffee. Rigid conditions – includingthe use of identity cards – are usedto enforce this rule and ensurecomplete transparency of price.
In 2002, the average price paid byNestlé for coffee was THB 38.70(about USD 0.97) while local traderstypically paid between THB 17 toTHB 25 (USD 0.35 to USD 0.50).
“The price we pay for coffee is significantly higher than that offered by local traders .”Tatrit Kunasol
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When a farmer sells his coffee, it ispreferable that he is paid at the pointof sale. If this is not possible, thefarmer should at least know howlong he must expect to wait forpayment. Any mechanism whichmeans that the farmer is directlypaid is valuable.
In some cases, the existence ofintermediaries in the coffee supplychain is necessary, for without themthe farmers’ coffee would never be sold.
But sometimes middlemen takeadvantage of a farmer’s weakfinancial position and location inremote areas to offer him a very lowprice for his coffee. Others abusetheir relative wealth to make loans tofarmers with very high interest rates.
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Samarn KhaewkhongnoakiCoffee FarmeriChumphon ProvinceiThailandi
Samarn Khaewkhongnoak is a coffee farmer in ChumphonProvince, Thailand.
“A number of years ago, therewas a drought in the northeast,where I was a rice grower. I decidedto come to Chumphon Province togrow coffee. You have a better life asa coffee farmer than as a rice farmer.
“When I started growing coffee,the price was a lot higher than today.Then, I could get THB 75 for akilogram of green coffee. Today, the local traders pay just THB 20,but, fortunately, Nestlé gives meTHB 35-40.
“I sell all my coffee to Nestlé. Theygave me a card that allows them to track the coffee back to my farm.
“When I sell my coffee, Nestléimmediately tells me how much I will receive and when it will be paidinto my bank account. This way I donot need to carry money with me;when I need some, I go to the ATMin the next town.”
Each bag bought by Nestlé islabelled, allowing the company tomonitor the crop’s journey throughthe coffee cycle.
Paying farmers promptly
In Thailand,Nestlé has asystem of identitycards to makesure that thosedelivering coffeeare genuinelyfarmers
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Nestlé and fair tradei
Nestlé recognises that fair trade is a useful way to raise consciousnessabout the coffee issue and forindividual consumers to expresstheir solidarity with coffee farmers in the developing world.
However, if on a broad basiscoffee farmers were paid fair tradeprices exceeding the market price, the result would be to encourage farmers to increasecoffee production, thus furtherdepressing prices.
Worldwide, the fair trademovement accounts for less than25 000 tonnes of green coffee.
Nestlé’s direct purchasingaccounts for 110 000 tonnes ofgreen coffee per year. This system,which respects the market’s rules,enables the farmer to retain agreater portion of the price paid by Nestlé, thereby improvinghis income.
“When I sell my coffee, Nestléimmediately tells me what I willreceive and when it will be paidinto my bank account.”Samarn Khaewkhongnoak
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For many years and around theworld, growing coffee has been a way for small farmers to earn an income. Coffee is a cash crop that can be easily sold and itcan be grown on small areas indiverse environments.
However, with the current lowcoffee prices, relying solely oncoffee is a precarious business.Some farmers have looked to otherareas to earn an income, turningattention away from their coffeetrees. In some cases, growers havecompletely abandoned their trees.
Roasters depend on a steadysupply of high quality green coffee.This is jeopardised as soon as coffee farmers neglect their trees.
To become less reliant on coffeebut continue to be able to grow it,growers need to diversify theirincome generating activities. Thisis a difficult transition for many to make, but it is possible with theright support.
Nestlé helps farmersito diversify their incomesi
Nestlé is supporting projects in anumber of countries to help coffeefarmers diversify their productionand secure alternative sources of income. In the Philippines, the cultivation of a wide range of alternative crops has beenpromoted. Peanuts, bananas,coconuts, ginger, cassava,pineapples and sugar cane are all grown alongside coffee trees.
In the Tezonapa region of Mexico,Nestlé has established severalprojects to help coffee farmersdiversify their sources of income. A fish farm, managed by teams of farmers, provides a valuableadditional income for localcommunities, and the cultivation oftropical trees for sale is an importantinvestment for the future.
