United Nations Conference on Trade and Development

UNCTAD-ICO Workshop on

Fostering sustainable development in coffee-exporting countries

18 February 2020, Palais des Nations, Geneva

Coffee Development ReportBy

Christoph Saenger, Senior Economist, International Coffee Organization, London

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

Dr Christoph SängerUNCTAD-ICO WorkshopPalais des NationsGeneva, 18 February 2020

Download at: http://www.internationalcoffeecouncil.org/

COFFEE AND ECONOMIC

DEVELOPMENT

COFFEE IS LIVELIHOOD SOURCE FOR 25 MILLION FARMERS

COFFEE IS PRODUCED IN COUNTRIES THAT RANK LOW IN GDP AND HDI

0

20,000

40,000

60,000

80,000

100,000

120,000

0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

GD

P pe

r cap

ita P

PP

Human Development Index (HDI)

Non-Coffee Coffee

RELATIONSHIP OF1% CHANGE IN COFFEE PRICE AND…

3%

1%

-4%

Rural employment rate

Agriculture value added % of GDP

Poverty headcount ratio at $1.90 a day

0.08

-0.02

Political stability index

GINI index

(a) ECONOMIC AND SOCIAL OUTCOMES (b) FOOD SECURITY

(c) POLITICAL STABILITY AND SOCIAL COHERENCE

* Results are significant for countries which are highly dependent on coffee (share of coffee in total export value)Results are statistically significant at least at the 10% level.

10%

-9%

Supply of protein of animal origin*

Undernourishment *

CURRENT STATE OF THE

COFFEE MARKET

INTERNATIONAL COFFEE PRICE*DROPPED BY 28%

50

100

150

200

250

Feb-10 Aug-11 Feb-13 Aug-14 Feb-16 Aug-17 Feb-19

US

cent

s/lb

-28%

10-yr average

* ICO Composite Indicator

Root causes of the declinein coffee prices

• Fundamental factors of demand and supply: overproduction

• Non-fundamental factors:

– Financialisation of futures markets

– Exchange rate volatility

– Mergers and acquisitions in the coffee industry à potential shift in market power

PRODUCTION COSTS AREON THE RISE

Colombia

Brazil

El Salvador

Costa Rica

70

120

170

220

270

2006 2008 2010 2012 2014 2016

Inde

x of

per

-hec

tare

cos

tin

loca

l cur

renc

y, 2

006=

100

ACHIEVING EQUITABLE GROWTH

COMPARISON OF GROWTH INCOFFEE CONSUMPTION BY REGION

(INDEX OF VOLUME)

5.5%

1.7%

3.1%

3.2%

1.1%

0

150

300

450

1990/91 1999/00 2008/09 2017/18

Ind

ex

of

coff

ee

co

nsu

mp

tio

n

19

90

/91

=1

00

Asia* Central America & Mexico

South America Africa

Traditional markets

OVER 90% OF COFFEE EXPORTEDIN GREEN FORM

94%

91%

0.1%

0.3%

5.9%

8.2%

0

40

80

120

milli

on 6

0-kg

bag

s

Green Roasted Soluble

2014-20181994-1998

KEY AREAS FOR ACTION

CONSULTATIVE PROCESS IDENTIFIED KEY AREAS FOR ACTION

• 50 potential solutions

• Considered:

o Barriers to implementation

o Potential impact

o Trade-offs

• Leading actors:

o Producers

o Industry

o Governments and international organizations

o Public-private partnerships

Leadactors Solutions(accordingtobarrierstoimplementationandpotentialimpact)

Lowbarrier/Narrow-scaledimpact

Medium Highbarrier/Wide-scaledimpact

A.Solutionstoaddresspricelevelsanddemand-supplyimbalancesProducers • Investmentinfarm

profitabilityandsustainability

• Incomediversification • Alternativelivelihoods

Marketactors

• Marketpromotion• Producersupportservices

• Fulltraceability,supplychainpartnerships

• Priceandpremiummanagement

• Communitydevelopment,landscapemanagement

Public sectorandinternationalorganizations

• Sustainablepublicprocurement

• Marketpromotion• Regulationonqualityassuranceandsocial&environmentalpractices

• InvestmentsinR&D

• Supplymanagementbyreductionofhectaresundercoffeeproduction

• Landscapemanagement• Basicservicese.g.healthcareandeducation

• Directincometransfers• Differentiatedtaxesandtariffs• Ruralinfrastructuredevelopment

• Landtenurereform• Promotionofalternativeusesofcoffee

• Supplymanagementbyinternationalproductionandexportquota

B.SolutionstoaddressissuesrelatedtopricevolatilityProducers • Physicalstrategies • Hedgingstrategies Marketactors

• Contractfarming • Floorprices,accesstohedgingservices

Public sectorandinternationalorganizations

• Farmgateprice-settinginrelationtoexportprice

• Purchaseguarantees• Nationalstrategicbufferstockmanagement

• Modificationstofuturesexchange

• Pricestabilisationfunds• Internationalcoordinationofbufferstocks

C.SolutionstoaddressriskandvaluedistributioninthevaluechainProducers • Productdifferentiation,

aggregationandmarketing• Roastingatorigin/valueaddition

• Branding

Marketactors

• Purchaseofcertifiedcoffee,premiums

• Nounfairtradingpractices

• Fulltraceabilityandsupplychainpartnerships

• Priceandpremiummanagement

• Pre-finance

• Decouplingsourcingstrategyfromfuturesmarkets

Public sectorandinternationalorganizations

• Upgradeexistingmarketinformationsystems

• Benchmarksofproductionandlivingcosts

• Observatoryforcosts,prices,margins

• Exportauctions• Regulationonduediligenceandunfairtradingpractices

• Farmgateprice-settinginrelationtoexportprice

• Anti-trustregulation

Leadactors Solutions(accordingtobarrierstoimplementationandpotentialimpact)

Lowbarrier/Narrow-scaledimpact

Medium Highbarrier/Wide-scaledimpact

Priority actions –increasing value addition at origin

• Improving coffee quality and adopting of VSS to

enable producers to tap in high-value market

segments / reduce costs & increase competitiveness

• Improving quality requires investment at farm level

and post-harvest processing (e.g. wet mills)

• Create enabling environment for investments and

FDI

• Remove tariff and non-tariff trade barriers (tariff

escalation) to boost processing at origin

Priority actions –foster sustainable sourcing practices

• Finding optimal mix between company action, pre-competitive initiatives and government policies

• Company level:

– Long-term contracts (sharing of value & risk)

– ’Flow of intangibles’ (credit, technical assistance, etc.)

• Industry initiatives

– Joint sustainability objectives, broad impact

• Government policies and regulation

– Creating a level playing field

– Smart regulation

In collaboration with

Thank you