Contents

1. Company Description ............................................................................................................................ 1 1.1 1.2 2 Experience exporting .................................................................................................................... 1 Percentage of sales and profits to be contributed by exporting activities ................................... 1

Product Description .............................................................................................................................. 1 2.1 2.2 Unique selling attributes or competitive advantages of the product........................................... 1 Seasonality and life cycle of your product .................................................................................... 2

3 4

Rationale for Selected Foreign Market ................................................................................................. 2 Logistics related risks ............................................................................................................................ 5 4.1 4.2 Infrastructure and geographical conditions.................................................................................. 6 Currency and Price Risk ................................................................................................................. 7

Customers ............................................................................................................................................. 8 5.1 Market trends ............................................................................................................................. 10

Competitive Analysis ........................................................................................................................... 11 6.1 6.2 Overall competitive conditions ................................................................................................... 11 Who are the main existing competitors?.................................................................................... 11 Countries ............................................................................................................................. 11 Companies........................................................................................................................... 12

6.2.1 6.2.2 6.3 6.4 7

Unique selling attributes or competitive advantages of each .................................................... 12 Existing sources of production and channels of distribution in the destination market ............ 12

Decisions ............................................................................................................................................. 13 7.1 7.2 General rules on food labeling .................................................................................................... 13 Pricing decisions .......................................................................................................................... 14 i

7.3 8

Modes of payment ...................................................................................................................... 16

Logistics and Transportation ............................................................................................................... 17 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14 Quotas, rules, regulations ........................................................................................................... 17 Country of origin rules ................................................................................................................ 18 Negotiated delivery terms Choice of incoterms ...................................................................... 19 Requirements and availability of warehousing and storage ...................................................... 19 Time lines between order processing and delivery .................................................................... 20 Freight insurance requirements.................................................................................................. 20 Methods of transport.................................................................................................................. 21 Usage of professional services intermediaries ........................................................................... 22 Documentation ........................................................................................................................... 22 Classification issues: Fair trade certification ............................................................................... 23 Packing and marking requirements. ........................................................................................... 23 Currency of payment and exchange rate .................................................................................... 24 Method of payment .................................................................................................................... 24 Warrantees, after sales services, etc. ......................................................................................... 25

References ............................................................................................................................................. i

10 APPENDIX: ............................................................................................................................................. ii

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1. Company Description
1.1 Experience exporting
The company was founded 1990. During the first 6 years the company only grew and sold unprocessed coffee beans to a local customer. As the company acquired more fields to grow coffee they gradually started taking a larger role in the value chain. They invested in a facility which processes and packages coffee beans in such a way that the product is ready to be transported. The company is taking pride in being fair trade certified and meeting requirements to export to North America and therefore having an opportunity to sell in larger quantities. Sales in Mexico and Central America are given less attention, since the market is highly competitive and the profit margin is lesser than what in USA and Canada. The company strategy is to expand its markets outside Latin America where the potential for a greater profit margin is larger. The successful strategy of expanding exports to USA and Canada in the late 1990s has been what has given the company most of the profit during the last 10 years. Now the company is looking to expand its operation to Europe were the customers have started to pay more attention to quality coffee products by showing a preference toward certified, organic and special coffees. In Europe, there is a market for a broad spectrum of coffees. The company takes pride in being a producer of high-quality certified coffee. How does the exporting activity contribute to achieving company goals and objectives?.

1.2 Percentage of sales and profits to be contributed by exporting activities

Only a fraction of the coffee is sold to domestic markets. The international business is the core of success representing more than 90% of overall sales volume. The strategy is to increase international business with entering the German markets and from there the rest of Europe.

2 Product Description
2.1 Unique selling attributes or competitive advantages of the product
Mexico produces coffee beans among the best quality in the world thanks to the specificity of the climate, the soil, the altitude and others physical characteristics of Mexican coffee plantations. In 2001, Mexico was the 5th producer of coffee worldwide.

Nowadays people is increasingly aware of the danger of pesticides and other chemical products farmers use to speed the growth and optimize the harvest of coffee beans. Consequently the consumption of certified coffee is growing very quickly, particularly in Europe and North America, as this product is healthier. Mexico produces organic and certified coffee of excellent quality, mainly in the state of Chiapas which is very mountainous: organic coffee plantations are located on mountainous slopes where the soil is particularly fertile. In addition, the production of coffee has been deeply rooted in Mexican culture for thousands of years; growers of organic coffee, who are mainly indigenous communities, have a wide and strong knowledge about the traditional coffee-growing focused on quality. This knowledge is very important to preserve the authenticity of the product and biodiversity and it is an important competitive advantage. Our company takes pride in offering a high quality product which benefits from the competitive advantages of Mexican fair trade certified coffee.

2.2 Seasonality and life cycle of your product

Selected coffee beans are sown and between three and four years later the coffee plants can produce fruits. The red coffee cherries are harvested manually between the months of October and March from the plantations in Mexico. The day of the harvest, the fruits are transformed through a process which consists in cleaning the fruit, eliminating its superior layers and drying it to finally obtain the green coffee bean. It is important to proceed this transformation the same day in order to conserve the quality and the weight of the product. The beans are sorted by size and weight and then they are put in sacs to be exported. The product is roasted in Germany, then one part is dedicated to local consumers and another is re-exported to European countries or USA.