Nestlé has provided the initialfunding for these diversificationprojects and will continue to providetechnical assistance. In the longterm, with the financial securityprovided by these activities, Nestlé’s direct support will no longerbe required.
Javier Correa OrtiziFish Production ProjectiSan Miguel Tenejapan, Mexicoi
Javier Correa Ortiz is in charge of the Fish Production Project in SanMiguel Tenejapan community in theTezonapa Region of Mexico. Thisproject, which was started withNestlé’s support in April 2003, willsoon provide local coffee farmerswith an additional source of income.
“There are fourteen of us involvedin this project and I am the presidentof the group. We are all coffeefarmers and divide our timebetween here, La Victoria nurseryand our fields. We work for fourhours each day at the fish farm,feeding the fish and changing thewater. The rest of the time, we tendour coffee.
“Currently there are 1600 tilapiasin the pond. They are growing fast,and the farmers are confident theproject will be a success. When thefish are mature, they will be sold inthe community and the profits fromthe project reinvested for expansionin the future.
“We are thinking about building a new pond soon. It’s like having a company, now that we have ourown resources.
“I don’t think this would havebeen possible without Nestlé. It wastheir idea that we engage in fishproduction and they have providedsupport throughout.”
Supporting income diversification
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“We work four hours each dayon the fish farm. The rest of thetime, we tend our coffee.”Javier Correa Ortiz
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Finding alternative crops
Khaun KadkhratoakiCoffee farmeriChumphon Province, Thailandi
Khaun Kadkhratoak is 39 years oldand a farmer in the ChumphonProvince of Thailand. He has beenmarried for 16 years and has adaughter, Kik, who is 14.
Khaun Kadkhratoak moved toChumphon Province 18 years ago,from the northeast of the countrywhere his family grew rice.
“I knew that the south was betterbecause here you can grow coffee in addition to many other crops”, he says.
Now Khaun Kadkhratoak ownsfive hectares of coffee, whichbrought him about THB 200 000 last year. At the same time, the durian he grows gives him anadditional income of THB 130 000.He also grows other tropical fruits, such as mangostein and rambutan, which provide him with another THB 24 000. Afterexpenses, he has over THB 100 000per annum in his pocket. An averagefactory worker in the region earns
approximately THB 50 000 per year.
“It is better not to rely on just one crop because prices canfluctuate. When they do, it’s good to have other crops to compensateyou. That is why, when I came to Chumphon, I planted different crops.
“My wife works with me on thefarm and, after school, our daughtergives me a hand too. We all worktogether and we share the tasks.During the harvest season, I payrelatives to also help with the work.”
Khaun Kadkhratoak also grows vegetables on his farm andfishes locally.
“My dream is to have a biggerfarm. I am investing my savings topurchase new land. I sell my coffeeto Nestlé and this allows me to getsubstantially more money than if I sold it to the local middlemen, as I did before.”
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“It is better not to rely on justone crop because prices canfluctuate. When they do, it’s good to have other cropsto compensate you.”Khaun Kadkhratoak
Growing othercrops, like durian, alongside coffee helps to stabilise the farmer’s income
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Carefully and well prepared coffeethat is presented for purchasingwith the defective beans removed,and free of foreign material, willresult in a higher price for the farmerdue to its superior quality.
A worldwide commitment tohigh quality coffee will also helpcoffee farmers in the long term. By reducing the quantity ofsubstandard coffee being sold,quality controls help to restrict thesupply of coffee to an alreadyoversupplied international market.This will mean, in the long term, that coffee farmers will be able to command a higher price for their crop.
Furthermore, by ensuring thatonly high quality coffee reaches themarket, coffee consumption is likelyto remain buoyant.
Nestlé and the ICOiresolution 407i
The International CoffeeOrganisation (ICO) recently passed a resolution aimed at eliminatinglow-grade coffee from the supplychain (ICO Resolution 407).
The Nestlé Quality ControlCentres (NQCC) were created over30 years ago to ensure that exportedcoffees comply with the qualityrequirements of the Nestlésubsidiary that ordered it.
