Is the grower getting a fair price of the FOB or export price achieved by the registered exporters?
By JOHN FOWKE
The world's commodity and finance markets are something of a mystery to most of us.
In our coffee industry here in Papua New Guinea, few except those engaged in the export of coffee have any real understanding of how the coffee market works.
Because of this, a decade ago, Coffee Industry Corporation published and circulated widely (40,000 copies mailed out in 2003) a booklet which explains how both the local and the overseas sectors of the coffee market work , how coffee is valued and priced, and how the trade is financed.
The booklet, which was published with the assistance of the European Union, was called STORI BILONG KOPI and was available, free, in English and Tok Pisin versions ( It is interesting to note in passing that NOT ONE acknowledgement or note of thanks, from the Members of the National Parliament, who all received a copy, or from the nations High Schools and Universities, which all received packages containing 20 copies, was received by CIC).
Among a number of things, the booklet shows an interested grower how to calculate the value of his coffee at the factory door, using current factors available daily in both the national dailies and on the EMTV six-o'clock news.
The advent of cheap and widely-taken-up mobile phone services in more recent times has added another effective tool aiding the interested coffee-grower in his pricing and marketing activities.
Using this information and a pocket calculator an interested grower may work out values with which to compare offers he is made for his coffee.
This is quite a revolutionary turn of events for those who may take advantage of the information, for never before has a PNG-based grower or small businessman been equipped to gain such insights into the workings of the market.
In fact, the highly-competitive nature of PNGs internal market sees to it that the grower who is alive to tricks played by itinerant buyers and who brings his coffee to a place where competition between a number of buyers is the rule may be assured of somewhere between 65-70% of ruling FOB at the time of sale.
At certain times and for short periods only, generally due to seasonal variances in supply and consequent shortages, up to 85% of FOB value has been achieved.
This means that on average between 15% to maximum 30% of FOB value is shared by coffee-buyers, factories, transport companies and exporters in the process of drying, hulling, insuring, transporting, preparing for export and actually loading coffee aboard ships.
CIC's industry levy of 8 toea comes out of this also.
The balance, being between 70% and 85% of FOB ( export) price goes to the careful grower who picks the place where competition exists, and the buyer who offers the best price, to whom he sells.
These figures compare well with others from around the world where open, competitive coffee industries exist, and where Government involvement or centralised marketing is non-existent. Where the latter conditions do exist growers typically realise less for their coffee because of the cost of large and often inefficient and partisan bureaucracy which is the middle-man in these markets.
A case close to home was the late now reconstructed and renamed PNG Copra Marketing Board - which was a byword in PNG for its deplorable record in dealings with small growers..
In answer to the question at the head of this section - yes a PNG-based coffee grower not only has the opportunity to obtain a fair price for his coffee in the internal market, but also the means, if he wishes to employ it, to check that this is so, and to make his discontent known if it is not through his statutory entitlement to a voice via his local Small Growers Association - prior to the antidemocratic reduction of the growers power over his industry by the current cohort of Department of Agriculture and Livestock Minister and his friends and appointees.
As for the rest of the chain of transactions leading towards the consumer situated in a far-off land, does PNG's share within the totality of the market including the consumer side stack up as being fair?
The answer is a resounding No! It does not!
The reasons for this are very complex. There are many influences at play.
Meaningful reform by any agency other than the passage of time and changing attitudes is unlikely, although a return of the USA to membership of the International Coffee Organisation has prompted a trend towards a more even balance in the market. Sudden rises resulting from unpredicted events and shortages, whilst rewarding in themselves do not alter retention as percentages by sector.
A more equitable share of total value of the trade for origins will be slow to come, incremental in nature, and will be propelled by efforts by the growing countries, or origins, themselves.
Salesmanship and value-based promotion as well as adherence to desired levels of intrinsic quality and blending –types made for individual buyers will help, but increments achieved will be slow even though ongoing once established.
In our coffee industry here in Papua New Guinea, few except those engaged in the export of coffee have any real understanding of how the coffee market works.
Because of this, a decade ago, Coffee Industry Corporation published and circulated widely (40,000 copies mailed out in 2003) a booklet which explains how both the local and the overseas sectors of the coffee market work , how coffee is valued and priced, and how the trade is financed.
