A Conversation with Chris von Zastrow

(Chris recently retired from Starbucks where he was coffee sustainability director. All views are his own and not necessarily those of Starbucks.)

Good morning Chris. Thank you for taking the time to chat. I think you grew up on a coffee farm. Can you tell me a little about that?

My father managed coffee farms in Kenya and Tanzania before buying his own farm on the slopes of Kilimanjaro in Tanganyika (Tanzania) in 1959. I was born in Kenya in 1953, and apart from my time in boarding schools in Tanzania, Ethiopia and England, the farm was my home until I was 19 years old.

We had 150 acres (60 hectares), but soils were poor and the land rocky. Mechanization wasn’t possible, and all the work was done manually. Operating costs were horrendous. We grew arabica coffee under rather heavy Gravilea robusta shade canopy, as was the custom at the time. The coffee was sold through the local auction system. There were very few direct sales back then.

My parents’ farm was nationalised in October 1973.

What are the main environmental challenges that now face coffee production?

Climate change.  Areas that were good for coffee 20-30 years ago are now becoming marginal. Coffee production is tending to move higher up mountains, especially smallholder production in Central America, but also in Colombia, Peru and Ecuador. This leads to deforestation – in many cases deforestation of primary forests, which in turn leads to changes in weather patterns, landslides, long-term soil infertility, etc.

Water is another challenge. Washed coffee uses a lot of water. I don’t believe that we should necessarily be retaining the washed coffee method; it can have quite a negative impact on the environment and water quality. Although washed coffees certainly tend to be much better in the cup, I do believe there are alternative methods such as pulped naturals or de-mucilaging machines that use much less water.

What are the main issues on the social side?

I would say child labour, and that goes back to general economic issues and poverty levels in producing communities. Low coffee prices haven’t helped.  The kids are working on the farms due to the high poverty levels in coffee communities; adult workers are unable to achieve sufficient income levels to feed and educate their families. They have no choice but to send their children into the fields to make up the deficit.

If you stop the kids from working, you are taking food away from desperately poor families. This is a problem that many coffee producing countries are confronted with – and not just in Africa. If consumers want to enjoy a product, then a living-wage price needs to be paid that can help alleviate the problems. Consumers can’t just mandate that there is no child labour without providing and supporting alternatives. The underlying issues need to be tackled.

That brings us on to economic sustainability…

Prior to the lapsing of the International Coffee Agreement (ICA) in 1989, the minimum trading reference price the ICA sought to protect through the quota system was $1.15 per pound; from a relative purchasing power perspective, that would be the equivalent today of around $2.45. The C market price currently is $1.10 – $1.20 per pound. That said, differentials have improved, but nowhere near enough to make up the difference.

In spite of all the aid, social and economic programmes that have over the years been implemented in producing countries by industry and governments, coffee farmers are half as well off today as they were 30 years ago.

Admittedly, they have found ways of cutting their costs, such as higher use of relatively cheaper pesticides, herbicides, etc. to increase production – not healthy for humans, wildlife biodiversity or the environment.

The wealth in the coffee supply chain now sits with the trade houses, the roasters, and the coffee shops. It’s not at the farmer level.

What coffee do you drink now?

Starbucks coffee of course! I make it in a French press or in a stove-top espresso. I enjoy House Blend, and particularly the single origin coffees from Guatemala, Ethiopia and Colombia.

Thank you, Chris for your time and input!

 © Commodity Conversations ®

This is an extract of an interview from my upcoming book Crop to Cup – Conversations over Coffee to be published later this year.

Coffee and Health

Caffeine was first chemically isolated in a German laboratory in 1819. It is an alkaloid, as is cocaine, that occurs naturally in some 60 tropical plant species, of which cocoa beans, tea leaves and coffee beans are the most well-known.

When coffee leaves die and fall to the ground, they contaminate the soil with caffeine, which makes it difficult for other plants to germinate; it acts as a natural herbicide. But coffee plants mainly use caffeine as an insecticide. It can be toxic to insects and they tend to avoid it. But coffee plants also lace their nectar with low doses of caffeine. When insects feed on the nectar, they get a buzz that makes them more likely to revisit the flower and spread its pollen.

It’s not just bees that get their buzz from caffeine. In his book All About Coffee, William Ukers writes that the French writer Balzac was a big fan, drinking a reported (but scarcely credible) 50 cups of coffee per day. In his Treatise on Modern Stimulants, Balzac describes the effect that caffeine had on him:

‘This coffee falls into your stomach, and straight away there is a general commotion. Ideas begin to move like the battalions of the Grand Army on the battlefield, and the battle takes place. Things remembered arrive at full gallop, ensign to the wind. The light cavalry of comparisons deliver a magnificent deploying charge, the artillery of logic hurry up with their train and ammunition, the shafts of wit start up like sharpshooters. Similes arise, the paper is covered with ink; for the struggle commences and is included with torrents of black water, just as a battle with powder.’