3 Rationale for Selected Foreign Market

Germany is the largest coffee consumer in Europe, with a market share of 22 % (ICO, 2007), and largest importer of coffee in the world, barring the USA. Total coffee consumption amounted to 512.000 tons in 2007 and in 2010, per capita consumption of coffee increased to 150 liters in total volume terms. The main reasons why we have picked Germany as host country are the following:

a. Germany is a coffee nation: Coffee is the favorite drink of Germans As we can see in the chart, Germans drink 15 % more coffee than water and 40% more coffee than beer. This implicates that there is a steady demand for our product and little risk not to find buyers as long as we offer a good cost-benefit ratio. b. High volume of coffee imports As we can see in the table below, green coffee is the most important import product in terms of volume. Furthermore, the table illustrates how Germany relies on the green coffee imports even though the production is not mentioned, we can assume that the country-own production would not be enough to satisfy the high demand of the German coffee drinkers.
Figure 1: Consumption of drinks in Germany

Figure 2: Imports and exports of coffee to/from Germany

c. Geographic location: Important place for trading and processing Germany is the first European country we decided to export to. But it is not meant to keep being the only one forever. Nevertheless, we consider Germany to be a good country to start with, not only for the reasons mentioned above, but also for its geographic location. With Hamburg being the second 3

largest port in Europe, it is relatively easy to ship the coffee from Mexico to Germany. Important buyers are also located in Hamburg (see Customers) which keeps transport costs relatively low. The port of Hamburg has a central meaning in the world coffee trade as the biggest European harbor for imports of green coffee, as a hub for shipments to Scandinavia, and as a gateway to and from Central and Eastern Europe, Austria, and Switzerland. Total coffee transshipments through the Port of Hamburg for 2008 amounted to around 1.21 million tons, 847.000 of those being imported (3 % more than in 2007). The attractiveness of Hamburg for the high number of coffee activities is a result of the long symbiosis between trade, traffic and port. The combination of trading companies with innovative service concepts and port- and storing companies with the most modern performance and intelligent logistics solutions empower Hamburgs leading position as centre of the international coffee trade. d. Germany is a big market for organic food Germany does not only represent a big market because of its high population and its high purchasing power but also represents Europes biggest market for organic products with a constant growth. In just 11 years, from 2000 to 2011 the revenue for organic food in Germany tripled. The growth rate is a lot higher than the one for conventional food: from 2010 to 2011 for example the revenue of organic food in Germany increased by 10 percent whereas the revenue of conventional food decreased by 0.2 percent.

Figure 3: Revenue of organic food in Germany

Another good prospect the German market represents, are the increasing imports of organic food from other countries because the German organic food production is too small to saturate the German market. While other markets were hit by the economic crisis the last years, the market for organic products was not affected negatively. This shows that the organic food market is a relatively stable and safe one. e. Future prospects Coffee is expected to register good total volume sales growth over the forecast period. According to the German Coffee Association, and other sources, coffee is a healthy drink. They claim that coffee stimulates mental activity and positively aids sports activities, such as fitness, but also prevents diabetes and Alzheimers disease and protects the liver. Such publicity usually has a significant influence on consumer behavior and it may impact growth in volume and value sales of coffee. Organization of the Coffee Day (which celebrated its 5-year anniversary in 2010) is also intended to stimulate coffee consumption in Germany.

4 Logistics related risks

Figure 4: Route of sea travel

4.1

Infrastructure and geographical conditions

The merchandise will be transported in containers on trucks from Puebla to Veracruz. There the merchandise will be loaded of freight ships and arrive in Hamburg approximately 17 days later. In Hamburg the customer will take receive the merchandise and take full control. The coffee will be packed in standardized sacks designed for transporting coffee. There sacks will be loaded on ISO 42" x 42" pallets who in turn will be loaded into standard 20 inch containers. Only fully loaded containers will be sold to increase efficacy of logistics operations. Hereafter the container will be transported to the port in Veracruz by a logistics company. The road from Puebla to Veracruz is in moderate condition compared with other roads in central parts of Mexico. The distance from the processing unit in Puebla to the port in Veracruz is 305 kilometers. The lorry will have to pass the high mountains of Mendoza. There is no need to be alarmed since the toll road is designed to support trucks since the port in Veracruz is the most used one on Mexico. The toll road kept in fairly good conditions and crime is low on these parts due to high surveillance. Delays on the road are common, but do not cause any problems since the container is scheduled to wait at least one day in the port of Veracruz. The port of Veracruz is the most advanced in Mexico and information will be sent to the company and the customer as soon as the container is being handled in the port. The product is not subjected to any actual danger in the port, since the surveillance is strict. Moreover, the only ones with permission to open the container are the government licensed port companies which have been reliable in the past. The sea transport is fairly safe. Only extreme weather conditions and human errors by staff can cause loosing of cargo. Nevertheless, freight timers are subject to weather conditions. If the weather is unfavorable the sea transportation can be delayed by days. In case of delays, the new estimated arrival time will be informed to all parties by sophisticated and integrated information technology systems. As with the road and sea transports, the company demands that the logistics company has insurance which will cover damaged or lost property. When the container is off-loaded in the port of Hamburg the company will be informed and all responsibility of merchandise will be handed to the customer. The customer has the right to check the merchandise in the port and report damaged or lost property.