Nestlé believes that the NQCCnetwork in producing countriesencourages and enhances a betterunderstanding of quality and thiscontributes to the objectives of ICOResolution 407.
Monitoring the quality of coffee
Severin NiampiiQuality control, Nescafé factoryiAbidjan, Côte d’Ivoirei
Severin Niampi is in charge of quality control at the Nescafé factory in Abidjan.
“Providing the coffee samplepasses the moisture test, I set aside100 g for a defect count. Thisestablishes the proportion of thesample that is foreign matter –stones, etc – or bad beans. If thedefect count is too high, coffee canbe rejected for further sorting.Similarly, if the moisture content istoo high, the coffee can be returnedto the farmers for further drying.
“I check coffees that will be usedhere in the factory, but also greencoffees that will be exported bytraders to French Nescafé factories. It is nice to think that my work here in Abidjan contributes to pleasing theFrench Nescafé consumers.”
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“I check green coffees that will be exported by traders to French Nescafé factories.”Severin Niampi
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The process that converts greencoffee beans to soluble coffee that is eventually sold involves manystages and a considerable amountof technology.
A typical instant coffee factorywill employ several hundred people,many of whom are highly skilled.
Nestlé’s strategy of locatingproduction facilities close to thesource of green coffee whereverpossible means that the valueadded to the green coffee remainsin the country of origin.
In addition to Nescafé factories,Nestlé sets up many of its otherproduction facilities in developingcountries. In fact, 40% of all ofNestlé’s factories are located indeveloping countries.
A large share of Nescaféi is manufactured inideveloping countriesi
Eleven out of 27 Nescafé factories are in coffee producing countries. About 55% of Nescafé isproduced in developing countries – creating jobs, generating tax revenues and transferring state-of-the-art technologies.
This beneficial impact ismultiplied through increasedsupplier activity and the presence of a well paid workforce incommunities with Nestléinstallations.
In addition to all of this, Nestlé’spresence in a country serves to draw attention to internationalstandards of quality, food safety and environmental awareness.
Creating jobs in coffee-growing countries
By buildingfactories in coffee-growingcountries, Nestlé directlycontributes todeveloping localeconomies
N’gessan AssanavoiHead of Nescafé factoryiAbidjan, Côte d’Ivoirei
“I started working for Nestlé onFebruary 14, 1977. The director who recruited me put me to workunloading pallets. It’s a hard job andhe wanted to see if I could stick itout. I must say I wasn’t enthused.
“After two years, I decided that in actual fact I wanted to be atelevision presenter and I madearrangements to travel to France to train. When my uncle and myparents learned of these plans, they were furious. My uncle was a director of an Ivorian company at the time. I remember he told methat if I stayed with Nestlé I would go on to earn more than him.
“Unable to make a choice, I went to speak with my line manager at Nestlé, who persuaded me tostay. I’m glad he did. Today I am in charge of Nescafé production. I am responsible for 67 staff, and I earn more than my uncle!
“I have had great opportunities to travel in my job, including toSwitzerland, France and UK. When I travelled to France, I took with mesome Nescafé from Côte d’Ivoire.During my meeting with colleaguesfrom Nestlé France, I was offeredcoffee. I settled for hot water andadded my own sachet of IvorianNescafé. We all laughed, but I reallydo prefer it.”
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“I never thought I would be the Head of Nescafé production inCôte d’Ivoire, but today I am.”N’gessan Assanavo
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The underlying causes of low coffeeprices are complex but the simplefact is that coffee consumption isnot growing fast enough to absorbexcess production.
Collaborative efforts andindividual marketing campaigns areneeded to promote consumptionaround the world.
Under the auspices of the ICO,the world’s most important roastershave committed to the PositivelyCoffee Initiative. In recent yearsconsumers have heard manynegative messages concerningcoffee. This initiative aims at sharingmore balanced information, basedon scientific research into thepositive aspects of drinking coffee.
Nestlé plays a key role iniincreasing coffee consumptioni
For many years Nestlé has led theway in increasing coffeeconsumption. Over the past decade,total coffee consumption hasincreased by 17%. Driven byNescafé, soluble coffeeconsumption has actually increasedby 35%. Nestlé alone has increased its soluble sales by 40%over the last ten years.
