• QA 079
    What prevents growers from marketing finished product direct to (wholesale) consumers?
    What are the factors preventing coffee growers from processing coffee themselves, thus allowing them to market it directly to the final wholesale consumer?
    Asked by:
    Student - Guatemala

    Downstream processing is often seen as a way of adding value at origin but, unfortunately, it is not simple. If it were then the export trade in processed coffee products from origin would be much greater than it is. To demonstrate: less than one-fifth of 1% of coffee exports from producing countries is in the form of roast and ground beans. Instant coffee counts for another 5%, and all other coffee is shipped as green bean.  See section 02.10 of the Guide for more.

    Coffee that is roast and ground at origin therefore equals less than two cups out of every 1,000 drunk in importing countries. Why is the downstream value-added so low? Many blame import duties on processed coffee. But even if importing countries reduced or lifted duties (see topic 02.11.02), the export of finished products is likely to remain modest for several reasons…

    Market-specific blends and brands: Roast and ground coffees are very often blends sold as branded products; roasters are reluctant to change "the right mix". Blends are tailor-made to appeal to different tastes in the market and to adapt to different water qualities. Also important are availability of substitutes and seasonality of both supply and demand. These factors are all difficult to handle far away from the consumer in producing countries that normally only produce one or two types of green coffee..

    Preservation of quality: Unprocessed, green coffee beans have a long shelf life and can remain in warehouses for months, sometimes years. This is not the case for roast and ground coffee, although new techniques and  packaging materials have extended shelf life. The best cup quality is usually obtained by processing as late as possible, for example, by roasting/grinding just before consumption.

    Just-in-time delivery: Sellers must be able to deliver within days when roasters suddenly decide or need to change their blends or quantities. In addition, roasters must accommodate retailers' changing orders. For example, "Delivery next Thursday must be 1 kg packages, instead of last week's 500 gram packages". This situation is not easy to handle 10,000 km away from the buyer.

    To a certain extent the same obstacles feature in the specialty or gourmet market but in addition one should remember that marketing roast coffee to wholesalers in fact means entering into competition with the specialty roasters of the chosen market.  This then requires the supplier from origin to match that competition in almost every respect, again not an easy long-distance task.

    We should also note that not all the specialty business comprises top quality beans. Flavoured specialty coffee for example does not need top quality beans. Adding flavours such as vanilla, hazelnut and raspberry to coffee has become fashionable and some coffee magazines have up to ten full-page advertisements for syrups and other additives, sometimes giving the impression that the flavours are more important than the coffee. Flavoured coffees can be prepared with lower-grade beans.  And some of the 'new' coffee drinks also use cheaper beans. Today, the traditional "cup of coffee" is sold alongside products such as cappuccino, café latte and mochaccino, in which coffee is only one of several ingredients. Darker roasts are often used to secure the taste of the coffee when blended with milk, cream or ice. Darker roasts allow for lower grades to be used.

    And cheaper beans are mostly sold in bulk at what are sometimes called 'bulk or commodity prices'.The same applies to the roasted equivalent: it is also bought in bulk and so usually falls in the same price bracket, leaving little real gain for the supplier. 

    Finally, it is as well to bear in mind that most trade in processed coffee within consuming countries is conducted on credit - in this respect QA's 018 and 035 are of interest.

    Posted 02 March 2006

    Related chapter(s):
    Related Q & A:
    QA 007, 018, 027, 035, 059, 075