4.2 Currency and Price Risk

Coffee is traded in USD, causing risks related to the UDS/MXN exchange rate. The UDS/MXN exchange rate has a volatile history and there is no suggestion that the risk will be smaller in the future. Due to the

Figure 5: USD/MXN and USD/BRL exchange rate during the last 10 years. Source xe.com

high rate (over 80%) of Mexican exports are exported and paid in USD. Until Mexico succeeds to diversify its export partners there will be a large currency risk. The financial crisis has caused numerous rapid exchange rate fluctuations and there are no signs that the future will be more stable. A low valued Mexican peso is good for export business, but as the economic growth of Mexico increases a higher valued Mexican peso can be expected. In comparison with the words biggest coffee exporter Brazil, Mexico has an advantage in risks related to currencies since the Brazilian real has increased in value making their exports expensive. Coffee prices are extremely volatile. The supply of coffee is dictated by weather conditions in coffee harvesting countries. Hence, a good harvest in other coffee growing countries will increase the supply of coffee and cause the prices to fall. This volatile price change will have a major impact in the economic profit/loss.

Figure 6: Price and stock of coffee

5 Customers
In order to identify direct customers, it is helpful to have a look at the whole supply chain:

Figure 7: Supply chain parts

The coffee market is characterized by a fierce competition at the processors, wholesale trader and grocery level. On the following pages, we will have a short look on important players along the supply chain with a main focus on our direct customer, the Neumann Coffee Group. Our own position in the supply chain ranges from the production of the coffee plant to the position of the export company. We are selling our product to the trader, which is represented by Neumann Coffee Group. Neumann Kaffee Gruppe (NKG), the world's leading green Coffee service group. Neumann Kaffee Gruppe is present in all important markets worldwide. The export companies and representative offices have access to the entire world's coffee production. At the same time, the consuming markets are served through import traders. Neumann Coffee Group meets the diverse demands of the clients with a comprehensive range of semi-industrialized coffees as well as services and an almost limitless choice of coffee varieties, preparations and cup profile. Below you can find a brief company profile on NKG. In Germany, Bernhard Rothfos GmbH is in charge of the coffee import, which is a leading member of Neumann Coffee Group. The company was founded in 1925 and is based in Hamburg. It takes a key role within the world-wide green coffee supply chain and thus contributes to the group's strategic objective of a long-term, sustainable and profitable growth. Among the key competences of Bernhard Rothfos GmbH are Trade, Logistics, Pricing, and Quality.

In order to know the whole supply chain, which is important for understanding logistic issues, we also have to have a look to the next party involved, the roaster.

Figure 8: Company description of Neumann Kaffee Gruppe (NKG)

Germanys roaster industry is dominated by a handful of companies; Kraft and Tchibo are the main players, competing with other roasters like Melitta, Aldi and Dalmayr. Kraft Foods is the leading (non-private label) player in coffee in Germany, accounting for a 17% share of off-trade value sales and a 15% share of off-trade volume sales in 2010. The companys Jacobs brand leads with a 12% share of retail value sales. As a result of intense competition and the penetration of new products, Kraft Foods is slowly losing shares. The saturation in fresh ground coffee has also harmed Kraft Foods. Once roasted, the coffee finds its way to the consumer, delivered by either a caterer or a retailer. The chart below illustrates, where the coffee is consumed. The chart only refers to the coffee which is consumed out of home (in our supply chain the part that goes via the caterer).

Figure 9: Sales of coffee outside homes in Germany

5.1 Market trends

Consumption of fair trade coffee is growing fast as figure 10 illustrates, resulting in that current certified coffee suppliers are unable to meet the demand of the market. Moreover barriers to enter the European market are seen as to hard to overcome by numerous small business companies. Moreover, the competition of low cost coffee is close to perfect competition the company cannot compete with price. Therefore, the potential customer segment is coffee enthusiasts who are willing to pay more for a premium coffee.

Figure 10: Source: Fairtrade deuchland

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6 Competitive Analysis
6.1 Overall competitive conditions
The company is facing the same challenges as other coffee businesses. The total cost of delivering coffee beans to Europe is large and it involves risks and the need to adapt to new regulations and laws. The company sees this challenge as an opportunity to gain market share and increase profit. When processes have been adapted to laws and regulation set by EU and reliable business partners have been found the operational costs per unit will be approximately the same as before. Hereby, making a successful export plan to Europe is in the core of the companys success As we can notice, the market is highly competitive in Central and Latin America as there are many producers of organic and certified coffee in this area. This is the reason why the company aims to expand his market to Europe and, more precisely, to Germany, where products are more varied and the market is larger: Germany is the main consumer of organic products in the European Union. People are more and more interested in organic and fair-trade coffees; the market is unsaturated so there are possibilities for new companies to enter this market in order to face the growing demand. Germany is currently importing certified coffee from Central and Latin America. About the competing companies, we have to consider both Mexican companies exporting organic and certified coffee to Germany and their Latin neighbors such as Peruvian and Vietnamese companies.

