The ICO at 50: evolving with a changing industry.
Founded in London in 1963, the International Coffee Organization (ICO) is the main intergovernmental organization for coffee. It was established under the auspices of the United Nations because of the economic importance of coffee. The ICO administers the International Coffee Agreement (ICA), and brings together exporting and importing governments to address the challenges facing the world coffee sector. The ICO's mission is to strengthen the global coffee sector and promote its sustainable expansion for the betterment of all participants in the coffee sector.
In January, Mauricio Galindo returned to the ICO as head of operations. He previously worked for the organization as a consultant and research officer between 2004 and 2009. Prior to rejoining the ICO, he was executive director and head of agricultural commodities research, JP Morgan Chase, NY/London. Coffee has special appeal to Galindo, who believes that though a commodity, coffee is much more than just a product traded on the exchange. "There is an aspect of senses with coffee; you can brew it, smell it and sense it. There is nothing like the experience you have with coffee; and it has cultural value as well," he said.
On the verge of its annual September Council Meeting, which will be held in Belo Horizonte, Brazil, Galindo spoke with Tea & Coffee Trade Journal about the crossroads in which the ICO finds itself as it celebrates its 50th anniversary. Below he discusses spearheading new strategies for the ICO, reaching out to the private sector and educating coffee farmers on the importance of investing in sustainability efforts.
How has the ICO evolved since its founding in 1963?
It's gone through a lot of transitions. The biggest change occurred in 1989 when the economic clauses of International Coffee Agreement were dropped. Prior to that, countries had export quotas, supply was controlled and efforts were made to keep prices within a price band. This collapsed and quotas were dropped. It was an ideological shift as there was now a free-market, deregulated economy. A neo-liberal agenda took over, one where state intervention in the economy is frowned upon.
The ICO negotiated and enforced quotas--it made sure bags of coffee were actually there--but that stopped in 1989. Now, we are a provider of statistics, a monthly market report and economic studies. We are a pre-competitive place where stakeholders meet to discuss challenges, quality controls, anything relating to climate change and for 17 years now, development projects. The ICO has been channeling grants through its Common Fund for Commodities, which was established in the late 1980s and became operational in early 90s. The fund has since been profoundly reshaped and de-capitalized, and is not being replenished so the funding has greatly diminished. There are no longer any grants; there are loans--like a bank.
Were at a crucial point, a crossroads. The ICO is facing challenges as an aspect of the organization-funding development projects--that existed for 17 years is changing (this fund was specifically set up for us). Projects keep coming to us so we have to be more aggressive in fundraising and connecting to the private sector if we want to continue to fund projects. We need to be more open and accessible to the private sector--we are losing out if we are dealing only with the public sector. And the private sector also has much to gain by working with the public sector; we can both benefit. Even though we may disagree, we can all work together. The ICO is neutral. We are information officers; we provide statistics, economic data, research studies, trade regulation information, and so forth. We would like to see the information used more and made more available to everyone: traders, exporters, importers, roasters, producers and researchers.
The September meeting takes place in Brazil. As it is the ICO's 50th anniversary, how will it differ from typical Council Meetings?
We'll have the usual council meetings that occur twice per year (March/September), but we will also have content that doesn't typically take place. For example, there will be a workshop by Canadian researchers on pollination and another on climate change. At the September meeting, we will also be re-launching promotion as an activity of ICO. Our promotional activities were successful in the past. The current efforts are still taking shape as we decide on how to proceed. There will also be official celebrations and a banquet.
Will the coffee leaf rust crisis in Central America be addressed?
Yes, to an extent. The topic will be framed around the larger issue of sustainability. The roya crisis in Central America is a symptom of a larger issue--a traditional system that is not keeping up with sustainability efforts. Some say it's a new strain of roya, which is why it's so difficult to control; others say this hasn't been proven. The problem though, is that many of the plantations in these countries were suffering from neglect and lack of investment. The coffee tree is a demanding tree and vulnerable to problems. The farms that were badly hit with leaf rust were below sustainable conditions--they were not properly renovated or irrigated. While big farms are well funded and can invest in sustainability, small farmers have not kept up with necessary renovations because they often lack the means to do so.