This is the result of intensiveefforts to create and developNescafé consumption in both wellestablished markets (Europe, NorthAmerica, Japan) and younger ones(Russia, China and a number ofother emerging economies).
Graham WhiteiMarketing ManageriCroydon, United Kingdomi
Graham White is a marketingmanager for Nestlé UK. For the lastfive years he has been involved in promoting Nescafé consumptionin the country.
“Nescafé is a great product with a fantastic heritage. If you ask people for a coffee brand they trust, Nescafé ranks highest. Indeed, for many people in the UK, Nescaféspells soluble coffee.
“However, in today’s fiercelycompetitive market, you can tradeon your past success for just so long.There is no room to be complacent,even though drinking coffee is sucha popular habit.
“Today, there are so many otherproducts that answer to customers’needs and desires. As a result, forthe past few years in the UK, wehave been witnessing a decline indomestic coffee consumption.
“What I particularly enjoy aboutmy job is the challenge of findingnew ways to make what areessentially ‘brown granules in a jar’relevant and compelling for today’sconsumer. At Nestlé we spend a great deal of time talking to consumers, identifying what they want from a drink. We also continually develop and testnew concepts.”
Boosting the demand for coffee
Nescafé sampling efforts – in Russia, as well as in other emergingmarkets –contribute toincreasing the demand forgreen coffee
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“My challenge is to make ‘browngranules in a jar’ relevant andinteresting for today’s consumer.”Graham White
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Soumahoro SegbetiiNescafé Pushcart OperatoriAbidjani
Soumahoro Segbeti operates aNescafé coffee pushcart. These areunique to Senegal and Côte d’Ivoire.Nestlé plans to have 500 Nescafécoffee carts operating in Abidjan by December 2004.
Each morning SoumahoroSegbeti collects his cart from theNestlé offices close to the industrialport in Abidjan and steers it to themain market in Koumassi. It is a 7 km walk.
He stops regularly along the wayto sell cups of Nescafé to hiscustomers. Soumahoro Segbeti has a good rapport with many of theoffices along the route and servesthem daily. He has at least 80 loyalcustomers, each of whom pays CFA 100 for a cup of Nescafé.
Soumahoro Segbeti’s cart hasbeen repainted three times andupgraded once since he tookpossession of it in December 1997.
“Nestlé provides me with athermos, and I buy supplies ofNescafé from the company. I earnabout CFA 48 000 per week, whichpays my rent and provides my wifeand me with a good livelihood. I’m saving to buy a kiosk, or two!
“I prefer it when it rains a little.People prefer to drink coffee in thedrizzle. I’m a good salesperson,explaining to my customers thatNescafé is good with food, or afterfood. Every time of day is coffeetime for me and my customers!”
SoumahoroSegbeti is one of the manypushcartoperators that sell Nescafé inCôte d’Ivoire
Increasing consumption in developing countries
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“I earn about CFA 48 000 per week, which pays my rent and provides my wife and me with a good livelihood.”Soumahoro Segbeti
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Through technical assistance andseedlings distribution,diversification projects and qualityimprovement initiatives, farmerscan be supported in their efforts toimprove their income: quality coffeeand reliance on more than coffee are two proven ways to increaseone’s revenues.
At the same time, buying coffeedirectly from the farmers andsupport to co-operatives areapproaches that allow farmers to retain a larger portion of theircoffee’s value.
In many parts of the world, thesekinds of partnerships are beingdeveloped and allow farmers andtheir families to see a future in coffee growing.
But there is more to be done to solve the overall situation:consumption needs to be increasedin order to reduce the imbalancebetween supply and demand. And more of the value of coffeeprocessing needs to remain in the coffee-growing countries. The companies which locatefactories in developing countries helplocal economies and create jobs.
For many farmers, coffee growing still has a future
Nestlé and low coffee pricesi
Nestlé is against low green coffeeprices and is concerned for the farmers and their families whodepend on coffee for a living. Through the numerousprogrammes and assistance it gives,Nestlé contributes to the wellbeingof coffee communities.