6.2 Who are the main existing competitors?

6.2.1 Countries

Peru is the primary producer and importer of organic coffee so it is a direct competitor of Mexico in the exportation of organic coffee to Germany. The production and exportation of coffee in Peru have been growing very quickly the last years and the quality has been improved in order to enter European and North American markets. USA used to be the main buyer of Peruvian coffee but now Germany has surpassed them by importing 32% of the Peruvian production. It is the main competitor of Mexico because it exports organic coffee to Europe and it is an important provider of Germany. Vietnam too is known for producing some of the world's best organic coffee and is one of the main providers of Germany.

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6.2.2

Companies

A powerful competitor is Exportadora de Caf California (ECC), which is a Mexican company. It is one of the largest green coffee exporting companies in Mexico. They are involved in both production and exportation: they work in partnership with Mexican farmers who produce various types of coffee in the states of Chiapas, Veracruz and Oaxaca. They also pack and send the green coffee beans to the destination where they are roasted. ECC exports different coffees under 14 brands. This company is a part of Neumann Kaffe Gruppe, a German group which is also the world's largest coffee trading group that includes 15 coffee exporting companies from different parts of the world.

6.3 Unique selling attributes or competitive advantages of each

Peruvian companies have considerably improved the quality of their coffee in order to gain new markets and they have been very successful those last years, especially with German importers. Just like Mexico, Peru offers special climatic and geographic conditions which affect the quality of the coffee. Microclimates and height of the coffee plantations in Peru contribute to obtain a coffee of good quality. Another interesting point is the price of Peruvian organic coffee: it is currently the cheapest certified organic coffee on the market. ECC is an essential company in the market we aim to enter as they hold a 20% market share of the Mexican coffee exporting business. They have a strong reputation and they are a part of a powerful German coffee trading group, which is an advantage to enter a German market. In addition, ECC propose two different organic coffees: Onix and Berilo, which is a superior quality organic coffee and one of the best of organic coffees produced in Chiapas. In this way, they can have two different target consumers and increase their chances of success in the market of organic coffee.

6.4 Existing sources of production and channels of distribution in the destination market
Germany does not cultivate organic coffee itself: unfortunately, the climatic and conditions are not suitable to implement coffee plantations in this country. However, Germany is the largest green coffee importer in Europe and it is also the largest green coffee re-exporter: 31% of the volume imported is directly re-exported to Europe and USA, mainly in Poland. As Germany has an important domestic roasting industry, it is the biggest exporter of roasted coffee in Europe.

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The main distributors of coffee in Germany are Tchibo (Maxingvest), Jacobs, Eduscho, and Idee Kaffee. Those companies own coffee shops and provide coffee in large quantities to the supermarkets (mass distribution).

7 Decisions
Specific product standards for exporting to EU are stated on http://exporthelp.europa.eu/. The most important information is quoted from internet site exporthelp in respect to product code 09011100 (coffee not roasted):

Food containing a contaminant to an amount unacceptable from the public health viewpoint and in particular at a toxicological level, shall not be placed on the EU market and will be rejected

Contaminant levels shall be kept as low as can reasonably be achieved following recommended good working practices

Maximum levels may be set for certain contaminants in order to protect public health Compliance or equivalence: Imported food must comply with the relevant requirements of food law or conditions recognized by the EU to be at least equivalent thereto.

Traceability: The Regulation defines traceability as the ability to trace and follow food and ingredients through all stages of production, processing and distribution.

Responsibilities of food importers: Food business operators at all stages of production, processing and distribution within the businesses under their control shall ensure that foods satisfy the requirements of food law which are relevant to their activities and shall verify that such requirements are met.

7.1 General rules on food labeling

Labels of foodstuffs must contain the following particulars:

The name under which the product is sold. No trademark, brand name or fancy name may substitute the generic name but rather may be used in addition. Particulars as to the physical condition of the foodstuff or the specific treatment it has undergone (powdered, freeze-dried, deep-frozen, concentrated, smoked, irradiated or treated with ionizing radiation) must be included where omission of such may confuse the purchaser.

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The list of ingredients, preceded by the word "Ingredients", must show all ingredients (including additives) in descending order of weight as recorded at the time of their use in the manufacture and designated by their specific name

The net quantity of pre-packaged foodstuffs in metric units (litre, centilitre, millilitre) for liquids and (kilogram, gram) for non-liquids.

The date of minimum durability consisting of day, month and year in that order and preceded by the words "best before" or "best before end" or the "use by" date for highly perishable goods.

Any special conditions for keeping or use. The name or business name and address of the manufacturer, packager or importer established in the EU.

Place of origin or provenance Instructions of use, where appropriate. Lot marking on pre-packaged foodstuffs with the marking preceded by the letter "L".

The labeling must not mislead the purchaser as to the foodstuffs characteristics or effects nor attribute the foodstuff special properties for the prevention, treatment or cure of a human disease. The information provided by labels must be easy to understand, easily visible, clearly legible and indelible and must appear in the official language(s) (in this case German) of the Member State where the product is marketed. However, the use of foreign terms or expressions easily understood by the purchaser may be allowed. More information can be found on exporthelp.eurpa.eu.

