Thursday, April 28, 2011

Transfer of price from consumer to coffee grower in Papua New Guinea


Farmers across the world feel with justice that their cut of the total retail value of the crops they grow and sell is a small one.
A wheat-grower on the prairies of Canada, an apple-grower at Stanthorpe in Queensland, a coffee-grower in an isolated village south of Okapa in the Eastern Highlands; all are disposed to hold a grudge against “the middle-men.,” and few if any understand the nature and the truth of the chain of trade which begins at their farm or coffee-garden and ends with a consumer in a far-away land.
In the case of our 400,000-odd coffee-growing families, here in Papua New Guinea, who are the middle-men who handle the coffee they produce?

Coffee cherries in hand
 What do the middle-men contribute as coffee passes along the chain of purchase, transport, transformation into a consumer product, distribution, and ultimate sale in small units, in packets and cups, to consumers?
Is the coffee grower in PNG getting a fair share of the overall market value of his coffee? The short answer to the question is “No!”.
But our PNG coffee-grower is not alone.
The same answer – “No!”- applies to all coffee-growers within all the “origins”- all the coffee-growing countries, world-wide.

Coffee being sundried in the highlands
Here in PNG as in other “origins” the grower, the roadside buyer, the coffee factory, the transport and insurance companies and the exporters all together share little more than 12% of the gross value of coffee sold at retail in packets or in cups at shops around the world.
The coffee- importers who are the agents or the clients of our exporters make a margin of about the same size as our exporters and for this they carry the risk of loss or damage or spoilage in transit, for landing and clearing through customs and quarantine and then storage and delivery to the roaster who has ordered the coffee.

Coffee cherries
The importer is basically a risk-manager who must find substitute coffee which is acceptable to his client if something happens to stop the shipment from PNG or to spoil it or damage it in transit.
Many coffee-roasters insist in just-in-time deliveries so that they don’t have to support big stock-holdings, and this responsibility is also born by the importer who sometimes even supplies storage silos and conveyors, installed in a clients factory, and keeps them full 24/7.
The small shops and cafes make a relatively small amount.
A huge 80% is shared between the consuming country- based roasters and their marketing agents and the major supermarket chains.
For instance, our small grower out beyond Okapa will laboriously carry his dry “pasmen” (parchment) coffee, sometimes a foot-journey of two or three days because all the outer-district roads are in such bad shape, or are non-existent.
He will either sell it to a mobile buyer at nearest road-head, or pay a truck-driver to carry it to Goroka where he will get a much better price.
In Goroka, today, he may get around K7.60 to K7.80 per Kg. for his dry parchment.If he is registered with one of the organic or fair-trade marketing groups he may receive another 30 or 40 toea per kilo.
Most factories in the main centres pay a bonus to help cover the cost of transport, and our bush farmer will certainly make sure he gets this before he pays the truck-owner what is due.
PNG Made coffee products
As of this week he may have a little over K1000 for his three bags or 150 Kg. of dry “pasmen” to spend or take home with him.

