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Resolution 465

From the March 2019 issue.

The International Coffee Organization is taking strong action to address the international price crisis, starting with increasing local consumption, consumer education, and roaster support.

Over its 56-year history, the International Coffee Council (ICC) – the governing body of the International Coffee Organization (ICO) – has adopted 466 policy resolutions to help change the course of our coffee landscape for the better, but it’s Resolution 465 that is currently generating the most interest. 

With the international coffee trading price at a 12-year low on 18 September 2018, falling below US$1 per pound, an immediate action plan to address the damaging effects of low coffee prices was a key item at the ICC’s 122nd session meeting in September 2018, manifested in Resolution 465.

“The ICC meeting was very much focused on concerns of export countries on the impact of low coffee prices. There was strong  recognition from all our members that something needed to be done. This gave the ICO a clear mandate to respond to the current price crisis,” says Gerardo Patacconi, Head of Operations at the ICO.

While there are other platforms addressing the price crisis, the ICO provides a unique international forum that brings together exporting and importing countries at government level.

“We represent two distinct but cohesive partners, and we are impartial in the sector. We are what is often referred to as an ‘honest broker’ – bringing together and countries, and mobilising all the different stakeholders across the coffee value chain, as well development partners, to come up with strategies to support the sustainability of the global coffee sector, and to implement them,” Patacconi says.

At the ICC’s September session, ICO members discussed the fact that current market price levels do not allow coffee growers to cover their production costs, compromising their economic sustainability, and that current prices do not reflect the physical market fundamentals.

For this reason, Resolution 465 includes the development of a global communications plan, targeted at consumers, together with producers, the coffee industry, opinion makers, and other stakeholders. The goal is to show the economic reality of what’s happening in the coffee sector today.

ICO Executive Director José Sette has already met with top marketing experts. The ICO is seeking the involvement of industry leaders, such as illycaffè, to best utilise their communication services and promotional strategies to attract the attention of consumers, including millennials and Generation Z. More than ever, the patterns of coffee consumption, now and in the future, need to be understood.

“A focus is around sensitising consumers to the economic challenges faced by farmers in the producing communities,” Patacconi says. “We’re in the early stages of identifying how we do that, whether through social media or videos, but importantly, this plan involves all links in the coffee value chain. Consumers are very important stakeholders in the international coffee sector. More than ever they needed to be considered as part of the solution and cannot be forgotten.”

But how do you sensitise the consumer? How do you motivate consumers about where their morning coffee comes from? And how willing will they be to pay a premium to support the most vulnerable in our value chain – the farmers? These questions remain unanswered.

“To be very frank, the point is that many small farms are struggling. The risk everyone shares is that [farmers] will abandon production. If they shift to other crops and start migrating, it will impact the coffee sector and their families – then the high risk is that we will lose the diversity of origins – areas that are not profitable to grow coffee. Consumers need to be aware of this,” Patacconi says.

Since 2016, the coffee market has experienced a continued downward trend. Today, according to the ICO, coffee prices are 30 per cent below the 10-year average. Many of the more than 20 million coffee farmers worldwide are facing losses as they struggle to cover their operating costs. While prices decrease, inputs, compliance, and transaction costs rise. As a result, farm incomes are dwindling and the livelihoods of coffee-producing households, the majority of which are smallholders in low- and middle-income countries, are increasingly at risk.

The economic and social consequences for producing countries can be severe. They include social unrest, national and international migration, the abandonment of coffee growing, or even switching to the production of illicit crops. The ICO says the lack of investment in the maintenance and modernisation of coffee farms poses a serious threat to future supply, exacerbated by growing demand for coffee worldwide.

To help guarantee the economic viability of the coffee chain, the ICO is also encouraging exporting members to adopt programs to further raise internal coffee consumption levels. For this reason, the ICO is already looking to update its ‘Step-by-Step Guide to Promote Coffee in Consumption in Producing Countries’. This document was launched in 2004 and is considered an essential resource across the sector to support the promotion of coffee consumption in established and emerging markets.

“The experience of some producing countries, like Brazil and others, shows that increasing domestic consumption increases demand. Countries that can face over-supply can revert some part of production to local consumers,” Patacconi says.

“It also provides opportunities for value addition. The moment you develop a local market, such as Brazil and Ethiopia, they move up in the value chain – from just exporting a commodity, green coffee – to becoming a producer for the local market first, then eventually to the international market. De-commoditising coffee is not at the centre of our conversations, but I think it will be. It is an impact of increasing local consumption. There are local roasters now in Brazil and Ethiopia, for example, who were not there before.”

Strengthening ties with the international roasting industry is also a matter of urgency in order to gain support for the implementation of Resolution 465.

“We’ve had a positive and encouraging talks with all the major roasters, and they are all very keen to strengthen their cooperation with the ICO,” Patacconi says.

“Most admit that they do a lot, but are not so good at promoting what they do. We need their support and additional resources to assist. For this reason we are also engaging in bilateral meetings with international organisations and financial institutions. To be blunt, we need partners to provide additional resources to push the global communications plan forward.”

The ICO is inviting large roasters to its September Council meeting in London. Patacconi urges the whole coffee sector to contribute to the debate involving high-level decision makers in the industry, sector stakeholders and development partners, to tackle the impact of low coffee prices and its volatility on smallholder farmers, and to foster the long-term sustainability of the sector.

“We are here to provide support but roasters should make an effort to identify all possible solutions available,” Patacconi says.

The industry faced an even graver pricing situation in 2001-02 when prices fell below 50 US cents per pound. Ample crops worldwide and an extremely weak Brazilian real were large contributing factors. At the time, the ICO concentrated on advocacy in international forums.

Today, the ICO is taking an even more robust approach to find additional solutions in the current price situation.

“I believe [the ICO] has a strong and powerful role. We are confident we can really contribute to the current price debate with win-win solutions,” Patacconi says.

The ICO’s impartiality, outreach, and ability to catalyse support from governments, partnering organisations and the development community are key factors in an effective response from the global coffee community.

What’s different this time around, Patacconi says, is that there is a greater understanding of market conditions in terms of demand and supply.

The ICO says the slight strengthening of the Brazilian real against the US dollar, particularly since September 2018, has lent some support to coffee prices early in the New Year. However, it’s not a time to be complacent.

In March 2019, during the ICC’s 124th session in Nairobi, Kenya, a top priority will be an assessment of the current economy, a look at ways to set up a system for monitoring pricing, and creating an early warning system.

“It exists for other commodities but not for cash crops like coffee and cocoa,” Patacconi says.

“We’ve been involved in a huge debate on creating an observatory on coffee prices, which means having an independent system to monitor pricing levels and provide statistics on prices. However, there is no mechanism yet to link this with actual production costs and what action can be taken. It’s a very different structural approach. The resolution is one thing, but we need to be even more innovative to find other solutions within the framework of the International Coffee Agreement to understand the factors driving economic sustainability of coffee production.”

As Patacconi points out, the ICO’s actions are not just about addressing the problems of today, but also of the future, with true transformational change to ensure the industry is resilient to price and climate shocks.

“The situation we find ourselves in is dramatic and concerning, but we need to remain positive about the future, and Resolution 465 is that way forward.”

To help support the ICO, contact projects@ico.org

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