7.2 Pricing decisions

As the company is selling a fair trade certified coffee it can justify selling the product at a price that is higher than the generic market price. The cost related to creating a fair trade coffee is higher due to higher salaries and more expensive and ethical processes. Two large risks, risk of USD/MXN exchange rate and the risk of highly volatile market price are present. The coffee market is highly competitive; a large profit margin will cause costumers to purchase the product from a competitor. These two risks and the competitiveness need to be taken into consideration in pricing. The strategy is to make a 25% profit margin in the long run. Nevertheless, when entering the new market the objective is to break even due to additional costs related to entering a new market. 14

Based on the quotas found in the appendix the total transportation cost, including fuel surcharge, bunker charge, CAF (Currency Adjustment Factor) charge, terminal security and handling charge, insurance charges, bill of lading, shippers declaration charge, land and sea freight will be approximately 4200 /container. A description of these terms can also be found in the appendix. 300 coffee bags 60 kg are loaded into the container adding up to 18 metric tons of coffee/container. Hence, the logistics cost will be about 43 cents/kg. Moreover a 7% vat needs to be paid by the wholesaler. Import tariff off nonroasted coffee is 0% in this case as can be seen in the appendix.
Figure 11: Retail prices of coffee in 5 european companies

Figure 11 shows the retail price of coffee. The total cost of producing one kilo of green coffee is expected to be 1.30 /kg. Adding logistics costs, payment costs and a 25% profit margin, the selling price the company is aiming for is 2.20/kg. The importer is expected to add 20% to the price for its services. The next company in the value chain, the roaster, is expected to add 35% to the price. There is a 15% 20% loss of coffee during the roasting process. Thus for every 1 kilo you roast, you end up with 80% to 85% of a kilo meaning that the final product has a higher price. At this point the price is about 4.10/kg. Finally, the retailer will add 40% to the coffee price, making the final product cost 5.7/kg. Taxes paid are included in each step which explains why the percentage is higher than in figure 12. The retail price of coffee, excluding taxes in Germany is about 4.0/kg. Given that our product is a fair trade we can expect the customers to pay more. Hereby the current target retail price of 5.4/kg is competitive and realistic.

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Figure 12: Coffee retail price is defines by these factors

Componenets of retail price

Retailer; 1,44; 28 % Production; 1,30; 26 % Production Profit Payment logistics Profit; 0,50; 10 % Payment; 0,06; 1% logistics; 0,43; Importer; 0,44; 8% 9% Importer Roaster Retailer Roaster; 0,92; 18 %

Figure 13: This pie chart shows how much every party in the supply chain represents of the final price.

7.3 Modes of payment

Since the trade agreement is new and the company does not have any previous business experience with the importer a letter of credit is used as payment method. The expected cost of using letter of

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credit is 4% of sales price. The added cost of payment is added to sales price. If the business relationship with the importer improves the payment method will likely be changed to open account to save costs.

8 Logistics and Transportation

8.1 Quotas, rules, regulations
The European Community is a member of the International Coffee Organization (ICO) as an international institution along with 31 importing countries and 45 exporting countries. Signed by the 77 members of the ICO, the International Coffee Agreement 2007 aims to enhance and promote the sustainable development of the worldwide coffee sector through the following measures:

Promoting international cooperation on coffee matters; Providing a forum for consultation among governments and with the private sector; Encouraging signatories to develop a sustainable coffee sector in economic, social and environmental terms;

Seeking a balance between supply and demand and fair pricing for both consumers and producers;

Facilitating the expansion and transparency of international coffee trade and promoting the elimination of trade barriers;

Collecting, disseminating and publishing economic, technical and scientific information, statistics and studies on coffee-related issues;

Promoting the development of consumption and markets for all types of coffee, including in coffee-producing countries;

Developing and seeking finance for projects that benefit the world coffee economy; Promoting coffee quality with a view to enhancing customer satisfaction and benefits to producers;

Supporting the development of food safety procedures in the sector; Supporting the development of strategies to enhance the capacity of small-scale farmers to benefit from coffee production, which can contribute to poverty alleviation;

Facilitating the availability of information on financial tools and services that can assist producers.

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In this context, the agreement stipulates that Members must try to limit tariff-related and regulatory barriers to coffee consumption such as preferential tariffs, quotas, government monopolies and subsidies. They must also give due consideration to the sustainable management of coffee resources, in accordance with the principles and objectives on sustainable development contained in Agenda 21, and the improvement of the standard of living and working conditions of populations engaged in the coffee sector. The agreement also requires that each exporting Member implement the system of Certificates of Origin established by the ICC to facilitate the collection of statistics on the international coffee trade, and furnish to the ICC any information it judges necessary relating to production, imports, exports, consumption and prices. Matters governed by the agreement fall within the exclusive competence of the European Community under the common commercial policy.

8.2 Country of origin rules

The EU requires that the product is traceable to its origin. The idea is that if there is a reason to draw a certain bath of product of the market, only the affected products need to be eliminated due to the traceability. When shipping products from one country to another, the products may have to be marked with country of origin, and the country of origin will generally be required to be indicated in the export/import documents and governmental submissions. Country of origin will affect its admissibility, the rate of duty, its entitlement to special duty or trade preference programs, antidumping, and government procurement. Article 401 of the NAFTA Agreement defines "originating" in three ways: Goods wholly obtained or produced in the NAFTA region; Goods produced in the NAFTA region wholly from originating materials; and Goods meeting the Annex 401 origin rule.