After school KikKadkhratoakhelps her parentson the farm
Kik Kadkhratoaki14 years oldiChumphon Province, Thailandi
Kik Kadkhratoak’s father is a coffeefarmer in the Chumphon Province of Thailand. She is 14 years old and attends the secondary school in her village.
When she is older she wants to bea policewoman, or possibly a soldier.
“I have three more years of schooland then, if I want to enter the police force, I will have to study atthe university.”
Kik is very fond of the coffeegrowing area where her family lives.After school, she helps her parentson the farm.
“In order to be a policewoman, I first need to go to the university. I would like to study mathematics at the Chulalongkorn University in Bangkok. It is one of the bestuniversities in the country.”
Her father is proud that hisdaughter has such ambitious plansfor her future, and that, thanks to the money he gets from Nestlé for his coffee, he can afford to pay for her studies.
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“My father told me that it isthanks to the price he gets for his coffee that he is able to support my studies.”Kik Kadkhratoak
The future ofthe coffee world
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It is unlikely that coffee prices will ever reach theprevious highs. Unless a major climatic disaster shouldoccur, the ability of farmers in countries like Brazil to react rapidly to favourable market conditions andproduce coffee at lower costs using the latestagricultural techniques will ensure a strong supply of coffee. However, there are measures which can helpcoffee farmers improve their livelihoods and obtain an acceptable standard of living.
It is partly the responsibility of the wealthy countriesto respond to this crisis. “There is no easy solution,”says Peter Brabeck-Letmathe, CEO of Nestlé S.A.“Present low coffee prices are the result of a globalexcess supply. Concerted efforts are needed to bringsupply and demand in balance to a point where theprices allow the average producer to receive anacceptable return for his labour and investment.
“Thus, action is needed on both demand and supplysides. The primary and most direct responsibility ofcompanies such as Nestlé lies on the demand side with the promotion of coffee consumption. But I believe it is also our task to voice our support for a faster liberalisation of trade. Developing countries are currently victims of the developed countries’ subsidy policies.”
Companies are not the only ones which need to betaking responsibilities. Governments, civil society,coffee companies, as well as the growers themselves,each have an important role. “In the coffee-growingcountries, farmers need to be supported in their effortsto increase their revenues. Those farmers who have thepotential to improve the quality of their supplies shouldbe helped in this process. Simultaneously, it is importantthat growers diversify into other productive pursuitswith better returns.”
Farmers need to diversify their sources of incomeThe most efficient way to reduce an imbalance in the market is to operate at both ends of the chain. A consumption increase is an important part of thesolution, but that alone will not solve the problem.Today, too many farmers rely on coffee as their onlysource of income. Such dependence makes it verydifficult to survive when the commodity’s prices are low.If they could count on other sources of income, theycould adapt their production level to the price situation.
For Peter Brabeck-Letmathe, this is the main strategythat could help the growers. “Farmers who today havediversified their income and those who plantedadditional crops are less affected by the fluctuations of the coffee price. I believe it is the area on which we should focus the most. Farmers should be enabled to make informed choices. Training programmes andprojects need to be set up to that effect.
“At Nestlé, for example, we have adopted thisapproach in the technical assistance we give to farmers.We support practical projects such as the fish farm we helped to create in Mexico and the diversificationproject we support in the Philippines. These areconcrete examples of what a company can do tosupport diversification.”
Diversification is made difficult or even impossiblewhen the natural alternatives are crops which aresubsidised by western countries. This is the case, forexample, with sugar or soya beans, crops that couldreplace coffee in some regions: it is not profitable togrow them, as farm subsidies in the United States andthe European Union are artificially lowering the worldmarket prices for these commodities.
“At Nestlé, we believe that these trade barriers arenot fair for the farmers of the developing world. Theyeffectively reduce the capacity of many poor countriesto overcome their problems. These subsidies have a real cost not just in dollars and euros, but also in losteducation, health and livelihoods for millions living in the world’s poorest rural communities. Subsidiesexport poverty.”
However, diversification is not an end in itself, but a way to reduce some farmers’ vulnerability.Competitive producers should not be constrained to diversify.
Raising and stabilising coffee pricesSome programmes are in place to give higher income to farmers through paying a subsidised price which is above the price set by the market. The fair trademovement, for example, has succeeded in sellingcoffee to some retail customers at a higher price, for which a premium above the market price is paid to cooperatives.