The author Mathew Walker is less of a fan.  In his book Why We Sleep: The New Science of Sleep and Dreams, he describes caffeine as ‘the most widely used (and abused) psychoactive stimulant in the world…It represents one of the longest and largest unsupervised drug studies ever conducted on the human race, perhaps rivalled only by alcohol, and it continues to this day.’

When caffeine hits your brain, it adheres to your brain’s adenosine receptors. Adenosine is what helps us feel sleepy. When caffeine binds to your adenosine receptors, it inactivates them and stops you from feeling tired. Caffeine tricks us into feeling alert and awake despite the high levels of adenosine that would otherwise make us sleepy.

Caffeine is removed from our system by an enzyme in our liver that gradually degrades it over time. Caffeine has an average half-life of five to seven hours: after five to seven hours, about 50 percent of the caffeine you have drunk is still circulating in the body. So, if you enjoy an espresso at 10pm after dinner, as I used to do when I was younger, then half of the caffeine will still be in your brain at 3am.

Some people have a more efficient version of this enzyme than others, allowing them to clear the caffeine quicker. Others have a slower, less efficient version. Unfortunately, aging affects the enzyme’s efficiency: the older we get, the longer it takes to clear our brains of caffeine.

Just because the caffeine is stopping our brain from processing the adenosine, it doesn’t mean the brain stops producing it. When the caffeine inevitably wears off, you’re left with an adenosine build-up which makes you feel even more tired – what is commonly known as a ‘caffeine crash.’

The good news is that roasted coffee does not just contain caffeine; it is full of biologically active compounds like chlorogenic acid, kahweol, and N-methylpyridinium, all of which have been found to reduce inflammation, serve as potential anticancer mechanisms, and improve insulin sensitivity.

In 2017, a review on coffee consumption and human health in the British Medical Journal examined more than 200 previous studies and found that moderate coffee drinkers had less cardiovascular disease and premature death from all causes, including heart attacks and stroke, than those who didn’t drink coffee.

The latest scientific view, as published in the World Cancer Report 2020 confirms that coffee is full of antioxidants that reduce the risk of certain cancers – such as liver and endometrial cancer. The report, published by the International Agency for Research on Cancer (IARC), part of the World Health Organisation, is a collaboration between the world’s most prominent scientists, and is considered the authoritative source on cancer related disease.

The National Institutes of Health (NIH) – part of the US Department of Health and Human Services – has conducted a study of 400,000 people that confirmed that moderate coffee drinking lowers the risk of death overall. The study found that relative to men and women who did not drink coffee, those who consumed three or more cups of coffee per day had approximately a 10 percent lower risk of death. The leader of the research team wrote,

‘We found coffee consumption to be associated with lower risk of death overall, and of death from a number of different causes. Although we cannot infer a causal relationship between coffee drinking and lower risk of death, we believe these results do provide some reassurance that coffee drinking does not adversely affect health.’

© Commodity Conversations ®

This a short extract from my upcoming book Coffee Conversations – Crop to Cup to be published later this year.

A Conversation with David Griswold, Founder & CEO of Sustainable Harvest

Good morning, David. First question: what coffee are you drinking?

I’m drinking an estate coffee  called “Finca El Valle” from Antigua, Guatemala.  Finca El Valle was the first direct trade estate partner I worked with, going back more than 25 years now, and it is a coffee I still buy for the same roaster. It was from a small specialty farm nestled at the foot of three volcanoes, owned by a determined woman, Christina Gonzales.  She was supported by her husband and three sons.  It has been a favorite of mine, in part because through this sourcing relationship I’ve come to create the elements of transparency and trust that are core to the Relationship Coffee model.  It is a delicious coffee, with intense sweetness, with notes of brown sugar, nougat, and molasses.

Why are there so many women coffee growers?

We started our first women’s coffee program in 2003 in Nicaragua. While far from perfect, some of the economic reforms following the Sandinista Revolution provided women with the ability to seek joint ownership rights to the land they worked with their husbands.  Many women have since been able to grow their coffee separately from their spouses. One group of about 140 women growers came together to form a cooperative, and we found that their coffees scored consistently higher in cup quality.

In fact, women-owned collectives score higher across the board than mixed-coffee collectives, and this data point is true in most origins. When you ask the women, they’ll tell you that they take better care of growing, picking and processing their coffee than the men.

In addition to quality, our buyers prefer purchasing coffee grown by women because of their higher impact. The purchase premiums go directly to the women’s groups, and World Bank studies have shown that, on average, 90 percent of their increased income is invested into the household. If you want to impact families and lives, supporting entrepreneurial women coffee growers is a really good way to do it.

You were somewhat of a pioneer in sustainability when you started Sustainable Harvest in 1996.

That’s true. It was an unusual approach to business at the time. When I would share my sustainable business concept three decades ago, I would typically have to first define the concept of sustainability. People were sceptical, as though I were trying to cover up a badly produced coffee with a lovely story.

