Wednesday, July 11, 2012

Coffee Market Channels


Mainstream market

The mainstream market includes importing countries such as the United States, Germany, Japan, France, Italy, Spain, Canada, the United Kingdom, Poland and the Netherlands. It accounts for more than 85 % of world coffee imports. In the mainstream coffee market, price is driven by supply and demand. A decade of glutted coffee markets has pushed supply through the roof and driven the prices into the basement. Efforts by industry organizations, such as ICO, to control supply and demand have failed as large producers, like Brazil and Viet Nam, refuse to limit production.  

Specialty coffee market

The term “specialty” was first used by the Norwegian coffee connoisseur and roaster Erna Knutsen in 1978 (Ponte, 2002). Specialty coffee meant that coffee beans from special geographic environments provide specific flavor characteristics and should be protected in their identity. Since then, the term has been broadened to encompass higher quality coffees, both single origins, i.e., estate coffees or blends and unconventional coffees like flavored coffees. In addition, the use of the specialty coffee definition differs from country to country. For instance, due to the fact that European countries drink more high quality coffee than in the US, quality standards for coffee will be more stringent in Europe than in US where the specialty coffee is a nascent industry. This happened as a response to poor quality offered to consumers by roasters (Ponte, 2002). While price was the main business factor for the bulk market, quality is the most important criterion in the specialty market and price premiums are offered for high quality coffees.

Sustainable coffees

Sustainability has been defined as meeting the needs of the present generation without compromising the ability of future generations to meet their needs (WCED, 1987). In the specialty coffee literature, sustainability needs to meet two basic criteria (Giovannuci, 2001): protection of the environment and social fairness. Social fairness refers to economic viability for farmers, focusing on institutions or contracts that permit producers to be paid price premiums for a specific level of coffee quality (Ponte, 2002). Sustainable coffees mean that these coffees are grown in ways that reflect the criteria of environmental protection and socio-economic fairness. Within the specialty coffee market, three segments of sustainable coffee have been developed even though there is no unique definition of sustainable coffees (Gionannuci, 2001). They are known as organic coffee, shade-grown coffee and fair trade coffee.

Organic coffee

Organic coffee is produced under a system that protects the soil fertility and biodiversity. It is based on the use of agricultural practices that maintain and enhance the environmental ecology of the coffee field, with little use of off-farm inputs. There are certification agencies that set up organic standards of production, processing and handling organic coffee. However, the cost of the investment for the certification is excessively high for most small producers.

Shade grown coffee

Also known as “bird friendly” coffee, shade grown coffee is grown under the shade of various types of trees. The advantage of such types of coffee is that they offer a good ecosystem for birds and other small forest animals. In addition, the system reduces soil erosion and/or water run off through mulching from the trees. To be certified, shade grown exporters must first of all be organic.

Fair trade coffee

Fair trade coffee relies on partnerships between fair trade organizations also called alternative trade organizations and producers’ associations or cooperatives. The fair trade movement was launched in the Netherlands in 1988.

Although coffee was the first, most commonly fair-trade-certified product, other fair trade imports include bananas, chocolate, honey, tea, sugar, orange juice and indigenous handicrafts. Fair trade coffee meets several criteria. Growers must be organized into democratically run cooperatives. The cooperatives must agree to independent inspections. They also must use sustainable methods of agriculture. In return, the growers are guaranteed a living wage of at least $1.26 per pound for their coffee (15 cents more if it is grown without pesticides).

Although fair trade coffee constitutes only 2 percent of the world's coffee supply, consumer demand for fair trade coffee has grown over the years. Fair trade coffee is sold directly by small producers’ associations or cooperatives to an importer or a fair trade organization, and the producer is guaranteed a minimum price for his or her coffee. Unlike organic and shade grown coffee, the certification process for fair trade coffee is not too costly for small producers

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