This comes to a little over K7 per Kg. for his two or three bags of “pasmen.”
This year coffee prices are higher than they have been for 34 years- the coffee-boom of the late 1970s
A time when the hand-roads leading out to remote areas in the highlands used to light up in your headlights at night with reflections from all the broken, empty SP Brownies lying there.
Because his coffee is reasonably clean and dry the factory buyer has given our grower the best price he can.
Now the coffee will be hulled and cleaned for sale to an exporter as “green bean.”
In this process there are costs for labour, electricity and fixed costs. But there will also be a loss in weight corresponding to the weight of excess moisture, skin and dust plus any bits of foreign matter such as sugar-cane skin etc which all will be removed, thus reducing the weight of the finished product, but also making it more costly.
This cost will be governed by a typical-( for good, dry” pasmen”) 30% processing loss where the clean coffee is packed into 60 Kg. export bags and weighed.
Weighed out at 70% of the inward or “pasmen” weight, on a per-tonne basis, what was bought for K7, 800 for 1000 Kg. as “pasmen” is now reduced in weight and has cost K7800/700 being K11.14 per Kg as green bean.
The factory will now sell the green bean to an exporter in Goroka for around K13.00 per Kg. at current late-April market price.Thus the grower has made something over K7.00 per Kg. for his dry coffee delivered to Goroka, and the factory-owner has grossed K13.00 per Kg, less cost of coffee at K11.14 per Kg, being a gross margin less running-costs of K. 1.86.
The exporter who puts together shipments blended together to present an evenness of quality, packs the coffee, conveys it to Lae, insures it, pays the CIC levy and customs and shipping agency costs will make a net profit after all costs of around K0.25 per kilo or around K, 5000 per 21 tonne container.
At the other end of the scale we might be tempted when living in Australia as this writer does, to order some beautiful-certified organic fair-trade coffee from the Purosa area south of Okapa.
This is available from a number of online suppliers including COFFEE SHRINE of Melbourne who are asking a mere AUD44.00 per Kg. for the Purosa-sourced organic fair-trade product.
Now even allowing for the landed cost including sea-freight of about AUD0.9 cents per Kg, plus wharf and handling costs, coffee agents markup, delivery to COFFEE SHRINE’S factory, roasting-loss of about 20% in weight plus packaging, this is not a bad markup, is it?
The finished article will have cost no more than AUD 28.00 per kilo at the outside, allowing COFFEE SHRINE a gross profit of around AUD16.00 per kilo of the finished, roast and packed coffee.
Turn this into Kina and the figure is K42 per kilo, or six times as much as the grower back in distant Purosa received per Kg. for the raw product in the first place.
This gives a good idea of the way the total retail value of coffee is shared between the various elements in the chain of production, export, transport, import and finally roasting, preparation, packaging and sale at retail.
I have visited one or two of the shops allied with big world-wide charities which are large retailers of certified and fair-trade coffees. I have asked about the margins they make and have been told,” Oh, we keep our costs right down and use all our profits to support poor people in third-world countries.
My reply is along the lines of “Is it fair that an impoverished subsistence farmer in a remote area in PNG should be working to support other poor people in countries like Bangladesh and Sudan when he maintains a closely similar standard of living?”
The answer was to the effect that I obviously didn’t know what I was talking about.
This is the sad side of the currently-fashionable Gourmet/Sustainable Coffee market
Ostensibly humanitarian and very greenie/tree-hugger- orientated, it is in fact not at all efficient in terms of what it says it sets out to do.
Pandering to inner-city fashionistas’ fancies, this market may run for 10 years or so, but already it is under the pressure of the accentuated prices of this year.
Exporters are finding it hard to sell coffee loaded with an extra premium, and in less-profitable times growers tend to sell to whoever offers the best price, not necessarily a certified or fair-trade-linked buyer. In spite of these truths the fact remains that growers can achieve better prices more often than not by becoming certified and holding their coffee for sale to the relevant buyer.
If this sector was more practical it would work hard at getting interested growers to group, building both knowledge and determination so that they are able and willing to effectively lobby for improved roads, hire trucks and establish central storage sheds. They might then set up and maintain simple effective standards for quality, thus growing their reputations so that better prices are received over the long term.
The re-planting of all the old and partly-dead trees dating from the 1960s’ explosion of interest in coffee is another area where lively and well-directed grower groups may provide a much –needed lead.
One hopes all this will be accomplished under the new, generous and ambitious World Bank-funded coffee programme.

Ripe coffee cherries
This looks as though it is going to be business-like and work positively without re-inventing wheels, - ( many of them square wheels, anyway) - as so many consultancy and aid-driven coffee and cocoa projects have done over the past 20 years and more.
Good Luck, WB!!
Don’t forget that you are dealing with a multi-faceted subsistence system, not farming-as-a-business.
Motivation, aims and outcomes are not what you’d expect in, say Peru or Colombia where growers are small businessmen whose full focus is on coffee production as the one means to live.

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