But then buyers would call me a week after I had left them samples and say, “Wow, that coffee tastes incredible! Please tell me the story behind it!”

How would you define your Relationship Coffee business model?

Relationship Coffee is a business model that is about stakeholders working collaboratively toward a common good that benefits all of the many actors that make up the supply chain. The core values in Relationship Coffee are empathy, communication, transparency, and trust. It considers the needs of all the stakeholders, not just maximizing the profits of one party. It puts people ahead of profits and takes into account both sides of the coffee equation.

Isnt this just stakeholder, rather than shareholder, capitalism?

We are a big proponent of stakeholder capitalism. We were the first coffee company certified as a B Corporation. We are not just concerned with shareholder value, but also the needs of other stakeholders. This includes our suppliers, our employees, the community, and the environment.

The Stanford Graduate School has conducted case studies analysing our Relationship Coffee model. They noted that where a traditional model only focuses on a buyer-seller approach, the collaborative model of Relationship Coffee brings more actors to the table. Because more actors have a vested interest in how the community will be impacted by a business decision this often means that they can bring other resources. We must find new and innovative ways to bring a wider group of diversified stakeholders to the table.

Are coffee farmers better off now than when you started 30 years ago?

I want to say we’ve made progress, but we’re nowhere near declaring mission accomplished. Recent data shows the current generation of coffee farmers makes less than half of what their parents made. For millions of producers, the coffee industry is still broken.

If farmers are worse off, doesnt it mean that only the coffee quality has increased, and that all your efforts have benefited the consumer and not the producer?

You are right; the producers have not received their fair share of the benefits that the specialty coffee market has generated. That has stayed up in the North, and the most recent data tells us that producer nations’ slice of the pie is a mere 10 percent of the total coffee market value. That is not sustainable for a global market. The coffee market is not serving all its members, and we’re putting our supply chain at risk if we don’t take serious action as individual companies to reverse this trend.

So, I’d ask the question a different way. Are your coffee farmers better off than they were 29 years ago – the ones that have relationships with?

I would hope that they are better off because of the investments we’ve made. We are now sourcing from almost 20 countries, we’re training leaders from over 100 cooperatives, and we are impacting over 200,000 smallholder coffee farmers and their families.

Thank you, David, for your time and input!

© Commodity Conversations ® 2020

This is an extract from my upcoming book Crop to Cup – Conversations over Coffee due to be published later this year.

A conversation with Jorge Cárdenas Gutiérrez

Jorge Cárdenas Gutiérrez has been the leading figure in the Colombian coffee industry for over half a century. Born in 1930 in Medellín, he studied Law and Political Science in his hometown, then he completed a master’s degree in Administration at the University of Syracuse. He has held various public positions in his country, but his lifelong passion has been the promotion of the Colombian coffee sector, both domestically and internationally.

For many years he was head of the Colombian Federation of Coffee Growers where he fought to improve coffee cultivation in Colombia, to improve the quality of life for the country’s coffee growers and the quality of coffee for consumers.

Good morning, Jorge. How important is coffee to Colombia?

Coffee has been a leading product in the Colombian economy for 120 years. For many years it was 10 percent of the gross domestic product, 30 percent of the agricultural product and 40 percent of the external income.

Revenues from coffee exports have enabled Colombia to develop its industry, railways, ports and a good part of the national infrastructure.

Today coffee’s economic importance to Colombia is lower, but it is still the country’s most important source of rural employment: 500,000 families on one million hectares produce a coffee harvest worth US $ 2.5 billion, which is 3 percent of Colombia’s GDP. Its social impact is fundamental.

What role has the National Federation played in maintaining the competitiveness of the sector?

The government of Colombia has worked since 1927 in full agreement with the National Federation of Coffee Growers in the development of public policies that build progress in the coffee growing areas with road services, potable water, electricity, health and education.

The Federation administers the National Coffee Fund, which has existed since 1940. The Fund is for the development of these public policies and for the promotion of coffee cultivation, its modernization and the international promotion of its consumption. The National Coffee Fund is a very important instrument of all coffee policy.

The Federation has 350,000 affiliated producers; since 1930, all producers pay a parafiscal contribution by Law of the Republic of Colombia.

To what extent has coffee had to compete with cocaine in Colombia?

The Federation has carried out extensive campaigns to combat illegal crops, and there are really no significant coca crops in the coffee growing areas. The farms are small in the coffee zone. Coca crops are in areas of little agriculture and very far from population centers.

What are the main problems that the coffee sector faces in Colombia?

The main problem of coffee cultivation in Colombia is the size of the farms: most plots are of 1 to 3 hectares. The production costs in these small farms is high compared to that obtained in larger areas.

What is the Federation doing to improve things?

The Federation of Coffee Growers has a Coffee Research Center (Cenicafé) that carries out permanent research on innovation. It has helped introduce coffee varietals that are resistant to pests and are higher yielding. This has helped Colombia to maintain a production of between 12 and 14 million bags of 60 kg for the past several years.

What lies behind the success of Colombian coffee?