“I believe that this movement has delivered benefitsto some coffee farmers around the world. More
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“I believe that trade barriers are unfair to the farmers of the developing world.”Peter Brabeck-Letmathe
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importantly, it has also raised the consciousness ofwestern consumers about the situation coffee farmersface. But fair trade can only work in a niche market. If it were widely expanded, it would quickly increase theglobal oversupply of coffee and depress coffee marketprices further. The industry as a whole needs to bringsolutions adapted to the whole community of coffeefarmers,” says Peter Brabeck-Letmathe.
“Support schemes are urgently needed to protectcoffee farmers of developing countries in open globalmarkets from wide price fluctuations, such as the verylow coffee prices of the recent past.
“The development of mechanisms to stabilise exportearnings by providing better access to the InternationalMonetary Fund Compensatory Financing Facility, or byreviving the European Union’s scheme to stabiliseexport earnings (Stabex), is a high priority. It is an area in which the International Coffee Organisation couldplay a leadership role with the international financialorganisations, banks and coffee traders.
“Stabilising export earnings has a number ofadvantages over buffer stocks and other schemes thatdirectly interfere with commodity supply and prices.Since such schemes are not aimed at keeping pricesartificially high, there is less risk of unnecessarilyprolonging periods of oversupply. They can, however,help cushion some of the effects of the worst slumps.”
Coffee-growing countries need investmentThe long-term interests of consumers depend on astable coffee sector in which farmers have security, andproducer economies enjoy benefits from the coffeeindustry. The farmer is a producer, but he is also part of a wider community and economy. “Nestlé iscommitted to developing the viability and stability of the coffee industry, starting with the first step in theproduction chain.”
It is during the process that converts coffee beans to instant coffee that the majority of the added valuetakes place. Nestlé produces over 55% of its Nescaféin factories located in developing countries – creatingjobs, generating tax revenues and transferring state-of-the-art technologies.
In some coffee-growing countries where Nestlé hasa Nescafé factory, the company has put in place directpurchasing from the farmers. This system allows the
farmers to bring their produce directly to a buyingstation, thus retaining for themselves a larger portion of the value of their coffee. This mechanism accountsfor some 110 000 tonnes of green coffee, whichrepresents 14% of the company’s needs. In addition to that, technical assistance is given free of charge to coffee farmers.
Research and improving coffee cropsAnother important element for Peter Brabeck-Letmatheis the investment Nestlé makes in research. “In ourresearch centre based in Tours, France, we are active in fields such as coffee selection, multiplicationtechniques (somatic embryogenesis) and molecularmarkers, as well as cryostorage.
“Nestlé also collaborates and provides assistance to research centres in Mexico, Thailand and Indonesia,offering free training in Tours, France, to scientistsworking in these institutions. Recently, Nestlé launcheda new collaboration programme with the Jimma CoffeeResearch Centre in Ethiopia. One of their scientists willbe trained in France and Nestlé will provide technicaladvice to the Centre.”
Nestlé has also established a collection of 250 proven high quality coffee varieties from around the world. These are offered free of charge to thecountries that have contributed to the collection,enabling them to conduct plant improvementprogrammes using the best varieties for their climateand conditions.
Increased consumptionUnfortunately, the increase in coffee consumption hasnot been as rapid as that of production. In 2002/2003,111 million bags of coffee were produced, whileapproximately 109 million bags were consumed. This has added to the already large stock of coffeewhich has accumulated over the past years.
However, as noted above, Nestlé has significantlycontributed to an increase in consumption. Over thepast ten years, Nescafé consumption increased by 40%,leading the way in increasing worldwide total coffeeconsumption by 17%.
“Roasters like Nestlé are engaged in promotingconsumption. This is good for our company as much as for the coffee farmers. The more coffee people drink,
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the more opportunities there will be for growers toincrease their income by producing green coffee.”
Nestlé makes significant investments in marketingefforts to promote coffee consumption. It also activelysupports initiatives aimed at promoting coffeeconsumption, in particular the Positively CoffeeInitiative. This initiative aims at providing the medicalprofession and the general public with informationdrawing on independent scientific studies that show the health benefits of coffee. If this initiative succeeds, itwill be possible to dispel prejudices and create positiveattitudes that could lead to an increase in consumption.
