The Role of the Private Sector in Delivering STI to Rural Africa—the Case of Specialty Coffee

World Bank, 14 February 2007

Thomas L Dixon

Country Director

TechnoServe Tanzania

www.technoserve.org

2

START WITH THE MARKET: COFFEE CONSUMPTION GROWING 1.6% p.a., BUT FARMERS FACING PRICE VOLATILITY DUE TO UNEVEN PRODUCTION

Green coffee; millions of 60 kg bags

40

50

60

70

80

90

100

110

120

1960 1970 1980 1990 2000

Production

Consumption

Source: ICO; World Bank; 150 Years of Coffee, Marcellino Martins and E. Johnston

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PRODUCTION SURPLUSES PUSHED PRICES DOWN, JEOPARDIZING THE FUTURE OF FARMERS AND CAUSING THEM TO THINK ABOUT CHANGE.

Real price of green coffeeICO indicator price, U.S. ¢ per lb., constant 2002 dollars*

0

50

100

150

200

1960 1965 1970 1975 1980 1985 1990 1995 2000

*Real price index created by combining 1900-91 average U.S. import prices from 150 Years of Coffee and 1992-2002 ICO indicator prices; all prices in 2002 dollars adjusted using World Bank Global Manufactured Unit Value index

Source: ICO; World Bank; 150 Years of Coffee, Marcellino Martins and E. Johnston

4

AN ATTRACTIVE NICHE MARKET SEGMENT IS HIGH-END SPECIALTY COFFEE

*1 bag = 60 kgsSource: ICO; Daniele Giovannucci; Team estimate

World coffee consumption

CommercialGrade

100% = 108 million bags*

Specialty coffee consumption

100% = 6 million bags

Gourmet/High Quality

Fair Trade certifiedOther certified

93%

4%3%

6%

94%

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ROASTERS SEEK CONSISTENT SUPPLIES OF QUALITY SPECIALTY COFFEE TO MEET THE GROWING DEMAND

* Growth estimates for the specialty market range from 5 to 10% annuallySource: SCAA; Team estimate

Demand may grow by 2.6 million bags by 2007*Specialty consumption (million of 60 kg bags)

8.6

2007E

6

2002

3.7

1997

2.3

1992

•2.6 million bags would bring $100 million in additional revenue annually to coffee producers assuming an average premium of 30 cents/lb

However this demand growth will require consistent supplies of quality specialty coffee

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Nearly all smallholder coffee was processed at home, causing quality variations and limited ability to negotiate good prices…

7

Access to central

pulperies results in

price premiums

of over 70%

Central Pulpery coffee fetches prices two times higher than home-processed coffee…Ho

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proc

esse

dva

lue

CPU

proc

esse

dva

lue

CPU

oper

atin

gco

sts

CPU

finan

ceco

sts

CPU

valu

e

0.85

1.65 0.100.08

1.47

Home processed v. Central Pulpery (CPU) value

US $/kg parchment (2004/05)Smallholder farmer groups selling via direct export received US$1.65/kg parchment for their central pulpery coffee

Average farm-gate price in Tanzania

The KILICAFE Strategy

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Introduction.

STRUCTURE

Farmer group Farmer groupFarmer group

Smallholder farmers Smallholder farmers Smallholder farmers

VALUE CREATION

Farmer Association

•Proper corporate governance

•Professional management

•Scale (national level)

•Infrastructure

•Market knowledge

Farmer Business groups

•93 smallholder farmer groups

•Scale (village level)

•Centralized collection and processing

+8,000 smallholder farmers

•Farming

•Ownership of above structures

KILICAFE was founded with assistance of Technoserve in 2001…

A Farmer Association that provides services to Farmer Groups, assisting them to market their coffee to the national coffee auction and directly to overseas buyers

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AKSCG Parchment Sales 2004U.S. ¢/kilo

* FarmgateSource: TechnoServe analysis

TECHNOSERVE’S INTERVENTION HAS CREATED APPROXIMATELY $1MN IN ANNUAL INCREMENTAL REVENUES

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0.0 0.5 1.0 1.5 2.0 2.5

2004 salesMillions of kilos

Average regional price*

Incremental revenues due to TechnoServe intervention

~$1 million

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DIRECT EXPORT SALES GAINED IN SHARE AT KILICAFE SINCE LEGALIZATION IN 2003, HELPED BY CPU ROLLOUT

Fast growth trend in production quality and volumes

More members assisted to install new cpu’s annually

Fair Trade certified as producer.

Kilicafe has “Own company standards” to ensure Best Practices. -

500

1,000

1,500

2,000

2,500

3,000

3,500

2001 2002 2003 2004 2005 est. 2006 est. 2007 est.

US

$ (0

00's

)...

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New Approaches to Coffee Sustainability

KILICAFE is working with key partners to launch more central pulperies and develop new approaches to coffee sustainability…

New initiatives include:

• Central Pulpery Development Department

• KILICAFE Company Standards

• Farmer education using radio media

• Price risk management tools

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KILICAFE is a success story, bringing technology, innovation, and market links to enable remote smallholders to prosper

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Tanzania Kilimanjaro is the fruit of our ongoing partnership with TechnoServe and thousands of small-holder growers. This special offering represents the best in Tanzania coffee, as well as hope for a brighter future for these farmers and their families.

QUOTES FROM LOCAL STAKEHOLDERS

Source: TechnoServe interviews (2004-05)

David Mwakapola, KILICAFE coffee farmer

The Tanzanian coffee industry is on a slow but sure road to recovery, as it takes time to fully convert farmers from old habits and practices. We thank TechnoServe for the critical role they have played in this achievement. TechnoServe has the solution for Tanzania’s coffee crisis

The Honorable Basil Mramba, Minister of Finance Tanzania

My income has quadrupled since joining KILICAFE, which has allowed me to renovate my house and connect to electricity and fresh water

Emmeline Swai, KILICAFE coffee farmer

Doug Welsh, Peets Vice President of Coffee

I used to think I was unlucky in coffee, but now I realize there is no such thing as to be lucky or unlucky in business. Rather it is a matter of producing what customers need, high quality products.

Chris Jordan, Starbucks Director of Quality

The pulperies have added huge value. The improved quality has given Starbucks the confidence to buy forward versus spot.We’ve increased our sales twofold in the past two years