The competitiveness of Colombian coffee is due to its quality that is in turn a result of the care with which it is grown and processed.

With the image of Juan Valdez, the Federation of Coffee Growers created a special niche in the world market since 1960. He gave a name to a generic product, that’s the reality.

How does the Colombia maintain a sustainable living for its coffee growers?

From 1940 to 2000, Colombia had an internal price for coffee that did not change more than three times a year. A sustainable and stable price was financed with export earnings and contributions from the producers themselves to the National Coffee Fund. In addition, the various international coffee agreements provided price stability to international prices.

Since 2000, the domestic price reflects the international price of coffee. Only in times of very low international prices the Government and the Federation have given growers a special premium as part of the internal price of coffee.

The Colombian government has recently introduced a new Stabilization Fund which seeks price stability as in previous years; for the time being it does not yet have the necessary resources.

Are you optimistic for coffee in Colombia?

The National Federation of Coffee Growers continues in its task of innovating in the cultivation and harvesting and the producers accompany these efforts. The Federation celebrates 93 years of its founding and continues to be a leading rural service organization. It has the support of the Government and the backing of producers.

Roasters the world over continue to view Colombia as a highly reliable supplier. Today’s consumers are increasingly moving towards high quality coffees, which is very favorable for Colombia. The future of Colombian coffee is bright.

Thank you, Jorge for your time and comments!

© Commodity Conversations ®

This is an extract of an interview from my new book Crop to Cup, to be published later this year.

A conversation with Benjamin Baptiste

Hello Benjamin, could you tell me a little bit about yourself?

I’m currently Head of Risk Management and Data Science for Roquette, based in Geneva.

I have an analytical background with an engineer diploma in applied mathematics and informatics from ENSIMAG, and a master’s in quantitative finance from Grenoble IAE.

I have more than 10 years’ experience in Risk Management. I started my career with BNP Paribas, then into software with Murex, and now plant-based ingredients for Food, Nutrition & Health markets with Roquette.

I joined Roquette as front office treasurer, managing the whole FX portfolio and dealing with all OTC operations on raw materials and energy for the group. I was promoted to Head of Risk Management and asked to set up the Risk & Control Department Function in France.

When did you move to Geneva?

I moved to Roquette CH in 2015. I worked on the business plan as well as the restructuring of the Risk and the Margin Management activities. That involved setting up a new risk framework from scratch, building tailor-made Key Performance Indicators (KPIs) and analysis suitable for Roquette’s ongoing business, as well as the company’s new activities implemented in Geneva.

I love new challenges.

Such as… 

I was asked a couple of years ago to create a new Data Science Department for the company; I found it fascinating. I’m also member of the advisor board of ComRisk after having been a speaker during the last 2 years.

 Could you tell us more about Roquette?

Roquette is family-owned company. We are a global leader in plant-based ingredients, plant proteins and pharmaceutical excipients. In collaboration with our customers and partners, we address current and future societal challenges by unlocking the potential of nature to offer the best ingredients for food, nutrition and health markets.

We have customers in more than 100 countries with 25 industrial sites across the world. We have more than 8,600 employees and in 2019 our turnover was around 3.7 billion euros.

 What plant-based raw materials do you buy and process?

Using plant-based raw materials such as corn, wheat, potatoes and peas, we develop specialty ingredients that respond to unique and essential needs to better feed and cure people, to enable healthier lifestyles.

What will you be talking about at ComRisk 2020?

The panel is called ‘Managing Currency Risk Efficiently’. Most presentations on FX risk management tend to concentrate on managing commercial and M&A transactions in the current market. I will take a slightly different approach and talk about the processes involved in choosing the right financing and the right functional currencies. I would like to share my experiences in dealing with some complicated cases, such as when local, group and main business currencies are different.

This issue is important as the choices made can strongly affect the way that foreign exchange is evaluated in financial statements, and it is hard to modify without structural change. This can have a big impact on the profitability of the company.

Roquette is a global group. What are the main risks you are exposed to as a plant-based raw material consuming company, especially during this hard time of Covid 19 crisis?

The major risk for an industrial company such as ours is a business interruption due to industrial issues or raw materials shortage. It is one of the most critical matters. In addition to the direct financial loss, a delay or a cancellation in deliveries could have an important impact on customer’s satisfaction – our top priority. This has been the case more than ever during the Covid crisis as we serve both the food and the pharma markets, which are both considered as priorities. We are really committed to deliver our customers in this difficult time, and thanks to the efforts of all Roquette employees and partners such as suppliers, we succeeded.

As a key actor in Food, Nutrition and Health, our responsibility is to ensure the continuity of our essential activities while protecting our employees. ​

We should never forget that before managing prices, the first objective of our Purchasing Dept is to ensure that we have physical raw materials with the required quality delivered on time to our different plants. We have had to be agile to adapt across all geographies, such as renting new storage capacities.

Supply issues have been our most critical risk during the Covid period, but they are less of a concern in normal times when our priority is price risk management. A large part of our costs are variable costs: mainly raw materials and energy.