Low prices benefit nobodyAt first sight it might be assumed that low prices aregood for a company such as Nestlé. However, lowprices are not only bad for farmers, but also bad forNestlé. The first negative impact of low coffee prices is that they lead inevitably to a lowering of the rawmaterial’s quality, making it more difficult to find
the coffees needed to meet the company’s standardsfor its products.
Secondly, it is good for Nestlé’s business to havestrong and wealthy economies around the globe. “The millions of farmers who grow coffee are alsoconsumers of food products,” observes Peter Brabeck-Letmathe, “and when their income lowers,they cannot consume as much as they would normally. It is therefore in Nestlé’s interest that coffee prices remain stable and above production costs.”
Engaging with all stakeholdersFor Peter Brabeck-Letmathe, finding ways to help thecoffee farmers needs to be done in collaboration with allthe stakeholders. “Nestlé believes that, in this context, it isvital that all stakeholders work together to find appropriatesolutions: governments, roasters, traders, growers andNGOs must collaborate to find ways to improve thecoffee chain. This is the reason for my involvement inthe United Nations’ Eminent Persons Group.”
“It is vital that all stakeholderswork together to improve the coffee chain.”Peter Brabeck-Letmathe
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Called upon by the United Nations GeneralAssembly and under the auspices of the United Nations Conference on Trade and Development(UNCTAD), an appeal was signed by 15 eminentpersons, including Peter Brabeck-Letmathe. The aim of this group is to propose global solutions in the area of commodities issues. “I think that there is a widerange of actions which can improve the conditions on commodity markets and thus help to alleviate thepoverty of many producers,” says Peter Brabeck-Letmathe. “In the case of coffee farmers, I believe that addressing the problem of oversupply and creating optimal conditions for easier market access are the best ways to support them.”
In collaboration with two other food companies,Nestlé founded the Sustainable Agriculture Initiative(SAI). A coffee working group of eight companies hasbeen created and is working to identify ways to helpcoffee growers.
Nestlé also backs the Common Code for the Coffee Community (CCCC), which was initiated by the Deutscher Kaffeeverband (DKV), the German coffeeassociation, and the Gesellschaft für TechnischeZusammenarbeit (GTZ), the German agency fortechnical co-operation. This multi-stakeholder platformaims at defining a code for establishing sustainability in the coffee chain from the coffee tree right through to the end product. Representatives of the industry, civil society and growers themselves are workingtogether towards sustainable coffee production.
Through DKV, Nestlé is one of the founders of CCCC and is presently an active member of the Steering Committee and the Environmental Working Group. All member companies of the SAIcoffee group actively participate in this initiative.
Grounds for hope“Today, coffee is a powerful practical link betweendiverse communities in the North and the South,” saysPeter Brabeck-Letmathe. “It is a global industry which, if properly developed, can continue to invigorate manydifferent cultures, and provide a solid livelihood formillions of farmers and for rural communities. At Nestlé, we are optimistic about the coffee industryand we are committed to playing our part in making it work for producers and consumers alike.”
Writing and editingNestlé S.A., Public Affairs
Concept and designNestec Ltd, Marketing Communications,Corporate Identity and Design withEsterson Associates, London,United Kingdom
IllustrationsAude van Ryn, London, United Kingdom
PhotographyMarkus Bühler/Lookat Photos, Zurich,Switzerland;Jillian Edelstein, London, United Kingdom;Harmen Hoogland/Nestec Ltd,Marketing Communications, Corporate Identity and Design;Marc Latzel/Lookat Photos, Zurich,Switzerland;Christian Vogt, Basel, Switzerland;apg image, Vevey, Switzerland;Keystone, Zurich, Switzerland
PrintingEntreprise d’arts graphiques Jean Genoud S.A., Le Mont-sur-Lausanne, Switzerland
PaperMunken Lynx, totally chlorine free (TCF)
Cover pictureCoffee harvest in Mexico
© March 2004, Nestlé S.A.,Public Affairs
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