The booklet, which was published with the assistance of the European Union, was called STORI BILONG KOPI and was available, free, in English and Tok Pisin versions ( It is interesting to note in passing that NOT ONE acknowledgement or note of thanks, from the Members of the National Parliament, who all received a copy, or from the nations High Schools and Universities, which all received packages containing 20 copies, was received by CIC).
Among a number of things, the booklet shows an interested grower how to calculate the value of his coffee at the factory door, using current factors available daily in both the national dailies and on the EMTV six-o'clock news.
The advent of cheap and widely-taken-up mobile phone services in more recent times has added another effective tool aiding the interested coffee-grower in his pricing and marketing activities.
Using this information and a pocket calculator an interested grower may work out values with which to compare offers he is made for his coffee.
This is quite a revolutionary turn of events for those who may take advantage of the information, for never before has a PNG-based grower or small businessman been equipped to gain such insights into the workings of the market.
In fact, the highly-competitive nature of PNGs internal market sees to it that the grower who is alive to tricks played by itinerant buyers and who brings his coffee to a place where competition between a number of buyers is the rule may be assured of somewhere between 65-70% of ruling FOB at the time of sale.
At certain times and for short periods only, generally due to seasonal variances in supply and consequent shortages, up to 85% of FOB value has been achieved.
This means that on average between 15% to maximum 30% of FOB value is shared by coffee-buyers, factories, transport companies and exporters in the process of drying, hulling, insuring, transporting, preparing for export and actually loading coffee aboard ships.
CIC's industry levy of 8 toea comes out of this also.
The balance, being between 70% and 85% of FOB ( export) price goes to the careful grower who picks the place where competition exists, and the buyer who offers the best price, to whom he sells.
These figures compare well with others from around the world where open, competitive coffee industries exist, and where Government involvement or centralised marketing is non-existent. Where the latter conditions do exist growers typically realise less for their coffee because of the cost of large and often inefficient and partisan bureaucracy which is the middle-man in these markets.
A case close to home was the late now reconstructed and renamed PNG Copra Marketing Board - which was a byword in PNG for its deplorable record in dealings with small growers..
In answer to the question at the head of this section - yes a PNG-based coffee grower not only has the opportunity to obtain a fair price for his coffee in the internal market, but also the means, if he wishes to employ it, to check that this is so, and to make his discontent known if it is not through his statutory entitlement to a voice via his local Small Growers Association - prior to the antidemocratic reduction of the growers power over his industry by the current cohort of Department of Agriculture and Livestock Minister and his friends and appointees.
As for the rest of the chain of transactions leading towards the consumer situated in a far-off land, does PNG's share within the totality of the market including the consumer side stack up as being fair?
The answer is a resounding No! It does not!
The reasons for this are very complex. There are many influences at play.
Meaningful reform by any agency other than the passage of time and changing attitudes is unlikely, although a return of the USA to membership of the International Coffee Organisation has prompted a trend towards a more even balance in the market. Sudden rises resulting from unpredicted events and shortages, whilst rewarding in themselves do not alter retention as percentages by sector.
A more equitable share of total value of the trade for origins will be slow to come, incremental in nature, and will be propelled by efforts by the growing countries, or origins, themselves.
Salesmanship and value-based promotion as well as adherence to desired levels of intrinsic quality and blending –types made for individual buyers will help, but increments achieved will be slow even though ongoing once established.
Why is the coffee market so intractable insofar as the origins are concerned?
Firstly, out of the 50 or so countries which export coffee, there are only three which have sufficient volume even to consider influencing the trade through unilateral decisions and actions.
Even so, the three giants achieve little and are subject to the same pressures, generally speaking, as the mass of small origins, of which PNG is one.
As a group, the origins are price-takers, whereas the other side of the market is dominated in great degree by six immensely powerful commercial entities.
These entities have achieved a degree of control over the price of raw coffee which seems unshakeable.
With the massive growth in buying-power of post-war societies in the developed world, systems of supply and delivery to the consumer have become increasingly integrated.
This has allowed consolidation within markets as well as cross-border or multinational integration.
The driving objective is the creation of economies of scale leading to market domination.
The result has been the corporatization - as opposed to the globalisation - of trade across the world.
The two terms corporatisation and globalisation are portrayed by some as being essentially the same thing.
They are not the same.
The basis for globalisation is that the benefits of international trade may be shared more evenly, whilst multinational corporatisation works to accrue benefits for tiny, very wealthy minorities at the cost of poorer, less-integrated and thus less powerful entities.
