GCR linkedin Logo

Illycaffè Chairman Andrea Illy reminds industry to think about the future in 2019

From the January 2019 issue.

For the past two decades coffee agriculture has been impacted by climate change, both in terms of quality and productivity. The situation is expected to get worse: several studies predict that by 2050 suitable land for coffee production will be half of today while coffee demand will double. With no investment, starting 2040 we will fall short in production. This is why a renewed focus on productivity of coffee farms is immediately needed. We have to improve agronomical practices, to develop new resistant cultivars and to expand coffee production in new areas – without contributing to deforestation, which makes the challenge even harder.

Investments in coffee producing countries have been historically difficult due to low prices and price volatility, under development and political instability. As a matter of fact, simply de-risking coffee production is not enough to pay back the investment, and the real accelerator in terms of cash flow are productivity and quality grade increase. Although the cost of equity in developing countries is nearly twice as high as in coffee consuming countries, there is no alternative for the grower than being the investor in his own plantation. The urgency is therefore to create the conditions for coffee producers to access institutional funds at sustainable interest rates and reimbursement terms.

The simplest way is to provide the necessary collaterals to coffee farmers, e.g. through long term purchasing contracts or by assuring the credit default risk. In order to make it happen, mobilisation of the entire coffee sector and beyond is needed: producing countries, institutions, international trading companies, non-government organisations, and mainly coffee roasters, which are the most exposed to coffee security risks. A committed multi-stakeholder group, under the leadership of Swiss Coffee Trade Association (SCTA), started over a year and half ago to study a possible strategy – called the Coffee Global Adaptation Plan (C-GAP). The cost of this strategy could be much lower compared to the premium paid for other cause-related coffees – and there are multiple ways to activate it. Industry consolidation could represent a great opportunity in this scenario, because the participation of even one of the big industry leaders would be enough to reach the necessary critical mass to make it happen.

All in all, the climate adaptation strategy described above is just another risk management plan, except that it is much smarter, because by covering the risk of your supplier, which represents 10 per cent of the value chain, you eventually cover the risk of the remaining 90 per cent.

Today, the coffee industry is investing approximately US$350 million in sustainability, of which only a small fraction is climate change-related projects. Impact investment only reaches US$100 billion per year – and on top of this there are plenty of public and philanthropy funds available to support these kinds of programs.

I am well aware that in this moment the key issue for the market is the low prices, and that it is difficult to focus on a long-term strategy while the battle is raging on this field. At the same time, in the present low price scenario-requesting investments from the roasters could be easier. Also, the proposed C-GAP plan would bring to an improvement in agronomical practices and productivity, increasing differentiation, which is one of the key for price raising.

  • Sign up to our newsletter

© Copyright 2019 Prime Creative Media Pty Ltd. All rights reserved.

ABN: 51 127 239 212

X