As you can imagine, price variations on our plant-based raw materials and energy inputs have a strong direct impact on the financial performance of the company. Market prices have been more volatile than usual during the Covid period; this has allowed us to test the robustness of our current risk framework and organization in terms of managing market risks.

 Thank you, Benjamin for your comments – and good luck with your presentation!

A conversation with Monika Zejden-Erdmann of Eversheds-Sutherland

Good morning Monika, Could you please tell us about yourself and your role within Eversheds Sutherland?

I am an international trade lawyer within Eversheds Sutherland’s Competition, EU and Trade practice group.

 I handle a broad range of international trade law matters, including all aspects of EU/UK and U.S. export control and sanctions laws, WTO rules, anti-dumping, import tariffs, product classification (import and export), countervailing duty and safeguard measures, rules of origin, contractual rights and obligations, and trade-related due diligence in the context of M&A transactions.

I have significant experience in assisting clients in making voluntary disclosures in respect of trade control violations, which have resulted in no further action being taken against the respective company.

Until the end of last year, I was on secondment for 18 months to Shell Trading & Supply, where I provided day-to-day advice on a variety of trade control issues, including compliance with EU and US sanctions programmes. As of August this year, I am back on secondment with Shell, providing sanctions support to their trade compliance team.

International trade law is a fascinating area, where every day you face a new, challenging problem. Sanctions in particular is something I enjoy advising on, as they are so topical and are increasingly used by governments around the world as a foreign policy tool. I will be presenting on sanctions during the Commodity Risk Management Conference in October – I am really looking forward to the two-day online event, which is packed with incredibly interesting topics.

What about Eversheds Sutherland more broadly – is the firm active in supporting clients in the commodities sector?

Eversheds Sutherland is a leading adviser to commodity trading firms, commodity merchants, financial entities and commercial end-users that engage in physical and derivatives trading for hedging, financing and speculative purposes. Our clients trade energy products, agricultural and soft commodities, as well as both base and precious metals.

Our Commodities Practice Group is an interdisciplinary group specialising in all legal aspects of the commodities sector from the trading, movement and financing of commodities (including associated financial hedging and derivatives transactions) to investments in, and divestments of, shares and assets across the sector. Our team comprises more than 50 lawyers around the globe, including the key commodity hubs of South Africa, New York, Houston, London, Geneva and Singapore. Along with regulatory matters, we offer a full range of services to help clients successfully manage commodities derivatives activities, including negotiating derivatives documentation, advising on tax and disclosure implications, analysing and applying valuation methodologies for terminated derivatives transactions. Our team provides advice from the board room to the back office, all with seamless understanding of how critical the use of derivatives can be to commercial businesses.

In terms of our sanctions practice which is part of the Competition, EU and Trade group, we have significant experience in dealing with every type of export control and sanctions law as well as other regulations which have an impact on export trade activities. We regularly advise on export and sanctions regulatory issues, such as applications for licences and other authorisations, product classification, as well as government investigations and audits, internal compliance reviews, and enforcement. Our clients include multinational and regional businesses, governments, non-governmental organisations and trade associations. With international trade law specialists throughout the UK, Europe, US, Middle East, Africa and Asia, our lawyers understand the local laws, the enforcement landscape and how rules differ from one jurisdiction to the next.

Why have sanctions been so topical recently?

Sanctions are restrictive measures against territories, individuals, or entities which governments around the world use as a way to change the behaviour of other persons or countries, or to take a stance against certain reprehensible activities (such as human rights violations or terrorism). In the past, they were used less frequently and usually after reaching an agreement with allies: most countries would simply implement the sanctions which were imposed by the UN Security Council. Nowadays, governments are more readily adopting unilateral measures and using sanctions as a foreign policy tool. Sanctions is certainly something that businesses need to pay closer attention to, especially since some of the measures have an extraterritorial reach. The costs of non-compliance can be extremely high, and it is crucial to ensure that businesses are equipped with efficient policies and procedures to prevent violations.

Thank you Monika, and good luck with the conference.

A conversation with Franco Costantini from Control Union

Franco Costantini is Managing Director at Control Union (UK). I asked him to tell me a little about his new initiative: regenagri.

Our objective is to help the world’s farmers – and the food industry in general – to reduce soil degradation and GHG as well as to increase the value of land and its products. We are building on the work that Control Union has been doing for many years in sustainable farming, supporting agribusinesses and farms to transition to more regenerative practices. By that, I mean promoting farming techniques that increase soil health, encourage biodiversity, sequester CO2 and improve water management.

The regenagri assessment is based on about 25 items covering a range of criteria from soil parameters, biodiversity to agroforestry.

Members of regenagri have access to the regenagri platform, advisory and certifications. The platform provides farms and organisations with assessment tools and data analytics solutions.

One group of farmers working in one area may deal with issues completely different from farmers in another region. The regenagri assessments identifies the practices to improve and provide members with insight on the progress over time.

