Printer Friendly

A look behind the bulk coffee revolution.

Bulk form is ideal, both technologically and commercially, for a raw material owned by a roaster, in his own pipeline, going to his own plant. It is not ideal for a raw material which has not yet been sold to a customer, which must be held as inventory in storage for a period of time ranging from a few days to a few years, and which may change ownership any number of times while being so held, and which, in addition, may need to be financed. In short, it is still a market commodity and not yet a plant raw material. What emerges from this distinction between roasters' coffee and dealer's coffee is a two-tier, or parallel, market.

As it turns out, the most desirable and efficient form for the roaster is least suitable and near impossible for the dealer and vice versa. Coffee in bulk form is most suitable for prompt consumption, not for back-up inventory or speculation. But long term and intermediate term holding of coffee in warehouse inventories is a necessary part of the dealer's business and it is very beneficial to roasters because it assures the latter of a dependable supply of a primary raw material. It also hedges against interruptions in the roaster's own pipeline which can arise from many conditions abroad, on the high seas or in the U.S. "Just-in-time" purchasing usually falls apart at the shore line, and so standby warehouse stockpiles are necessary.

One of warehousing's primary functions is the evening out, or buffering, of the flow of material. But bulk silos which would be required for storing bulk coffee are expensive to build around a dollar per pound of capacity, and will probably not be appearing any time soon in quantity sufficient to service existing or expected inventories.

How can these contradictory interests of bulk for the roasters and bags for the dealers be satisfied?

One practical answer would be high-efficiency, high-volume, bag-to-bulk conversion stations which would meet the dealer's need to be able to trade, finance and store in bags while still being able to serve those roasters who require bulk deliveries. Facilities of this type are already in existence. But this supposes importing and storing in conventional bags, which would forfeit any saving from the elimination of the export bag. It would also forfeit any ocean freight savings from loading bulk beans to the full cube of the container (but this is only an anticipated saving that will depend on the willingness of the ocean carrier to pass it on to the shipper).

Bulk green coffee silos have been in operation in Europe for some time, providing not only bulk deliveries to roasters but blending as well, and they have been the catalysts for bulk developments here. What can we learn from their experience?

It is doubtful that a perfect analogy can be drawn because European business culture and customs differ markedly from our own. Europeans have long been willing to delegate their blending to terminal warehouses, while American roasters are much more proprietarial and secretive about their blends as well as being unwilling to delegate quality control to outsiders. Compelling savings from bulk could change some minds here, however.

Mileages between European cities are modest by U.S. standards, and the premium cost of bulk truck highway transportation may be less critical there, making it easier to have an extensive bulk truck distribution network. Jumbo bulk rail hopper cars would seem more likely to be effective in this country for longer distances, while bulk tank trucks would be more satisfactory for local hauls, and bulk containers for intermediate hauls, wherever the highway weight limits permit economically desirable heavy loading.

There may have been another difference in the development of bulk in Europe arising from a seldom discussed historical situation. Bulk capabilities in Europe came about during the period when the International Coffee Agreement was in effect, presenting the opportunity and the means for manipulation between quota coffee for western Europe and non quota coffee at greatly reduced prices for non-signatory Eastern European countries. It is not possible to know if such a black market trade actually occurred, and if it did, how big a part it may have played in accelerating the development of the present European bulk system, but some observers believe it was significant. Obviously, that won't be a factor in this country.

Here it will be cost-and-savings driven. So it is natural that the large roasters will be more likely to have the necessary savings to amortize the expensive capital investments required to handle bulk. Somewhere down the road regional roasters may follow as the "bugs" are worked out of the system and costs are reduced. Small roasters who use the same handful of workers to do all the tasks in the plant may find that a capital investment may make life easier for their workers but it won't reduce payroll costs.

Finally, we should look at the economic factors that set off this bulk revolution. They are impressive and for the large roasters probably nearly irresistible, particularly for those who do their own importing and rely less on the dealers.

Of course there are some tradeoffs for these benefits, and each roaster is ho doubt doing its own analysis. It will all be finally subject to negotiation, but initially it looks as if a number of the tradeoffs become industry concerns, while the advantages accrue directly to the roasters, and especially to those who buy their own coffee in bulk abroad and eliminate the dealer.

Advantages--

1. Elimination of cost of traditional export bag;

2. Containers can be loaded 15% heavier for lower ocean freight cost;

3. Lower drayage costs from fewer containers;

4. Manual bag loading/unloading cost eliminated;

5. Cost of empty bag disposal eliminated;

6. bag-cutting labor cost eliminated--also injuries;

7. Pallet investment and repair costs eliminated;

8. Floor space for green inventory and pallet storage made available for other plant use;

9. A commercial bulk silo terminal can very economically perform such value-added services as size-grading, cleaning, color sorting, and blending; and

10. Characteristic jute bag odor eliminated.

Trade-offs--

1. Bulk lots difficult (or impossible) to trade, finance, store, and re-sell;

2. Quality control risk that damage may be undetected or detected too late with resulting complications;

3. Significant new capital investment required;

4. Dual system of bags and bulk on import may dilute savings;

5. The costs if coffee is routed through a bulk silo may offset some of the expected savings; and

6. Cost savings will be unevenly experienced within the trade causing fierce competitive negotiating.

The large roasters are the prime movers behind this revolution. The technology is available, and if they want to receive coffee in bulk, they will be able to get it.

In the final analysis, each roaster will make his own decision, and the savings and tradeoffs will be examined very closely. Annual volume will be a major factor, but not every roaster with a large volume will change immediately.

The green coffee industry will make the necessary accommodations for those customers who decide "to go bulk," and the new risks, costs, and savings will be sorted out by competition and the free market -- and there is no market in the world, right now, more free than the green coffee market.

William Rellstab was vice president of J. Aron & Co. Inc., New Orleans for many years before leaving to become president and ceo of S. Jackson & Son, Inc. and the Jackson-Kearney Group. He retired in 1989 and is presently a consultant for Dupuy Storage and Forwarding Co. in New Orleans.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:part 2
Author:Rellstab, William F.
Publication:Tea & Coffee Trade Journal
Date:Aug 1, 1993
Words:1268
Previous Article:Sweetening the bottom line.
Next Article:Darboven's Bavarian beauties open new roasting plant.
Topics:


Related Articles
Shelf wars hit Germany.
Gourmet: a noun, an adjective, an accelerating trend.
Coffee industry begins shift to beans in bulk.
A new wave of coffee shipping arrives in New Orleans.
The espresso market - past, present, and future.
You could always buy it in Antwerp, now you can bulk and blend too.
A look behind the bulk coffee revolution.
Antwerp's changing coffee silos.
A look at Hesse-Noord Natie: coffee & more.
Cascade coffee: toll roaster and private labeler of specialty coffees: Phil Johnson of Cascade Coffee, and his lengthy career in the field, have had...

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters