What is The Competitive Landscape Of Coffee Farming?
The belief that it is the middleman that gets squeezed could not be truer when it comes to coffee farming and the production outlook. This is noted on the local level and then in turn, is reflected in country statistics, showing the extreme challenges, mid-size coffee growers face. Large scale producers have greater efficiency and lowered costs as a result. They also may have greater access to financing and various programs that help them scale up their production more effectively and allowing them to gain an edge in a fiercely competitive market environment. It may be also easier for farmers to diversify their production, so they can maintain their farms even when prices are depressed.
The market itself gravitates towards volumes for large commercial interests and logistics may be smoother. A smaller producer of specialty coffee has seen a strong interest for their coffee from buyers seeking out unique coffees with different characteristics to set them apart from other more typical or common coffees. Buyers are willing to pay substantially higher prices for these micro-lots and the farmer is rewarded with the price of his coffee less sensitive to fluctuations in world market prices benchmarked against the New York “C” contract or the London Robusta market. The market for these coffees continues to evolve with strong demand and prices certainly reflective of this. Panama and Costa Rica are two countries that certainly have moved towards this upper level production and are recognized and rewarded for this.
Mid-size producers find it more difficult to compete as their coffees may not attract the same level of interest as the unique micro lots and then may not be of sufficient volumes for larger buyers but also the cost structure at the farm may be greater with not being able to boost productivity as easily. Labor and pruning/tree replacement are large expenses that require sufficient income to manage this effectively. Country statistics certainly reflect this trend with ongoing concentration of the largest producers seeing their volumes increase over time and mid-size producers finding it difficult to sustain their output.
I certainly don’t see coffee as being unique in this regard and similar trends are noted in other agricultural commodities, but also throughout the supply chain, and in other business sectors. Costs escalate, competition becomes fierce and it becomes difficult to sustain a loyal customer base that are always seeking out new or innovative product offerings. The way forward for coffee producers is to seek out diversification on their farms to not depend wholly on coffee for their income but to inter-crop for an added revenue stream. Eco-tourism and timber are other possibilities, although certainly access to funding for this can be a stumbling block.
What Are the Current Issues Affecting the Coffee Industry?
Climate change and sustainability are of high concern for coffee growers with rising costs and potential for productivity to decline. Coffee trees become more susceptible to disease and lowered yields. New varietals will need to be researched and developed to help farmers acclimate and counter some of these forces. The coffee industry is not sitting idle though with many initiatives and collaborative efforts through the supply chain to address threats and challenges. The industry is joining forces to help with water management and restoring bio-diversity and seeking support from governments as well to help protect the environment. This would also include responsible use of agrochemicals. It requires education at local and regional levels to assure the way forward for future generations of coffee producers. A continued exchange of ideas and knowledge between technicians and agronomists is needed but also ongoing open dialogue within the supply chain to meet challenges that lay ahead and resolve issues from decades of abuse to the environment and natural resources of past generations.
Where in the Coffee Industry Do You See Growth Opportunities?
I believe that there are growth opportunities in latte art in cafes. Consumers are focused on the showmanship and display in cafes, so that they can post it on social media. It seems that millennials especially are more about the sensation sometimes than the quality and taste: what looks good on Instagram to attract likes and followers. Younger consumers want stories to showcase that disappear from their media feeds to capture constant attention.
Retail coffee shops are reacting to this media-mania and develop core products not necessarily on quality but how it photographs and videos. Drinks are oversized, and colorful, exceptional or unique latte art is critical to success. A variety of brewing techniques and equipment is playing into this trend also with cafes designed for this purpose. A standard coffee shop that has great tasting coffee finds themselves at a disadvantage to a trendy spot that is more video worthy. I hope that in the process, it is not lost that a great cup of coffee should be based on taste first and showmanship is secondary. Equipment (or gadgets) that can deliver both sensory pleasures is now a must.
President and Founder of J Ganes Consulting, LLC