It sounds as if you are concentrating on the health of the soil…

Soil health is indeed key, but all aspects will be addressed, and everything is linked.

The world grows 95 percent of its food in topsoil. The UN FAO has warned that if we continue to degrade soil at the rate we are now, the world could run out of topsoil in around 60 years. If we carry on at this rate the world has only 60 harvests left.

The matter is urgent as improving soil health is a long-term process. Improvement of soil parameters is often not seen before 3-4 years.

How is the regenagri designed?

The program has two blocks. The first is the digital hub, where members can track their regenerative performance and measure the impacts of their agricultural practices. Members can compare progress between different farms and overtime.

The other block is continuous improvement. Members can access advisory and regenagri certification from ourselves or other approved organisations. Only members can also become certified.

Who are you aiming for as members?

At this stage, we are focusing on agribusinesses and medium to large farms or cooperatives.

We are also looking to partner with organisations who can help support and develop the programme.

What is in it for the farmer?

Our intention is to create a balance between the economic costs of implementing this programme with the environmental benefits. Ultimately, we are looking at our system to lead to higher value products and reduced production costs.

Not only does improved soil health improve yields but it also increases, or at least maintains, the value of the land. The value of land tends to increase when it is carbon positive.

Subsidies are increasingly being linked to regenerative agriculture. To access subsidies in the future farmers will need not just to implement these processes, but also to monitor them.

How does the regenagri certification work?

Given the complexity and the variety of the aspects within the regenerative agriculture concept, the regenagri certification will be applied to selected types of farms or commodities. As the program develops, we will be extending the certification to additional areas.

The regenagri certification is based on a third-party assessment based on the regenagri criteria. Farms fulfilling the minimum criteria are awarded the certification. Certified organisations can claim the regenagri certification on products or for marketing.

The regenagri logo means that the farm applies regenerative practices and is in a continuous improvement journey.

What is the next stage?

We presented the initiative on the climate change panel at the International Grain Conference in June 2020. We are now approaching organisations interested or engaged

in regenerative agriculture to become founding members, as well as opening pilots.

Regenagri is a regenerative agriculture initiative aimed at securing the health of the land and the wealth of those who live on it.

To find out more, please visit our website on www.regenagri.org

© Commodity Conversations ® 2020

Ben Clarkson – Head of Coffee for LDC

Good morning Ben and thank you for taking the time to chat. Could you tell me a little about LDC and coffee?

LDC first went into the coffee business a little over 30 years ago. We started in Brazil in 1989 with a single origin. We now have 19 processing, storage and logistic facilities, and coffee origination offices across 10 countries. We’re one of the world’s top green coffee merchants.

Vietnam is the largest producer of Robusta coffee and is a very important part of our business at LDC. We have a large operation there and we are one of the leading exporters of Vietnamese coffee. We are also very active in Brazil. We have a large asset network in both Brazil and Vietnam, but we also have offices and large businesses in all the major producing countries, including Colombia, Honduras, Mexico, Uganda, India and Indonesia.

All our origin offices are staffed with agronomists, research analysts, traders, asset managers, quality, sustainability teams and logistics managers. We have factories, warehouses and origination teams, sourcing coffee from farmers on behalf of our customers. Most of our coffee platform employees are based in producing countries.

LDC has often been viewed as the most trader of the coffee merchants. Do you consider yourself and your company more as a trader or more as a merchant – a supply chain manager?

In the past, LDC’s coffee business might have been more of a trader than a supply chain manager, but I think this view is now out of date.

Over the last five to ten years, we’ve made large investments, and built a significant asset footprint, in all major coffee producing countries. In that sense we have become much more of a supply chain manager, offering customers reliable supply of a wide range of coffees by sourcing the right coffee from the right place, at the right time.

We still spend a lot of our time discussing price and the role of price, because we believe it plays an important part in encouraging the movement of commodities between surplus and deficit regions. In that sense, it is still essential that the market prices coffee correctly, and that the correct price signals are transmitted all along the supply chain.

So, we still believe that trading has a role to play, but the scale and the size of our supply chain, and the diversified portfolio we offer our customers means that we are now much more than traders.

What is LDC’s USP – Unique Selling Point – in coffee?

We spend a lot of time and resources to understand the flows of green coffee, and where the imbalances are, with a particular focus on research and agronomy, analysing the price drivers.

And as I mentioned earlier, we have scale in, and a deep understanding of, all the major origins, with access to 35,000 farmers through our sustainability networks, and can source the right coffee for our customers in a very transparent way.

We believe our customers see the value in the investments we make – both in analysis and agronomy, and in the origins and our supply chain. Together, these mean we can provide a service that is a bit different to everybody else.

Where are you looking to add further value in the supply chain?

LDC started out in coffee as a trader/originator. We think there is still scope for us to further develop our origin presence in certain places, and to continue our work with producers to secure coffee supply chain resilience for the future. We see origination as very important. So that’s one end of the supply chain.

