Sun, Nov 30, 2003 - Page 12 News List

Colombian coffee growers hope retail shops will keep them in beans


The Colombian Coffee Federation, which represents more than 500,000 Colombian coffee growers, is planning to open its first coffee shops -- all bearing the name Juan Valdez, after the federation's signature character -- in the US by early next year.

Gabriel Silva, the president of the federation, which is based in Bogota, Colombia, said he believes the coffee growers have been "too passive" in claiming a larger piece of the US$8.4 billion specialty coffee industry.

"In a cup of coffee that you get at a coffee shop, between one and two cents goes back to the farmer," Silva said, referring to Colombian growers. "We need to build our own solutions and take the destiny in our hands and really fight for our share of the industry."

Coffee growers are facing a difficult market. Per-capita consumption has been in decline since 1963 with the only growth area the specialty coffee shops, led by Star-bucks, according to the International Coffee Organization in London.

The price of coffee beans has also declined significantly from a high of about US$1.20 per 453g five years ago because of a global oversupply of beans from countries like Vietnam and Brazil. In Colombia today, the average coffee grower gets "only about US$0.68 per pound of coffee," Silva said.

Industry trade groups have tried to stem coffee farmers' losses by encouraging coffee producers to destroy oversupply and raise prices. They have also encouraged food companies to buy fair-trade coffee, which guarantees a so-called living wage to poor coffee farmers in developing countries.

But even with Starbucks buying fair-trade coffee at an average of US$1.20 per 453g, Colombian grow-ers make only about a penny from each cup of coffee sold, Silva said.

The average Starbucks' latte costs between US$2.25 and US$3.00 a cup; a mocha costs between US$2.45 and US$3.25.

By selling their own coffee at their own coffee shops, the federation, which represents both small and large coffee growers, plans to return between US$0.04 and US$0.05 for each cup of coffee sold. Each of the federation's 560,000 farmers will also have an ownership stake in the shops, Silva said.

The profits from the retail operation will go back to the federation, which said it would put marketing dollars into the Juan Valdez brand and work to improve Colombia's coffee-growing regions by building access roads, schools, health centers and housing.

"It's certainly interesting," said John Glass, a restaurant analyst at CIBC World Markets said of the coffee growers' plan.

"I'm sure they can capture, to some degree, some more integrated profit if they vertically integrate it. The example would be ExxonMobil. They own gas stations. They take it out of the ground, and they sell it," he said.

The first Juan Valdez coffee shop is scheduled to open in New York.

The federation also plans to open three more stores in Boston, Washington and Seattle.

The federation plans to spend about US$9 million to promote its 100 percent Colombian coffee marketing program and a separate campaign for the shops will begin next year.

The stores will largely be modeled after five coffee shops that the federation runs in Colombia. There, they are testing product mix, pricing and the intricacies of operating a retail operation. The stores, which are relatively spartan, serve nine different blends of coffee and are decorated in neutral browns and beiges and accented with wooden chairs that do not encourage people to linger. Although prices of the Co-lombian coffee have yet to be set for stores in the US, Silva said he expected them to be lower than those at Starbucks.

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