Small farmers barely make a living, but investing in the plantation is just not happening. This is not all about low pricing; it's about lacking an entrepreneurial mentality. The farmers know what to do from an agronomic standpoint, but these countries are lacking in resources, financial planning and investment. They don't always know how to control costs, plan for cash flow issues, or how to do the necessary financial planning to make the commercial enterprise profitable.
Coffee leaf rust has always been and will always be an issue with coffee growing. It can be controlled if the necessary steps are applied, but they were not taken in Central America. Many of the coffee plantations are too old and were not properly maintained and renovated (for example, coffee leaf rust-resistant varieties have not been planted), so they were hit hard.
Individual Central American governments have implemented plans to help farmers with income losses and fumigation. What other actions have been employed to curb the spread of the rust and educate farmers on how to control future outbreaks?
Nicaragua's president invited us as part of a multi-agency mission together with FAO, EMBRAPA, CATIE and IFAD to analyze its coffee sector and offer advice. The mission took place in July. At the end there was a coffee forum where the conclusions of the mission were officially presented to the Nicaraguan government and the coffee sector as a whole. The final conclusions will be made public shortly. It is a good precedent to demonstrate what the ICO, working together with other international agencies, can achieve.
Furthermore, the FNC (Colombian Coffee Federation) is trying to share with coffee farmers in Central America how they dealt with a recent coffee leaf rust outbreak. There is a Colombian show in October [Expo Especiales in Bogota, the 16-19th] that will include a forum or panel discussion on roya. The ICO will be involved, but as a guest. All of the planning is being done by the FNC.
Colombia is recovering slowly and forecasts for 2013-14 show that both Vietnam and Indonesia will be down due to bad weather for the second year in a row. It's doubtful these areas will be able to make up for the shortfall in Central America. How will this affect the overall market balance?
Colombia continues to increase production, but it's not back to its highest levels. Brazil can compensate in the Arabica market as it has large and healthy crops, even in an off-cycle year--this is why there is no impact on NY prices/stocks.
Every year the gap between on-cycle and off-cycle harvests grows smaller, which is why the global supply is adequate and why prices remain low. Production is not creating a deficit as it did before in off-cycle years because the off-cycle crop is almost as large as the on-cycle. Brazilian farmers have reacted by keeping stocks and hoping for better prices. The realty is, with a more constant Brazilian production, the market going has to learn how to live with a large Arabica supply in the future.
Will the growing number of small, independent importing companies buying more volumes of coffee outside of market prices ever influence the C market price?
For that to happen, volume would have to dynamically increase. Although growth has been fantastic, it's still small. Coffee growth on whole has been increasing--in Vietnam and Brazil--so there would have to be a lot more of it to make a difference. I don't see that happening anytime soon.
Where is the strongest emerging coffee-producing country?
Nowhere new. It's hard to see anywhere replicate the scale of Vietnam--that's once in a century. The biggest potential to increase output is Brazil because of its size; approach to coffee culturation and because of increasing productivity. Brazil averages 25 bags per hectare and producers have done a lot to further increase production. Brazil has the research and resources to invest in technology and agro industry. There are farms in the north of Brazil that are highly advanced, with state of the art technology that have achieved extremely high productivity--even for Brazil. This can't be replicated in most places, and there is room to grow. In Bahia, farms are investing in technology and research to determine better ways of growing--how to improve efficiency while reducing costs. Traditional coffee-growing methods don't all do that.
Colombia can return to the 12-14 million bags per year that the market was used to--this can be achieved. Its government is currently conducting a study to see where Colombia can go in coffee, there is potential. Vietnam could also potentially increase its production.
Honduras has the surface area and know-how. It's a large country with a strong tradition of coffee growing and it has a government that is investing a lot in research, technology and assisting farmers. Despite the current rust crisis, Honduras has been increasing production. It's a big coffee-producing country and will remain that way.
Ethiopia, Uganda and Peru all could increase their output. China can produce more, but it will never be large producer. Laos and Cambodia are both increasing production, but not enough to significantly impact the market.
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|Title Annotation:||Q&A: MAURICIO GALINDO, ICO|
|Comment:||The ICO at 50: evolving with a changing industry.(Q&A: MAURICIO GALINDO, ICO)|
|Author:||Facenda, Vanessa L.|
|Publication:||Tea & Coffee Trade Journal|
|Date:||Aug 1, 2013|
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