In the coffee industry, worldwide, we have a perfect example of the meaning of corporatisation.
The origins sell around 60% of production to six huge multinational roaster-marketer companies proprietors of the best-selling brand-names in the industry.
These brands are consumed by a majority of coffee-drinkers across the world.
Thus it is that coffee-growers, and to a lesser degree coffee drinkers, are linked inseparably to the owners of these brands as much as a dog is linked to his owner by his lead or chain.
The relationship between dog and man may also be seen as a parallel: a relationship where dependence and conditioning ensures obedience.
The observable effect in the case of the coffee industry is that the small people at each end of this multinational market support, to their cost, a highly-efficient accumulative process at its center.
Coffee-drinkers in developed countries rarely if ever see a reduction in the cost of the product they love, no matter what the state if the international coffee market.
And due to the domination of the industry by the multis, today's severely-impoverished coffee-grower has been slowly, incrementally, deprived of some 75% of what he was accustomed to receive in value 20 years ago - years in which the multi phenomenon has flourished, nurtured by the fashion for market forces theory among economists and political leaders. Fortunately, this state-of-mind is becoming less common in the face of the realisation that ever-increasing consumption is neither inevitable nor desirable, to say nothing of its sustainability.
Thirty years ago, the grower's share of the wholesale value of a carton of roast and ground coffee as sold in consuming countries stood at around 30%.
Today, the grower receives only 10%, whilst the consumer still pays what he has always been accustomed to pay for his packet of product, increased by the effects of inflation over the period.
Where has the 20% of retail ( packaged, roasted coffee) value which used to belong to the coffee-grower been moved to? Obviously the consumer has not benefited.
This portion of value has been moved into the sector dominated by the multi-national coffee marketing companies, whose lead is followed by all coffee processors, large and small, in consuming countries.
These entities are making what economists term as super-normal profits, and this situation, being intractable from the position of a single country of origin, or growing country, remains to be addressed.
As already stated above, salesmanship and value-based promotion as well as adherence to desired levels of intrinsic quality and blending types made for individual buyers will help, but increments achieved will be slow even though ongoing once established.
This is the truth for coffee-growers around the world, just as it is for wheat, rice, sugar,tea, and cocoa growers- all producers of raw materials transformed in large quantity by huge, multinational brand-owners into retail products for markets the brand-owners have themselves created.
A truth which is part of the experience of farmers of edible commodities the world around.
First written and published in February 2008 and now ( 2014) updated in response to widespread fears that PNG's established internal and export marketing system is about to be trashed in an uninformed and naive experiment initiated by the DAL Ministry.
The new, small co-operative coffee exporters being created will be, to coin a familiar phrase, the blind, led by the blind. There is no-one in the service of the National Government, it seems, who is knowledgeable enough, or possessed of enough basic commonsense, to understand just how foolish, even childish ( big boys with big toys in a very big sandpit) this move is.
To say nothing of the predictable and conflict-producing outcome.
It should be noted that I have not touched upon the subject of seasonal finance.
It is well-known that PNG's banks are not willing to finance coffee export or coffee processing ventures.
The whole great turnover of some 420,000 tonnes of hand-picked coffee berries ( cherry) into some 60,000 tonnes of ready-to-roast dry green coffee-beans loaded and ready to leave Lae on a ship bound for an overseas destination is born along on a vast cash-float that is in the form of many foreign-currency advances-on-stock-to-be-shipped obtained UNDER ESTABLISHED TRUST AND RELATIONSHIPS as effective unsecured loans.
Now, how about that, Mr Minister?
No matter what vast cash resources are due to pour into Government coffers, the coffee-grower of PNG is not going to believe that ol Gaman ol bai fainensim olgeta kopi em kamap lo han blo mipla ya, em bai gutpla wei na bai ron stret tasol, nogat wari, nogat hevi ya.
Ha,ha,ha!
Even so, the three giants achieve little and are subject to the same pressures, generally speaking, as the mass of small origins, of which PNG is one.
As a group, the origins are price-takers, whereas the other side of the market is dominated in great degree by six immensely powerful commercial entities.
These entities have achieved a degree of control over the price of raw coffee which seems unshakeable.
With the massive growth in buying-power of post-war societies in the developed world, systems of supply and delivery to the consumer have become increasingly integrated.
This has allowed consolidation within markets as well as cross-border or multinational integration.