According to the second definition, our coffee product originates from Mexico (which is obviously part of the NAFTA region) and can therefore clearly be traced as Mexican product.

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8.3 Negotiated delivery terms Choice of incoterms

CIF - Cost, Insurance and Freight (named port of destination). Seller must pay the costs and freight to bring the goods to the port of destination as well as the insurance. Nevertheless, the risk is transferred to the buyer once the goods are loaded on the vessel.

Figure 14: Incoterms; transportation process

8.4 Requirements and availability of warehousing and storage

There are a number of precautions that must be taken to keep well dried coffee in good condition and without spoilage or quality loss when it is stored or transported. Special care needs to be given to humidity considerations, storage facility design and location, storage duration, and to the avoidance of rewetting during transportation. After processing, dried green beans are stored in jute bags. Only clean, dry bags will be used. The coffee has to be covered during transportation, and only loaded / offloaded during dry weather, or under cover. Bagged green coffee has to be stored in well ventilated and leak-proof warehouses, and away from walls on pallets raised off the floor to facilitate ventilation. Once beans are dried to maximum 12.5% moisture content all efforts to prevent re-wetting and airborne moisture absorption must be made (be it from rain, fog, or condensation). Green coffee beans can be stored for a number of years before roasting, though this often has an effect on quality. Nevertheless, we are only going to store relatively small quantities at our processing facilities before loading on containers.

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8.5 Time lines between order processing and delivery

From Farm to Port

Shipment to Germany

Handling at Port

Arrival and Handling in Germany

Figure 15: Timeline of transportation

1) The Transportation from the Farm to the Port is done in trucks and takes about 1 day. 2) The handling at the port includes quality controls, documentation checking and approval and the loading. This takes about 2 days. 3) The Shipment from Mexico to Germany takes 16 days. 4) The Arrival and Handling (Quality Control, unloading etc) takes another 2 days.

8.6 Freight insurance requirements

There is an absolute need for cargo insurance or freight insurance since Ocean Freight is usually only insured up to $500.00 a container by the carrier. The table below shows the benefits of online freight insurance provider insureyourfreight.com.

Figure 16: Insurance components

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8.7 Methods of transport

Due to the humidity sensitive nature of the product, we are going to use a ventilated container, which are also called coffee containers. These have ventilation openings over the entire length of their side walls in the floor and roof areas (pictures show view from outside).

Figure 17: Ventilated container for coffee transportation

Coffee beans require particular temperature, humidity/moisture and possibly ventilation conditions: The goods must be protected from frost (< 0C). In general, temperatures should be between 10 and 20C during transport of green coffee beans. Normal loading humidity of between 11 and 13%. Values of up to 13.5% are still acceptable. Where values are between 13.5 and 14%, i.e. the mold growth threshold of 75% relative humidity has already been reached, it is essential to use ventilated containers, and to ensure very rapid stripping after unloading the container from the ocean-going ship. Recommended ventilation conditions: air exchange rate 10 - 20 changes/hour (airing).

The most critical issue is to avoid rewetting through condensation. Rewetting can be minimised by ensuring that:

All containers are technically impeccable - i.e. watertight, free of holes and corrosion, with sound seals, dry and odourless;

Container stuffing takes place under cover, or in dry weather; Correct container liners are used according to the shipping method employed (e.g. lined with cardboard, or a container liner); 21

Carrier is instructed to 'stow away from heat, cool stow and sun/weather protected' to minimise temperature fluctuations in transit.

8.8 Usage of professional services intermediaries

Logistics Company should be in charge of documentation handling, so it should take role of freight forwarder as well as customs broker. Could be more expensive but everything is in the same hand, they have experience (we dont) and little by little we could take over more responsibility ourselves.

8.9 Documentation
Required Shipping Documents (according to Article 18, the European Contract for Coffee) The sellers shall provide the following documents free of charge: Invoice A complete set of on board or shipped bills of lading or alternatively a delivery order issued by the shipping company or its agent together with, if required by buyers, a copy of the bill of lading Certificate of weight Certificate of insurance (for CIF sales)

Also required, in good time prior to shipment: Certificate of origin (e.g. ICO Certificate) Preferential entry certificate (e.g. GSP Certificate) Phytosanitary certificate Fumigation certificate Non-manipulation certificate

General German Requirements to Import: EUR1 form (given by the Mexican Secretary of Economy) Sanitary Certificate (same as the one required for exporting from Mexico with legal translation) Shipping Document (same as the one required for exporting from Mexico with legal translation) Commercial Invoice (in German Language) Declaration of Value in Customs Freight Insurance Tariff Classification (in German Language)

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Origen Certification (in German Language) Designated Product Name (in this case Blossom or Nectar, Comb Honey) Prove of Required Composition Criteria (similar to Veterinary Health Certificate needed for Mexican export); requires chemical inspection of the product and has to prove specific requirements of the EU.

Product has to be labeled with the following information in German Language: name of the merchandise, name and address of the Mexican producer and the German Importer, expiration date, country of origin.