At the other end of the supply chain, we work closely with our customers to understand what they need, and what their customers need, and are looking to expand these flows.

We’re looking to extend our involvement in the supply chain, so that we are as close to the farmer as possible, and as close to the consumer as our customers would like.

What can be done to improve farmers’ incomes in producing countries?

For LDC, collaborative initiatives and responsible sourcing efforts are key.

Our scale and presence at origin means that, together with our customers, we can really make a difference in farmer communities, improving their livelihoods and the long-term sustainability of their businesses. This is especially important in the more vulnerable communities globally, who are at risk of exclusion due to a lack of resources and knowledge of good agricultural practices.

The physical differentials seem to be as volatile as the flat price; how do you hedge your basis risk?

We are not trying to hedge our basis risk, but instead we hedge the flat price risk in our physical transactions. Generally, we are very comfortable with basis risk, and this is the foundation of our trading books – in other words the relationship between the physical coffee and the futures contracts. For example, we’re looking to understand the relationship between Brazilian Arabica and the New York Arabica futures contract. That is our core business as traders.

As coffee merchants, we need transparent rules and liquidity in the futures contracts into which we hedge our physical transactions. These futures contracts need to look like the coffee that we’re transacting, thereby creating a genuine relationship between the two.

As a coffee trader do you regularly cup coffee for quality?

Yes, every team and department globally regularly cups coffee. Understanding the qualities, and delivering the correct qualities to our customers, are absolutely core skills in our business.

Does coffee keep you awake at night?

I have two children and a dog – they cause me more sleepless nights!

© Commodity Conversations ® 2020

This is a brief extract of an interview that will be included in my upcoming book Merchants & Roasters – Conversations over Coffee

Ricardo Arenas – Finca la Perla

Finca La Perla, an isolated farm located in the Western Highlands of Guatemala, was founded in 1895 by the Arenas family.

Ricardo Arenas now runs the business with his nephew; he divides his time between La Perla and Guatemala City where he was until recently President of Anacafé, the Guatemalan Coffee Association, as well as President of the Rural Coffee Foundation. In 2020 the President of Guatemala appointed Ricardo as ambassador of Guatemala for all issues related to coffee and asked him to be the Presidential Commissioner for the prevention and eradication of the child labour in the country’s coffee sector.

How important is coffee for Guatemala?

It is very important.  Coffee is the only agricultural activity that is in all 22 states – departments – in Guatemala. It is the biggest employer in Guatemala.

There are about 125,000 coffee producing families in Guatemala, all living in rural areas. With between five to nine people in each family, this adds up to about one million people who depend directly on coffee. Of those 125,000 families, 121,000 are small producers.

Coffee used to be our country’s number one export in terms of dollar revenues, but sugar has recently taken that number one slot. And now, I have to say, the main source of dollars for the country is remittances from our more than 2 million emigrants, working mainly – and legally – in the US.

Coffee is obviously important in many producing countries in Latin America and Africa, but for Guatemala it is essential. I would go as far as to say that the country’s social and political stability depends on coffee.

Are the 125,000 coffee-growing families able to live with these low coffee prices, or are they suffering?

They are suffering.

We have had a perfect storm these last 10 years. We won a battle against coffee rust disease in Guatemala in the 1980s, but new varieties of rust have been appearing in the past ten years. This is a challenge.

The currencies of both Brazil and Colombia are very weak; this is helping their agricultural exports and means that even with the world price so low producers there are covering their costs. They are happy with world prices at these levels. Guatemala has a very strong currency. This is a big problem for us.

Another problem is that with the exception of Costa Rica and Panama, we have the highest minimum wage of all the countries of Latin America. Even so, we have difficulty in getting labour. Coffee is a labour-intensive crop, but Guatemala has lost a lot of labour through emigration to the US, and also because of the labour demand of Honduras to pick their coffee crop.

The low international price is obviously the main problem. Many of our coffees are speciality coffees that trade at a premium to the world price, but I would say that 95 percent of our growers are suffering. Coffee prices in dollar terms are the same today as they were in 1983, but a dollar then is worth only 63 cents today.

Our production costs are higher than the current world coffee price and higher than other coffee producing countries around the world. Our costs are between $ 2.00 and $ 2.50 because of our minimum wage, strong currency, financial costs and higher taxes. The cost for Central America producers is between 1.75 and $ 2.00 per pound.

Coffee production in Guatemala is not economically sustainable. This is for sure. If the international market — buyers, roasters — want our farmers to keep producing coffee, then they will have to pay us a price that makes it economically sustainable.

Is child labour a problem in Guatemala?

Earlier this year, the UK’s Channel 4 Dispatches programme found children as young as 11 or 12 working long hours in a couple of Guatemala’s coffee farms. As a result of that programme our President has set up a commission to look at this issue; he has asked me to head it. We will be reporting back to the President soon. We still have child labour, and we have to be honest and recognize it, but it’s caused by poverty.

