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Exporter's Guide to Coffee Trade

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sophia sodhi

on 19 June 2013

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Transcript of Exporter's Guide to Coffee Trade

the world's
most popular
beverage:
coffee

Breakdown of
The Coffee
Exporter's Guide
Grower
Buyer
Roaster
Retailer
nestle
&
kraft
Brazil
Grocery
Stores
Colombia
Vietnam
coffee shops
You might
be wondering...

What do I
need to
know?
Coffee Topics:
COFFEE
w/ Barry
@ 10am

Certifications
&
Requirements

Specialty Certifications
4-C
Freetrade
UTZ
Organic
Classification
of Coffee Products
Harmonized
System
Combined
Nomenclature
SITC
Standard
Forms of Contract
European
Coffee
Federation
Green
Coffee
Association
Specifying Quality:
Subject to Approval of Sample:
Description: Country code, green appearance, and liquor quality
Fair Average Quality
(FAQ)
Coffee will represent
the average quality of the crop
Even Roast:
will not contain
too many pales
(yellow beans)
Clean Cup:
Liquor should not
present any
unclean-taste or
off-flavor
eliminate the risk in buying unseen coffee...
SAS, no approval of sale.
Contract automatically
canceled with unapproved
sale
exporter supplies a sample
to the buyer
SAS, repeat basis.
If the first sample is rejected, a second or third may be sent.
SAS, samples for
buyer's choice. Multiple samples are sent
at the same time.
Contract Certificates
ICO
Certificate of Origin:
issued for every
shipment of
coffee from
producer to consumer
Preferential Entry
Certificates:
some countries levy
duties for certain
export countries
Insurance Certificate:
contract seller must
provide an insurance certificate by a
first class
insurance company
General Export
Requirements
'clean on board'
bills of lading
export license
and export
insurance
duties, fees,
and taxes
responsibility
of exporter
certification of
preferential
entry
Pricing Coffee

Two Major Online Resources
WebICE view only is an Internet-based subscription service that provides real-time access to trading activity on the ICE platform. WebICE is only available to corporates active in the ICE energy and commodities markets.
With more than 8,000 listed issues of all sizes, industries and geographies, the cash markets of NYSE Euronext – NYSE, NYSE MKT, NYSE Euronext®, Free Markets and NYSE Alternext® – represent nearly 40 percent of the world's equities trading, and the most liquidity of any global exchange group.
ICE
www.theice.com
EURONEXT
www.europeanequities.nyx.com/en
Coffee Vocabulary
Certifications
General Export Regulations
- Quality Control
- Contracts
Country Specific Export Regulations
Pricing Indicators and Tools
Supply and Demand Information

Let's Begin...
price discovery
price risk transfer
price dissemination
price quality
arbitration
Supports Exchange
Market Functions:
Differentials vs. Futures
differentials prove
more risk averse;
they better avoid
potential price swings
Measuring Quality
Robusta
Arabica
30-40%
World
Production
60-70%
World
Production
Quality is
Determined By:
-botanical variety
-topographical conditions
-weather conditions
-care taken
Efforts to promote quality are prejudiced by world market prices and the degree to which buyers are willing to reward attention to the safeguarding and improvement of quality with adequate premiums for better than average quality.
Quality Segmentation
Exemplary
Quality
Low Grade
High
Quality
Mainstream
Quality
- coffees have a high intrinsic value
- a fine or unique cup, and are
- usually of quite limited availability
- often retailed under straight estate or origin names.
- usually well presented washed coffees
- includes superior washed robustas some naturals, and top organic
- niche coffees
- good cupping coffees
- well presented, not visually perfect
- retailed as straight origins and as blends
- includes good quality, well-prepared organics
- broader market for this quality
- includes a good percentage of specialty coffee