8.10 Classification issues: Fair trade certification

Over the last 20 years Fairtrade has become extremely successful. Through a groundswell of consumer support, Fairtrade has now achieved significant market share across many products in 23 countries. In some national markets Fairtrade accounts for over 20% of market share in certain products. Worldwide consumers spent an estimated 2.9 billion Euros on Fairtrade certified products in 2008, a 22% year-to-year increase. Selling Fairtrade products is a powerful way to support producers in developing countries. Fairtrade helps workers and farmers to earn a decent living and secure a better life for themselves. Fairtrade's Generic Trade Standards apply to operators who trade in certified products. Fairtrade International also publishes Fairtrade Product Standards, which complement and add specific requirements to the Generic Trade Standards. Fairtrade labeled products need to be certified, all the way along the trade chain from producer to the final packaged product. This assures consumers that the product is Fairtrade.

8.11 Packing and marking requirements.

The packing of the coffee will be done in 60 kg sacks similar to the one on the picture.

Figure 18: Coffee sacks used for transportation

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Marking required: ICO Certificates of Country of Origin Prescribed format to be duly stamped by customs Specifying: exporter, producing country, port, country of destination, unique ICO identification mark (also on bags) and description of coffee Copies of documents to be sent to ICO

8.12 Currency of payment and exchange rate

Coffee is traded in US$. Therefore, the exchange rate of US dollar and Mexican peso is of interest. For further information on the exchange rate, please refer to section Currency Risk.

8.13 Method of payment

We are going to use the Letter of Credit, due to the many advantages it brings for us as well as for the our trading partner. Some of them are explained below. Exporters: Guaranteed payment upon presentation of the documents specified in the terms of the letter of credit. Reducing the production risk, first of all, for the situations when the buyer cancels or changes his order. The chance to obtain financing for production or purchase of goods (pre-export finance). The chance to get financing in the period between the shipment of the goods and receipt of payment (especially, in case of delayed payment). The buyer cannot refuse to pay due to a complaint about the goods. The importer must raise any complaints/claims about the delivered goods separately from the letter of credit, which provides the exporter with a significant advantage in resolving such issues. Using documentary letters of credit allows to significantly reduce the risk of non-payment for delivered goods, as in case of presentation of fully credit conform documents by the seller, the issuing bank pays the agreed-upon amount independently of the importer.

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Importers: The possibility to structure the payment plan in the contract according to the importer's interests. Certainty that the payment will be made only upon presentation of the documents confirming shipment of the goods. The use of a letter of credit allows the importer to avoid or reduce pre-payment. The seller must fulfill all terms of the contract, as indicated in the letter of credit (shipment of the goods, meeting delivery terms on stock, amount, and deadlines) in order to receive the payment. Having opened a letter of credit, the importer proves his ability to pay and can count on more favorable payment terms in the future.

Documentary letters of credit help the importer significantly reduce the risk connected with the seller not meeting its delivery obligations. The imported goods will be delivered in accordance with all the conditions specified in the letter of credit, and the agreed-upon documents will be received relatively quickly.

8.14 Warrantees, after sales services, etc.

Neither warranties nor after sales services apply.

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9 References
1) http://www.ecf-coffee.org/ 2) http://www.eccmexico.com/aboutus 3) http://www.ico.org/ 4) http://www.promexico.gob.mx/work/sites/Promexico/resources/LocalContent/352/2/GuiaExpo rtador2007.pdf 5) El mercado del caf en Mxico, Centro de Estudios de las Finanzas Pblicas (CEFP), 2001 Cafen: http://www.cafen.org/cafe_organico_mexico.html 6) Junta Nacional del Caf (JNC) Per:

http://www.juntadelcafe.org.pe/?r=pro_exp&ctg=pye&idn=0 7) Exportadora de Caf California: http://www.eccmexico.com 8) Coffee in Germany, CBI Ministry of Foreign Affairs of Netherlands: www.cbi.eu 9) European Coffee Federation. (2002). European Contract for Coffee. Retrieved April 28, 2012, from http://www.ecf-coffee.org/images/stories/temporary/ECC%202002.pdf 10) European Union. (2008, September 19). The International Coffee Agreement 2007. Retrieved April 30, 2012, from http://europa.eu/legislation_summaries/external_trade/cx0002_en.htm 11) Fair trade international. (2012). Selling fair trade. Retrieved April 28, 2012, from http://www.fairtrade.net/selling_fairtrade.html#c4498 12) FedEx. (n.d.). Mexico Country Profile. Retrieved April 28, 2012, from http://www.fedex.com/us/international/irc/profiles/irc_mx_profile.html 13) GDV. (2012). Transport Information Service Coffee. Retrieved April 28, 2012, from http://www.tis-gdv.de/tis_e/ware/genuss/kaffee/kaffee.htm#verpackung 14) International Trade Centre. (2012). Coffee Guide. Retrieved April 28, 2012, from http://www.intracen.org/coffee-guide/world-coffee-trade/ 15) Wiki Answers. (2012). Advantages of letter of credit. Retrieved April 30, 2012, from http://wiki.answers.com/Q/Advantages_of_letter_of_credit 16) http://www.searates.com 17) http://exporthelp.europa.eu/thdapp/index_en.html

10 APPENDIX:

Requirements and taxes

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Import tariffs

Logistics Quota
RATING DETAILS

Ocean Container Rates from El Paso To Hamburg (Germany) Total Volume Weight 39682.8 lb or 18000 kgs.

