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ICO on ensuring sustainability

From the February 2018 issue.

José Sette, Executive Director of the International Coffee Organization, explains the role of the ICO in enabling a sustainable coffee industry.

José Sette identifies the most important challenge for the coffee industry today as economic sustainability.

In his first six months at the helm of the International Coffee Organization (ICO), Sette has overseen the introduction of a new Five-Year Action Plan, signed two Memoranda of Understanding to promote closer public-private collaboration, and visited coffee-producing regions around the world, with that task always foremost in his mind.

“The challenge is, do we have sufficient production to match demand – that is where the question of prices comes into play,” he says.

He returned to the intergovernmental body as Executive Director following the sudden death of his friend and predecessor Robério Oliveira Silva the previous December. Sette served previously in the ICO as Executive Director ad interim from November 2010 to November 2011, and Head of Operations from November 2007 to December 2012.

Sette has extensive experience in international trade matters, and began his career with the Brazilian Coffee Institute, the government agency responsible for the regulation of the coffee sector in Brazil. An alumnus of American University in Washington DC (MBA in Finance) and Yale (BA in Administrative Science), Sette says he already had connections with the diplomatic side of coffee when he graduated.

He has served with other international trade bodies since his beginnings in coffee, including as Executive Director of the International Cotton Advisory Council from January 2014 to April 2017.

New paradigm
 

The ICO was established in 1963 following the successful negotiation of the first International Coffee Agreement at the United Nations headquarters the preceding year.

Sette says it and the other international commodity bodies were originally set up to perform a role in market regulation, which the ICO did through a quota system.

That was the reality from the 1960s to the end of the 1980s, he says, after which there was a paradigm shift.

“We had a big change in the way the international system works, and the old model no longer was relevant,” Sette says.

“Since then, the ICO has had to reinvent itself and work more today as a catalyst for market transparency, as a forum for exchange of experiences, and a way to channel donor resources to sectors.”

The body has moved from its original role of direct market regulation to a focus on creating an enabling environment for the coffee sector.

“We have to look at the value chain as a whole. If there is no demand, there is no reason to produce coffee,” he says.

“That being said, we have to pay special attention to farmers, to the producers, who are the base of this pyramid and who are in many ways the ones with the least power and are most vulnerable. But we have to take a holistic approach.”

The creation of an enabling environment for coffee comes with many challenges, Sette says.

“On the environmental side, we have climate change, on the social side, gender empowerment is very important, and we have to attract youth to the agricultural sector. But the most important challenge is the question of economic sustainability.”

This is being called into question with the current price levels, Sette says, with coffee ending 2017 at a 21-month low. That made it difficult for many producers to think of a healthy future or plan to continue in the sector and continue planting.

Opportunity in challenges
 

The ICO’s Five-Year Action Plan, announced during the International Coffee Council’s 120th Session in Côte d’Ivoire on 29 September, 2017, lists economic challenges as the first of three faced by the industry, alongside environmental and social factors.

Sette says the ICO must work hard to address economic sustainability, and identifies increasing productivity and boosting domestic consumption in producing countries as important means of doing this.

“We have a wide disparity in levels of productivity worldwide,” he says. “We know that the amount of agricultural land available is limited so we cannot count on expanding production to meet the rising demand by just expanding area. We have to be more productive in our use of the existing area.

At the last council meeting in Côte d’Ivoire, a full day was devoted to a seminar in which some of the countries that are most advanced in terms of productivity shared their experiences, Sette says.

“If you look at these, there is no single solution, Sette says. “It’s a question of strengthening the producer organisations, of having good logistics, a good financial system, research and development – it’s all these things together to create an enabling environment.”

Developing domestic consumption in producing countries is also “very dear to our hearts here in the ICO”, he says.

He gave growth in the domestic market in Brazil since the 1990s as a shining example, with the country now consuming about 40 per cent of the coffee it grows and having become the second largest consumer market after the United States.

“We’ve seen enormous growth in the internal market, which is also spreading out now, and we are seeing the same thing start to happen in other producing countries.”

Sette says healthy domestic market creates a new source of demand. Often the domestic market will pay prices above the international market, helping to capture value domestically and building up capacity for that producing country to export and move up the value chain.

Looking to the future
 

The Five-Year Action Plan also identified three major strategic goals for the organisation.

The first, Sette says, is to act as providers of accurate and comprehensive data, especially regarding production. This fulfils a core function of the ICO to be the world’s most respected authority on coffee statistics.

The second goal is to enhance the ICO’s role as a forum for the discussion of coffee matters, between and within the public and private sectors. The Plan states that this is to improve the consistency of coffee policy-making on a global level.

Lastly, it aims to facilitate the development of projects and promotion programs, especially through public-private partnerships. This includes promoting coffee consumption in both exporting and importing member countries.

Sette says his time leading the ICO’s equivalent for cotton, the International Cotton Advisory Committee, helped broaden his outlook and opened his eyes to the similarities and differences between the commodities.

“The similarities are striking in the challenges we face, with climate change, the need to involve youth in the culture, the need to empower women. All of these cut across commodities – they are not limited to coffee.”

To learn from each other, Sette is planning a meeting in May of the various international commodity bodies to discuss synergies - ways they can work together and learn from each other.

There are also striking differences, he says, such as cotton being under pressure from manmade fibres, while there is still healthy demand for coffee.

In mid-January, Sette visited India for the International Coffee Festival, where he again championed increasing domestic consumption to stabilise markets.

He was then scheduled to travel to China, visiting the world’s two most populous countries back to back.

Sette says coffee consumption is clearly growing throughout Asia, and will only increase, as will coffee production. Per capita consumption is negligible in both countries at present.

“There’s great potential in both places and in the rest of Asia in general. The attraction of Western habits and aspirational culture in which coffee is seen as a part of this Westernisation – all of this bodes well for coffee in the future.

Sette returns to the task of enabling a sustainable industry and stable prices without minimising the importance of price volatility, which is characteristic of all crop commodities. He believes that this issue is not as much of a priority in the current market environment.

“We need to work very hard at achieving these goals and constantly reviewing what’s going on and adapt to a world that is always changing,” he says

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