The driving objective is the creation of economies of scale leading to market domination.
The result has been the corporatization - as opposed to the globalisation - of trade across the world.
The two terms corporatisation and globalisation are portrayed by some as being essentially the same thing.
They are not the same.
The basis for globalisation is that the benefits of international trade may be shared more evenly, whilst multinational corporatisation works to accrue benefits for tiny, very wealthy minorities at the cost of poorer, less-integrated and thus less powerful entities.
In the coffee industry, worldwide, we have a perfect example of the meaning of corporatisation.
The origins sell around 60% of production to six huge multinational roaster-marketer companies proprietors of the best-selling brand-names in the industry.
These brands are consumed by a majority of coffee-drinkers across the world.
Thus it is that coffee-growers, and to a lesser degree coffee drinkers, are linked inseparably to the owners of these brands as much as a dog is linked to his owner by his lead or chain.
The relationship between dog and man may also be seen as a parallel: a relationship where dependence and conditioning ensures obedience.
The observable effect in the case of the coffee industry is that the small people at each end of this multinational market support, to their cost, a highly-efficient accumulative process at its center.
Coffee-drinkers in developed countries rarely if ever see a reduction in the cost of the product they love, no matter what the state if the international coffee market.
And due to the domination of the industry by the multis, today's severely-impoverished coffee-grower has been slowly, incrementally, deprived of some 75% of what he was accustomed to receive in value 20 years ago - years in which the multi phenomenon has flourished, nurtured by the fashion for market forces theory among economists and political leaders. Fortunately, this state-of-mind is becoming less common in the face of the realisation that ever-increasing consumption is neither inevitable nor desirable, to say nothing of its sustainability.
Thirty years ago, the grower's share of the wholesale value of a carton of roast and ground coffee as sold in consuming countries stood at around 30%.
Today, the grower receives only 10%, whilst the consumer still pays what he has always been accustomed to pay for his packet of product, increased by the effects of inflation over the period.
Where has the 20% of retail ( packaged, roasted coffee) value which used to belong to the coffee-grower been moved to? Obviously the consumer has not benefited.
This portion of value has been moved into the sector dominated by the multi-national coffee marketing companies, whose lead is followed by all coffee processors, large and small, in consuming countries.
These entities are making what economists term as super-normal profits, and this situation, being intractable from the position of a single country of origin, or growing country, remains to be addressed.
As already stated above, salesmanship and value-based promotion as well as adherence to desired levels of intrinsic quality and blending types made for individual buyers will help, but increments achieved will be slow even though ongoing once established.
This is the truth for coffee-growers around the world, just as it is for wheat, rice, sugar,tea, and cocoa growers- all producers of raw materials transformed in large quantity by huge, multinational brand-owners into retail products for markets the brand-owners have themselves created.
A truth which is part of the experience of farmers of edible commodities the world around.
First written and published in February 2008 and now ( 2014) updated in response to widespread fears that PNG's established internal and export marketing system is about to be trashed in an uninformed and naive experiment initiated by the DAL Ministry.
The new, small co-operative coffee exporters being created will be, to coin a familiar phrase, the blind, led by the blind. There is no-one in the service of the National Government, it seems, who is knowledgeable enough, or possessed of enough basic commonsense, to understand just how foolish, even childish ( big boys with big toys in a very big sandpit) this move is.
To say nothing of the predictable and conflict-producing outcome.
It should be noted that I have not touched upon the subject of seasonal finance.
It is well-known that PNG's banks are not willing to finance coffee export or coffee processing ventures.
The whole great turnover of some 420,000 tonnes of hand-picked coffee berries ( cherry) into some 60,000 tonnes of ready-to-roast dry green coffee-beans loaded and ready to leave Lae on a ship bound for an overseas destination is born along on a vast cash-float that is in the form of many foreign-currency advances-on-stock-to-be-shipped obtained UNDER ESTABLISHED TRUST AND RELATIONSHIPS as effective unsecured loans.
Now, how about that, Mr Minister?
No matter what vast cash resources are due to pour into Government coffers, the coffee-grower of PNG is not going to believe that ol Gaman ol bai fainensim olgeta kopi em kamap lo han blo mipla ya, em bai gutpla wei na bai ron stret tasol, nogat wari, nogat hevi ya.
Ha,ha,ha!
©J.P.Fowke 2014
Not to be copied transmitted or used in any way without the permission of the author
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