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Switzerland’s survival stash

From the July 2019 issue.

Starbucks isn’t the only one with a reserve. The Swiss Government has stockpiled coffee since the 1920s but may soon stop. Global Coffee Report examines what effect this could have on the nation’s coffee industry.

On 10 April, a news story made headlines around the world: Switzerland to end decades of emergency stockpiling of ‘non-essential’ coffee beans.

From Reuters to the British Broadcasting Corporation and Fox News, media platforms reported the Federal Office for National Economic Supply’s (FONES) declaration that “coffee contains almost no calories and therefore does not make any contribution to food security from a nutritional point of view” and is therefore “not vital” for human life.

Hans Häfliger, Director of Reservesuisse, the organisation responsible for monitoring Switzerland’s food stockpiles, tells Global Coffee Report the companies required to stockpile coffee do not support FONES’ decision.

“All the main players in our coffee sector are affected by these laws, from Nestlé to internal distributors like Migros,” Häfliger says.

“Coffee is not necessarily nutrition that’s key, but it’s used daily and the Swiss love it. Our coffee consumption is about eight to nine kilograms per person each year.”

Under Swiss law, coffee importers who trade more than 500 tonnes of green coffee a year are required to maintain the government-subsidised stockpiles and become a member of Reservesuisse. Together, these stockpiles amount to approximately 15,300 tonnes of green coffee, enough for three months of consumption. Häfliger says most people’s reactions to the news follow a similar pattern.

“First they think, ‘we have stockpiles?’ because the public is not aware of them. Then: ‘That’s a good idea. It makes sense’,” he says.

“Next, they react: ‘Why stop stockpiling coffee? I need my coffee in the morning.’ If the only argument is that it does not contain calories, that leads to the question, ‘why change?’ Because coffee was never stocked for its calories.”

The Swiss Government’s laws relating to stockpiling date back to the 1920s, when the landlocked country feared supply shortages following World War I. These stockpiling laws cover agricultural products such as rice, grains, and vegetables, as well as pharmaceuticals and energy resources, including diesel and gasoline.

Michael Von Luehrte, Managing Director of the Interest Group for Coffee – a Swiss organisation responsible for promoting coffee consumption in Switzerland, a platform for the industry stakeholders to share information, and to educate the public – says it became important to include coffee in these stocks during and following World War II (WWII).

“In the 1920s, we had supply crises around Europe. It was smart to stockpile products critical to daily life,” he says. “During WWII, coffee became hard to find and an almost black-market product, which led to a kind of parallel economy. So, the Swiss government and people had an interest to maintain those stocks.”

Häfliger says it is already normal for coffee companies around the world to stockpile small volumes inside their factories, but current laws double the amount Switzerland importers hold.

“These laws are essentially the government saying: ‘In order to make sure we can both survive and deliver, you need to stock a little more than you usually do’,” he says. “These stocks are paid by the government but belong to the company. They are not piled up, untouched, and set aside for five years. They’re rotated in normal procedures.”

Von Luehrte says this method has proved beneficial to the Swiss coffee industry.

“Through the stockpiling program, companies are basically given free working  capital for three months and all we have to do is report on and rotate it,” he says.

He adds this also provides a buffer, especially when certain origins or varieties are short or shipments are delayed.

“This year, one country in particular was extremely late in shipping, and we could take coffee out of our reserve stocks and replenish it later,” Von Luehrte says.

Häfliger agrees, saying the stockpiling results in a win-win situation for the government and coffee traders.

“We like to work against the ‘just in time’ idea,” he says. “The obligation for mandatory stockholders is only to maintain a certain amount and quality of stock. We monitor the quality, but you can still change it out if you need.

“This gives entrepreneurs a degree of certainty that they have enough stock, while the government receives food supply security.”

Of the 15 companies required to stock coffee, Reservesuisse says 14 oppose changing the laws. The other one, Häfliger says, feels it is state intervention.

