Coffee

Value
Chain: a
blend of
upgrading

Outline
Basic facts about coffee
Coffee GVC
Whos capturing the gain?
Economic, environmental, social
upgrading: what does it mean for
coffee VC and local development?
Deliverables (presentation, word
file, working files)

Basic Facts About Coffee

Until 1990, the world trade of coffee was
subject to a quota system controled by
ICO;
After the quota system was abolished,
the prices have been going up and down
reflecting supply and demand trends;
Being a primary commodity, coffee prices
are inherently unstable. One source of
price instability is the vulnerability of
coffee plants to unfavorable weather
conditions and climate changes;

Basic Facts About Coffee

(2)
Despite falling prices in the 1990s,
the world production and exports of
coffee increased;
Vietan emerged as a big exporter in
the 1990s, when the country
planted over a million acres
between 1990 and 2000 of coffee
and flooded the market with cheap
Robusta beans;

Price Trend 1980-2009

Source: International Coffee Organization

Coffee World Exports

1980
Brazil

1985

1990

15.626.545 19.156.605 16.971.237

2000

2007

18.016.261 28.116.006

Costa Rica

1.182.521

2.040.422

2.265.644

1.964.980

1.363.850

Ethiopia

1.257.739

1.133.277

1.074.101

1.981.856

2.604.008

Uganda

1.823.592

2.537.582

2.352.680

2.513.272

2.693.187

156.667

1.145.234

1.234.021

2.133.116

Vietnam
Germany
TOTAL

11.618.376 17.936.219

3.291.689 4.824.659,00 10.696.972

60.247.690 71.360.000 80.561.589

89.562.101 96.367.286

Source: International Coffee Organization

Coffee: the main actors

Brazil, Vietnam, Colombia and
Germany are the main exporters;
More than 50 developing countries
are highly dependent on coffee
exports; 25 of them are in Africa
The two most important producers
and exporters of coffee in Africa are
Ethiopia and Uganda.

Two Different Export

Models
African Model
Production occurs in
smallholder farmers;
Involve millions of
cheap laborers;
Exports of nonprocessed coffee;
Exports depends on the
middle men and global
buyers;

Germany Model
no production:
Germany re-exports
processed coffee at
prices up to five times
more than what it pays
for the product;
Exports are controlled
by domestic brands;
Belgium, Italy and USA
follows the Germany
model.

Coffee Global Value Chain

Input Output Stages
Inputs

Growing/
Processing

Mediators

Roasters

Seed

Harvesting

Facilitate trade

Roasting

Supermarket

Land

Processing
(i.e., wet method,
dry method)

Grinding

Food Service

Blending

Mass
Retail
Coffeeshops

Irrigation

Parchment Coffee
(seed coat removed)

Fertilizer
Labor

Retail

Brewing

Machinery

Producing Countries
Developing Countries
(Brazil, Vietnam, Ethio
pia, Costa Rica)

Consuming Countries
Developed Countries
(U.S., Italy, Germany)

Coffee Global Value

Chain Actors
Drivers
Inputs

Growing/
Processing

Mediators

Small and Medium Producers

International
Trader

Estates/Plantations
Marketing Board

Cooperatives

Roasters

Retail

Branded
Manufacturers
i.e., Nestle, Sara Lee
Branded Blends
(i.e., Starbucks)
Independent
Roasters

Exporters

Producing Countries
Developing Countries

Consuming Countries
Developed Countries

GVC Structure Open

Questions
What are the differences between global
value chains and local value chains in
shaping upgrading? (social,
environmental, economic)
Does concentration of the industry along
the International Traders and Roasters
segments make upgrading easier, harder?
Do mediating bodies help growers? Are
there differences between large and
small?

Environmental upgrading:
Coffee Life Cycle
Exporting
countries

Developing
countries

Importing
countries

Source:
Salomone, 2003

Main environmental issues

& upgrading
Cultivation
Pollution and eutrophication
(pesticide and fertilizer use)
Water consumption and
pollution
Depletion of soil
Deforestation (shadow vs.
sun)
Biodiversity (shadow vs. sun)

Processing (wet vs. dry)

Water consumption and
pollution
Energy consumption
Air pollution

Open questions
What pesticides and
fertilizers are used?
measures of water
pollution/eutrophication

Differences between big and

small farms approaches and
impacts?
Is the shade grown coffee
more environmentally
friendly?
what are the differences in
productivity?

Is it possible to reduce the

quantity of water used in the
wet processing?
Reduction of impacts
through corporation?
how to promote it?

Is water treatment in place in

the wet process?

Main environmental issues

& upgrading
Consumption
Water use
Waste production
(e.g. through away
cups)
Energy
consumption
Air pollution

Open questions
How much water
and energy are
used?
Technologies to
reduce the use of
water and energy in
the coffee machine?
How to promote the
reduction of waste?

Is it possible to combine environmental

upgrading with social and economic?

Social upgrading in
coffee chains
Who are the workers and different
dynamics (Regular vs. irregular, ethnic
minorities, gender composition and child
labor, seasonal)
Output standards on quantity
(employment creation) and quality of
labor (wages, hour, benefits, contracts)
Enabling rights (freedom of association,
discrimination, force labor)

Social upgrading in
coffee chains (2)
Whats the role of global buyers on
labor and environmental upgrading?
Do smaller producers workers have
rights compared to
exporters/marketing boards?
Do the pickers have organizing
rights?

Economic Upgrading:
making money out of a
commodity
Product upgrading:
Specialty blending
Sustainable coffee

Process upgrading:
Wet vs. dry processing (?)

Functional upgrading:
From harvesting to branding and roasting

Branding and
differentiating
New way and loci of consumption
Local tastes and culture
New blends
Brands: values and sense-making
Role of distribution
Crisis

Illy: upgrading, branding

& sense making

Labels for a better world

Labels for a better world

Sustainability and quality
Private vs. Public, global vs. national,
coffee specific vs. general
Costs to put in place the certification as
barrier to entry?
Crisis?
Collective actions?
Who benefits?
Real value of certifications?

Overall questions
How does the structure of the chain affect the types of
upgrading?
Driving players, mediators & upgrading strategies?
Cooperatives? Better relations with international
traders?
What are the conditions to (functional) upgrade?
Is there upgrading potential more through domestic or
international market and impact on chain dynamic?
Whos capturing the gains?
Can economic upgrading comes along with social and
evironmental ?
Why are some developing countries not upgrading?
Is there a local development driven by upgrading
strategies?

Methodology
Case studies: Brazil, Costa Rica, Ethiopia
and Vietnam.
Two main research questions:
(1) how producers in developing
countries were able or not able to
upgrade and improve labor and
environmental standards?
(2) under what circumstances producers
in developing countries succeeded in
pursuing (functional) upgrading?

Methodology (2)
We will use historical narratives to
develop causal explanation and pattern
matching (comparisons between different
cases).
The focus of the research will be to
understand the sequence of events that
leads to economic, environmental and
social upgrading;
We will use the existing typologies of the
GVC literature to classify the case of
upgrading.

Strategy of the research

Analyze many papers and data avalible from secondary
sources;
Identify the independent and dependent variables
(upgrading) and develop typologies of upgrading based on
the GVC literature;
Interview bussiness associations, small producers,
international traders, and government representatives in
each one of the four countries;
Interview global buyers (branded manufactures) in some
developed coutries.
Revise the intial hypotheses, develop conditional
generalizations and write the paper.