We have poverty in the rural areas of Guatemala. Many farmers can’t afford to pay outside workers to pick their coffee, so their children do it instead. Child labour is linked to poverty, and that goes back to the price that buyers are willing to pay for their coffee. If coffee prices were higher, we would have less rural poverty.

Child labour is an economic issue as much as a social issue. I am not against the roasters and the coffee shops from making money, but they must allow producers to make enough money to support their families without their children having to work on their farms.

Thank you, Ricardo for your time and comments!

© Commodity Conversations ® 2020

This is a brief extract of an interview that will be published in full in my upcoming book Merchants & Roasters – Conversations over Coffee

Bridget Carrington

Bridget Carrington started her career in coffee in 1983 working for ED&F Man, and after 9 years in London, moved to Kenya where she spent 27 years with C Dorman Ltd, a major exporter and roaster in East Africa, finishing as the Managing Director.

Coffee is Kenya’s 3rd largest export in terms of revenue, but acreage has fallen by 35 percent in the past 30 years. Why?

Some of that loss of acreage is a result of urbanization, but area has also been lost to other crops. There has also been some fragmentation of land holdings as land was passed down through the generations and divided between the children in the family.

Some of that shift to other crops was due to the corruption and mismanagement under a previous regime: farmers weren’t being paid for their coffee, and the money was disappearing.  At one point, Kenya had a fantastic coffee research facility that provided extension services to farmers, but the funding dried up and the facility all but disappeared. Mismanagement and corruption led to a disillusionment among farmers and they went into other crops.

However, the main reason for diversification has been poor prices. Some of the big estates have uprooted all their coffee trees and planted pineapples, for example.

There are certain outlying areas where new acreage could be brought under coffee but increasing production in Kenya is pretty much totally reliant on increasing yields – introducing new higher yielding varieties. This is currently happening. There is also a lot of work being done to improve yields through better agricultural practices.

Tanzania is different. The country is huge and new planting is happening, bringing more land under coffee. The same in Rwanda; the planted area is increasing.

I wouldn’t necessarily say that the coffee sector in East Africa is in decline, but apart from Ethiopia and Uganda it’s pretty much stagnant. That is despite a lot of investment and a lot of initiatives to try and boost production.

What are the solutions?

Of the $3 that you might spend on a cup of coffee in a coffee shop maybe one percent goes to the men and women who cultivated the crop. Almost all the value is created after the farm gate. We have to find a way to allow farmers a greater share of the global earnings.

One way might be through the development of local demand. Kenya needs to grow its domestic market, which is very small at the moment. Only Ethiopia and Uganda have a strong domestic market for coffee. Kenya is really a tea drinking area because of its British colonial history, while Ethiopia has more of an Italian influence.

For the coffee farmer, the biggest benefit of stable domestic consumption is the guarantee of an outlet and reduced exposure to global price volatility.

What are the greatest challenges that East Africa faces in terms of coffee?

I would put climate change at the top of the list, particularly if it hampers the ability to improve yields.

Coffee farmers are getting older and this is also a challenge. Young people do not want to be coffee farmers; they prefer to move to the cities.

Meanwhile, urbanisation is also leading to the fall in acreage that we mentioned earlier. There is also the problem of access to finance.  Lack of value addition retention is a problem. Farmers are often price takers, unable to dictate when and at what price they sell their coffee. Very little coffee is sold as roasted coffee – less than 0.5% is exported as a finished roasted and ground product.

But all of these problems are not unique to East Africa. They are global problems.

Government interference is a problem in East Africa. Even now, the Kenyan government is trying to change the rules again. They want to resurrect a central depository payment system. If they do, it will mean that all the money will pass through a central system before being distributed to farmers, whereas under liberalization the farmers have been paid by their marketing agents within two or three weeks.

Compared to most other locally produced crops, coffee production in East Africa is heavily regulated by government. Governments don’t seem to be making any moves to deregulate; on the contrary. Coffee is political in East Africa.

You’ve now retired from Dorman’s; what does the future hold for you now?

I’ve been in the industry for 36 years and it’s been very good to me in terms of personal development, career, remuneration and everything else. I would like now to be able to give a little bit back. I would love for others to benefit from my experience in this wonderful industry, to share the passion and build the same kind of wonderful relationships and friendships.    I cannot imagine a world without some of the coffee professionals I have met along the way.  Once coffee gets into your blood, I don’t think it will ever leave.

Farmers are most in need our help today to ensure a sustainable livelihood, so that is where I would most like to focus. For the past few months I have been working with the ITC – the International Trade Centre – looking at value addition for East Africa’s smallholder coffee farmers. The paper has now been published and I am now working on a project to test some of the report’s recommendations.

For the past ten years, I have been on the board of trustees of CQI – the Coffee Quality Institute – and I am now Vice-Chairperson of it.

Thank you, Bridget for your time and comments!

© Commodity Conversations ® 2020

This is a brief extract of an interview that will be published in my upcoming book Merchants & Roasters – Conversations over Coffee