“If you’re a real liberal-minded person, you might think the government has nothing to do with it, and the industry can manage itself,” he says.

“This system is also financed by an import taxation. If you import coffee, you are taxed about CHF3 [about US$3] or CHF3.70 per 100 kilograms of coffee. If you export the coffee, you get this money back. If you don’t, this price is put onto the consumer and it can become an administrative burden if you trade a lot. However, most companies agree it is worth it, and if there’s no reason to stop it if the only other argument is that it does not contain calories.”

Von Luehrte agrees. “The large companies and roasters in Switzerland, and the majority of smaller roasters, are in favour of maintaining the reserve stock. Ultimately, I don’t think politicians in an election year will abandon coffee stockpiling and create a big fuss in the press for no reason.”

Many Swiss traders have also argued that coffee is rich in antioxidants and beneficial minerals. Häfliger says while this is true, this is not what makes coffee ‘vital’ to life.

“If there is some kind of crisis – whether it’s environmental, technical, or something unexpected – we know coffee has some mental and psychological benefits,” he says.

“You get your coffee and you are motivated. The belly needs to be fed with calories, but the brain needs motivation. This is a more comprehensive argument than that of coffee’s nutritional elements.”

Von Luehrte adds having strategic stock available creates a degree of stability within the industry.

“[In November/December 2018], we were experiencing a very hot summer and the River Rhine, which runs through Germany, France, and Holland, ran very low. We couldn’t ship goods over it into Switzerland,” he says.

Häfliger explains this incident forced the government to dip into its oil reserves.

“If 20 per cent of all traded goods come in through this river, suddenly our supply chain has problems,” he says. “So, we turn to trains or lorries. This augmented our diesel consumption, so we needed to open some stock. This proves the system is working.”

“During WWII, coffee became hard to find and an almost black-market product, which led to a kind of parallel economy. So, the Swiss government and people had an interest to maintain those stocks.”
– Michael Von Luehrte, Managing Director of the Interest Group for Coffee

While the stockpiling debate only rose to prominence in April, Von Luehrte says the idea has been examined before.

“In 2015, the administration reviewed its stockpiling policies. They decided reserved stocks should only include products which contain calories, are for human consumption, and will keep the Swiss people going,” he says.

“Coffee was questioned at this point because it did not have calories, but since then, nobody brought it up again until 2019.”

Von Luehrte says a decision on the future of Switzerland’s reserve stocks is yet to be confirmed, with the Swiss Government open to consultation until July 2019.

“It’s wrong to say these stocks will definitely be abolished. The community could provide feedback until 15 July, [which was] the first very important deadline,” he says. “We expect a final decision to be made around November during the autumn parliamentary session.”

Should the changes be passed, Häfliger says they will not have major repercussions on the global supply chain.

“Swiss companies are trading approximately three quarters of the world’s coffees, but most of this never even touches Swiss soil,” he says.

“We’re talking only about the coffee consumed in Switzerland – that’s only 60,000 tonnes a year. What companies like Nestlé trade worldwide is much larger what they use in their home country.”

Von Luehrte concurs that abolishing the stockpiles will likely not cause problems in the short term.

“I was surprised to get phone calls from all over the world, asking, ‘how can you liquidate stocks in a situation where coffee prices are so low?’ The stockpiles will be dissolved slowly, over two or three years, and are not large enough to impact the world coffee market,” he says. “But, if we enter a supply crisis, which could be for political reasons, tariff wars, or another incident like what happened with the Rhine, we would need to worry.”

Häfliger says while seaside countries with port access can be less fearful of supply chain disruption, Switzerland needs to be prepared.

“I believe in the near future, we will have more supply chain problems, not necessarily due to war, but the environment, or pandemics and illness. If people in Northern Europe get sick, those countries will have concerns other than carrying goods to Switzerland,” he says.

“I hope the Swiss Government will reconsider its decision. The world is more complex than calories.”

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