THE local coffee industry is the second largest income earner in the agricultural sector — second only to sugar. It employs some 10,000 farmers directly and over 100,000 workers; 300,000 to 400,000 boxes of the commodity are reaped yearly, which results in annual average earnings of US$23 million for High Mountain Coffee and US$36 million for Jamaica Blue Mountain Coffee, but in recent times the industry has been at a crossroads.

The challenges

At present, the Japanese market accounts for approximately 90 per cent of Blue Mountain Coffee exports. Over the last decade, Japanese importers of the commodity have provided advance payments to Jamaica for the purchase of cherry coffee and its processing into green beans for export. This advance payment has served as critical working capital support to local dealers and has prevented them from having to upfront funds to purchase the coffee and await payment months later.

It has been customary for Japanese importers to keep approximately one-and-a-half years of inventory of Jamaica Blue Mountain Coffee. However, arising from the global recession, gourmet coffee sales have declined in Japan; therefore existing inventories remain high.

In 2009, it was projected that the coffee industry would produce 944 tonnes of exportable coffee. However, only 630 tonnes of exportable coffee has been sold to date and significant quantities remain in stock. The current crop is projected to produce at least 1,100 tonnes of coffee, and there is a confirmed demand for 600 tonnes.

In addition, Jamaican Blue Mountain Coffee is facing strong competition in Japan from other premium coffees that are less expensive.

Japanese importers are now moving towards ‘in-time’ inventory management for Blue Mountain Coffee to manage inventory costs. This means that instead of Japanese importers bearing the cost to carry the inventory of Blue Mountain Coffee, Jamaican exporters will now have to bear this cost. Basically, Japanese importers have terminated the advance payment system.

The Jamaican coffee sector is now at a crossroad, running at huge excess capacity as supply is greater than demand. The lack of working capital currently being experienced by coffee dealers means that they are unable to purchase the cherry coffee from farmers and meet their processing costs.

There is now a great risk that farmers may not be able to reap the produce due to lack of adequate financing, and the crop could be lost. If this happens, incomes for our coffee farmers will be lost, especially as we approach the Christmas holidays. As it now stands, this situation could result in a collapse of the industry, damage to the brand, loss of international markets, and a loss of foreign exchange earnings for the country.

Government intervention

Given the current situation, and the need for on-time financing required to reap this year’s produce, the Ministry of Agriculture sought assistance and arranged a $310.5-million loan facility to the Coffee Industry Board (CIB) jointly funded by the EX-IM Bank and Development Bank of Jamaica (DBJ).

The DBJ will provide 70 per cent of the total loan amount at an interest rate of 10 per cent for 12 months with the possibility of extension for up to six months subject to review, while the EX-IM Bank is expected to provide the additional 30 per cent at interest rates of seven to eight per cent for the same period.

Arising from this agreement, some 135,000 boxes of coffee will be procured with a first payment to farmers totalling $1,500 per box and contribution to processing of $800 per box. The final payment to farmers will be determined based on the price received from the market.

Diversification of export markets

As part of our intervention and mitigation measures, the CIB is seeking to tap into the North American, European and Chinese markets, as well as pursue other strategies to generate resurgence in the Japanese market. Among the measures are:

* recently signed “Master Agreement” with Genus Imports, a marketing company that has trademarked a “Jamaica Blue Mountain Coffee Service”, will focus on the luxury hotels and fine dining restaurants within the United States;

* forging partnerships with the Jamaica Tourist Board and the United States Agency for International Development (USAID) to develop a marketing plan for the US market;

* the ministry and the CIB are currently working with Hangzhou Coffee and Western Foods in China to penetrate that market. An arrangement has already been established whereby Hangzhou Coffee and Western Foods are committed to buying 70-100 tonnes of coffee per annum for the first two years of the agreement commencing January 2011;

* Japan’s Ueshima Coffee Company (UCC), the largest marketer of Jamaican Blue Mountain Coffee in Japan, is currently expanding its marketing programme with a million-dollar campaign, including television advertisements, point-of-sale material, and brand messages within cafés.

Divestment of Government companies in the coffee industry

Apart from diversifying our presence in the marketplace, however, the medium to long-term vision is the need to encourage increased private sector partnerships in the operation of the industry, hence the divestment of the Mavis Bank and Wallenford Coffee factories.

It is projected that the divestment will result in the injection of new capital and resources, management expertise, increased efficiencies in production and processing operations as well as the acquisition of new markets for the subsector.

The private dealers will be required to bring greater resources to bear in accessing new markets for coffee and carry the industry to a new altitude. The reality is that Jamaica is a high-cost producer of coffee. Our cost of production is more than twice that of our nearest premium-quality competitors. Significant effort will have to be made to improve industry efficiencies in terms of production, processing and marketing. This will mean additional training in best practices for our farmers and reapers and it may mean consolidation of some of our processors in order to take advantage of economies of scale and shared services.

The ministry is committed to the survival of the Jamaica coffee industry and will continue to explore innovative, proactive, and cutting-edge solutions to ensure the viability and sustainability of the coffee industry in the face of these very difficult and challenging times.

— Dr Christopher Tufton is the minister of agriculture and fisheries