- Fair average quality
- Reasonably presented, not visually perfect
- Offers a decent clean cup; not impressive
- Most Robustas included in this category
- Accounts for 85-90% of world coffee consumption
(exemplary and high quality coffee < 15%
of world coffee consumption)
- able to be exported
- attractive to exporters because of
the minimal cost; attractive to consumers
Who Defines
Quality:
But there is no inherently bad coffee, at least not when it is still on the tree. What happens to degrade the quality from then onwards is nearly always caused by human intervention.
-the buyer!
-make a great first
impression and follow it
up with the cup they're
expecting
Selecting the Best:
Combat Human Error
Size & Density
Important to keep size
and density
consistent;
Different sizes do not
roast well together
Cause of Poor Color
Too rapid drying
Spread too thin or thick
Harvest of overripe
cherries
Prolonged storage
Aging

Moisture Target
11%
Coffee above 12.5%
moisture level
should never
be shipped
Avoid obvious defects
(black beans) and
insect and pest damage
Defects
ISO Quality Certification
ISO 9001 - Certifies the quality
management system of the
coffee production.. NOT the product
www.intracen.org/eqm
The Q Coffee System, developed by the Coffee Quality
Institute, is an ongoing initiative to introduce internationally
accepted standards for quality, both cup and grade, for the
specialty coffee trade. The underlying assumption is that
while anyone can state they have quality, companies that
have their coffees graded through the Q Coffee System
will have the ability to provide their customers a guarantee
from a credible and independent third-party.
Q Coffee System
Export from Brazil
Export from Colombia
Export from Ethiopia
Export from Kenya
largest producer
of coffee in the
world
2.7 Million Tons
of coffee
produced
in 2011 alone
large domestic
consumption
as well as
production
no taxes on
unprocessed
coffee exports;
processed
coffee is taxed
processed beans
are taxed 7.5% into
the EU and 10% into
Japan
second largest
producer of
coffee
in the world
Colombian
Coffee
Federation (FNC)
controls farmers
Fourth largest
supplier of
coffee
to China
** Discover the trade
relationship with China;
MFN, GEN, VAT and/or
Preferentia
l
Member of the WTO
therefore
included
in preferential
tax rate (MFN)
Africa's top producer
of Coffee; 7th largest
in the world
Recent trouble with
government policies
resulted in
dramatic decline
in coffee
production
2009-2011,
Ethiopian Govt
banned 143 exporters
based on
"poor practice"
stricter shipping
and container
regulations than
international
standards
no futures trading
in Ethiopia; it has not
been established by their
ECX/Ministry of trade
70% of Kenyan coffee
is produced by small
holders
Kenya AA is a
classification of coffee
graded after milled
Kenya Coffee is
traded once a
week at the
Nairobi Coffee
Exchange
Kenya AA =
approx. $377.20/
50kg bag
Export earnings
are rising
dramatically
with increased
prices and volumes
Full liberalization of
the coffee market
through direct sales;
Europe is their largest
customer
What are Futures?
The futures exchange is an organized marketplace that: Provides and operates the facilities for trading; Establishes, monitors and enforces the rules for trading; Keeps and disseminates trading data.
Cash vs.
Coffee Futures
Cash price. The price now for coffee (by trading the physical product for immediate or prompt delivery).
Futures price. The expected price for coffee (by trading the different positions of the futures contract).
Future markets
moderate
exposure to risk
The underlying price risk:
The prices for arabica or robusta futures as a whole rise or fall.

The differential risk or basis risk:
The difference between the price on the physical coffee market for a particular quality or origin, and the price on the future market (known as the basis or differential) increases or decreases.
By the Numbers
Total volume sales of coffee are expected to increase by a CAGR of 9% over the forecast period. The per capita coffee consumption is expected to continue increasing with growing urbanization as well as busier lifestyles, which will continue to promote the rise of the coffee culture in China. In addition, manufacturers are expected to introduce more new product to stimulate the market. The growing coffee culture in the country through the opening of cafés will continue to encourage sales of coffee in on-trade channels as well as off-trade channels
Coffee Demand: China
In 2012, the total volume growth of coffee was 10%, which was slightly slower than that in the previous year. Although China witnessed economic decline in the review period, the boom in the coffee culture in many cities helped to spur consumer interest in coffee and stimulated consumption growth.

China's coffee consumption was estimated to be approximately 45,000 tonnes in 2006, but some analysts predict this number could jump five-fold or even six-fold to reach 300,000 tonnes annually by 2020.
Asia Times
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