DESCRIPTION

VALUE

RATE

QTY.

AMOUNT

Freight (FOOD STUFFS (PROCESSED FOOD PRODUCTS))

20' Container

$3,949.00

$3,949.00

Bunker Adjustment Factor [BAF Charges]

20' Container

$40.00

$40.00

Warfage

18 MT

$2.90

$52.20

Bill Of Lading

$50.00

Charges for High Security Seal (What is this?)

$15.00

Drayage to Loading Area (301 - 400 Miles)

$684.00

$684.00

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Fuel Surcharge

$150.48

Customs Brokerage Fee

$0.00

Delivery Charges

(301 - 400 Miles)

$0.00

$0.00

Insurance Charges ($500 Deductible) ( Type Of Goods : Industrial Goods Commercial Items )

$30,000.00

0.55 %

$165.00

Shippers Declaration (Over $2,499.00 )

$25,000.00

$50.00

Allowance for Industrial Goods

$135.00

Total

US $5,020.68

CARGO DETAILS, SERVICES REQUIREMENTS & QUESTIONS

coffee

Type of Goods

Industrial Goods Commercial Items.

Description Of Commodity

FOOD STUFFS (PROCESSED FOOD PRODUCTS).

Shipping Date

The Shipment will be ready in the next 30 to 60 days.

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EXPLANATION OF CHARGES

FREIGHT: Refers to the port to port charges or rail ramp to port charges from origin city in the USA to destination excluding any pickup or drayage charges and delivery from destination port. The rental of container is included.

BUNKER ADJUSTMENT FACTOR: Refers to a fuel adjustment. Bunker is the maritime terminology for fuel and is prone to fluctuation due to market conditions.

WARFAGE: Refers to a USA port charge per metric ton i.e. every 2200 pounds.

BILL OF LADING: Refers to the maritime documents emitted by our firm so you can collect your cargo at destination. It is the ticket and proof of export. We emit express release bills of lading so you can collect them as originals at destination. Original Bill of Lading can be requested. Bill of Ladings are only sent after 10 days from departure from USA port when requested in original form, otherwise they are express release and are available at destination port when cargo is ready for customs.

GRI CHARGES: General Rate Increase.Due to market conditions. All rates are confirmed in writing prior to cargo acceptance or payment thereof.

DRAYAGE FROM TERMINAL TO YOUR DOOR: Refers to taking the container to the loading address and back to the rail road ramp or the port where it will then load on the ship. LIVE LOAD 2hrs free with $100 per additional hour thereafter. Drop and pick charges are double drayage and will allow you to have the container for a maximum of 4 days. The loading area can be our warehouse located 1-10 miles from the port in case you need a warehouse to receive cargo you have purchased but 90% of the time cargo is loaded by shipper (YOU or YOUR SUPPLIER) at origin address. The container is on a chassis 4 to 4.5 feet off the ground depending on the chassis. No packing boxes are provided or any ramp access to the container. We can provide assistance for loading at an extra cost to you but we suggest http://www.uline.com for packing supplies and for manpower http://www.labourready.com

FUEL SURCHARGE: This is a percentage of the Drayage and varies from city to city.

LOADING CAR: We can receive and load vehicles for you at our many stations in the USA. You are not permitted to work inside our stations. We brace and strap down the vehicles so they can not move. We only load 2 vehicles per 40 foot container and 1 vehicle per 20 ft container as per our agreements with the Rail Road and Steam Ships. If you can fit 3 vehicles inside a container all wheels must be touching the floor of the container. We do not consolidate vehicles in containers. This means that your car will not share a container with another owner of another car. Your car will go in your container and not in a shared container.

CUSTOMS CLEARANCE FOR CAR EXPORT: We must clear the titles of each vehiclethrough US Customs minimum 3 days prior to loading on the ship. You must follow the guidelines on this link http://www.shipping-worldwide.com/vehicleshipping-procedures.html and provide us an original Export Power of Attorney so we can act on your behalf when we present your original documents to US Customs at the Port of Loading.

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INSURANCE : ALL RISK VERSUS CLAUSE C TYPE COVERAGE : Insurance provided for Industrial Cargo is quoted at ALL RISK. Insurance quote provided for CARS or HOUSEHOLD GOODS AND PERSONAL EFFECTS is quoted under CLAUSE C ONLY.

Clause C coverage is en force, unless it is professionally packed. Clause C covers total loss at sea port to port. ALL RISK Insurance Coverage for Cars or Household Goods and Personal Effects is en force loss or damage and invoiced separately once we have proof of professional packing. Cars that are loaded by APX can be insured ALL RISK. All-Risk subject to 3% (minimum $250.00) is deductible. Itemized valued inventory and professional packing are required ... Watercraft/Yachts, New & Used (Not more than 3 model years old), Not Exceeding USD 50,000 in Value or in Excess of 30 Feet in Length. AllRisk is subject to a 3% (minimum $250 deductible). If you need FULL ALL RISK you must follow the insurance guidelines for professional packing.Insurance conditions are located at http://www.shipping-worldwide.com/insurance.htm .

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