case study: coffee
Photos courtesy of RGC Coffee
Coffee is traded on a futures market, much like other agricultural products such as corn and soybeans. Buying and selling coffee this way promotes the creation of a hedge against price swings in the market, as well as securing a much more consistent supply.
Importing coffee from several different origins is typical of Canadian importers like RGC as it allows a more consistent supply of coffee for the huge and demanding Canadian market.
Some origins, like Colombia and Nicaragua, have two crops. Peak crop is the main, longer harvest of the year, whereas the fly crop is shorter in duration. Having the ability to harvest more than once per year helps to keep the crop yields and market supply( and therefore, the price) steady, especially if one crop has been affected by disease or inclement weather. Other origins like Ethiopia and India have only one main harvest per year, making them more easily affected by weather and pests.
“ This year’ s fly crop out of Colombia( harvested April to June) was seriously affected by El Niño, which was a lack of rain. It was not good; it affected the country’ s ability to export coffee this year. Anyone expecting coffee out of Colombia knows that it is very delayed. But now, we’ re coming into the peak crop in Colombia( harvested October to February) and it’ s going to be really good,” said Bernstein.
THE COFFEE SUPPLY CHAIN
The Colombian coffee supply chain will be used as a reference in this section, as it is Canada’ s largest origin of coffee.
Coffee is a fruit that is grown on small trees. Coffee trees can grow up to 20 feet but are pruned between eight and 11 feet. Coffee fruit is made up of five different layers: the cherry, the mucilage or pulp, the parchment skin, the silver skin and the beans. There are two coffee beans inside every individual cherry.
The supply chain of coffee is a lengthy one. The coffee cherry is harvested when it is a deep red colour, indicating its ripeness, and is picked by hand from the tree by the coffee farmer.
Left: This schedule indicates the different harvest times for each of RGC Coffee’ s origins throughout the year
Above: Inspector grading the beans at the coffee purchasing point in Planadas, South Tolima, Colombia at the Cafisur Purchasing Point
The cherries are tossed into a large tub or bucket that the farmer wears fastened around their waist.
Once the tub is full of cherries, they are dumped into fermentation tanks – large, bathtub-like containers filled with water that allow the cherries to ferment. Once fermented, the farmer puts the cherries into a pulping machine that separates the beans from the surrounding cherry.
The beans must then dry for several days – between 15 and 20 – on either cement patios or raised drying beds made of bamboo. Once dry, the farmer puts the beans into sacks to be taken to and sold at the local purchasing point. Each sack can weigh between 150 to 200 kilograms( 330 to 440 pounds). Since Colombian coffee is grown on mountains, some farmers must carry their coffee sacks down the mountain by horse or mule. Other farmers have Jeeps to drive several sacks down the mountain at a time.
When the farmer arrives at the purchase point with his coffee, a coffee grader will take some beans from one of the sacks, remove the parchment from around the beans and then weigh and grade them. This, too, is done by hand. The farmer is then paid for his beans at the rate the coffee is trading on that particular day. The farmer then returns to his farm.
The beans, however, are just getting started on their journey. In Colombia, coffee purchase points are, for the most part, run by cooperatives. The cooperatives are responsible for bringing the beans from the purchase point to a dry milling facility, where the beans are put through huge machines that remove the parchment from the bean and then sort the beans by size. The cooperative then bags the coffee in burlap sacks and marks them.
Then the cooperative sells the coffee through an export arm that is authorized by the government to export it out of the country. For their Colombian beans, RGC exports through one of the main suppliers, the Colombian Coffee Growers Federation, or FNC, recognized worldwide by their famous Juan Valdez logo.
16 • SUPPLYCHAINCANADA. CA • SCMA